Ricoh 2007 Annual Report Download - page 43

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ANNUAL REPORT 2007
To Our Shareholders and
Customers
Highlights
Corporate Governance Business Strategy
CSR
Environmental Management
Financial Section Brand Strategy
The impacts of 10% and 20% adverse changes to the key economic assumptions on the fair value of retained interests as of March 31, 2007 are
presented below.
Thousands of
Millions of Yen U.S. Dollars
2007 2007
Carrying value of retained interests (included in lease deposits and other in the consolidated balance sheet) ¥5,888 $49,898
Expected credit losses:
+10% (46) (390)
+20% (92) (780)
Discount rate:
+10% (22) (186)
+20% (44) (373)
Annual prepayment rate:
+10% (415) (3,517)
+20% (831) (7,042)
As of March 31, 2007, the minimum lease payments receivable due in each of
the next five years and thereafter are as follows:
Thousands of
Years ending March 31 Millions of Yen U.S. Dollars
2008 ¥210,959 $1,787,788
2009 172,541 1,462,212
2010 130,468 1,105,661
2011 79,963 677,653
2012 32,718 277,271
2013 and thereafter 9,525 80,720
Total ¥636,174 $5,391,305
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
current and former employees 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, 2006 and 2007 was ¥52,295 million and ¥52,648
million ($446,169 thousand), respectively. The current portion of loans
receivable was ¥1,468 million and ¥1,559 million ($13,212 thousand),
respectively, as of March 31, 2006 and 2007, and was included in short-term
finance receivables, net in the accompanying consolidated balance sheets.
Loan activity for the years ended March 31, 2005, 2006 and 2007 is as follows:
Thousands of
Millions of Yen U.S. Dollars
2005 2006 2007 2007
Extension of new loans ¥12,456 ¥12,657 ¥11,883 $100,703
Repayment of outstanding loans 13,001 10,495 11,621 98,483
Ricoh sold finance lease receivables in prior years 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 retained interest in such receivables for failure of
debtors to pay. 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, 2006 and 2007 are as follows:
2006 2007
Expected credit losses 0.35% – 0.50% 0.50% – 0.65%
Discount rate 2.00% – 3.00% 2.00% – 3.00%
Annual prepayment rate 5.07% – 5.33% 5.07% – 5.33%
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.