Ricoh 2006 Annual Report Download - page 50

49 ANNUAL REPORT 2006
Risk Management Policy
Ricoh enters into various derivative financial instrum ent contracts in
the normal course of business in connection with the m anagement of
its assets and liabilities.
Ricoh uses derivative instruments to reduce risk and protect market
value of assets and liabilities in conform ity 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 m eet the terms of the derivative contracts.
However, Ricoh does not expect any counterparties to fail to m eet 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 denom inated 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 those
assets and liabilities denominated in foreign currencies.
Inter est Rate Risk Management
Ricoh enters into interest rate swap agreements to hedge against the
potential adverse im pacts 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 instrum ents and the related
hedged items designated and qualifying as fair value hedges are
included in other ( incom e) expenses on the consolidated statements of
incom e. There is no hedging ineffectiveness nor are net gains or losses
excluded from the assessm ent of hedge effectiveness for the years ended
March 31, 2004, 2005 and 2006 as the critical terms of the interest rate
swap match the term s of the hedged debt obligations.
Cash Flow Hedges
Changes in the fair value of derivative instrum ents designated and
qualifying as cash flow hedges are included in accum ulated 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, 2004, 2005 and 2006 as the critical terms of the
interest rate swap m atch 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 ¥82
million ( $701 thousand) of the balance of accumulated other
comprehensive income as of March 31, 2006.
Undesignated Der ivative Instr uments
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 ( incom e) expenses on
the consolidated statem ent of incom e.
1 4 . DERIVATIVE FINANCIAL INSTRUMENTS
Millions of Yen
Foreign currency Unrealized Unrealized Minim um Total Accum ulated
translation gains ( losses) gains ( losses) on pension liability other comprehensive
adjustments on securities derivatives adjustment incom e ( loss)
2006:
Beginning balance ¥ ( 1 2 ,2 1 9 ) ¥ 4 ,7 9 1 ¥ 1 1 7 ¥ ( 1 4 ,6 5 2 ) ¥ ( 2 1 ,9 6 3 )
Change during the year 14,876 4,137 40 7,009 26,062
Ending balance ¥ 2 ,6 5 7 ¥ 8 ,9 2 8 ¥ 1 5 7 ¥ ( 7 ,6 4 3 ) ¥ 4 ,0 9 9
Thousands of U.S. Dollars
2006:
Beginning balance $(104,436) $40,949 $ 1,000 $(125,231) $(187,718)
Change during the year 127,145 35,359 342 59,906 222,752
Ending balance $ 22,709 $76,308 $ 1,342 $ (65,325) $ 35,034