Ricoh 2004 Annual Report Download - page 35

As of March 31, 2004, the minimum lease payments receivable due in
each of the next five years and thereafter are as follows:
Ricoh Leasing Company, Ltd. has also extended certain other types of
loans as part of its business activity, which are primarily residential housing
loans to individuals in Japan secured by the underlying real estate
properties. Loan terms range from 15 years to 30 years with monthly
repayments. The total balance of these loans, net of allowance for doubtful
receivables, as of March 31, 2003 and 2004 was ¥50,531 million and
¥51,455 million ($494,760 thousand), respectively. Loan activity for the
years ended March 31, 2002, 2003 and 2004 is as follow:
Ricoh sold finance lease receivables with a pretax gain of ¥225 million
in the year ended March 31, 2002 through securitization transactions.
Servicing assets or liabilities related to securitization transactions initiated
were not recorded, because the servicing fees adequately compensate Ricoh.
Ricoh’s retained interests are subordinate to the investor’s interests. Their
value is subject to credit and interest rate risk on the sold financial assets.
The investors and Special Purpose Entities that hold the lease receivables
have limited recourse to Ricoh’s other assets for failure of debtors to pay.
Ricoh recognizes gains or losses attributable to the change in the fair value
of the retained interests, which are recorded at estimated fair value and
accounted for as “trading” securities. Ricoh determines the value of the
retained interests by discounting the future cash flows. Those cash flows are
estimated based on credit losses and other information as available and are
discounted at a rate which Ricoh believes is commensurate with the risk free
rate plus a risk premium.
Key economic assumptions used in measuring the fair value of retained
interests related to securitization transactions completed during the years
ended March 31, 2003 and 2004 were as follows:
34
Minimum lease
payments receivable
Estimated non-guaranteed
residual value
Unearned income
Allowance for doubtful
receivables
Net lease receivables
Thousands of
U.S. dollars
2004
$5,019,769
23,385
(456,654)
(138,500)
$4,448,000
Millions of yen
2004
2003
¥486,165
2,209
(49,039)
(13,573)
¥425,762
¥522,056
2,432
(47,492)
(14,404)
¥462,592
Thousands of
U.S. dollars
2005
2006
2007
2008
2009
2010 and thereafter
Total
$1,624,337
1,337,115
1,067,202
664,702
260,913
65,500
$5,019,769
Millions of yen
¥168,931
139,060
110,989
69,129
27,135
6,812
¥522,056
Years ending March 31
Millions of yen
Extension of new loans
Repayment of outstanding loans
Thousands of
U.S. dollars
2004
$131,596
122,173
2004
¥13,686
12,706
¥11,559
9,993
¥8,638
7,554
20032002
Expected credit losses
Discount rate
2004
0.75%–1.35%
0.90%–3.00%
2003
0.75%–1.35%
0.89%–3.00%
Carrying value of retained interests (included in lease deposits and other in the consolidated balance sheets)
Expected credit losses:
+10%
+20%
Discount rate:
+10%
+20%
Thousands of
U.S. dollars
2004
$69,481
490
981
154
308
Millions of yen
2004
¥7,226
51
102
16
32
Millions of yen
Proceeds from new securitization
Servicing fees received
Repurchases of delinquent or ineligible assets
Thousands of
U.S. dollars
2004
$ —
240
44,644
2004
¥ —
25
4,643
¥ —
37
5,750
¥25,000
39
5,138
20032002
The hypothetical scenario does not reflect expected market conditions
and should not be used as a prediction of future performance. As the figures
indicate, changes in fair value may not be linear. Also, in the above table,
the effect of a variation in a particular assumption on the fair value of the
retained interest is calculated without changing any other assumption; in
reality, changes in one factor may result in changes in another, which
might magnify or counteract the sensitivities.
The following table summarizes certain cash flows received from and
paid to the Special Purpose Entities for all securitization activity for the years
ended March 31, 2002, 2003 and 2004:
The impacts of 10% and 20% adverse changes to the key economic assumptions on the fair value of retained interests as of March 31, 2004 are presented
below.