Ricoh 2004 Annual Report Download - page 50

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16. COMMITMENTS AND CONTINGENT LIABILITIES
As of March 31, 2004, Ricoh had outstanding contractual commitments for
acquisition or construction of plant, equipment and other assets
aggregating ¥895 million ($8,606 thousand).
As of March 31, 2004, Ricoh was also contingently liable as guarantor
for employees’ housing loans of ¥283 million ($2,721 thousand), all of
which were issued before January 1, 2003.
Ricoh made rental payments totaling ¥46,426 million, ¥50,218 million
and ¥51,723 million ($497,337 thousand) for the years ended March 31,
2002, 2003 and 2004, respectively, under operating lease agreements for
office space and machinery and equipment, which are primarily cancelable
and renewable.
As of March 31, 2004, the Company and certain of its subsidiaries were
parties to litigation involving routine matters, such as patent rights. In the
opinion of management, the ultimate liability, if any, resulting from such
litigation will not materially affect the consolidated financial position or the
results of operations of Ricoh.
(a) Cash and cash equivalents, Time deposits, Trade
receivables, Short-term borrowings, Current maturities of
long-term indebtedness, Trade payables and Accrued
expenses
The carrying amounts approximate fair values because of the short
maturities of these instruments.
(b) Marketable securities and Investment securities
The fair value of the marketable securities and investment securities is
principally based on quoted market price.
(c) Installment loans
The fair value of installment loans is based on the present value of future
cash flows using the current rate for similar instruments of comparable
maturity.
(d) Long-term indebtedness
The fair value of each of the long-term indebtedness instruments is based
on the quoted price in the most active market or the present value of future
cash flows associated with each instrument discounted using the current
borrowing rate for similar instruments of comparable maturity.
17. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
15. DERIVATIVE FINANCIAL INSTRUMENTS
Risk Management Policy
Ricoh enters into various derivative financial instrument contracts in the
normal course of business in connection with the management of its assets
and liabilities.
Ricoh uses derivative instruments to reduce risk and protect market
value of assets and liabilities in conformity with the Ricoh’s policy. Ricoh
does not use derivative financial instruments for trading or speculative
purposes, nor is it a party to leveraged derivatives.
All derivative instruments are exposed to credit risk arising from the
inability of counterparties to meet the terms of the derivative contracts.
However, Ricoh does not expect any counterparties to fail to meet their
obligations because these counterparties are financial institutions with
satisfactory credit ratings. Ricoh utilizes a number of counterparties to
minimize the concentration of credit risk.
Foreign Exchange Risk Management
Ricoh conducts business on a global basis and holds assets and liabilities
denominated in foreign currencies. Ricoh enters into foreign exchange
contracts and foreign currency options to hedge against the potentially
adverse impacts of foreign currency fluctuations on these assets and
liabilities denominated in foreign currencies.
Interest Rate Risk Management
Ricoh enters into interest rate swap agreements to hedge against the
potential adverse impacts of changes in fair value or cash flow fluctuations
on interest of its outstanding debt.
Fair Value Hedges
Changes in the fair value of derivative instruments and the related hedged
items designated and qualifying as fair value hedges are included in other
(income) expenses on the consolidated statements of income. There is no
hedging ineffectiveness nor are net gains or losses excluded from the
assessment of hedge effectiveness for the years ended March 31, 2002, 2003
and 2004 as the critical terms of the interest rate swap match the terms of
the hedged debt obligations.
Cash Flow Hedges
Changes in the fair value of derivative instruments designated and
qualifying as cash flow hedges are included in accumulated other
comprehensive income (loss) on the consolidated balance sheets. These
amounts are reclassified into earnings as interest on the hedged loans is
paid. There is no hedging ineffectiveness nor are net gains or losses
excluded from the assessment of hedge effectiveness for the years ended
March 31, 2002, 2003 and 2004 as the critical terms of the interest rate swap
match the terms of the hedged debt obligations. Ricoh expects that it will
reclassify into earnings through other (income) expenses during the next
12 months approximately ¥12 million ($115 thousand) of the balance of
accumulated other comprehensive loss as of March 31, 2004.
Undesignated Derivative Instruments
Derivative instruments not designated as hedging instruments are held to
reduce the risk relating to the variability in exchange rates on assets and
liabilities denominated in foreign currencies. Changes in the fair value of
these instruments are included in other (income) expenses on the
consolidated statement of income.