Ricoh 2008 Annual Report Download - page 43

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ANNUAL REPORT 2008
To Our Shareholders
and Customers
Fiscal 2008 Highlights
Fiscal 2008 Milestones 16th Mid-Term
Management Plan
Corporate Governance /
CSR
Financial Section
Sustainable Environmental
Management
The impacts of 10% and 20% adverse changes to the key economic assumptions on the fair value of retained interests as of March 31, 2008
are presented below.
Thousands of
Millions of Yen U.S. Dollars
2008 2008
Carrying value of retained interests (included in lease deposits and other in the consolidated balance sheet) ¥5,887 $58,870
Expected credit losses:
+10% (59) (590)
+20% (117) (1,170)
Discount rate:
+10% (22) (220)
+20% (44) (440)
Annual prepayment rate:
+10% (331) (3,310)
+20% (661) (6,610)
As of March 31, 2008, 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
2009 ¥ 216,434 $ 2,164,340
2010 178,680 1,786,800
2011 129,159 1,291,590
2012 79,217 792,170
2013 33,348 333,480
2014 and thereafter 8,360 83,600
Total ¥ 645,198 $ 6,451,980
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, 2007 and 2008 was
¥52,648 million and ¥54,863 million ($548,630 thousand), respectively.
The current portion of loans receivable was ¥1,559 million and ¥1,145
million ($11,450 thousand), respectively, as of March 31, 2007 and 2008,
and was included in short-term finance receivables, net in the
accompanying consolidated balance sheets. Loan activity for the years
ended March 31, 2006, 2007 and 2008 is as follows:
Thousands of
Millions of Yen U.S. Dollars
2006 2007 2008 2008
Extension of new loans ¥ 12,657 ¥ 11,883 ¥ 14,356 $ 143,560
Repayment of outstanding loans 10,495 11,621 12,319 123,190
Ricoh sold finance lease receivables in prior years through securitization
transactions. The value assigned to undivided interests retained in these
transactions was based on the fair value of retained interests as of a
transfer of these receivables and was reflected in its consolidated balance
sheets. Ricoh recognized the expected unrecoverable receivables and
reflected it in its consolidated balance sheets. 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, payment 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 fair 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, 2007 and 2008 are as follows:
2007 2008
Expected credit losses 0.50% –0.65% 0.70% –0.95%
Discount rate 2.00% –3.00% 2.00% –3.00%
Annual prepayment rate 5.07% –5.33% 4.01% –5.37%
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.