Ricoh 2010 Annual Report Download - page 40

39 ANNUAL REPORT 2010
contracts in the normal course of its business and in connection
with the management of its assets and liabilities. In order to hedge
against the potentially adverse impacts of foreign currency
fluctuations on its assets and liabilities denominated in foreign
currencies, Ricoh enters into foreign exchange contracts and
foreign currency options. Another form of derivative financial
contracts that Ricoh enters into is interest rate swap agreements to
hedge against the potentially adverse impacts of fair value or
cashflow fluctuations on its outstanding debt interests. Ricoh uses
these derivative instruments to reduce its risk and to protect the
market value of its assets and liabilities in conformity with Ricoh’s
policy. Ricoh does not use derivative financial instruments for
trading or speculative purposes, nor is it a party to leveraged
derivatives.
Sources of Funding
Ricoh’s principal sources of funding are a combination of cash and
cash equivalents on hand, various lines of credit and the issuance
of commercial paper, medium-term notes and long-term debt
securities. In assessing its liquidity and capital resources needs,
Ricoh places importance on the net income figure in the income
statement, balances of cash and cash equivalents in the balance
sheet and operating cashflows in the cashflow statements.
As of March 31, 2010, Ricoh had ¥242.1 billion in cash and cash
equivalents and ¥694.0 billion in aggregate borrowing facilities. Of
the ¥694.0 billion in aggregate borrowing facilities, ¥606.1 billion
was available to be borrowed by Ricoh as of March 31, 2010.
Borrowing facilities, ¥606.1 billion was available to be borrowed by
Ricoh as of March 31, 2010.
More specifically, Ricoh Leasing Co., Ltd. has a ¥27.0 billion
committed credit line with several banks having credit ratings
satisfactory to Ricoh. This ¥27.0 billion committed credit line
amount is included in the ¥694.0 billion figure for aggregate
borrowing facilities.
The Company, Ricoh Leasing Co., Ltd. and certain overseas
subsidiaries raise capital by issuing commercial paper, medium-
term notes and long-term debt securities. Ricoh Leasing Co., Ltd.
and certain overseas subsidiaries of the Company issue commercial
paper to meet their short-term funding requirements. Utilization of
such capacity depends on Ricoh’s financing needs, investor
demand and market conditions, as well as the ratings outlook for
Ricoh’s securities. Interest rates for commercial paper issued by the
Company and its subsidiaries ranged from 0.10% to 0.26%,
interest rates for bank loans ranged from 0.20% to 9.11% and
interest rates for long-term debt securities ranged from 0.61% to
7.30% during fiscal year 2010. For fiscal year 2010, the Company
and its subsidiaries did not have any medium-term notes
outstanding.
Ricoh believes that it has adequate resources for funding its
working capital needs, repaying its outstanding indebtedness and
executing new transactions, due to its diverse funding sources and
the inflow of cash generated from its operating activities. Even if
Ricoh is unable to access the capital markets by offering its own
securities on acceptable terms, Ricoh has access to other sources
of liquidity, including bank loans, cash flows from operations and
sales of assets.
The Company obtains ratings from the following major rating
agencies: Standard & Poor’s Rating Services, a division of McGraw-
Hill Companies, Inc. (“S&P”), Moody’s Investors Services
(“Moody’s”), and another local rating agency in Japan. As of March
31, 2010, S&P assigned long-term and short-term credit ratings for
the Company of A+ and A-1, respectively, and Moody’s assigned a
long-term credit rating for the Company of A1.
While some of its subsidiaries may be restricted from paying
dividends for various reasons, such as capital adequacy
requirements, Ricoh does not expect such restrictions to have a
significant impact on its ability to meet its cash obligations.
As is customary in Japan, substantially all of the bank loans are
subject to general agreements with each lending bank which
provide, among other things, that the bank may request additional
security for loans if there is reasonable and probable cause for the
necessity of such additional security and the bank may treat any
security furnished, as well as any cash deposited in such bank, as
security for all present and future indebtedness. The Company has
never been requested to furnish such additional security. In some
cases, the Company’s long-term debt securities contain customary
covenants, including a “limitation on liens” covenant. The Company
was in compliance with the covenants in its bank agreements and
securities as of March 31, 2010. The Company is not subject to any
covenants limiting its ability to incur additional indebtedness.
Cash Requirements and Commitments
Ricoh believes that its cash and cash equivalents and funds
expected to be generated from its operations are sufficient to meet
its cash requirements at least through fiscal year 2011. Even if there
were a decrease in cashflows from operations as a result of
fluctuations in customer demands from one year to another due to
unexpected changes in global economic conditions, Ricoh believes
that current funds on hand along with funds available under existing
borrowing facilities would be sufficient to finance its anticipated
operations. In addition, Ricoh believes that it is able to secure
adequate resources to fund ongoing operating requirements and
investments related to the expansion of existing businesses and the
development of new projects through its access to the financial and