Ricoh 2004 Annual Report Download - page 23

FOREIGN CURRENCY RISK
In the ordinary course of business, Ricoh uses foreign exchange forward
contracts to manage the effects of foreign currency exchange risk on
monetary assets and liabilities denominated in foreign currencies. The
contracts with respect to the operating activities generally have maturities of
less than six months, while the contracts with respect to the financing
activities have the same maturities as the underlying assets and liabilities.
The table provides information about Ricoh’s material derivative
financial instruments that are sensitive to foreign currency exchange rates.
The table relating to foreign exchange forward contracts presents the
notional amounts, weighted average exchange rates and estimated fair
value. These notional amounts generally are used to calculate the
contractual payments to be exchanged under the contracts.
INTEREST RATE RISK
In the ordinary course of business, Ricoh enters into interest rate swap
agreements to reduce interest rate risk and to modify the interest rate
characteristics of its outstanding debt. These agreements primarily involve
the exchange of fixed and floating rate interest payments over the life of the
agreement without the exchange of the underlying principal amounts.
The table provides information about Ricoh’s major derivative and
other financial instruments that are sensitive to changes in interest rates,
including interest rate swaps and debt obligations. For debt obligations, the
table presents principal cash flows by expected maturity date, related
weighted average interest rates and estimated fair value. For interest rate
swaps, the table presents notional amounts by expected maturity date,
weighted average interest rates and estimated fair value. Notional amounts
are generally used to calculate the contractual payments to be exchanged
under the contract.
CREDIT RISK
Ricoh is also exposed to credit-related losses in the event of nonperformance
by counterparties to the financial instrument; however, credit risk arising
from the nonperformance of counterparties to meet the terms of financial
instrument contracts is generally limited to the amounts by which the
counterparties’ obligations exceed the obligations of Ricoh. It is Ricoh’s
policy to only enter into financial instrument contracts with a diversified
group of financial institutions having credit ratings satisfactory to Ricoh to
minimize the concentration of credit risk. Therefore, Ricoh does not expect
to incur material credit losses on its financial instruments.
EQUITY PRICE RISK
Ricoh has a relatively small portion of marketable securities which are
subject to equity price risk arising from changes in their market prices.
Marketable securities consist of a diversified pool of Japanese equity
securities. Ricoh’s overall investment policy is to invest in highly-liquid, low
risk investments.
The table provides information about contractual maturities for
available-for-sale securities and the fair values for market risk sensitive
securities as of March 31, 2004.
22
Millions of yen
US$/¥
EUR/¥
Contract
amounts
Estimated
fair value
Average contractual
rates
Estimated
fair value
Contract
amounts
FOREIGN EXCHANGE FORWARD CONTRACTS
Thousands of U.S. dollars
$ 3,529
10,038
$ 83,288
441,913
¥ 367
1,044
¥ 8,662
45,959
110.35
131.46
Debt securities
Due within one year
Due after one year
through five years
Equity securities
Investment trusts*
Total
Millions of yen
Fair
value
Thousands of U.S. dollars
Cost
Fair
valueCost
$433,875
—
125,962
16,029
$575,866
$434,029
—
48,587
11,298
$493,914
¥45,123
—
13,100
1,667
¥59,890
¥ 45,139
—
5,053
1,175
¥51,367
* Investment trusts consist of investments in marketable debt and equity securities.