SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20 - F/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2007
Commission file number 2 - 68279
KABUSHIKI KAISHA RICOH
(Exact name of registrant as specified in its charter)
RICOH COMPANY, LTD.
(Translation of registrant's name into English)
Japan
(Jurisdiction of incorporation or organization)
13-1, Ginza 8-chome, Chuo-ku, Tokyo 104-8222, Japan
(Address of principal executive offices)
Securities registered or to be registered pursuant to
Section 12(b) of the Act.
Name of each exchange on
Title of each class which registered
None None
Securities registered or to be registered pursuant to
Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act.
Common Stock*
(Title of Class)
*1,189,092 American Depositary Shares evidenced by American Depositary
Receipts, each American Depositary Share representing 5 shares of Common Stock
of Ricoh Company, Ltd.
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
Common stock outstanding as of March 31, 2007: 729,987,673 shares (excluding
14,924,405 shares of Treasury Stock)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes [X] No[_].
If this report is an annual or transition report, indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
Yes [_] No [X].
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No[_].
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer [X] Accelerated filer [_] Non-accelerated
filer[_].
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item17 [_] Item18 [X].
If this is an annual report, indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [_] No [X].
EXPLANATORY NOTE
----------------
The amendment No. 2 to the annual report on Form 20 - F for the year ended
March 31, 2007 of Ricoh Company, Ltd is filed to amend the original annual
report on Form 20 - F and Amendment No. 1 filed on June 29, 2007 for the purpose
of correcting the presentation of translated thousands of U.S. Dollars of Net
income for fiscal year 2007 in A. Operating Results of Item 5. (Operating and
Financial Review and Prospects) and additions of reference articles to Exhibits
12.1 and 12.2, respectively.
Defined Terms, Conventions and Presentation of Financial Information
--------------------------------------------------------------------
On June 27, 2007, the noon buying rate for cable transfers in New York City
as certified for customs purposes by the Federal Reserve Bank of New York for
the Japanese Yen to the U.S. Dollar was Yen 122.52 = U.S.$1.00.
In this document, the term "Company" refers to Ricoh Company, Ltd., the
registrant, and "Ricoh" refers to the Company and its consolidated
subsidiaries, unless the context otherwise indicates.
Ricoh's fiscal year end is March 31. In this document "fiscal year 2007"
refers to Ricoh's fiscal year ended March 31, 2007, and other fiscal years of
Ricoh are referred to in a corresponding manner.
As used in this annual report, "U.S. GAAP" means U.S. generally accepted
accounting principles.
Cautionary Statement With Respect to Forward-Looking Statements
---------------------------------------------------------------
Statements made in this annual report with respect to Ricoh's current plans,
estimates, strategies and beliefs and other statements that are not historical
facts are or may be deemed to be forward-looking statements, within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, about the future performance of Ricoh. These
forward-looking statements are made in reliance upon the protections provided
by such acts for forward-looking statements. Forward-looking statements include
but are not limited to those using words such as "believe," "expect," "plans,"
"strategy," "prospects," "forecast," "estimate," "project," "anticipate," "may"
or "might" and words of similar meaning in connection with a discussion of
future operations or financial performance. From time to time, oral or written
forward-looking statements may also be included in other materials released to
the public. These statements are based on management's assumptions and beliefs
in light of the information currently available to it. Ricoh cautions you that
a number of important risks and uncertainties could cause actual results to
differ materially from those discussed in the forward-looking statements, and
therefore you should not place undue reliance on them. You also should not rely
on any obligation of Ricoh to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. Ricoh
disclaims any such obligation. Risks and uncertainties that might affect Ricoh
include, but are not limited to (i) general economic conditions in Ricoh's
markets, particularly levels of consumer spending; (ii) exchange rates,
particularly between the Japanese Yen and the U.S. Dollar, the Euro, and other
currencies in which Ricoh makes significant sales or in which Ricoh's assets
and liabilities are denominated; (iii) Ricoh's ability to continue to design
and develop products and services, and win acceptance of its products and
services which are offered in highly competitive markets characterized by
continual introduction of new products, rapid development in new technology,
and consumer preferences that are subjective and likely to change; (iv) Ricoh's
ability to successfully implement strategies for its office equipment business,
such as further globalization of its operations to increase account sales to
corporate clients, reinforcement of the color printer line-up to meet growing
demand for color products among its office users, implementation of optimal
printing solutions for customers' digitally networked offices and enhancement of
printing capabilities centered on multi-functional printers ("MFPs"), and
implementation of optimal localization of manufacturing operations so that such
operations are closer to the customer; (v) Ricoh's ability to continuously
devote sufficient resources to research and development, and capital
expenditures for digital and networking equipment, such as digital plain paper
copiers ("PPCs"), MFPs, laser and GELJET printers; (vi) the success of Ricoh's
alliances with various computer manufacturers which Ricoh may engage in
alliances with in the future; and (vii) the outcome of contingencies.
Important information regarding risks and uncertainties is also set forth
elsewhere in this annual report, including in "Risk Factors" included in "Item
3. Key Information," "Item 4. Information on the Company," "Item 5. Operating
and Financial Review and Prospects" and "Item 11. Quantitative and Qualitative
Disclosures About Market Risk."
TABLE OF CONTENTS
PART I
Item 1. Identity of Directors, Senior Management and Advisers 1
Item 2. Offer Statistics and Expected Timetable 1
Item 3. Key Information 1
Item 4. Information on the Company 10
Item 4A. Unresolved Staff Comments 28
Item 5. Operating and Financial Review and Prospects 28
Item 6. Directors, Senior Management and Employees 70
Item 7. Major Shareholders and Related Party Transactions 89
Item 8 Financial Information 90
Item 9. The Offer and Listing 90
Item 10. Additional Information 93
Item 11. Quantitative and Qualitative Disclosures About Market Risk 107
Item 12. Description of Securities Other Than Equity Securities 110
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies 110
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds 110
Item 15. Controls and Procedures 110
Item 16 [RESERVED] 112
Item 16A. Audit Committee Financial Expert 112
Item 16B. Code of Ethics 112
Item 16C. Principal Accountant Fees and Services 112
Item 16D. Exemptions from the Listing Standards for Audit Committees 115
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers 115
PART III
Item 17. Financial Statements 115
Item 18. Financial Statements 115
Item 19. Exhibits 115
Item 1. Identity of Directors, Senior Management and Advisers
-----------------------------------------------------
Not applicable.
Item 2. Offer Statistics and Expected Timetable
---------------------------------------
Not applicable.
Item 3. Key Information
---------------
A. Selected Financial Data.
The following selected consolidated financial data have been derived from
the audited consolidated financial statements of Ricoh prepared in accordance
with U.S. generally accepted accounting principles as of each of the dates and
for each of the periods indicated below. This information should be read in
conjunction with Ricoh's audited consolidated balance sheets as of March 31,
2006 and 2007, the related consolidated statements of income, shareholders'
investment and cash flows for the three years ended March 31, 2005, 2006 and
2007 and the notes thereto that appear elsewhere in this annual report.
Millions of Yen except per share amounts and number of shares
Year ended March 31,
----------------------------------------------------------------
2003 2004 2005 2006 2007
------------ ----------- ----------- ----------- -----------
INCOME STATEMENT DATA:
Net sales: 1,732,012 1,773,306 1,807,406 1,909,238 2,068,925
Operating income 129,721 145,405 131,109 148,584 174,380
Income from continuing operations 71,648 89,049 80,537 95,022 106,224
Net income 72,513 91,766 83,143 97,057 111,724
PER AMERICAN DEPOSITARY SHARE:
Net income (Basic) 498.95 618.15 563.20 661.65 765.50
Net income (Diluted) 484.05 618.15 563.20 661.65 759.45
BALANCE SHEET DATA:
Total Assets 1,884,922 1,852,793 1,953,669 2,041,183 2,243,406
Shareholders' investment 657,514 795,131 862,998 960,245 1,070,913
Common Stock 135,364 135,364 135,364 135,364 135,364
Weighted Average Number of shares
outstanding 726,659,698 742,292,806 738,160,042 733,434,414 729,744,656
Cash dividends declared
Per American Depositary Share:
Interim 35.00 40.00 50.00 60.00 65.00
($0.28) ($0.36) ($0.49) ($0.50) ($0.56)
Year-end 35.00 50.00 50.00 60.00 75.00
($0.29) ($0.46) ($0.45) ($0.52) ($0.61)
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Millions of Yen except per share amounts and number of shares
Year ended March 31,
----------------------------------------------------------------
2003 2004 2005 2006 2007
------------ ------------ ----------- ----------- -----------
At year-end:
Cash and cash equivalents 189,243 203,039 186,857 187,055 255,737
Capital investments 73,948 75,504 84,699 102,049 85,800
Long-term indebtedness,
excluding current installment 345,902 281,570 226,567 195,626 236,801
Notes:
Each American Depositary Share represents five shares of Ricoh Common Stock.
In the preceding table, cash dividends declared in U.S. Dollars are based on
the exchange rates at each respective payment date, using the noon buying rates
for cable transfer in Japanese Yen in New York City as certified for customs
purposes by the Federal Reserve Bank of New York.
On June 27, 2007, the noon buying rate for cable transfers in New York City
as certified for customs purposes by the Federal Reserve Bank of New York for
the Japanese Yen to the U.S. Dollar was Yen 122.52 = U.S.$1.00.
The following table sets forth the exchange rates for the Japanese Yen and
the U.S. Dollar based on the noon buying rate for cable transfers in Japanese
Yen in New York City as certified for customs purposes by the Federal Reserve
Bank of New York during the previous six months and prior five fiscal years:
December January February March April May
2006 2007 2007 2007 2007 2007
-------- ------- -------- ------ ------ ------
High 114.98 118.49 118.33 116.01 117.69 119.77
Low 119.02 121.81 121.77 118.15 119.84 121.79
Year ended March 31,
----------------------------------
2003 2004 2005 2006 2007
------ ------ ------ ------ ------
Year-end 118.07 104.18 107.22 117.48 117.56
Average* 121.10 112.75 107.28 104.64 116.55
High 115.71 104.18 102.26 104.41 110.07
Low 133.40 120.55 114.30 120.93 121.81
* The average Japanese Yen exchange rates represent average noon buying rate on
the last business day of each month during the respective period.
B. Capitalization and Indebtedness.
Not applicable.
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C. Reasons for the Offer and Use of Proceeds.
Not applicable.
D. Risk Factors.
Ricoh is a global manufacturer of office equipment and conducts business on
a global scale. As such, Ricoh is exposed to various risks which include the
risks listed below. Although certain risks that may affect Ricoh's businesses
are listed in this section, this list is not exhaustive. Ricoh's business may
in the future also be affected by other risks that are currently unknown or
that are not currently considered significant or material. In addition, this
section contains forward-looking statements that are subject to the "Cautionary
Statement with Respect to Forward-Looking Statements" appearing elsewhere in
this annual report.
RICOH'S SUCCESS WILL DEPEND ON ITS ABILITY TO RESPOND TO RAPID TECHNOLOGICAL
CHANGES IN THE DOCUMENT IMAGING AND MANAGEMENT INDUSTRY
The document imaging and management industry includes products such as
copiers, printers, facsimile machines and scanners. The technology used in this
industry changes rapidly and products in this industry will often require
frequent and timely product enhancements or have a short product life cycle.
Most of Ricoh's products are a part of this industry and as such Ricoh's
success will depend on its ability to respond to such technological changes in
the industry. To remain competitive in this industry, Ricoh invests a
significant amount of resources and capital every year in research and
development activities. Despite this investment, the process of developing new
products or technologies is inherently complex and uncertain and there are a
number of risks that Ricoh is subject to, including the following:
. No assurances can be made that Ricoh will successfully anticipate whether
its products or technologies will satisfy its customers' needs or gain
market acceptance;
. No assurances can be made that the introduction of more advanced products
that also possess the capabilities of existing products will not
adversely affect the sales performance of each such product;
. No assurances can be made that Ricoh will be able to procure raw
materials and parts necessary for new products or technologies from its
suppliers at competitive prices;
. No assurances can be made that Ricoh will be able to successfully manage
the distribution system for its new products to eliminate the risk of
loss resulting from a failure to take advantage of market opportunities;
. No assurances can be made that Ricoh will succeed in marketing any newly
developed product or technology; and
. No assurances can be given that Ricoh will be able to respond adequately
to changes in the industry.
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Ricoh's failure to respond to any risks associated with this industry,
including those described above, may reduce Ricoh's future growth and
profitability and may adversely affect Ricoh's financial results and condition.
In addition to the above general risks, Ricoh is exposed to the following
specific risks relating to the document imaging and management industry:
Digital Technology
------------------
Among the various technologies used in the document imaging and management
industry, Ricoh believes the successful development of digital technology is
one of the most essential factors in attaining a competitive advantage. Ricoh
currently is a leader in digital technology and believes that the importance of
digital technology used in office equipment, including copiers, printers,
facsimiles and scanners, will continue to grow in the future. While most of
Ricoh's PPCs sold in Japan and overseas are already digital, Ricoh believes
that the digital technology used in connection with digital copiers and other
digital products will continue to develop and that competition with respect to
digital products will intensify. There is no assurance that Ricoh will continue
to be in the forefront of digital technology despite its commitment to invest
in research and development activities in this area. Failure of Ricoh to
adequately develop digital technology may adversely affect Ricoh's financial
results and condition.
Multi-Functional Equipment
--------------------------
Ricoh believes that the document imaging and management industry is moving
towards a multi-functional office environment where various office equipment
(including copiers, facsimile machines, printers, scanners and personal
computers) become more interdependent on each other due to the increasing use
of digital technology and initiatives taken by many offices to eventually
become a "paperless office." As a result, certain existing office equipment may
either be consolidated into multi-functional equipment or may be linked
together electronically to perform various office functions. Although Ricoh
already manufactures certain multi-functional equipment, as a result of this
trend towards multi-functional equipment, some of Ricoh's products may become
obsolete while other products may require substantial product enhancements,
requiring technologies currently unavailable within Ricoh. No assurances can be
made that Ricoh will be able to successfully adjust to such changes.
RICOH MUST SUCCESSFULLY OPERATE IN HIGHLY COMPETITIVE MARKETS
The document imaging and management industry, including the copier industry,
is intensely competitive. Ricoh expects to face increased competition in the
various markets in which it operates. Currently, Ricoh's competitors include
other large manufacturers and distributors of office equipment. In addition, as
digital and other new technology develops and as new office equipment products
using these newly developed technologies gain increased market acceptance,
Ricoh may find itself competing with new competitors that develop such new
technologies, including computer software and hardware manufacturers and
distributors. Accordingly, it is possible that new
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competitors or alliances among existing and new competitors may emerge and
rapidly acquire significant market share. While Ricoh believes it is a leading
manufacturer and distributor in the document imaging and management industry
and it intends to maintain its position, no assurances can be made that it will
continue to compete effectively in the future. Pricing pressures or loss of
potential customers resulting from Ricoh's failure to compete effectively may
adversely affect Ricoh's financial results and condition.
RICOH IS SUBJECT TO THE RISKS OF INTERNATIONAL OPERATIONS AND THE RISKS OF
OVERSEAS EXPANSION
A substantial portion of Ricoh's manufacturing and marketing activity is
conducted outside of Japan, including in the United States, Europe, and in
developing and emerging markets such as China. There are a number of risks
inherent in doing business in such overseas markets, including the following:
. unfavorable political or economical factors;
. fluctuations in foreign currency exchange rates;
. potentially adverse tax consequences;
. unexpected legal or regulatory changes;
. lack of sufficient protection for intellectual property rights;
. difficulties in recruiting and retaining personnel, and managing
international operations; and
. less developed infrastructure.
Ricoh's inability to manage successfully the risks inherent in its
international activities could adversely affect its business, financial
condition and operating results. In addition, while Ricoh plans to continue to
expand its business worldwide and increase overseas sales, because of the risks
associated with conducting an international operation (including the risks
listed above), there can be no assurances that Ricoh's overseas expansion will
be successful or have a positive effect on Ricoh's financial results and
condition.
ECONOMIC TRENDS IN RICOH'S MAJOR MARKETS MAY ADVERSELY AFFECT RICOH'S SALES
Demand for Ricoh's products is affected by cyclical changes in the economies
of Ricoh's major markets, including Japan, the United States and Europe.
Economic downturns and declines in consumption in Ricoh's major markets may
adversely affect Ricoh's financial results and condition.
FOREIGN EXCHANGE FLUCTUATIONS AFFECT RICOH'S RESULTS
Local currency-denominated financial results in each of the Company's
subsidiaries around the world are translated into Japanese Yen by applying the
average market rate during each financial period and recorded on Ricoh's
consolidated statements of income. Local currency-denominated assets and
liabilities are translated into Japanese Yen by applying the market rate at the
end of each financial period and recorded on
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Ricoh's consolidated balance sheets. Accordingly, the financial results, assets
and liabilities are subject to foreign exchange fluctuations.
In addition, operating profits and losses are highly sensitive to the
fluctuations in the value of the Japanese Yen because the high volume of
Ricoh's production and sales activities in the Americas, Europe and Other, such
as China, results in a large proportion of revenues and costs denominated in
local currencies. Although Ricoh engages in hedging transactions such as
forward contracts with several financial institutions having credit ratings
satisfactory to Ricoh to minimize the negative effects of short-term
fluctuations in foreign exchange rates among major currencies such as the
U.S. Dollar, Euro and Japanese Yen, mid-to-long-term volatile changes in the
exchange rate levels make it difficult for Ricoh to execute planned
procurement, production, logistics, and sales activities and may adversely
affect Ricoh's financial results and condition.
CRUDE OIL PRICE FLUCTUATIONS AFFECT RICOH'S RESULTS
Many of the parts or materials used in manufacturing Ricoh's products are
made from oil. If the price of crude oil rises, the purchase price of such
product parts or materials may increase as well. Furthermore, a rise in the
price of crude oil may lead to an increase in shipping and handling costs due
in part to a rise in the cost of fuel and the cost of utilities. Ricoh may not
be able to pass these incremental costs onto the sales price of its products.
Such fluctuations in crude oil prices may therefore adversely affect Ricoh's
financial position and results of operations.
RICOH IS SUBJECT TO GOVERNMENT REGULATION THAT CAN LIMIT ITS ACTIVITIES OR
INCREASE ITS COST OF OPERATIONS
Ricoh is subject to various governmental regulations and approval procedures
in the countries in which it operates. For example, Ricoh may be required to
obtain approvals for its business and investment plans, be subject to export
regulations and tariffs, as well as rules and regulations relating to commerce,
antitrust, patent, consumer and business taxation, exchange control, and
environmental and recycling laws. Ricoh has established a Corporate Social
Responsibility Office to heighten awareness of the importance of corporate
social responsibility. Through this office, Ricoh involves its employees in
various activities designed to ensure compliance with applicable regulations as
part of its overall risk management and compliance program. However, if Ricoh
is unable to comply with any of these regulations or fails to obtain the
requisite approvals, Ricoh's activities in such countries may be restricted. In
addition, even if Ricoh is able to comply with these regulations, compliance
can result in increased costs. In either event, Ricoh's financial results and
condition may be adversely affected.
RICOH IS SUBJECT TO INTERNAL CONTROL EVALUATIONS AND ATTESTATION OVER FINANCIAL
REPORTING UNDER SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002
The United States Securities and Exchange Commission (the "SEC"), as
required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules
requiring every company that files reports with the SEC to include a management
report on such
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company's internal controls over financial reporting in its annual report. In
addition, the company's independent registered public accounting firm must
publicly attest to the adequacy of management's assessment and the
effectiveness of the company's internal control over financial reporting.
Ongoing compliance with these requirements is complex, costly and
time-consuming. If Ricoh fails to maintain effective internal control over
financial reporting, Ricoh's management does not timely assess the adequacy of
such internal control, or Ricoh's independent registered public accounting firm
does not timely attest to the evaluation or issues a qualified opinion, Ricoh
could be subject to regulatory sanctions or could face adverse reactions in the
financial markets due to a loss of investor confidence.
RICOH'S BUSINESS DEPENDS ON PROTECTING ITS INTELLECTUAL PROPERTY RIGHTS
Ricoh owns or licenses a number of intellectual property rights in the field
of office equipment automation and, when Ricoh believes it is necessary or
desirable, obtains additional licenses for the use of other parties'
intellectual property rights. If Ricoh fails to protect, maintain or obtain
such rights, its performance and ability to compete may be adversely affected.
Ricoh has a program in place under which company employees are compensated for
any valuable intellectual property rights arising out of any inventions
developed by them during the course of their employment with Ricoh. While
unlikely, management believes that there could arise instances in the future
where Ricoh may become the subject of legal actions or proceedings where claims
alleging inadequate compensation are asserted by company employees.
RICOH IS DEPENDENT ON SECURING AND RETAINING SPECIALLY SKILLED PERSONNEL
Ricoh believes that it can continue to remain competitive by securing and
retaining additional personnel who are highly skilled in the fields of
management and information technology. However, the number of skilled personnel
is limited and the competition for attracting and retaining such personnel is
intense, particularly in the information technology industry. Securing and
retaining skilled personnel in the information technology industry is
especially important for Ricoh to compete effectively with its competitors as
expectations and market standards for office equipment become more
technologically advanced. Ricoh cannot assure that it will be able to
successfully secure and retain additional skilled personnel.
RICOH MAY BE ADVERSELY AFFECTED BY ITS EMPLOYEE BENEFIT OBLIGATIONS
With respect to its employee benefit obligations and plan assets, Ricoh
accrues the cost of such benefits based on applicable accounting policies and
funds such benefits in accordance with governmental regulations. Currently,
there is no immediate and significant funding requirement; however, if returns
from investment assets decrease due to market conditions, such as the
fluctuations in the stock or bond markets, additional funding and accruals may
be required. Such additional funding and accruals may adversely affect Ricoh's
financial position and results of operations.
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RICOH'S OPERATIONS ARE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS
Ricoh's operations are subject to many environmental laws and regulations
governing, among other things, air emissions, wastewater discharges, the use
and handling of hazardous substances, waste disposal, product recycling, and
soil and ground-water contamination. Ricoh faces risks of environmental
liability in our current and historical manufacturing activities. Costs
associated with future additional environmental compliance or remediation
obligations could adversely affect Ricoh's business, operating results, and
financial condition.
RISKS ASSOCIATED WITH RICOH'S EQUIPMENT FINANCING BUSINESS MAY ADVERSELY AFFECT
RICOH'S FINANCIAL CONDITION
Ricoh provides financing to some of its customers in connection with its
equipment sales and leases. Ricoh evaluates the creditworthiness and the amount
of credit extended to a customer prior to the financing arrangement and during
the financing term on a regular basis. Depending on such evaluations, Ricoh
makes adjustments to such extensions of credit as it deems necessary to
minimize any potential risks of concentrating credit risk or non-payment of
credit. Despite the application of these monitoring procedures, no assurances
can be made that Ricoh will be able to fully collect on such extensions of
credit due to unforeseeable defaults by its customers.
In addition, these financing arrangements that Ricoh enters into with its
customers result in long-term receivables bearing a fixed rate of interest.
However, Ricoh finances these financing arrangements primarily with short-term
borrowings subject to a variable interest rate. Although Ricoh engages in
hedging activities, Ricoh is not able to fully hedge this interest rate
mismatch.
If Ricoh is unable to successfully manage these risks associated with its
equipment financing business, Ricoh's financial results and condition may be
adversely affected.
RICOH MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD SIGNIFICANTLY
AFFECT ITS FINANCIAL CONDITION
Ricoh may be held responsible for any defects that occur with respect to its
products and services. Based on the defect, Ricoh may be liable for significant
damages, which may adversely affect its financial results and condition.
Furthermore, as Ricoh increasingly provides products and services utilizing
sophisticated and complex technologies, such defects may occur more frequently.
Such potential increase in defects, which could result in an increase in
Ricoh's liability, may adversely affect its financial results and condition.
In addition, negative publicity concerning these defects could make it more
difficult for Ricoh to attract and maintain customers to purchase Ricoh
products and services. As a result, Ricoh's financial results and condition may
be adversely affected.
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RICOH'S PERFORMANCE CAN BE AFFECTED BY ALLIANCES WITH OTHER ENTITIES
Ricoh engages in alliances with other entities to create various products
and services to fulfill customer demands. Ricoh believes that an alliance is an
effective method for timely development of new technology and products using
management resources of both parties. However, if Ricoh's interest differs from
other parties' interests due to financial or other reasons, Ricoh may be unable
to maintain the alliance. Failure to maintain an on-going alliance and failure
to establish a necessary alliance in the future may adversely affect Ricoh's
financial position and results of operations.
INADVERTENT OR ACCIDENTAL LEAKAGE OR DISCLOSURE OF CONFIDENTIAL OR SENSITIVE
INFORMATION MAY ADVERSELY AFFECT RICOH'S OPERATIONS
Ricoh obtains confidential or sensitive information from various sources,
including its customers, in the ordinary course of its business. Ricoh also
holds trade secrets regarding its technologies and other confidential or
sensitive information relating to marketing. To prevent unauthorized access
and/or fraudulent leakage or disclosure of such confidential or sensitive
information, Ricoh has implemented an internal management system, which
includes measures to improve security and access to its internal database, as
well as employee training programs to educate its employees with respect to
compliance with applicable regulations relating to information security and
data access. Despite Ricoh's efforts, however, confidential or sensitive
information may be inadvertently or accidentally leaked or disclosed and any
such leakage or disclosure may result in Ricoh incurring damages, which may
adversely affect Ricoh's reputation. In addition, Ricoh may incur significant
expenses for defending any lawsuits that may arise from such claims.
Furthermore, the leakage or disclosure of Ricoh's confidential or sensitive
marketing and technological information to a third party may adversely affect
Ricoh's financial results and condition.
RICOH MAY SUFFER LOSS AS A RESULT OF CATASTROPHIC DISASTER, INFORMATION
TECHNOLOGY PROBLEMS OR INFECTIOUS DISEASES
Several of Ricoh's manufacturing facilities in Japan could be subject to a
catastrophic loss caused by earthquakes as such facilities are located in areas
with above average seismic activity. If any of these facilities were to
experience a catastrophic loss, Ricoh could experience disruptions in its
operations and delays in its production and shipments. If such occurred, Ricoh
would likely record a decrease in revenue, and require large expenditures to
repair or replace the damaged facility, which would be highly likely to affect
Ricoh's financial results and condition.
As Ricoh becomes increasingly dependent on information technology, software
and hardware defects, computer viruses, as well as internal database problems (
E.G., falsifications or disappearance of information relating to our customers)
pose a greater risk to its operations. Although Ricoh has taken various
precautionary measures, such as installing firewalls and anti-virus software to
detect and eliminate computer viruses, Ricoh may not be able to completely
prevent or mitigate the effects of such problems, which may affect Ricoh's
performance.
-9-
In addition, the Ricoh Group is continually expanding its worldwide
operations to set in place a global supply chain of its products and services
so that we can satisfy our local customer needs faster, more effectively and on
a regular basis. As Ricoh expands our operations worldwide, additional risks,
such as infectious diseases and epidemics, may adversely affect Ricoh's
operations and financial positions.
Item 4. Information on the Company
--------------------------
A. History and Development of the Company
The Company was originally incorporated as a joint stock corporation
(KABUSHIKI KAISHA) on February 6, 1936 in accordance with Japanese law under
the name Riken Kankoshi Co., Ltd. as a manufacturer and distributor of
sensitized paper for use in copiers. Since its incorporation, Ricoh has
expanded its business into related businesses in the office equipment field. It
now manufactures and markets copiers, facsimile machines, MFPs, laser and
GELJET printers, optical discs, personal computers and servers, network related
software and other equipment, including semiconductors, measuring equipment and
cameras.
Historical highlights
---------------------
February 1936 Riken Kankoshi Co., Ltd. is formed in Kita-kyushu to
manufacture and market sensitized paper.
March 1938 The Company's name is changed to Riken Optical Co., Ltd., and
starts manufacturing and selling optical devices and equipment.
May 1949 The Company lists its securities on the Tokyo and Osaka Stock
Exchanges.
April 1954 The Company establishes an optical device and equipment plant
in Ohmori, Ohta-ku, Tokyo (now known as the Ohmori plant).
May 1955 The Company begins manufacturing and selling desktop copiers.
May 1961 The Company establishes a sensitized paper plant in Ikeda,
Osaka (now known as the Ikeda plant).
October 1961 The Company lists its securities on the First Sections of the
Tokyo and Osaka Stock Exchanges.
June 1962 The Company starts operations of a paper plant in Numazu,
Shizuoka, which featured a fully-integrated sensitized paper
production system (now known as the Numazu plant).
December 1962 The Company establishes Ricoh of America, Inc. (a subsidiary,
now known as Ricoh Corporation).
April 1963 The Company changes its corporate name to Ricoh Company, Ltd.
July 1967 The Company establishes Tohoku Ricoh Co., Ltd. (a subsidiary)
in Shibata-gun, Miyagi.
-10-
May 1971 The Company completes its manufacturing facility in Atsugi,
Kanagawa (now known as the Atsugi plant), to which it transfers
some of its office equipment production from the Ohmori plant.
June 1971 The Company establishes Ricoh Nederland B.V. (a subsidiary, now
known as Ricoh Europe B.V.) in Netherlands.
January 1973 The Company establishes Ricoh Electronics, Inc. (a subsidiary)
in the United States.
September 1973 The Company lists its securities on the Amsterdam Stock
Exchange.
December 1976 The Company forms Ricoh Credit Co., Ltd. (a subsidiary, now
known as Ricoh Leasing Co., Ltd.).
March 1977 The Company relocates its headquarters to Minato-ku, Tokyo.
July 1978 The Company lists its securities on the Frankfurt Stock
Exchange.
December 1978 The Company establishes Ricoh Business Machines, Ltd. (a
subsidiary, now known as Ricoh Hong Kong Ltd.).
March 1981 The Company builds the Ricoh Electronics Development Center at
the Ikeda plant to develop and manufacture electronic devices.
October 1981 The Company lists its securities on the Paris Stock Exchange.
May 1982 The Company establishes a sensitized paper production
facilities in Fukui (now known as the Fukui plant), which takes
over some of the sensitized paper production from the Osaka
plant.
July 1982 The Company launches its information technology equipment
facility in Hatano, Kanagawa (now known as the Hatano plant).
December 1983 The Company establishes Ricoh UK Products Ltd. (a subsidiary).
October 1985 The Company builds a copier manufacturing plant in Gotemba,
Shizuoka (now known as the Gotemba plant).
April 1986 The Company opens a research and development ("R&D") facility
in Yokohama, Kanagawa (now known as the Ricoh Research and
Development Center) in commemoration of Ricoh's 50th
anniversary, to which it transfers some of its R&D operations
from the Ohmori plant.
April 1987 The Company establishes Ricoh Industrie France S.A. (a
subsidiary, now known as Ricoh Industrie France S.A.S.).
April 1989 The Company sets up an electronic devices facility in
Yashiro-cho, Kato-gun, Hyogo (now known as the Yashiro plant).
January 1991 The Company establishes Ricoh Asia Industry (Shenzhen) Ltd. (a
subsidiary) in China.
March 1995 Ricoh Corporation acquires Savin Corporation, an American
office equipment sales company.
-11-
September 1995 The Company acquires Gestetner Holdings PLC (now known as NRG
Group PLC), a British office equipment sales company.
January 1996 Ricoh Leasing Co., Ltd. lists its securities on the Second
Section of the Tokyo Stock Exchange (currently listed on the
First Section of the Tokyo Stock Exchange).
December 1996 The Company establishes Ricoh Asia Pacific Pte Ltd (a
subsidiary) in Singapore.
March 1997 The Company establishes Ricoh Silicon Valley, Inc. (now known
as Ricoh Innovations, Inc.) in the United States.
August 1999 Ricoh Hong Kong Ltd. acquires Inchcape NRG Ltd., a Hong
Kong-based office equipment sales company.
March 2000 Tohoku Ricoh Co., Ltd. lists its securities on the Second
Section of the Tokyo Stock Exchange.
January 2001 Ricoh Corporation acquires Lanier Worldwide, Inc., an American
office equipment sales company.
October 2002 The Company establishes Ricoh China Co., Ltd. (a subsidiary).
April 2003 Tohoku Ricoh Co., Ltd. becomes a wholly-owned subsidiary of the
Company.
October 2004 The Company acquires Hitachi Printing Solutions, Ltd. (now
known as Ricoh Printing Systems, Ltd.) in Japan.
August 2005 The Company opens Ricoh Technology Center in Ebina, Kanagawa to
integrate its domestic R&D facilities and offices.
November 2005 The Company relocates its headquarters to Chuo-ku, Tokyo.
January 2007 Ricoh Europe B.V. acquires the European operations of Danka
Business Systems PLC (now known as Infotec Europe B.V.).
June 2007 InfoPrint Solutions Company, the joint venture company of Ricoh
and International Business Machines Corporation ("IBM"),
commenced its operation.
Our registered office and head office are as follows:
Address Telephone number
--------------------------------------- ----------------
Registered Head office 3-6 Naka Magome 1-chome, Ohta-ku, Tokyo +81-3-3777-8111
143-8555, Japan
Executive office 13-1, Ginza 8-chome, Chuo-ku, Tokyo +81-3-6278-2111
104-8222, Japan
-12-
Principal Capital Investments
-----------------------------
Ricoh's capital investments for fiscal years 2005, 2006 and 2007 were Yen
84.6 billion, Yen 102.0 billion and Yen 85.8 billion, respectively. Ricoh
directs a significant portion of its capital expenditures towards digital and
networking equipment, such as digital PPCs, MFPs, laser and GELJET printers,
and manufacturing facilities to maintain or enhance its competitiveness in the
industry. Ricoh projects that for fiscal year 2008, its capital investments
will amount to approximately Yen 90.0 billion, principally for investments in
manufacturing facilities of digital and networking equipment with new engines,
toners, semiconductors and thermal media.
B. Business Overview
Ricoh is a leading manufacturer of office automation equipment. Ricoh's
products include copiers, printers, facsimile machines, and related supplies
and services. Ricoh is also a prominent manufacturer of digital and advanced
electronic devices such as semiconductor devices. In recent years, Ricoh has
been rapidly building a solid presence globally as a comprehensive document
solutions provider that helps its customers streamline their businesses and
decrease operating costs.
RECENT DEVELOPMENT
------------------
During fiscal year 2007, Ricoh and IBM reached an agreement to form a joint
venture company. InfoPrint Solutions Company, the joint venture, commenced its
operation in June 2007 at which time Ricoh acquired 51 percent of such company.
Ricoh's ownership percentage is expected to be gradually increased up to 100
percent over the next three years. Ricoh expects that the formation of this
company will strengthen its capabilities in output solutions, including large
volume printing.
PRODUCTS
--------
Ricoh's business segments consist of "Office Solutions," "Industrial
Products" and "Other" segments. This classification was adopted during fiscal
year 2006 when Ricoh reclassified its business segments as part of its 15th
Medium-Term Management Plan. The reclassification realigned Ricoh's operating
segments in a manner that is consistent with the way in which Ricoh's
management currently analyzes its business operations. For additional
discussion regarding the 15th Medium-Term Management Plan, see Item 5.
Operating and Financial Review and Prospects - OVERVIEW-.
-13-
The following table sets forth Ricoh's sales by products for fiscal years
2005, 2006 and 2007.
SALES BY PRODUCT
------------------------------------------------------------------------------
Millions of Yen (except for percentages)
For the Year Ended March 31,
------------------------------------------------------------------------------
2005 2006 2007
-------------------------------------------------
OFFICE SOLUTIONS
Imaging Solutions 1,332,299 73.7% 1,446,635 75.8% 1,580,155 76.4%
Network System Solutions 199,129 11.0 190,593 10.0 194,312 9.4
INDUSTRIAL PRODUCTS 119,408 6.6 120,636 6.3 133,387 6.4
OTHER 156,570 8.7 151,374 7.9 161,071 7.8
------------------------------------------------------------------------------
Total 1,807,406 100.0% 1,909,238 100.0% 2,068,925 100.0%
------------------------------------------------------------------------------
Notes:
(1) In light of the reclassification of business segments adopted during fiscal
year 2006, Ricoh restated its financial statements and accompanying
disclosure for fiscal year 2005 in accordance with the new classification.
(2) During fiscal year 2007, a subsidiary of the Company sold its content
distribution business. As a result of such sale, the operating results of
such business was reclassified as a discontinued operation was excluded from
the above segment data for all periods in accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."
OFFICE SOLUTIONS
----------------
This segment consists of products that are widely used in the office
environment, and is categorized as follows:
(1) Imaging Solutions
For fiscal year 2007, the Imaging Solutions product category accounted for
76.4% of Ricoh's net sales.
The primary functions of products in this category are (i) to produce copies
and (ii) to print or produce images using a network. Stand-alone copiers are
representative of products in the first group, and MFPs, laser and GELJET
printers are representative of products in the second group.
The principal products in the Imaging Solutions product category include
monochrome and color digital copiers, MFPs, laser and GELJET printers, digital
duplicators, facsimile machines, analog PPCs, and diazo copiers.
Ricoh continues to be a global leader in PPCs and MFPs and has been a
pioneer in the development of digital machines. Ricoh manufactures a wide range
of PPCs and
-14-
MFPs with a variety of copying speeds and functions such as double-sided
printing, sorting, reducing and enlarging, and zoom adjustment based on copy
sizes. PPCs and MFPs use a drum or other medium coated with a photo conductive
material on which an image of the original document is projected optically and
developed by applying a dry powder-based toner. The application of this
printing process enables, higher picture quality and is environmentally
friendly.
In recent years, Ricoh has strengthened its digital PPC and MFP product
line-up with new product offerings that range from low-end models to high-end
models. Furthermore, in order to meet its customers' needs in the office
environment, Ricoh continues to strengthen its capabilities in color laser and
GELJET printers, mid- and high-volume or high-speed printers that can be
connected to a network. During fiscal year 2007, Ricoh continued to record
strong sales growth in printers as it broadened its product line-up, reinforced
its sales and distribution channels especially in Europe and expanded its
marketing activities. Sales of MFPs and laser and GELJET printers designed to
provide information technology support for all types of office environments by
delivering enhanced basic features (i.e., reduction, enlargements), simpler
operation, reduced paper consumption through electronic storage, better
connectivity with document distribution and storage systems performed
particularly well as such features satisfied the demand of customers. Ricoh
continues to focus on designing products that have enhanced security features
and are environmentally friendly. For example, during fiscal year 2007, Ricoh
released its imagio MP C4500/C3500 Series (also known as Aficio MP C4500/C3500
when sold overseas) as part of its color MFP line. This new printer series
decreases total energy consumption by approximately 50% compared to that of
conventional models due to its unique energy-saving technology, developed by
Ricoh. During fiscal year 2007, Ricoh also introduced its IPSiO SP C811 Series
( also known as Aficio SP C811DN when sold overseas), a color laser printer
designed for high-speed color printing (A4, horizontal input tray) at 40 pages
per minute (ppm) that boasts superior productivity and is environmentally
friendly. In the overseas market, Ricoh also released its imagio MP C3000/C2500
Series (also known as Aficio MP C3000/C2500 when sold overseas) and the imagio
MP C1500 (also known as Aficio MP C615C when sold overseas), which were well
received in Japan due to its superior productivity and environmentally
friendliness. Launching these next-generation color copiers and printers has
strengthened Ricoh's product line for such products and has enabled Ricoh to
gain a larger share in the color PPCs and MFPs markets during fiscal year 2007.
In the laser printer market, Ricoh released the IPSiO SP C411 Series (also
known as Aficio SP C411DN when sold overseas), which is a line of high-speed
color laser printers with versatile paper handling capabilities that can meet
various business needs. Ricoh also launched its IPSiO GX Series (also known as
Aficio GX when sold overseas), a printer that incorporates Ricoh's advanced
Gel-Jet technology for higher resolution and faster printing. The introduction
by Ricoh of these new laser printer models has enabled Ricoh to continue
penetrating the low-end business printer markets.
In light of the above, net sales of color MFPs/PPCs as a whole increased by
9.3% in fiscal year 2007 as compared to fiscal year 2006. A 24.7% increase in
net sales of MFPs/PPCs with color capabilities in fiscal year 2007
significantly contributed to such 9.3% increase.
-15-
During fiscal year 2007, Ricoh Europe B.V., a wholly-owned subsidiary of the
Company, acquired a group of office equipment sales and service companies. The
holding company of such newly acquired group companies is now known as Infotec
Europe B.V. Ricoh's main objective in this acquisition was to enhance its sales
and service structure in Europe. With such enhanced structure, Ricoh believes
that it can effectively provide better service to its European customers and
increase customer satisfaction.
In addition, Ricoh offers a comprehensive line of copiers that can be
attached to a network. These machines sold well in both Japan and the overseas
markets during fiscal year 2007, mainly because the features of these copiers
reflected the recent trends in customer needs. Customer demand has shifted
toward increased printing speed, networking connectivity, colorization, lower
costs of ownership, improved security systems and enhanced office productivity.
In the overseas markets, the release of a number of copier models under the
Aficio brand has led to Ricoh's rapid achievement of a dominant position in the
digital copier market.
With respect to facsimile equipment, Ricoh marketed the world's first
high-speed facsimile equipment in 1973 with a transmission speed of one minute
per page. Since then, Ricoh has been manufacturing various high-speed facsimile
machines, including compact, low-priced models that feature multiple functions
(such as copying capabilities) and higher memory capacities. The market for
stand-alone facsimile machines is diminishing, with demand shifting towards
small and home offices seeking low-cost models as corporate users tend to
prefer multifunctional copiers and printers with networking capabilities. In
addition, corporate users also have moved towards electronic forms of
transmitting images using portable document formats as an alternative to
facsimile transmissions. In response to these trends in the facsimile market,
Ricoh has been focusing its efforts on offering MFPs with facsimile capability.
(2) Network System Solutions
For fiscal year 2007, the Network System Solutions product category
accounted for 9.4% of Ricoh's net sales.
The primary function of products in this category is to assist in
establishing a network environment for customers. The principal products in the
Network System Solutions category include personal computers and servers,
network systems, application software, and related services and support.
As in fiscal year 2007, Ricoh continues to enjoy steady growth in the sale
of its document solutions software and support services, which allow customers
to seamlessly manage electronic and paper-based information. For example, Ricoh
recorded growth in the sale of software and related products to assist
customers in connecting Ricoh's digital MFPs to customers' host systems in
their offices and providing the necessary support services at customer sites.
With the provision of such products and services, Ricoh has also strengthened
its own sales infrastructure for such network system solutions products. Sales
in personal computers and servers increased in fiscal year 2007 as compared to
-16-
fiscal year 2006, and customers continued to rely upon Ricoh's support and
services to optimize their total printing costs. Through such support services
Ricoh has been able to lower total printing costs for its customers by
furnishing facility management assistance to its customers in Japan (where
physical space is costly) and increasing the efficiency of the printing process.
INDUSTRIAL PRODUCTS
-------------------
The Industrial Products segment consists of products that are used in the
industrial sector. For fiscal year 2007, this segment accounted for 6.4% of
Ricoh's net sales. Principal products in this category include thermal media,
optical equipment, semiconductor devices, electronic components, and measuring
equipment.
Through technological enhancements in its thermal media business Ricoh was
able to expand its business from the production of thermal paper for use in
facsimiles to a variety of business areas, including the production of POS
sheets, logistics management sheets, reward cards, identification cards,
medical films, and other uses.
Ricoh's optical equipment business utilizes technology originally developed
by Ricoh for its copiers and cameras. This business supplies optical equipment
and optical supply parts, such as lens units, to third parties.
Ricoh also manufactures various types of semiconductor devices. Such devices
include application-specific integrated circuits ("ASICs") and application
specific standard products ("ASSPs") that are often used in digital copiers,
printers, personal computers and mobile and cellular phones.
The electronic components business supplies parts to manufacturing plants of
Ricoh in connection with the production of its own products, such as copiers
and printers, as well as to third parties. In fiscal year 2007, net sales to
third parties increased in response to increased demand for such electronic
components.
In addition, Ricoh is one of the leading manufacturers of measuring
equipment in Japan. Ricoh offers a wide range of measuring equipment such as
water meters, gas meters, and gas leak detectors. Sales in the measuring
equipment category are greatly affected by fluctuations in market demand.
OTHER
-----
This segment, which accounted for 7.8% of Ricoh's net sales for fiscal year
2007, includes digital cameras, optical discs, financing and logistics services.
Ricoh is one of the pioneers in commercializing digital cameras, which have
tremendous potential as "image capturing devices." As digital cameras may be
used in a
-17-
variety of ways to input images, Ricoh expects that its sales of digital
cameras will continue to grow in the future. Sales of a line of digital cameras
that were released during fiscal year 2006 under the name "GR DIGITAL" and
another line of digital cameras that were released during fiscal year 2007
under the name "Caplio R5" contributed to the increase in sales in this segment.
Ricoh provides certain financing services through Ricoh Leasing Co., Ltd.
which leases industrial equipment and medical equipment as well as office
equipment, and offers loans, such as support loans, to small businesses and
independent doctors.
Ricoh Logistics System Co. Ltd. offers logistics services in the delivery,
distribution and storage of products such as electronic products, office
equipment, and electronic and machinery parts.
During fiscal year 2007, San-Ai Co., Ltd., a wholly-owned subsidiary of the
Company, completed the sale of its content distribution business which included
distribution of ring tones for cellular phones. Ricoh determined that the sale
of such business would be in the best interest of Ricoh and for such business.
Operating results of San-Ai Co., Ltd. have been excluded from segment results
as the operations are considered to be discontinued in accordance with SFAS
No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets."
SALES AND DISTRIBUTION
----------------------
Ricoh continues to utilize the following three sales channels for the
distribution of its products to end-user customers in Japan: (1) direct sales
by Ricoh to end-user customers through approximately 40 domestic subsidiaries
and affiliates; (2) sales through independent dealers of office machinery; and
(3) sales through independent office supply wholesalers and retailers. Ricoh
estimates that over one-half of its domestic copier sales by revenue is derived
from its direct sales channels to end-user customers, with the remaining
balance being divided between sales through independent dealers of office
machinery and independent office supply wholesalers and retailers. These sales
channels are coordinated by Ricoh's seven regional sales subsidiaries located
in the Hokkaido, Tohoku, Kanto, Chubu, Kansai, Chugoku and Kyushu areas.
One of Ricoh's strategies in expanding its overseas marketing and sales
channels has been to acquire office equipment sales companies in various
locations around the world through which it can sell its products. Accordingly,
in addition to selling Ricoh brand name products through its overseas sales
subsidiaries, affiliates and independent dealers, similar to Japan, Ricoh also
sells its products through the following two marketing and sales channels in
the overseas market: (1) sales of products under brand names which Ricoh
purchased through acquisitions (i.e., the "Savin" brand, the "Gestetner" brand,
the "Lanier" brand and "Infotec" brand) and (2) sales of Ricoh's products as
the original equipment manufacturer ("OEM") of copiers and printers of other
companies. Savin, Gestetner and Lanier were originally Ricoh's OEM distributors
-18-
prior to their acquisition. Ricoh has organized sales and distribution channels
to accommodate its four operating regions outside of Japan: (1) the Americas;
(2) Europe, Africa, and the Middle East; (3) Asia and Oceania; and (4) China.
Ricoh recognizes revenue for sales upon the delivery and installation of
equipment to its end-user customers. Approximately 15% of Ricoh's total sales
revenue is comprised of revenue from sales of equipment generated under
sales-type leases. Information regarding the methods by which Ricoh recognizes
revenue is also set forth in Item 5. Critical Accounting Policies and Note 2 to
the Consolidated Financial Statements which are included in this annual report.
AFTER-SALES SERVICE
-------------------
Ricoh provides repair and maintenance services for its products to Ricoh's
end-user customers under the belief that periodic and timely maintenance
services are essential in preserving Ricoh's market share in the relevant
products. These maintenance services are provided to customers pursuant to
maintenance service contracts customarily entered into at the time the
equipment is sold.
In Japan, repair and maintenance services are generally provided by Ricoh's
service specialists. Ricoh's service network in Japan includes service centers
operated by Ricoh and its affiliates and service outlets operated by other
companies. Recently, Ricoh began building nationwide capabilities for its
Customer Support System in order to enhance customer satisfaction and service
efficiency. This system allows Ricoh to remotely monitor copiers that are in
operation and provide immediate service to such copiers. The total number of
Ricoh's sales and service personnel in Japan is approximately 22,800. Similar
to Japan, Ricoh employees and contracted maintenance providers provide repair
and maintenance services to end-user customers in the overseas market who
purchased Ricoh products. The total number of Ricoh's sales and service
personnel overseas is approximately 22,900.
Additional information regarding how Ricoh accounts for its after-sales
services is set forth in Item 5. Critical Accounting Policies and Note 2 to the
Consolidated Financial Statements which are a part of this annual report.
PRINCIPAL MARKETS
-----------------
Ricoh distributes its products and competes in the following four geographic
areas: Japan, the Americas, Europe and Other. In the aggregate, Ricoh's sales
expanded in fiscal year 2007. As noted below, for fiscal year 2007, sales in
Japan, the Americas, Europe and Other as a percentage of total sales were
48.4%, 20.6%, 24.5% and 6.5%, respectively. Fiscal year 2007 was the first year
in which the proportion of total overseas sales (i.e., aggregate sales in the
Americas, Europe and Other) exceeded that of Japan. The table below breaks down
for each geographic area the total sales amount and
-19-
percentage of such sales amount as compared against total net sales for the
last three fiscal years.
SALES BY GEOGRAPHIC AREA
--------------------------------------------------------------------------
Millions of Yen (except for percentages to net sales)
For the Year Ended March 31,
--------------------------------------------------------------------------
2005 2006 2007
-----------------------------------------------------
JAPAN 966,273 53.5% 966,224 50.6% 1,002,251 48.4%
THE AMERICAS 325,597 18.0 387,412 20.3 426,453 20.6
EUROPE 408,906 22.6 434,800 22.8 507,158 24.5
OTHER 106,630 5.9 120,802 6.3 133,063 6.5
--------------------------------------------------------------------------
Total 1,807,406 100.0% 1,909,238 100.0% 2,068,925 100.0%
==========================================================================
Notes:
(1) Sales amounts set forth in the above table are based on the location of the
purchaser of the product. For example, if the product is manufactured in
Japan and sold to a purchaser located in the United States, such sale would
be recorded as a sale in the Americas geographic segment.
(2) During fiscal year 2007, a subsidiary of the Company sold its content
distribution business. As a result of such sale, the operating results of
such business was reclassified as a discontinued operation was excluded from
the above segment data for all periods in accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."
(1) Japan
The continuing improvement of the Japanese economy during fiscal year 2007,
which was supported by the depreciation of the Japanese Yen, higher stock
prices and lower interest rates especially in the second half of fiscal year
2007, resulted in companies in Japan to make greater capital investments to
improve their plants and equipment as compared to fiscal year 2006. As a
result, sales in Japan increased by 3.7% compared to fiscal year 2006. Market
competition in the types of products that Ricoh manufactures and markets
continues to intensify. In order to succeed in such environment, Ricoh has been
working to continuously change its product line-up from analog stand-alone
equipment and monochrome products to digital equipment with network
capabilities and color products in order to respond to customers' preferences.
To assist customers in managing their Total Document Volume ("TDV") effectively
and efficiently in the office, Ricoh also offers business solutions to create a
networked environment that meets customers' needs. Moreover, Ricoh provides
certain financing services, semiconductor devices for mobile and cellular
phone, and logistics services in Japan. To effectively manage its costs and to
focus its efforts on its core business, Ricoh sold the contents delivery
service business of one of its subsidiary during fiscal year 2007.
Despite favorable sales in Japan, aggregate sales derived from the overseas
markets exceeded the sales in Japan, because sales derived from the overseas
markets
-20-
showed double digit growth as compared to fiscal year 2006 due primarily to the
strong sales of both color MFPs and PPCs as well as color laser and GELJET
printers in the overseas market.
(2) The Americas
In the Americas, Ricoh introduced various new products and enhanced its
sales and marketing structure to meet customers' demands for color and
high-speed products with networking capabilities.
In the past, Ricoh Corporation, which was the North and South American sales
and marketing unit of the Company, had three wholly-owned subsidiaries that
were OEM distributors of Ricoh products. These companies were Savin
Corporation, acquired in 1995, Gestetner Holdings PLC (now known as NRG Group
PLC), acquired in 1995, and Lanier Worldwide, Inc., acquired in 2001. To market
and sell its full line of digital office solutions, Ricoh utilized a network of
independent dealers in the Americas of Ricoh, Savin, Gestetner and Lanier as
well as direct sales forces consisting of Ricoh Business Systems and Lanier
Worldwide, Inc.
During fiscal year 2007, in an effort to consolidate its operations, Ricoh
decided to merge Lanier Worldwide, Inc. into Ricoh Corporation, its parent
company, and to change the name of the surviving corporation to Ricoh Americas
Corporation. Ricoh Americas Corporation will distribute both Lanier and Savin
brand products in addition to Ricoh brand products while the Gestetner brand
products will be phased out in the United States. This new organizational
structure became effective on April 1, 2007.
(3) Europe
Economic conditions in Europe remained relatively stable during fiscal year
2007 and sales of MFPs and laser and GELJET printers continued to increase as
Ricoh exerted efforts to introduce new products in such product lines. The
continuous enhancement and introduction of products in the Office Solutions
segment enabled Ricoh to further improve its sales in Europe as customers were
able to fulfill more of their office equipment needs through Ricoh. In
particular, Ricoh was able to increase its sales in Europe as a result of the
shift from monochrome to color MFPs and laser and GELJET printers and the
introduction of tailor-made solutions for its customers regardless of the size
of their business. Through these efforts Ricoh continued to maintain its top
market share position in Europe for copiers and MFPs during fiscal year 2007.
To further enhance its sales and service network, Ricoh Europe B.V., a
wholly-owned subsidiary of the Company, acquired the European business
operation of Danka Business Systems PLC during the fourth quarter of fiscal
year 2007. With the addition of 16 companies through such acquisition, Ricoh
expects to increase its sales by promoting high volume products and
strengthening its relationship with its customers to increase the TDV of its
customers. In addition, Ricoh intends to provide value-added services to its
customers in Europe through this acquisition to further increase customer
satisfaction.
(4) Other
-21-
The Other geographic area includes China, South East Asia and Oceania. In
addition to the opening of a production site for thermal media in China (Ricoh
Thermal Media (Wuxi) Co., Ltd.) during fiscal year 2006, during fiscal year
2007, Ricoh established semiconductor sales support companies in China (Ricoh
Electronic Devices Shanghai Co., Ltd.) and South Korea (Ricoh Electronic
Devices Korea Co., Ltd.), which enabled Ricoh to strengthen its support
services for its Chinese and Korean customers. In addition to providing sales
support services, Ricoh Electronic Devices Shanghai Co., Ltd. also designs
semiconductors. Through such company, Ricoh is able to capture and fulfill
customers' needs at a design phase and to deliver products that are tailored to
customers' satisfaction. Because this geographic area is expected to continue
expanding, Ricoh continues to place significant importance on this market not
only as a production site but also as a potential market to increase sales of
its products in the future.
COMPETITION
-----------
The office equipment industry in which Ricoh primarily competes remains
highly competitive and Ricoh continues to encounter intense competition in its
Office Solutions segment. Furthermore, competition in each of the product
categories in the Office Solutions segment is expected to increase in the
future as Ricoh's competitors enhance and expand their product and service
offerings. This increase in competition may result in price reductions and
decreases in profitability as well as market share in these products. Ricoh
cannot provide assurance that it will be able to compete successfully against
existing or future competitors. Moreover, Ricoh may face competition from some
of its current customers and companies with which Ricoh has strategic business
relationships.
The size and number of our competitors vary across our product categories,
as do the resources allocated by our competitors to the markets Ricoh targets.
Ricoh's competitors may have greater financial, personnel, and other resources
than Ricoh has in a particular market or overall. These competitors may have
greater resources available to them to respond quickly to new technologies and
may be able to undertake more extensive marketing campaigns than Ricoh.
Competitors may also adopt more aggressive pricing policies for their products
and make more attractive offers to potential customers, employees, and
strategic partners. These competitors may also make strategic acquisitions or
establish cooperative relationships among themselves or with third parties to
increase their ability to gain market share.
Despite this intense competition in the office equipment industry, Ricoh's
management believes that Ricoh will be able to maintain and enhance its
position in the global market because of its experience, expertise and
technical capabilities as a leading provider of office equipment, and
dedication to meet customers' needs.
-22-
SEASONALITY
-----------
Sales in the Office Solutions segment generally increase in March of each
year, which is the end of the fiscal year for most Japanese companies. This is
due to the increase in demand for these products as many Japanese companies and
government entities try to expend their allotted capital expenditure budget for
the fiscal year. Sales generated during the month of March each year due to
this seasonality accounts for approximately 11.9% of Ricoh's domestic sales in
Japan. However, the effect of this seasonality on a consolidated basis is
minimal, as only approximately 4.0% of Ricoh's total consolidated sales are
generated from domestic sales in Japan during the month of March.
SOURCES OF SUPPLY
-----------------
The raw materials, parts and components used in the production of Ricoh's
products are procured on a global basis. Generally, Ricoh maintains multiple
suppliers for the most significant categories of raw materials, parts and
components. Because very few of the raw materials required by Ricoh in
manufacturing its products can be procured in Japan, most of the raw materials
used by Ricoh come from outside of Japan. Ricoh monitors the availability of
raw materials on a regular basis to ensure that it will not encounter any
shortages. Ricoh has not experienced any significant difficulty in obtaining
the raw materials, parts and components necessary for it to manufacture its
products and believes that it will be able to continue to obtain necessary raw
materials, parts and components in sufficient quantities to meet its
manufacturing needs in the future. The rise in crude oil prices may lead to an
increase in the overall cost of procuring raw materials, parts and components.
This is due to the fact that the cost of oil-based parts and components, the
processing costs of raw materials and fuel costs of shipping and distributing
such raw materials, parts and components may increase as a result of higher
crude oil prices. However, Ricoh believes that the effect of price volatility
with respect to obtaining raw materials, parts and components necessary in
manufacturing its products can be managed.
INTELLECTUAL PROPERTY
---------------------
Ricoh holds a large number of patents and trademark rights. While Ricoh
considers such intellectual property rights to be valuable assets and important
for its operations, it believes that its business is not dependent to any
material extent upon any single patent or trademark right, or any related group
of such rights it holds.
Ricoh also has many licenses and technical assistance agreements covering a
wide variety of products. Such agreements grant Ricoh the right to use certain
Japanese and foreign patents or the right to receive certain technical
information. However, Ricoh is not materially dependent on any single such
license or agreement.
-23-
In addition, Ricoh has granted licenses and technical assistance to various
companies located in and outside of Japan. In certain instances, Ricoh has
entered into cross-licensing agreements with other major international
electronics and electrical equipment manufacturers. None of these agreements
are likely to materially affect Ricoh's business or profitability. See
Item 5.C. Patents and Licenses.
GOVERNMENT REGULATIONS
----------------------
Ricoh's business activities are subject to various government regulations in
the various countries in which it operates, including regulations relating to
business and investment approvals, export regulations, tariffs, antitrust,
intellectual property, consumer and business taxation, exchange controls, and
environmental and recycling requirements. Ricoh is also subject to
environmental regulations in the jurisdictions in which it operates,
particularly those jurisdictions in which it has manufacturing, research, or
similar operations.
Two recent environmental regulations which affect Ricoh's business are the
European Union Directive on Waste Electrical and Electronic Equipment (WEEE
Directive) and the European Union Directive on the Restriction on the Use of
Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS
Directive). Beginning in August 2005, the WEEE Directive, as enacted by
individual European Union countries, makes manufacturers or distributors of
electrical and electronic equipment in the European Union financially
responsible for the collection, recycling, treatment, recovery and disposal of
recovered electrical and electronic equipments. The RoHS Directive prohibits
the use of various heavy metals, such as lead, mercury, cadmium, hexavalent
chromium and brominated flame retardants (polybrominated biphenyls or
polybrominated diphenyl ethers) in electrical and electronic equipment to be
sold in the European Union market from July 2006. A variety of similar
environmental regulations have been or are expected to be enacted in other
jurisdictions where Ricoh operates. Ricoh is endeavoring to establish
appropriate measures to comply with these new regulations.
Ricoh currently operates, and hopes to continue operating, its business
without significant difficulty in complying with applicable government
regulations.
C. Organizational Structure
As of March 31, 2007, the Ricoh Group includes the Company and 307
subsidiaries and 15 affiliates located worldwide. Ricoh's R&D, manufacturing,
sales, and service activities center on office equipment, optical equipment,
and other devices.
The Company is the parent of the Ricoh Group. The Company heads the R&D
activities of Ricoh products with assistance from its subsidiaries. The Company
and its subsidiaries and affiliates maintain an integrated domestic and
international manufacturing and distribution structure.
The following is a list of the principal subsidiaries and affiliates of
Ricoh:
-24-
------------------------------------------------------------------------------
Proportion
Country of of ownership
Company Name Formation interest Main businesses
------------------------------------------------------------------------------
(SUBSIDIARIES)
Ricoh Optical Industries Japan 100.0 Manufacturing optical
Co., Ltd. equipment
Tohoku Ricoh Co., Ltd. Japan 100.0 Manufacturing office
equipment
Ricoh Unitechno Co., Ltd. Japan 100.0 Manufacturing parts for
office equipment
Ricoh Elemex Corporation Japan 55.9 Manufacturing and sales of
(56.8) office equipment and
minuteness equipment
Ricoh Microelectronics Japan 100.0 Manufacturing parts for
Co., Ltd. office equipment
Ricoh Keiki Co., Ltd. Japan 100.0 Manufacturing parts for
office equipment
Ricoh Printing Systems, Japan 100.0 Manufacturing and sale of
Ltd. office equipment
Ricoh Tohoku Co., Ltd. Japan 100.0 Sale of office equipment
Ricoh Chubu Co., Ltd. Japan 100.0 Sale of office equipment
Ricoh Kansai Co., Ltd. Japan 100.0 Sale of office equipment
Ricoh Chugoku Co., Ltd. Japan 100.0 Sale of office equipment
Ricoh Kyushu Co., Ltd. Japan 100.0 Sale of office equipment
Hokkaido Ricoh Co., Ltd. Japan 97.8 Sale of office equipment
Ricoh Sales Co., Ltd. Japan 100.0 Sale of office equipment
Ricoh Technosystems Co., Japan 100.0 Maintenance, service and
Ltd. sale of office equipment
Ricoh Logistics System Japan 100.0 Logistics services and
Co., Ltd. custom clearances
Ricoh Leasing Co., Ltd. Japan 51.1 General leasing
Ricoh Electronics, Inc. U.S.A. 100.0 Manufacturing office
equipment and related
supplies
Ricoh UK Products Ltd. U.K. 100.0 Manufacturing office
equipment
Ricoh Industrie France France 100.0 Manufacturing office
S.A.S. equipment and related
supplies
Ricoh Asia Industry China 91.0 Manufacturing office
(Shenzhen) Ltd. (100.0) equipment and related
supplies
Shanghai Ricoh Facsimile China 100.0 Manufacturing and sale of
Co., Ltd. office equipment
Ricoh Corporation U.S.A. 100.0 Sale of office equipment
Lanier Worldwide, Inc. U.S.A. 100.0 Sale of office equipment
Ricoh Europe B.V. Netherlands 100.0 Sale of office equipment
NRG Group PLC U.K. 100.0 Sale of office equipment
Infotec Europe B.V. Netherlands 100.0 Sale of office equipment
Ricoh Asia Industry Ltd. Hong Kong, 90.0 Sale of office equipment
-25-
------------------------------------------------------------------------------
Proportion
Country of of ownership
Company Name Formation interest Main businesses
------------------------------------------------------------------------------
China
Ricoh Asia Pacific Pte Ltd Singapore 100.0 Sale of office equipment
Ricoh China Co., Ltd. China 100.0 Sale of office equipment
Ricoh Finance Nederland Netherlands 100.0 Corporate finance
B.V.
And 276 other subsidiaries
(AFFILIATES)
Sindo Ricoh Co., Ltd. Korea 20.0 Manufacturing and sale of
office equipment
And 14 other affiliates
------------------------------------------------------------------------------
Notes:
(1) Proportion of ownership interest includes indirect ownership.
(2) Figures in parentheses indicate portion of voting power if different from
portion of ownership interest.
(3) Ricoh Leasing Co., Ltd. is the only subsidiary of Ricoh that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X.
D. Property, Plant and Equipment
Ricoh manufactures its products primarily in fifteen plants in Japan and six
plants overseas. Ricoh owns all of the buildings and the land on which its
plants are located, with the exception of certain leases of land and floor
space of certain of its subsidiaries. None of these leased land and floor
spaces have major encumbrances on them. The following table gives certain
information as of March 31, 2007 regarding the Company's and its subsidiaries'
principal production and other facilities. With the exception of GR Advanced
Materials Ltd., the production and other facilities listed below have floor
space exceeding 10,000 square meters.
-----------------------------------------------------------------------------
Principal activities and
Name (Location) Floor space products manufactured
------------------------------ ----------------- ----------------------------
(in thousands
of square meters)
Japan:
Ricoh Company, Ltd.
Ohmori Plant (Tokyo) 54 Parts relating to copiers
Atsugi Plant (Kanagawa) 73 Office equipment and other
products
Numazu Plant (Shizuoka) 111 Paper and toner
Ikeda Plant (Osaka) 20 Electronic devices
Hatano Plant (Kanagawa) 15 Printed circuit boards and
electronic components
Fukui Plant (Fukui) 34 Papers and toner
Gotenba Plant (Shizuoka) 70 Office equipment
Yashiro Plant (Hyogo) 36 Electronic devices
Ricoh Technology Center 69 R&D
(Kanagawa)
Head Office (Tokyo) 21 Head office and marketing of
offic eequipment
-26-
-----------------------------------------------------------------------------
Principal activities and
Name (Location) Floor space products manufactured
------------------------------ ----------------- ----------------------------
(in thousands
of square meters)
Research & Development Center 17 R&D
(Kanagawa)
System Center (Tokyo) 10 Information system center,
marketing of office
equipment and other business
Ginza Office (Tokyo) 11 Marketing of office
equipment and other business
Shin-Yokohama office 40 Marketing of office
(Kanagawa) equipment, other business
and related services
Subsidiaries:
Ricoh Optical Industries Co., 23 Photographic equipment
Ltd. (Iwate)
Tohoku Ricoh Co., Ltd. 55 Office equipment, parts
(Miyagi) relating to copiers and
duplicators
Hasama Ricoh , Inc. (Miyagi) 14 Parts relating to copiers
and data processing equipment
Ricoh Unitechno Co., Ltd. 18 Office equipment
(Saitama)
Ricoh Elemex Corporation. 47 Office equipment and
(Aichi) measuring equipment
Ricoh Microelectronics Co., 11 Printed circuit boards and
Ltd. (Tottori) electronic components
Ricoh Keiki Co., Ltd. (Saga) 10 Printed circuit boards and
parts relating to copiers
Overseas:
Ricoh Electronics, Inc. 93 Copiers, parts relating to
(Irvine, Santa Ana and copiers, toner and thermal
Tustin, California and paper
Lawrenceville, Georgia,
U.S.A.)
Ricoh UK Products Ltd. 34 Copiers, parts relating to
(Telford, United Kingdom) copiers and toner
Ricoh Industries France S.A.S. 42 Copiers, parts relating to
copiers
-27-
-----------------------------------------------------------------------------
Principal activities and
Name (Location) Floor space products manufactured
------------------------------ ----------------- ----------------------------
(in thousands
of square meters)
(Colmar, France) and thermal paper
Ricoh Asia Industry 42 Copiers, parts relating to
(Shenzhen) Ltd. (Shenzhen, copiers, and toner
China)
Shanghai Ricoh Facsimile Co., 17 Copiers, facsimile equipment
Ltd. and parts relating to copiers
(Shanghai, China)
GR Advanced Materials Ltd. 7 Supplies relating to
(Scotland, United Kingdom) duplicators
-----------------------------------------------------------------------------
Ricoh considers its manufacturing facilities to be well maintained and
believes its plant capacity is adequate for its current needs, though
successive investments in manufacturing facilities are being made for its
long-term success.
Item 4A. Unresolved Staff Comments
-------------------------
Not applicable.
Item 5. Operating and Financial Review and Prospects
--------------------------------------------
OVERVIEW
Ricoh is engaged primarily in the development, manufacturing, sales and
servicing of office automation equipment, as well as digital cameras,
semiconductor devices and thermal media. Ricoh supports its office equipment
business by offering customers various "solution" systems that work with
personal computers and servers, and related product support and after-sales
services to assist customers in fully utilizing the Ricoh products that they
purchase. Ricoh's support services include assisting customers in setting up
their information technology environment or network administration. Ricoh also
offers various supplies and peripheral products to be used with its products
and systems.
As part of the 15th Medium-Term Management Plan, which covers the periods
from fiscal year 2006 through fiscal year 2008, Ricoh reclassified its business
segments into the following three segments beginning in fiscal year 2006:
(i) Office Solutions, which consists of the Imaging Solutions product category
and the Network System Solutions product category, (ii) Industrial Products,
which includes thermal media, optical equipments, semiconductor devices,
electronic components and measuring equipment, and (iii) Other, which includes
digital cameras, optical discs, financing and logistics services. Ricoh's
business segments previously consisted of Office Equipment and Other
Businesses. Ricoh's management believes that the reclassification realigns
-28-
Ricoh's operating segments in a manner that is consistent with the way in which
they currently manage their business.
Ricoh distributes its products and competes in the following four geographic
areas: (i) Japan, (ii) the Americas, (iii) Europe and (iv) Other, which
includes China, South East Asia and Oceania. For additional details on Ricoh's
business, see Item 4.B. Information on the Company - Business Overview.
Because of the global nature of Ricoh's operations, Ricoh's results of
operations and financial conditions are affected both by economic and political
developments in Japan and the rest of the world, as well as by demand and
competition in its lines of business. Furthermore, competition in the
businesses we operate has increased significantly and is likely to continue
increasing in the future. The two most significant trends in the office
equipment market continues to be the movement towards digital networking
systems from stand-alone models and the shift in customers' demands toward
color products from monochrome products. In response to these accelerating
trends, Ricoh's competitors are introducing color products and digital
networking systems, increasing the level of competition in these products.
Ricoh seeks to prevail over the intense competition in the office equipment
market by continually providing customers with equipment that optimizes the
total cost of ownership of such equipment and enhancing office productivity and
efficiency.
Historically, Ricoh's revenues have been derived mainly from the
manufacturing and sale of equipment (such as copiers and printers). In the
current competitive environment, the key factor to achieving revenue growth
continues to be the expansion of available product-lines and areas of services
to address the increase in customer demand for digitization, coloring and high
print volume, which became possible upon the introduction of printers with
high-speed printing capabilities. To achieve sustained growth in the current
environment, Ricoh's goal is to broaden its revenue and earnings base by
increasing the total copying or printing volume of its customers (which Ricoh
refers to as "Building Total Document Volume") and the amount of revenue per
copy or printed page. To attain this goal, Ricoh's strategies continue to
include (1) replacing monochrome products with color models at prices
comparable to those of monochrome models, (2) expanding sales of high-speed
models, and (3) deploying printing solutions so that customers can optimize the
total output costs of their copiers and printers.
Furthermore, to increase the sale of its products to corporations with
global operations, Ricoh expanded its sales structure in the Office Solutions
business through various means during fiscal year 2007, including the
acquisition of the European operations of Danka Business Systems PLC by Ricoh
Europe B.V. Ricoh also made further improvements to the features and functions
of its product lines in the Office Solutions business, such as enhancing output
speed and copying and improving the user-friendliness of its products, which
enabled which enables customers to comprehensively increase their productivity.
In addition to its continuing efforts to strengthen its Office Solutions
business, in recent years, Ricoh has been allocating greater business resources
to promising
-29-
businesses in the Industrial Products segment. For example, during fiscal year
2007 Ricoh established a semiconductor sales company in South Korea as well as
a semiconductor sales support and design company in China to expand its
semiconductor device business in Asia.
Due to these initiatives, Ricoh recorded revenue growth for the 13th
consecutive year in fiscal year 2007. Ricoh strove to remain competitive and
achieve sustained growth by placing a high priority on creating products that
added value for customers in new ways (e.g., by increasing printing speeds or
allowing easier network connectivity) and managing its operations in a highly
efficient manner. To this end, Ricoh continues to reinforce its technological
strengths by making capital expenditures and investments in R&D to create
products and services that can provide new value for its customers. At the same
time, Ricoh continues to achieve steady progress in increasing its operating
efficiency through cost-cutting measures across its business units, which
include the reduction of production costs and the streamlining of its business
structure, as well as supply chain management. As part of its strict cost
management policy, Ricoh now analyzes the cost structure of its products at the
design phase in order to minimize the costs of production. Through such policy,
Ricoh seeks to maximize profits. Ricoh also continues to pursue increased
efficiency in the use of financial resources by decreasing its interest-bearing
debt by effectively managing and utilizing the funds available to it on a
group-wide basis.
Ricoh's consolidated net sales increased by 8.4% to Yen 2,068.9 billion for
fiscal year 2007, from Yen 1,909.2 billion for fiscal year 2006, due primarily
to the increase in net sales of higher-margin, value-added products such as
MFPs with color capabilities, and the positive effect during fiscal year 2007
of the appreciation of the U.S. Dollar and the Euro relative to the Japanese
Yen. Ricoh's operating income increased by 17.4%, while operating income as a
percentage of net sales increased from 7.8% to 8.4%. Increased sales in highly
profitable product-lines, such as MFPs with color capabilities, coupled with
lower selling, general and administrative expenses as a percentage of net sales
resulting from steps taken by Ricoh to streamline its core operating systems
(e.g., accounting, sales and marketing support systems), which thereby enhanced
overall operational efficiency, contributed to the increase in Ricoh's
operating income for fiscal year 2007.
Fiscal year 2007 was the second fiscal year of the 15th Medium-Term
Management Plan, which covers the periods from fiscal year 2006 through fiscal
year 2008. The plan aims to increase corporate growth and improve the
cost-effectiveness and efficiency of Ricoh's businesses. Under this plan, Ricoh
continues to allocate its business resources in an efficient manner to areas
with growth potential and reduce its costs and expenses in order to maximize
profits. Ricoh has identified the following business areas as the three key
areas with future growth potential: (i) printing, (ii) emerging markets and
(iii) the industrial sector. Ricoh plans to further enhance its sales and
profits by strengthening its position in the businesses in which it currently
operates and by expanding into new businesses in the above areas. As part of
such plan, Ricoh continued to take steps to increase its offering of printing
products, such as MFPs and laser and GELJET printers, during fiscal year 2007
to further enhance its comprehensive offering
-30-
of printers. Ricoh reallocated some of its resources to concentrate on the
printing area in order to reinforce sales of its printing solutions, such as
black-color conversion and total cost of ownership reduction solution in the
office environment. In addition, Ricoh expanded its business scope and size by
entering into both the high-end production printing market and the low-end
printing market.
On the other hand, San-Ai Co., Ltd., a wholly-owned subsidiary of the
Company, completed the sales of its content distribution business to Giga
Networks Co., Ltd. (former Mobile Alliance Co., Ltd.), a subsidiary of Faith,
Inc. on May 31, 2006. Ricoh determined that the sale of this business would be
in the best interest of Ricoh and for such business. The sale price of this
business was Yen 12.0 billion and Ricoh recognized income from discontinued
operations, net of tax of Yen 5.5 billion. The operating results of this
business and the gain recognized by Ricoh as a result of the sale of this
business are presented as "Income from discontinued operation, net of tax" in
the Consolidated Statements of Income.
KEY PERFORMANCE INDICATORS
The following table shows changes for the last three fiscal years in the key
performance indicators that Ricoh's management uses in assessing its
performance.
For the year ended March 31,
----------------------------
2005 2006 2007
------- ------- -------
Net Sales (in billions of Yen) 1,807.4 1,909.2 2,068.9
Operating income to net sales ratio (1) 7.3% 7.8% 8.4%
Return on assets (2) 4.4% 4.9% 5.2%
Inventory turnover within months (3) 1.90 1.82 1.83
Interest-bearing debt (in billions of Yen) 410.0 381.2 415.6
Notes:
(1) Operating income to net sales ratio = Operating income divided by net sales.
(2) Return on assets = Net income divided by average total assets for the fiscal
year.
(3) Inventory turnover within months = Inventory divided by average monthly cost
of sales.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of Ricoh are prepared in conformity
with U.S. generally accepted accounting principles. The preparation of these
financial statements requires the use of estimates, judgments and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the periods presented. On an ongoing basis, Ricoh evaluates its estimates which
are based on historical experience and on
-31-
various other assumptions that are believed to be reasonable under the
circumstances. The results of these evaluations form the basis for making
judgments about the carrying values of assets and liabilities and the reported
amounts of expenses that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions. Ricoh
considers an accounting policy to be critical if it is important to its
financial condition and results, and requires significant judgments and
estimates on the part of management in its application. Ricoh believes that the
following represent the critical accounting policies of the Company. For a
summary of the significant accounting policies, including the critical
accounting policies discussed below, see Note 2 to the Consolidated Financial
Statements.
Revenue Recognition
-------------------
Ricoh believes that revenue recognition is critical for its financial
statements because net income is directly affected by the timing of revenue
recognition.
Ricoh generates revenue principally through the sale of equipment, supplies
and related services under separate contractual arrangements for each.
Generally, Ricoh recognizes revenue when (1) it has a firm contract, (2) the
product has been shipped to and accepted by the customer or the service has
been provided, (3) the sales price is fixed or determinable and (4) amounts are
reasonably assured of collection.
Most equipment sales require that Ricoh install the product. As such,
revenue is recognized at the time of delivery and installation at the customer
location. Equipment revenues are based on established prices by product type
and model and are net of discounts. A sales return is accepted only when the
equipment is defective and does not meet Ricoh's product performance
specifications. Other than installation, there are no customer acceptance
clauses in the sales contract.
Service revenues result primarily from maintenance contracts that are
normally entered into at the time the equipment is sold. Standard service fee
prices are established depending on equipment classification and include a cost
value for the estimated services to be performed based on historical experience
plus a profit margin thereon. As a matter of policy, Ricoh does not discount
such prices. On a monthly basis, maintenance service revenues are earned and
recognized by Ricoh and billed to the customer in accordance with the contract
and include a fixed monthly fee plus a variable amount based on usage. The
length of the contract ranges up to five years; however, most contracts can be
cancelled at any time by the customer upon a short notice period.
Ricoh enters into contractual arrangements with multiple elements, which may
include any combination of products, equipment, installation and maintenance.
Ricoh allocates revenue to each element based on its relative fair value if
such element meets the criteria for treatment as a separate unit of accounting
as prescribed in the Emerging Issues Task Force Issue 00-21 ("EITF 00-21"),
"Revenue Arrangements with Multiple Deliverables." Pursuant to EITF 00-21, the
delivered item in a multiple element arrangement should be considered a
separate unit of accounting if all of the following criteria are met: (1) a
delivered item has value to customers on a stand-alone basis, (2)
-32-
there is objective and reliable evidence of fair value of an undelivered item,
and (3) the delivery of the undelivered item must be probable and controlled by
Ricoh if the arrangement includes the right of return. The price charged when
the element is sold separately generally determines fair value. Otherwise,
revenue is deferred until the undelivered elements are fulfilled as a single
unit of accounting.
Allowance for Doubtful Receivables
----------------------------------
Ricoh performs ongoing credit evaluations of its customers and adjusts
credit limits based upon payment history and the customer's current
creditworthiness, as determined by Ricoh's review of the customers' credit
information. Ricoh continuously monitors collections and payments from its
customers and maintains a provision for estimated credit losses based upon its
historical experience and any specific customer collection issues that Ricoh
has identified. While such credit losses have historically been within Ricoh's
expectations and the provisions established, Ricoh cannot guarantee that it
will continue to experience the same credit loss rates that it has in the past.
Changes in the underlying financial condition of our customers could result in
a material impact on Ricoh's consolidated results of operation and financial
position.
Pension Accounting
------------------
The total costs for employees' severance payments and pension plans
represented approximately 0.8%, 1.1% and 0.9% of Ricoh's total costs and
expenses for fiscal years 2005, 2006 and 2007, respectively. The amounts
recognized in the consolidated financial statements relating to employees'
severance payments and pension plans are determined on an actuarial basis
utilizing certain assumptions in the calculation of such amounts. The
assumptions used in determining net periodic costs and liabilities for
employees' severance payments and pension plans include expected long-term rate
of return on plan assets, discount rate, rate of increase in compensation
levels, average remaining years of service, and other factors. Among these
assumptions, the expected long-term rate of return on assets and the discount
rate are two critical assumptions. Assumptions are evaluated at least annually,
and events may occur or circumstances may change that may have a significant
effect on the critical assumptions. In accordance with U.S. GAAP, actual
results that differ from the assumptions are accumulated and amortized over
future periods, thereby reducing the year-to-year volatility in pension
expenses. As of March 31, 2007, Ricoh recognized and reflected in its
consolidated balance sheets the funded status of its pension plans (equal to
the difference between the fair value of plan assets and the projected benefit
obligations) in the total amount of Yen 77.3 billion.
For fiscal years 2005, 2006 and 2007, Ricoh used expected long-term rates of
return on pension plan assets of 2.9%, 3.2% and 3.1%, respectively. In
determining the expected long-term rate of return on pension plan assets, Ricoh
considers the current and projected asset allocations, as well as expected
long-term investment returns and risks for each category of the plan assets
based on Ricoh's analysis of historical results. The projected allocation of
the plan assets is developed in consideration of the expected long-term
investment returns for each category of the plan assets. To moderate the level
of volatility in pension plan asset returns and to reduce risks, approximately
50%, 20%, 20%
-33-
and 10% of the plan assets will be allocated to equity securities, debt
securities, life insurance company general accounts and other financial
instruments, respectively. As of March 31, 2007, the actual allocation of
assets was generally consistent with the projected allocation stated above. The
actual returns for fiscal years 2005, 2006 and 2007 were approximately 4.1%
(gain), 20.9% (gain) and 2.3% (gain), respectively. The actual returns on
pension plan assets may vary in future periods, depending on market conditions.
The market-related value of plan assets is measured using fair values on the
plan measurement date.
With respect to the discount rate used in the annual actuarial valuation of
the pension benefit obligations, the other critical assumptions, Ricoh's
weighted average discount rates for fiscal years 2005, 2006 and 2007 were 3.0%,
2.8% and 3.1%, respectively. In determining the appropriate discount rate,
Ricoh considers available information about the current yield on high-quality
fixed-income investments that are currently available and are expected to be
available during the period corresponding to the expected duration of the
pension benefit obligations.
The following table illustrates the sensitivity to changes in the discount
rate and the expected return on pension plan assets, while holding all other
assumptions constant, for Ricoh's pension plans as of March 31, 2007.
CHANGE IN CHANGE IN PRE-
PENSION BENEFIT TAX PENSION
CHANGE IN ASSUMPTION OBLIGATIONS EXPENSES
--------------------------------------------------------------- --------------- --------------
(Billions of Yen)
50 basis point increase / decrease in discount rate............ - /+ 54.3 - /+ 5.9
50 basis point increase / decrease in expected return on assets - - /+ 1.6
Impairment of Long-Lived Assets and Goodwill
--------------------------------------------
As of March 31, 2007, the aggregate of Ricoh's property, goodwill and
intangible assets was Yen 418.6 billion, which accounted for 18.7% of the total
assets. Ricoh believes that impairment of long-lived assets and goodwill are
critical to Ricoh's financial statements because the recoverability of the
amounts or lack thereof, could significantly affect its results of operations.
Ricoh periodically reviews the carrying value of its goodwill for continued
appropriateness. This review is based upon Ricoh's projections of anticipated
future cashflows and estimated fair value of the reporting units for which
goodwill is assigned. Ricoh reviews long-lived assets and acquired intangible
assets with a definite life for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset or group of assets
may not be recoverable. The recoverability of assets to be held and used is
assessed by comparing the carrying amount of an asset or asset group to the
expected future undiscounted net cashflows of the asset or group of assets. If
an asset or group of assets is considered to be impaired, the impairment charge
to be recognized is measured as the amount by which the carrying amount of the
asset or group of assets exceeds fair value. Long-lived assets meeting the
criteria to be
-34-
considered as held for sale are reported at the lower of their carrying amount
or fair value less costs to sell.
While Ricoh believes that its estimates of future cashflows are reasonable,
different assumptions regarding such cashflows could materially affect Ricoh's
evaluations.
Impairment of Securities
------------------------
Individual securities classified as available-for-sale securities are
reduced to their fair market value by a charge to income for declines in value
that are not temporary. Factors considered in assessing whether an impairment
other than a temporary impairment exists include: (i) the length of time and
extent of decline, (ii) the financial condition and near term prospects of the
issuer and (iii) the intent and ability of Ricoh to retain such investment for
a period of time sufficient to allow for any anticipated recovery in market
value. Ricoh believes that impairment of securities is critical for its
financial statements because it holds significant amounts of securities, the
recoverability of which or lack thereof, could significantly affect its results
of operations.
Realizability of Deferred Tax Assets
------------------------------------
Ricoh records deferred tax assets and liabilities using the effective tax
rate taking into consideration the effect of temporary differences between the
book and tax bases of assets and liabilities. If the effective tax rate were to
change, Ricoh would adjust its deferred tax assets and liabilities, through the
provision for income taxes in the period of change, to reflect the effective
tax rate expected to be in effect when the deferred tax items reverse.
Ricoh records a valuation allowance to reduce Ricoh's deferred tax assets to
an amount that is more likely than not to be recoverable. Ricoh considers
future market conditions, forecasted earnings, future taxable income, the mix
of earnings in the jurisdictions in which Ricoh operates, and prudent and
feasible tax planning strategies in determining the need for a valuation
allowance. In the event Ricoh were to determine that Ricoh would not be able to
recover any portion of Ricoh's net deferred tax assets in the future, the
unrecoverable portion of the deferred tax assets would be charged to earnings
during the period in which such determination is made. Likewise, if Ricoh were
to later determine that it is more likely than not that the net deferred tax
assets would be recoverable, the previously recovered valuation allowance would
be reversed. In order to recover its deferred tax assets, Ricoh must be able to
generate sufficient taxable income in the tax jurisdictions in which the
deferred tax assets are located.
-35-
A. Operating Results
The following table sets forth selected consolidated financial data,
including data expressed as a percentage of total consolidated net sales for
the periods indicated, and the change in each consolidated financial line item
between the indicated fiscal years:
--------------------------------------------------------------------------------------------------------
Thousands of
Millions of Yen (except percentages) U.S. Dollars % Change
----------------------------------------------------- ------------ ------------
2005 2006 2007 2007 (2) 2006 2007
--------------------------------------------------------------------------------------------------------
Net sales
Products 1,067,736 1,108,746 1,189,548 $10,080,915 3.8 7.3
Post sales and
rentals 627,991 693,138 768,965 6,516,653 10.4 10.9
Other
revenue 111,679 107,354 110,412 935,695 (3.8) 2.8
--------------------------------------------------------------------------------------------------------
Total 1,807,406 100.0% 1,909,238 100.0% 2,068,925 100.0% 17,533,263 5.6 8.4
--------------------------------------------------------------------------------------------------------
Cost of sales
Products 713,057 738,962 783,681 6,641,364 3.6 6.1
Post sales and
rentals 259,591 293,559 335,444 2,842,746 13.1 14.3
Other
revenue 85,584 81,717 87,394 740,627 (4.5) 6.9
--------------------------------------------------------------------------------------------------------
Total 1,058,232 58.5% 1,114,238 58.4% 1,206,519 58.3% 10,224,737 5.3 8.3
--------------------------------------------------------------------------------------------------------
Gross profit 749,174 41.5% 795,000 41.6% 862,406 41.7% 7,308,526 6.0 8.5
Selling, general and
administrative
expenses 618,065 34.2% 646,416 33.8% 688,026 33.3% 5,830,729 4.6 6.4
--------------------------------------------------------------------------------------------------------
Operating income 131,109 7.3% 148,584 7.8% 174,380 8.4% 1,477,797 13.3 17.4
--------------------------------------------------------------------------------------------------------
Other (income) expenses:
Interest and
dividend income (2,242) (2,896) (5,501) (46,619)
Interest expense 4,686 5,244 7,350 62,288
Foreign currency exchange
(gain) loss, net (1,547) (3,748) 1,199 10,161
Other, net (771) (2,782) (3,187) (27,008)
--------------------------------------------------------------------------------------------------------
Total 126 0.0% (4,182) (0.2%) (139) (0.0%) (1,178) -- --
--------------------------------------------------------------------------------------------------------
Income from continuing
operations before
income taxes,
minority interests
and equity in earnings
of affiliates 130,983 7.3% 152,766 8.0% 174,519 8.4% 1,478,975 16.6 14.2
--------------------------------------------------------------------------------------------------------
Provision for income
taxes: 48,840 2.8% 56,165 2.9% 64,326 3.1% 545,136 15.0 14.5
--------------------------------------------------------------------------------------------------------
Income from continuing
operations before
minority interests
and equity in earnings
of affiliates 82,143 96,601 110,193 933,839
Minority interests 4,726 4,185 5,508 46,678
Equity in earnings of
affiliates 3,120 2,606 1,539 13,042
--------------------------------------------------------------------------------------------------------
Income from continuing
operations 80,537 4.5% 95,022 5.0% 106,224 5.1% 900,203 18.0 11.8
--------------------------------------------------------------------------------------------------------
Income from discontinued
operations, net of tax 2,606 0.1% 2,035 0.1% 5,500 0.3% 46,610 (21.9) 170.3
--------------------------------------------------------------------------------------------------------
Net income 83,143 4.6% 97,057 5.1% 111,724 5.4% 946,814 16.7 15.1
--------------------------------------------------------------------------------------------------------
-36-
------------------------------------------------------------------------------
YEN Change
-------------------- ----------
2005 2006 2007 2006 2007
------------------------------------------------------------------------------
Reference: Exchange Rates*
US$ 1 107.58 113.26 117.02 5.68 3.76
EURO 1 135.25 137.86 150.08 2.61 12.22
------------------------------------------------------------------------------
* These rates are the annual average exchange rate of the daily average TTM
rates published by The Bank of Tokyo-Mitsubishi UFJ, Ltd. These rates are
used when consolidating the financial results of Ricoh's overseas
subsidiaries with those of the Company.
Notes:
(1) During fiscal year 2007, a subsidiary of the Company sold its content
distribution business. As a result of such sale, the operating results of
such business was reclassified as a discontinued operation. Accordingly,
sales derived from such business was excluded from the above segment data
for all periods in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."
(2) The above consolidated financial data set forth under the heading "Thousands
of U.S. Dollars 2007" which has been translated from Japanese Yen to
U.S. Dollar for the year ended March 31, 2007, is included solely for the
convenience of readers outside Japan and has been made using the exchange
rate of Yen 118 to US$1, the approximate rate of exchange prevailing at the
Federal Reserve Bank of New York on March 31, 2007.
-37-
SALES BY PRODUCT
---------------------------------------------------------------------------------------------
Millions of Yen (except for percentages) Thousands of % Change
------------------------------------------------- U.S. Dollars ----------
2005 2006 2007 2007 (2) 2006 2007
---------------------------------------------------------------------------------------------
OFFICE SOLUTIONS
Imaging
Solutions 1,332,299 73.7% 1,446,635 75.8% 1,580,155 76.4% $13,391,144 8.6 9.2
Network System
Solutions 199,129 11.0 190,593 10.0 194,312 9.4 1,646,712 (4.3) 2.0
INDUSTRIAL
PRODUCTS 119,408 6.6 120,636 6.3 133,387 6.4 1,130,398 1.0 10.6
OTHER 156,570 8.7 151,374 7.9 161,071 7.8 1,365,009 (3.3) 6.4
Total 1,807,406 100.0% 1,909,238 100.0% 2,068,925 100.0% $17,533,263 5.6 8.4
---------------------------------------------------------------------------------------------
Notes:
(1) During fiscal year 2007, a subsidiary of the Company sold its content
distribution business. As a result of such sale, the operating results of
such business was reclassified as a discontinued operation. Accordingly,
sales derived from such business was excluded from the above segment data
for all periods in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."
(2) The above consolidated financial data set forth under the heading "Thousands
of U.S. Dollars 2007" which has been translated from Japanese Yen to
U.S. Dollar for the year ended March 31, 2007, is included solely for the
convenience of readers outside Japan and has been made using the exchange
rate of Yen 118 to US$1, the approximate rate of exchange prevailing at the
Federal Reserve Bank of New York on March 31, 2007.
FISCAL YEAR 2007 COMPARED TO FISCAL YEAR 2006
NET SALES. Consolidated net sales of Ricoh for fiscal year 2007 increased by
8.4% (or Yen 159.6 billion) to Yen 2,068.9 billion from Yen 1,909.2 billion for
fiscal year 2007. Fiscal year 2007 was a milestone in that it was the first
fiscal year in which net sales exceed Yen 2,000.0 billion. This increase in net
sales was primarily due to the increase in net sales in the Office Solutions
segment.
Net sales from the Office Solutions segment accounted for 85.8% of the
consolidated net sales for fiscal year 2007. A significant portion of such net
sales was derived from the Imaging Solutions category, which accounted for
76.4% of consolidated total net sales, up 0.6 percentage points from fiscal
year 2006. The increase in net sales from the Imaging Solutions category was
due primarily to the increase in net sales of MFPs and laser and GELJET
printers as a result of Ricoh's introduction of new products in response to the
continuing shift in customer preference from stand-alone equipment to
multi-functional equipment, which can improve the customer's operations by
expanding the digital color networking capacity of their office environment. In
particular, sales of color MFPs continued to grow in double-digit percentage
figures in both Japan and the overseas markets. Compared to fiscal year 2006,
net sales of color MFPs increased by 18.6% in Japan and 29.3% in the overseas
markets as customer demand in both Japan and the overseas markets continued to
shift from monochrome to color products. Similar to fiscal year 2006, sales of
laser and GELJET printers continued to grow in double-digit percentage figures
in fiscal year 2007 in Japan and the overseas markets. Compared to fiscal year
2006, net sales of laser and GELJET printers increased by 14.4% in Japan and
28.4% in the overseas markets. Such increases were due primarily to the
continuous release of new products that adequately addressed customer needs in
terms of printing quality and speed in both Japan and the overseas markets. In
response to our customer demands, we continued to offer management and workflow
efficiency solutions that are customized to our customers' printing needs from
the operational administration of office network printers and mission-critical
business printers to the creation of a high-speed, on-demand printing
environment. We also offered professional services such as environment
-38-
analysis, solutions and custom software design, in order to assist our
customers improve their printing processes.
In addition, during fiscal year 2007, Ricoh strengthened its sales of
support services, document management applications and related software that
assist its customers in optimizing their printing costs. As a result of its
efforts, net sales in the Network System Solutions category increased by 2.0%
in fiscal year 2007 as compared to fiscal year 2006 and contributed to the
increase in net sales in the Office Solutions segment.
In the Industrial Products segment, net sales increased by 10.6% in fiscal
year 2007 as compared to fiscal year 2006. Sales of thermal media and
electronic components increased due to stable market demand. Sales of
semiconductor devices increased due primarily to an increase in demand for
Ricoh's integrated circuits by manufacturers of electronic devices such as
mobile and cellular phones. Sales of measuring equipment also increased due
primarily to the recovery in demand for such product. The increase in sales in
these products, however, was partially offset by the decrease in sales of
optical equipment due to sluggish demand.
In the Other segment, net sales increased by 6.4% mainly due to the
continuous increase in sales of digital cameras and financing services.
The appreciation of both the U.S. Dollar and the Euro in relation to the
Japanese Yen also contributed to the increase in consolidated net sales in
fiscal year 2007 as compared to fiscal year 2006 in Japanese Yen. Had the
foreign currency exchange rates remained the same as in fiscal year 2006,
Ricoh's consolidated net sales would have increased by 5.2%.
Products. An increase in net sales derived from products was mainly due to
the increase in net sales of MFPs and laser and GELJET printers as a result of
Ricoh's introduction of new products in response to the continuing shift in
customers' preference from stand-alone equipment to multi-functional equipment,
which can improve customers' operations by expanding the digital color
networking capacity of their office environment. The increase in net sales of
MFPs and laser and GELJET printers completely offset the decrease in net sales
of personal computers and servers in Japan, optical equipment and optical
discs. In addition, Ricoh's new subsidiary, Ricoh Printing Systems, Ltd.,
contributed to the growth in the sales of this category. Cost of sales for
products increased mainly due to the increase in net sales of MFPs and laser
and GELJET printers.
Post sales and rentals. Net sales derived from post sales services and
rentals of equipment increased mainly due to an increase in revenue from post
sale services such as maintenance services as well as increased sales of
supplies for MFPs and laser and GELJET printers. Ricoh continued to direct its
marketing and promotional efforts of its equipment rental services towards
major corporate clients in Japan and overseas.
-39-
Other revenue. Net sales derived from other sources increased mainly due to
an increase in revenue from financing services.
COST OF SALES. Consolidated cost of sales for fiscal year 2007 increased by
8.3% (or Yen 92.2 billion) to Yen 1,206.5 billion from Yen 1,114.2 billion for
fiscal year 2006. This increase was due primarily to the increase in net sales
of MFPs and laser and GELJET printers.
GROSS PROFIT. Consolidated gross profit for fiscal year 2007 increased by
8.5% (or Yen 67.4 billion) to Yen 862.4 billion from Yen 795.0 billion for
fiscal year 2006. This increase in gross profit primarily reflects the increase
in sales derived from the introduction of new products in the Office Solutions
segment and value-added higher-margin products, such as MFPs and laser and
GELJET printers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses for fiscal year 2007 increased by 6.4% (or Yen 41.6
billion) to Yen 688.0 billion from Yen 646.4 billion for fiscal year 2006.
Ricoh invested Yen 114.9 billion in R&D activity during fiscal year 2007 for
purposes of developing more advanced MFPs and laser and GELJET printers with
new capabilities to maintain Ricoh's large market share position in these
products in the current competitive marketplace. Furthermore Ricoh incurred
certain expenses relating to (1) investments in information technologies in
connection with the development of its core operating systems in its offices in
Japan and overseas and (2) the expansion of its business such as the
acquisition by Ricoh Europe B.V. of sales and services companies in Europe. In
addition, the appreciation of both the U.S. Dollar and the Euro in relation to
the Japanese Yen resulted in an increase in selling, general and administrative
expenses of approximately Yen 16.9 billion.
OPERATING INCOME. Consolidated operating income for fiscal year 2007
increased by 17.4% (or Yen 25.7 billion) to Yen 174.3 billion from Yen 148.5
billion for fiscal year 2006. Operating Income as a percentage of net sales
increased by 0.6 percentage points from 7.8% for fiscal year 2006 to 8.4% for
fiscal year 2007. This increase was due primarily to increased sales in
profitable product lines as well as decreased selling, general and
administrative expenses as a percentage of net sales resulting from structural
reform initiatives that Ricoh implemented during fiscal year 2007, including
steps taken by Ricoh to streamline its core operating systems and thereby
enhance overall operational efficiency.
INTEREST AND DIVIDEND INCOME. Consolidated interest and dividend income for
fiscal year 2007 increased by Yen 2.6 billion to Yen 5.5 billion from Yen 2.8
billion for fiscal year 2006. The increase in interest and dividend income
reflected the favorable financial market conditions and the positive change in
economic conditions in Japan as dividend income from Japanese companies
increased.
INTEREST EXPENSE. Consolidated interest expense for fiscal year 2007
increased by Yen 2.1 billion to Yen 7.3 billion from Yen 5.2 billion for fiscal
year 2006. The increase in interest expense was due primarily to an increase in
market interest rates as compared to fiscal year 2006.
-40-
FOREIGN CURRENCY EXCHANGE (GAIN) LOSS, NET. Consolidated foreign currency
exchange (gain) loss, net included in other (income) expenses for fiscal year
2007 recorded a loss of Yen 1.1 billion from a gain of Yen 3.7 billion for
fiscal year 2006. For additional information on Ricoh's foreign exchange
hedging activities, see Item 11. Quantitative and Qualitative Disclosures About
Market Risk.
OTHER, NET. Consolidated other, net included in other (income) expenses
increased by Yen 0.4 billion to an income of Yen 3.1 billion for fiscal year
2007 from an income of Yen 2.7 billion for fiscal year 2006. This increase in
income of other, net in fiscal year 2007 was due to an increase in income
derived from the sale of marketable securities as compared to fiscal year 2006.
PROVISION FOR INCOME TAXES. Total consolidated provision for income taxes
for fiscal year 2007 increased by 14.5% (or Yen 8.1 billion) to Yen 64.3
billion from Yen 56.1 billion for fiscal year 2006. The effective tax rate was
36.9% for fiscal year 2007 from 36.8% for the previous fiscal year. The
effective tax rate was lower than the Japanese statutory tax rate. See Note 9
to the Consolidated Financial Statements for additional information.
MINORITY INTERESTS. Consolidated minority interests for fiscal year 2007
increased by Yen 1.3 billion to Yen 5.5 billion from Yen 4.1 billion for fiscal
year 2006. This increase was due primarily to improved performance of Ricoh
Elemex Corporation for fiscal year 2007.
EQUITY IN EARNINGS OF AFFILIATES. Consolidated equity in earnings of
affiliates for fiscal year 2007 decreased by Yen 1.0 billion to Yen 1.5 billion
from Yen 2.6 billion for fiscal year 2006. This decrease was due primarily to
the fact that Ricoh no longer recorded earnings for a company that it
recognized as an affiliate in prior fiscal years as Ricoh's interests in such
company decreased as a result of certain restructuring initiatives undertaken
by such company during fiscal year 2007. See Note 7 to the Consolidated
Financial Statements for additional information.
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX. Consolidated income from
discontinued operations, net of tax for fiscal year 2007 increased by Yen 3.4
billion to Yen 5.5 billion from Yen 2.0 billion for fiscal year 2006. This
increase was due primarily to the gain from the sale of the content delivery
business during fiscal year 2007. See Note 4 to the Consolidated Financial
Statements for additional information.
-41-
OPERATING SEGMENTS
------------------------------------------------------------------------------------------
Millions of Yen (except for percentages) Thousands of
--------------------------------------- U.S. Dollars % Change
2006 2007 2007 (2)
------------------------------------------------------------------------------------------
OFFICE SOLUTIONS
Net sales 1,637,228 100.0% 1,774,467 100.0% $15,037,856 8.4
Operating expenses 1,434,279 87.6 1,549,156 87.3 13,128,441 8.0
Operating income 202,949 12.4% 225,311 12.7% $ 1,909,415 11.0
------------------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS
Net sales 123,200 100.0% 138,112 100.0% $ 1,170,441 12.1
Operating expenses 124,108 100.7 135,164 97.9 1,145,458 8.9
Operating income (loss) (908) (0.7)% 2,948 2.1% $ 24,983 --
------------------------------------------------------------------------------------------
OTHER
Net sales 151,374 100.0% 161,071 100.0% $ 1,365,009 6.4
Operating expenses 148,692 98.2 158,868 98.6 1,346,339 6.8
Operating income 2,682 1.8% 2,203 1.4% $ 18,670 (17.9)
------------------------------------------------------------------------------------------
CORPORATE AND ELIMINATION
Net sales (2,564) (4,725) $ (40,043)
Operating expenses 53,575 51,357 435,228
Operating income (loss) (56,139) (56,082) $ (475,271)
------------------------------------------------------------------------------------------
CONSOLIDATED
Net sales 1,909,238 100.0% 2,068,925 100.0% $17,533,263 8.4
Operating expenses 1,760,654 92.2 1,894,545 91.6 16,055,466 7.6
Operating income 148,584 7.8% 174,380 8.4% $ 1,477,797 17.4
------------------------------------------------------------------------------------------
Notes:
(1) During fiscal year 2007, a subsidiary of the Company sold its content
distribution business. As a result of such sale, the operating results of
such business was reclassified as a discontinued operation. Accordingly,
sales derived from such business was excluded from the above segment data
for all periods in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."
(2) The above consolidated financial data set forth under the heading "Thousands
of U.S. Dollars 2007" which has been translated from Japanese Yen to
U.S. Dollar for the year ended March 31, 2007, is included solely for the
convenience of readers outside Japan and has been made using the exchange
rate of Yen 118 to US$1, the approximate rate of exchange prevailing at the
Federal Reserve Bank of New York on March 31, 2007.
Office Solutions
Net sales in the Office Solutions segment for fiscal year 2007 increased by
8.4% (or Yen 137.2 billion) to Yen 1,774.4 billion from Yen 1,637.2 billion for
fiscal year 2006. This increase was due primarily to the favorable growth in
the Imaging Solutions category. More specifically, sales in the Imaging
Solutions category for fiscal year 2007 increased by 9.2% (or Yen 133.5
billion) to Yen 1,580.1 billion from Yen 1,446.6 billion for fiscal year 2006.
This increase was due primarily to the increase in net sales of higher-margin
value-added color PPCs, color MFPs and color laser and GELJET printers in both
Japan and the overseas markets. Such products are equipped with advanced
digital and networking technologies, and continue to be well-received by
customers as such products addressed customers' needs for conducting business
operations effectively and efficiently by digitalizing and colorizing documents
and being capable of handling large volumes of information. With respect to
monochrome products, overseas sales of monochrome MFPs and PPCs increased in
fiscal year 2007, while sales of monochrome MFPs and PPCs in Japan continued to
decrease primarily due to a shift in customer demand from monochrome products
to products with color capabilities. Sales of monochrome and color laser and
GELJET printers increased in both Japan and the overseas markets due
-42-
primarily to the continuous release of new products that adequately addressed
customers' needs in terms of printing quality and speed
Furthermore, an increase in sales volume of high-end products and customized
products contributed to the increase in sales in this segment. Ricoh continued
to release products with enhanced security features and products that are
friendly to the environment. Furthermore, Ricoh continued to offer solutions to
optimize the total printing costs of its customers during fiscal year 2007 to
assist customers manage their TDV more effectively and efficiently.
Sales in the Network System Solutions category for fiscal year 2007
increased by 2.0% (or Yen 3.7 billion) to Yen 194.3 billion from Yen 190.5
billion for fiscal year 2006. Sales in the solutions business, such as support
and services relating to Ricoh's imaging solutions products, continued to
increase both in Japan and the overseas markets during fiscal year 2007 due to
successful promotional efforts to assist customers in optimizing their total
printing costs. Sales of software and related services also increased due to
such promotional efforts.
Excluding the foreign currency exchange rate fluctuations, sales in the
Office Solutions segment would have increased by 4.9% (or Yen 79.7 billion) for
fiscal year 2007 as compared to fiscal year 2006.
For fiscal year 2007, cost of sales of the Office Solutions segment
increased due primarily to the increase in sales derived from the introduction
of new products. Furthermore, Ricoh incurred certain expenses relating to
(1) investments in information technologies in connection with the development
of its core operating systems in its offices in Japan and overseas and (2) the
expansion of its business such as the acquisition by Ricoh Europe B.V. of sales
and services companies in Europe. As a result, operating expenses in the Office
Solutions segment for fiscal year 2007 increased by 8.0% (or Yen 114.8 billion)
to Yen 1,549.1 billion from Yen 1,434.2 billion for fiscal year 2006.
Operating income for the Office Solutions segment for fiscal year 2007
increased by 11.0% (or Yen 22.3 billion) to Yen 225.3 billion from Yen 202.9
billion for fiscal year 2006. Operating income as a percentage of net sales for
fiscal year 2007 increased by 0.3 percentage points to 12.7% from 12.4% as
compared to fiscal year 2006. Increased sales in highly profitable product
lines, such as MFPs with color capabilities, coupled with lower selling,
general and administrative expenses as a percentage of net sales due to
structural reform initiatives undertaken by Ricoh to streamline its business
structure contributed to the increase in operating income of the Office
Solutions segment for fiscal year 2007.
Industrial Products
Net sales in the Industrial Products segment for fiscal year 2007 increased
by 12.1% (or Yen 14.9 billion) to Yen 138.1 billion from Yen 123.2 billion for
fiscal year 2006. Sales of thermal media and electronic components increased
due to stable market demand and
-43-
sales of semiconductor devices increased reflecting a demand for Ricoh's
integrated circuits by manufacturers of such electronic devices as mobile and
cellular phones. Sales of measuring equipment increased due primarily to the
recovery in demand for such products. While sales in the optical equipment
business decreased from the previous fiscal year due primarily to sluggish
demand, such decrease in sales of the optical equipment business was
sufficiently offset by the increase in sales from the thermal media, electronic
components, semiconductor and measuring equipment businesses as discussed above.
Operating expenses in this segment for fiscal year 2007, increased by 8.9%
(or Yen 11.0 billion) to Yen 135.1 billion from Yen 124.1 billion for fiscal
year 2006. This increase was due primarily to the increase in sales in this
segment.
As a result, operating income for the Industrial Products segment for fiscal
year 2007 increased by Yen 3.8 billion to Yen 2.9 billion as compared to the
operating loss of Yen 0.9 billion for fiscal year 2006. Operating income as a
percentage of net sales for fiscal year 2007 increased by 2.8 percentage points
to 2.1% from (0.7)% as compared to fiscal year 2006.
Other
Net sales in the Other segment for fiscal year 2007 increased by 6.4% (or
Yen 9.6 billion) to Yen 161.0 billion from Yen 151.3 billion for fiscal year
2006. During fiscal year 2007, sales of digital cameras increased due primarily
to the favorable response by customers of new digital camera products that
Ricoh introduced. The steady performance of the financing business also
contributed to the increase in this segment.
Operating expenses in this segment for fiscal year 2007, increased by 6.8%
(or Yen 10.1 billion) to Yen 158.8 billion from Yen 148.6 billion for fiscal
year 2006.
As a result, operating income for the Other segment for fiscal year 2007
decreased by Yen 0.4 billion to Yen 2.2 billion as compared to Yen 2.6 billion
for fiscal year 2006. Operating income as a percentage of net sales for fiscal
year 2007 decreased by 0.4 percentage points to 1.4% from 1.8 % as compared to
fiscal year 2006.
-44-
GEOGRAPHIC SEGMENTS BY GEOGRAPHIC ORIGIN
------------------------------------------------------------------------------------------
Millions of Yen (except for percentages) Thousands of
--------------------------------------- U.S. Dollars % Change
2006 2007 2007 (2)
------------------------------------------------------------------------------------------
JAPAN
Net sales 1,406,032 100.0% 1,521,967 100.0% $12,898,025 8.2
Operating expenses 1,310,233 93.2 1,411,653 92.8 11,963,161 7.7
Operating income 95,799 6.8% 110,314 7.2% $ 934,864 15.2
------------------------------------------------------------------------------------------
THE AMERICAS
Net sales 393,376 100.0% 429,262 100.0% $ 3,637,814 9.1
Operating expenses 378,108 96.1 408,150 95.1 3,458,899 7.9
Operating income 15,268 3.9% 21,112 4.9% $ 178,915 38.3
------------------------------------------------------------------------------------------
EUROPE
Net sales 438,753 100.0% 511,795 100.0% $ 4,337,246 16.6
Operating expenses 417,341 95.1 478,380 93.5 4,054,068 14.6
Operating income 21,412 4.9% 33,415 6.5% $ 283,178 56.1
------------------------------------------------------------------------------------------
OTHER
Net sales 200,288 100.0% 269,043 100.0% $ 2,280,025 34.3
Operating expenses 185,283 92.5 251,486 93.5 2,131,237 35.7
Operating income 15,005 7.5% 17,557 6.5% $ 148,788 17.0
------------------------------------------------------------------------------------------
CORPORATE AND ELIMINATION
Net sales (529,211) (663,142) $(5,619,847)
Operating expenses (530,311) (655,124) (5,551,899)
Operating income (loss) 1,100 (8,018) $ (67,948)
------------------------------------------------------------------------------------------
CONSOLIDATED
Net sales 1,909,238 100.0% 2,068,925 100.0% $17,533,263 8.4
Operating expenses 1,760,654 92.2 1,894,545 91.6 16,055,466 7.6
Operating income 148,584 7.8% 174,380 8.4% $ 1,477,797 17.4
------------------------------------------------------------------------------------------
Notes:
(1) During fiscal year 2007, a subsidiary of the Company sold its content
distribution business. As a result of such sale, the operating results of
such business was reclassified as a discontinued operation. Accordingly,
sales derived from such business was excluded from the above segment data
for all periods in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."
(2) The above consolidated financial data set forth under the heading "Thousands
of U.S. Dollars 2007" which has been translated from Japanese Yen to
U.S. Dollar for the year ended March 31, 2007, is included solely for the
convenience of readers outside Japan and has been made using the exchange
rate of Yen 118 to US$1, the approximate rate of exchange prevailing at the
Federal Reserve Bank of New York on March 31, 2007.
Japan
Sales in Japan for fiscal year 2007 increased by 8.2% (or Yen 115.9 billion)
to Yen 1,521.9 billion from Yen 1,406.0 billion for fiscal year 2006. In the
Office Solutions segment, Ricoh conducted a series of sales promotions in Japan
when it introduced new products and increased customers' demand by introducing
new products that combined color printing capabilities and various office
solutions that addressed customers' needs. Ricoh's strategic sales promotion
activities and marketing strategies were designed to target its customers'
changing demand from stand-alone monochrome products to color high-speed
products that work in the network environment. Sales of solution products such
as support services, document management applications and other software
increased in Japan as well. This increase was attributable to Ricoh's
successful promotion of solutions associated with software and IT services that
optimized the customers' total printing costs. Sales of semiconductors also
increased despite the intensified competition in the cellular phone market. In
addition, sales of both thermal
-45-
media and measuring equipment increased, with the measuring equipment business
showing an upward trend in demand.
Operating expenses in Japan for fiscal year 2007 increased by 7.7% (or
Yen 101.4 billion) to Yen 1,411.6 billion from Yen 1,310.2 billion for fiscal
year 2006. The increase in operating expenses was due primarily to the increase
in sales as well as the increase in R&D expenses and depreciation expenses.
As a result, operating income for fiscal year 2007 increased by 15.2% (or
Yen 14.5 billion) to Yen 110.3 billion from Yen 95.7 billion for fiscal year
2006.
The Americas
Net sales in the Americas for fiscal year 2007 increased by 9.1% (or Yen 35.8
billion) to Yen 429.2 billion from Yen 393.3 billion for fiscal year 2006. Ricoh
recorded increased sales of color and high-speed MFPs and laser and GELJET
printers for corporate clients in the Americas for fiscal year 2007.
Furthermore, Ricoh continued to enhance its sales structure to form close
relationships with its customers and expand its product line-up in the Americas
during fiscal year 2007. Ricoh also worked closely with its customer to develop
tailored integrated networking solutions to meet individual requirements of
each customer.
Operating expenses in this geographic segment for fiscal year 2007 increased
by 7.9% (or Yen 30.0 billion) to Yen 408.1 billion from Yen 378.1 billion for
fiscal year 2006. The increase in operating expenses was due primarily to the
increase in sales. The operating expenses as a percentage of net sales
decreased by 1.0 percentage point for fiscal year 2007 as compared to the
previous fiscal year in the Americas due primarily to the system integration
initiatives that were implemented during the previous fiscal year to achieve
operational efficiencies.
As a result, operating income for fiscal year 2007 increased by 38.3% (or
Yen 5.8 billion) to Yen 21.1 billion from Yen 15.2 billion for fiscal year 2006
due primarily to the increase in sales of higher-margin products such as color
MFPs.
Europe
Sales in Europe for fiscal year 2007 increased by 16.6% (or Yen 73.0 billion)
to Yen 511.7 billion from Yen 438.7 billion for fiscal year 2006, due primarily
to an increase in sales in the Imaging Solutions category such as MFPs and
laser and GELJET printers, reflecting Ricoh's continuing efforts to strengthen
its sales networks and to reinforce the strength of its brand in this
geographic segment.
Operating expenses in this geographic segment for fiscal year 2007 increased
by 14.6% (or Yen 61.0 billion) to Yen 478.3 billion from Yen 417.3 billion for
fiscal year 2006 due primarily to the increase in sales and the acquisition of
Danka's European companies.
-46-
As a result, operating income for fiscal year 2007 increased by 56.1% (or
Yen 12.0 billion) to Yen 33.4 billion from Yen 21.4 billion for fiscal year
2006 due primarily to the increase in sales of higher-margin products such as
color MFPs.
Other
Net sales in the Other geographic segment increased for fiscal year 2007 by
34.3% (or Yen 68.7 billion) to Yen 269.0 billion from Yen 200.2 billion for
fiscal year 2006. This increase was due primarily to the increase in sales of
color MFPs. Sales of Office Solutions products, such as color MFPs and laser
and GELJET printers, increased in this geographic segment as customer demand
shifted toward such products and Ricoh's group companies in this geographic
region manufactured and exported such products to various other Ricoh group
companies worldwide.
Operating expenses in this geographic segment for fiscal year 2007 increased
by 35.7% (or Yen 66.2 billion) to Yen 251.4 billion from Yen 185.2 billion for
fiscal year 2006 due primarily to increased sales activities in this geographic
segment.
As a result, operating income for fiscal year 2007 increased by 17.0% (or
Yen 2.5 billion) to Yen 17.5 billion from Yen 15.0 billion for fiscal year 2006
due primarily to increased sales activities in this geographic segment.
FISCAL YEAR 2006 COMPARED TO FISCAL YEAR 2005
NET SALES. Consolidated net sales of Ricoh for fiscal year 2006 increased by
5.6% (or Yen 101.8 billion) to Yen 1,909.2 billion from Yen 1,807.4 billion for
fiscal year 2005. The increase in net sales was primarily due to the increase
in net sales in the Office Solutions segment.
Net sales from the Office Solutions segment accounted for 85.8% of
consolidated net sales for fiscal year 2006. A significant portion of such net
sales was derived from net sales from the Imaging Solutions category, which
accounted for 75.8% of consolidated total net sales, up 2.1 percentage points
from fiscal year 2005. The increase in net sales from the Imaging Solutions
category was due primarily to the increase in net sales of MFPs and laser and
GELJET printers as a result of Ricoh's introduction of new products in response
to the continuing shift in customer preference from stand-alone equipment to
multi-functional equipment, which can improve the customer's operations by
expanding the digital color networking capacity of their office environment. In
particular, sales of MFPs continued to grow in double-digit percentage figures
in the overseas markets. Compared to fiscal year 2005, net sales of MFPs
increased by 7.4% in Japan and 25.6% overseas. The market in Japan for MFPs is
more mature than the overseas markets, as domestic customers have preferred to
use multifunctional products that provide network printing and document
solution capabilities required to meet the needs of a Japanese office
environment in which space and operations are costly. We see more opportunities
in the overseas market for MFPs, as the overseas markets have not yet matured
as compared to the domestic market, and Ricoh improved its marketing structure
-47-
in order to develop momentum in sales in the overseas market. Similar to fiscal
year 2005, sales of laser and GELJET printers continued to grow in double-digit
percentage figures in both the domestic and overseas markets. Compared to
fiscal year 2005, net sales of laser and GELJET printers increased by 18.9% in
Japan and 18.5% overseas. Such increases were due primarily to the continuous
release of new products that adequately addressed customer needs in terms of
printing quality and speed in both the domestic and overseas markets. Ricoh's
subsidiary, Ricoh Printing Systems, Ltd., also contributed to the growth in
sales of the Imaging Solutions category as its high-speed printers performed
favorably through OEM distributors. In response to customer demands, we offer
management and workflow efficiency solutions that are fine-tailored to our
customers' printing needs from the operational administration of office network
printers and mission-critical business printers to the creation of a
high-speed, on-demand printing environment. We also offer professional services
such as environment analysis, solutions, custom software design, and more in
order to help improve our customers' printing process.
The increase in net sales in the Imaging Solutions category was partially
offset by the decrease in net sales in the Network System Solutions category.
The decrease in net sales in the Network System Solutions category was mainly
due to lower sales in personal computers and servers in Japan although the
support and other services that optimize customers' total printing costs
continued to be well-received by customers. Net sales in the Network System
Solutions category decreased by 4.3% in fiscal year 2006 as compared to fiscal
year 2005.
In the Industrial Products segment, net sales increased by 1.0% in fiscal
year 2006 as compared to fiscal year 2005. The sales of thermal media and
electronic components increased due to stable market demand and the demand for
semiconductor devices showed signs of recovery as a result of the sales of
integrated circuits used in electronic devices such as mobile and cellular
phones increased; however, such increase in sales was partially offset by the
decrease in sales of optical equipments due to a sluggish demand.
In the Other segment, net sales decreased by 3.3% mainly due to the decrease
in sales of optical discs in the overseas markets as Ricoh completed its
withdrawal from the self-developed drive business which used proprietary
technology developed by Ricoh, and its key-module/parts unit. While net sales
of digital cameras continued to perform favorably in fiscal year 2006, the
increase in net sales from digital cameras was not enough to offset the
decrease in net sales of the optical discs business.
The appreciation of both the U.S. Dollar and the Euro in relation to the
Japanese Yen contributed to an increase in consolidated net sales in fiscal
year 2006 as compared to fiscal year 2005 in Japanese Yen. Had the foreign
currency exchange rates remained the same as in fiscal year 2005, Ricoh's
consolidated net sales would have increased by 3.8%.
Products. An increase in net sales derived from products was mainly due to
the increase in net sales of MFPs and laser and GELJET printers as a result of
Ricoh's
-48-
introduction of new products in response to the continuing shift in customers'
preference from stand-alone equipments to multi-functional equipments, which
can improve the customers' operations by expanding the digital color networking
capacity of their office environment. The increase in net sales of MFPs and
laser and GELJET printers completely offset the decrease in net sales of the
personal computers and servers in Japan, the optical equipments and the optical
discs. In addition, Ricoh's new subsidiary, Ricoh Printing Systems, Ltd.,
contributed to the growth in the sales of this category. An increase in cost of
sales of this category was mainly due to the increase in net sales of MFPs and
laser and GELJET printers.
Post sales and rentals. An increase in net sales derived from post sales
services and rentals of equipment was mainly due to an increase in revenue from
post sale services such as maintenance services as well as increase in sales of
supplies for MFPs and laser and GELJET printers. Ricoh continued to direct its
marketing and promotional efforts of its equipment rental services towards
major corporate clients in Japan and overseas.
Other revenue. A decrease in net sales derived from other sources was mainly
due to the decrease in revenue from financing services.
COST OF SALES. Consolidated cost of sales for fiscal year 2006 increased by
5.3% (or Yen 56.0 billion) to Yen 1,114.2 billion from Yen 1,058.2 billion for
fiscal year 2005. This increase was due primarily to the increase in net sales
of MFPs and laser and GELJET printers, while cost of sales as a percentage of
net sales decreased from 58.5% to 58.4%.
GROSS PROFIT. Consolidated gross profit for fiscal year, 2006 increased by
6.0% to Yen 795.0 billion from Yen 749.1 billion for fiscal year 2005. Gross
profit as a percentage of net sales increased by 0.1 percentage point from
41.5% for fiscal year 2005 to 41.6% for fiscal year 2006. This increase in
gross profit primarily reflects Ricoh's introduction of new products, and an
increase in sales of value-added high-margin products such as MFPs and laser
and GELJET printers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses for fiscal year 2006 increased by 4.6% (or Yen 28.3
billion) to Yen 646.4 billion from Yen 618.0 billion for fiscal year 2005. Ricoh
invested Yen 110.3 billion in R&D activity during fiscal year 2006 for the
purposes of developing more advanced MFPs and laser and GELJET printers with
new capabilities to maintain Ricoh's large market share position in these
products in the current competitive marketplace. Furthermore Ricoh incurred
certain expenses relating to (1) the consolidation of some of its domestic
operations at its headquarters in Tokyo, (2) the integration of its domestic
R&D facilities and offices at the Ricoh Technology Center, (3) the enhancement
of its overseas sales and marketing organization structure and (4) investments
in information technologies in connection with the development of its core
operating systems in Japan and overseas. In addition, the appreciation of both
the U.S. Dollar and the Euro in relation to the Japanese Yen resulted in an
increase in selling, general and administrative expenses of approximately
Yen 8.7 billion.
49
OPERATING INCOME. Consolidated operating income for fiscal year 2006
increased by 13.3% (or Yen 17.4 billion) to Yen 148.5 billion from Yen 131.1
billion for fiscal 2005. Operating income as a percentage of net sales
increased by 0.5 percentage point from 7.3% for fiscal year 2005 to 7.8% for
fiscal year 2006.
INTEREST AND DIVIDEND INCOME. Consolidated interest and dividend income for
fiscal year 2006 increased by Yen 0.6 billion to Yen 2.8 billion from Yen 2.2
billion for fiscal year 2005. The increase in interest and dividend income
reflected the favorable financial market conditions and the positive change in
economic conditions in Japan as dividend income from Japanese companies
increased.
INTEREST EXPENSE. Consolidated interest expense for fiscal year 2006
increased by Yen 0.5 billion to Yen 5.2 billion from Yen 4.6 billion for fiscal
year 2005. This was due to the increase in short-term borrowings and a rise in
interest rates.
FOREIGN CURRENCY EXCHANGE (GAIN) LOSS, NET. Consolidated foreign currency
exchange gain, net included in other (income) expenses for fiscal year 2006
increased by Yen 2.2 billion to a gain of Yen 3.7 billion from a gain of Yen 1.5
billion for fiscal year 2005. For additional information on Ricoh's foreign
exchange hedging activities, see Item 11. Quantitative and Qualitative
Disclosures About Market Risk.
OTHER, NET. Consolidated other, net included in other (income) expenses
increased by Yen 2.0 billion to an income of Yen 2.7 billion for fiscal year
2006 from an income of Yen 0.7 billion for fiscal year 2005. This increase in
income of the other, net in fiscal year 2006 was due to an increase in income
derived from the sale of marketable securities and the a gain from nonmonetary
exchange of marketable securities as compared to fiscal year 2005.
PROVISION FOR INCOME TAXES. Total consolidated provision for income taxes
for fiscal year 2006 increased by 15.0% (or Yen 7.3 billion) to Yen 56.1 billion
from Yen 48.8 billion for fiscal year 2005. The effective tax rate decreased by
0.5 percentage point to 36.8% for fiscal year 2006 from 37.3% for fiscal year
2005. This 0.5 percentage point decrease in the effective tax rate was
attributable to Japanese tax credits resulting from (1) the increase in R&D
expenses and (2) the investments made by Ricoh in information technologies
hardware and software used by the Company. As a result of these tax credits,
the effective tax rate was lower than the Japanese statutory tax rate. See Note
9 to the Consolidated Financial Statements for additional information.
MINORITY INTERESTS. Consolidated minority interests for fiscal year 2006
decreased by Yen 0.5 billion to Yen 4.1 billion from Yen 4.7 billion for fiscal
year 2005. This decrease was due primarily to provisioning necessitated by
quality problems in its measuring equipment business.
EQUITY IN EARNINGS OF AFFILIATES. Consolidated equity in earnings of
affiliates for fiscal year 2006 decreased by Yen 0.5 billion to Yen 2.6 billion
from Yen 3.1 billion for fiscal year 2005. This decrease was due primarily to
deterioration in the business performance of Ricoh's affiliates.
-50-
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX. Consolidated income from
discontinued operations, net of tax for fiscal year 2006 decreased by Yen 0.5
billion to Yen 2.0 billion from Yen 2.6 billion for fiscal year 2005.
OPERATING SEGMENTS
------------------------------------------------------------------------------------------
Millions of Yen (except for percentages) Thousands of
---------------------------------------- U.S. Dollars % Change
2005 2006 2006 (2)
------------------------------------------------------------------------------------------
OFFICE SOLUTIONS
Net sales 1,531,428 100.0% 1,637,228 100.0% $13,993,402 6.9
Operating expenses 1,335,059 87.2 1,434,279 87.6 12,258,795 7.4
Operating income 196,369 12.8% 202,949 12.4% $ 1,734,607 3.4
------------------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS
Net sales 121,914 100.0% 123,200 100.0% $ 1,052,991 1.1
Operating expenses 121,872 100.0 124,108 100.7 1,060,752 1.8
Operating income (loss) 42 0.0% (908) (0.7)% $ (7,761) --
------------------------------------------------------------------------------------------
OTHER
Net sales 156,570 100.0% 151,374 100.0% $ 1,293,795 (3.3)
Operating expenses 165,126 105.5 148,692 98.2 1,270,872 (10.0)
Operating income (loss) (8,556) (5.5)% 2,682 1.8% $ 22,923 --
------------------------------------------------------------------------------------------
CORPORATE AND ELIMINATION
Net sales (2,506) (2,564) $ (21,914)
Operating expenses 54,240 53,575 457,906
Operating income (loss) (56,746) (56,139) $ (479,820)
------------------------------------------------------------------------------------------
CONSOLIDATED
Net sales 1,807,406 100.0% 1,909,238 100.0% $16,318,274 5.6
Operating expenses 1,676,297 92.7 1,760,654 92.2 15,048,325 5.0
Operating income 131,109 7.3% 148,584 7.8% $ 1,269,949 13.3
------------------------------------------------------------------------------------------
Notes:
(1) During fiscal year 2007, a subsidiary of the Company sold its content
distribution business. As a result of such sale, the operating results of
such business was reclassified as a discontinued operation. Accordingly,
sales derived from such business was excluded from the above segment data
for all periods in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."
(2) The above consolidated financial data set forth under the heading "Thousands
of U.S. Dollars 2006"which has been translated from Japanese Yen to
U.S. Dollar for the year ended March 31, 2006, is included solely for the
convenience of readers outside Japan and has been made using the exchange
rate of Yen 117 to US$1, the approximate rate of exchange prevailing at the
Federal Reserve Bank of New York on March 31, 2006.
Office Solutions
Net sales in the Office Solutions segment for fiscal year 2006 increased by
6.9% (or Yen 105.8 billion) to Yen 1,637.2 billion from Yen 1,531.4 billion for
fiscal year 2005. This increase was due primarily to the increase in sales of
color PPCs, MFPs and laser and GELJET printers in the Imaging Solutions
category in both the domestic and overseas markets. Such products are equipped
with advanced digital and networking technologies and were well-received by
customers as such products addressed customers' needs for conducting business
operations effectively and efficiently by digitalizing and colorizing documents
and being capable of handling large volumes of information. Furthermore, Ricoh
continued to offer solutions to optimize the total printing costs of its
customers in fiscal year 2006 to assist customers manage their TDV more
effectively and efficiently. The increase in net sales of the Imaging Solutions
category was partially offset by the
-51-
decrease in net sales of the Network System Solutions category, which decrease
was due primarily to the decrease in net sales of personal computers and
servers.
More specifically, sales in the Imaging Solutions category for fiscal year
2006 increased by 8.6% (or Yen 114.3 billion) to Yen 1,446.6 billion from Yen
1,332.2 billion for fiscal year 2005. This increase was primarily due to the
increase in net sales of MFPs and laser and GELJET printers in both the
domestic and overseas markets. Overseas sales of digital PPCs continued to
perform well although the domestic sales of digital PPCs decreased primarily
due to a shift in customer demand from stand-alone equipment to multifunctional
products, and from monochrome products to products with color capabilities at
the same time. Sales of color PPCs increased in both Japan and overseas as
Ricoh made significant strides to introduce new products to the global markets.
Ricoh enjoyed a sales growth in the double-digit percentage figures overseas in
fiscal year 2006. The double-digit percentage figures were due primarily to the
strong sales of both MFPs and laser and GELJET printers as well as digital and
color PPCs as discussed above. With regards to MFPs, Ricoh introduced various
new products that offer high-speed performance, networking capabilities and
color printing such as imagio Neo C600Pro (also known as Aficio Color 5560 when
sold overseas). This is a new generation of multifunctional color printers with
a high-speed printing capability of 55 pages per minute. Moreover, other
products arising from the new generation of color MFPs enable the printing of
high-quality images by utilizing the Color PxP toner, which uses proprietary
technology developed by Ricoh and have high security functions, such as
protection to prevent unauthorized copying, etc. The acquisition of the
printing company, Ricoh Printing Systems, Ltd., which manufactures and markets
both low and high speed printers for the office environment, in fiscal year
2005 has reinforced Ricoh's office color printer and print-on-demand product
lines in Japan and overseas.
Sales in the Network System Solutions category for fiscal year 2006
decreased by 4.3% (or Yen 8.5 billion) to Yen 190.5 billion from Yen 199.1
billion for fiscal year 2005. Sales in the solutions business, such as support
and services relating to Ricoh's imaging solutions products, continued to
increase both in Japan and overseas in fiscal year 2006 due to successful
promotional efforts to assist customers in optimizing their total printing
costs. In connection with promoting Ricoh's printing solutions, Ricoh provided
software and related services to aid in connecting Ricoh's digital MFPs to
customers' host system in their office environment, provided the necessary
support at customer sites, and strengthened its own sales infrastructure for
such network system solutions products. While Ricoh's solutions business
performed favorably during fiscal year 2006 as a result of these efforts, the
increase in sales resulting from such business did not sufficiently offset the
decrease in sales of personal computers and servers in Japan.
On the whole, the increase in sales in the Imaging Solutions category
exceeded the decrease in sales in the Network System Solutions category and net
sales in the Office Solutions segment increased by 6.9% for fiscal year 2006 as
compared to fiscal year 2005. Excluding the foreign currency exchange rate
fluctuations, sales in the Office Solutions segment would have increased by
4.9% (or Yen 75.0 billion) for fiscal year 2006 as compared to fiscal year 2005.
-52-
During fiscal year 2006, Ricoh incurred expenses relating to the following
items: (1) R&D investments in its core products (i.e., MFPs and laser and
GELJET printers in the Imaging Solutions category), (2) investments in
operating systems relating to accounting and sales force automation and
marketing support, (3) realignment of headquarters functions through the
consolidation of several domestic operations at Ricoh's headquarters and the
integration of several key R&D facilities and offices in Japan, and
(4) enhancement of overseas sales organization structure. Ricoh integrated the
European Lanier operations into its other subsidiaries in Europe during fiscal
year 2006. On the other hand, Ricoh continued to implement strict cost
management controls at the product development stage and continued to improve
the efficiency of its distribution and production systems based on supply chain
management. Despite such cost reduction activities, operating expenses in the
Office Solutions segment for fiscal year 2006 increased by 7.4% (or Yen 99.2
billion) to Yen 1,434.2 billion from Yen 1,335.0 billion for fiscal year 2005
as Ricoh's expenses exceeded the cost reductions. Notwithstanding the greater
increase in operating expenses as compared to operating income, operating
income for the Office Solutions segment for fiscal year 2006 increased by 3.4%
(or Yen 6.5 billion) to Yen 202.9 billion from Yen 196.3 billion for fiscal
year 2005. Operating income as a percentage of net sales for fiscal year 2006
decreased by 0.4 percentage points to 12.4% from 12.8% as compared to fiscal
year 2005.
Industrial Products
Net sales in the Industrial Products segment for fiscal year 2006 increased
by 1.1% (or Yen 1.2 billion) to Yen 123.2 billion from Yen 121.9 billion for
fiscal year 2005. This increase was due primarily to the increase in sales in
the thermal media products both in Japan and overseas and the increase in sales
in the electronic component products overseas. In addition, the semiconductor
business showed signs of recovery in the fourth quarter of fiscal year 2006 as
compared to fiscal year 2005, due to the recovery in demand for integrated
circuits used in electronic products, such as mobile and cellular phones. While
sales in the optical equipment business decreased from the previous
corresponding period due primarily to sluggish demand, such decrease in sales
of the optical equipment business was sufficiently offset by the increase in
sales resulting from thermal media, electronic components and semiconductor
businesses as discussed above.
With respect to expenses during fiscal year 2006, Ricoh recorded additional
expenses that were required to address the quality problems in its measuring
equipment business in Japan. As a result of such expenses, operating expenses
in the Industrial Products segment for fiscal year 2006 increased by 1.8% (or
Yen 2.2 billion) to Yen 124.1 billion from Yen 121.8 billion for fiscal year
2005. As a result of the above factors, operating income (loss) for the
Industrial Products segment for fiscal year 2006 decreased by Yen 0.9 billion
to Yen (0.9) billion as compared to fiscal year 2005. Operating income as a
percentage of net sales for fiscal year 2006 decreased by 0.7 percentage point
to (0.7) % from 0.0% as compared to fiscal year 2005.
-53-
Other
Net sales in the Other segment for fiscal year 2006 decreased by 3.3% (or
Yen 5.1 billion) to Yen 151.3 billion from Yen 156.5 billion for fiscal year
2005. In fiscal year 2006, sales of digital cameras increased primarily due to
the increase in demand for new digital camera products, such as the GR DIGITAL
and the Caplio R4, that were well-received in the global market. Despite the
fact that the digital camera business continued to perform well in fiscal year
2006, the increase in sales from such business was not sufficient to offset the
decrease in sales of the optical discs business in the overseas market as Ricoh
withdrew from the self-developed drive business, which used proprietary
technology developed by Ricoh, and its key-module/parts unit business from the
second half of fiscal year 2005.
With respect to expenses, Ricoh's withdrawal from the key-module/parts unit
business in fiscal year 2005 was attributable to the decrease in costs and
expenses of the Other segment in fiscal year 2006. As a result of such factors,
operating income (loss) for the Other segment for fiscal year 2006 increased by
Yen 11.2 billion to Yen 2.6 billion as compared to fiscal year 2005. Operating
income (loss) as a percentage of net sales for fiscal 2006 increased by 7.3
percentage points to 1.8% from (5.5)% as compared to fiscal year 2005.
-54-
GEOGRAPHIC SEGMENTS BY GEOGRAPHIC ORIGIN
------------------------------------------------------------------------------------------
Millions of Yen (except for percentages) Thousands of
--------------------------------------- U.S. Dollars % Change
2005 2006 2006 (2)
------------------------------------------------------------------------------------------
JAPAN
Net sales 1,380,013 100.0% 1,406,032 100.0% $12,017,368 1.9
Operating expenses 1,296,335 93.9 1,310,233 93.2 11,198,573 1.1
Operating income 83,678 6.1% 95,799 6.8% $ 818,795 14.5
------------------------------------------------------------------------------------------
THE AMERICAS
Net sales 330,461 100.0% 393,376 100.0% $ 3,362,188 19.0
Operating expenses 316,651 95.8 378,108 96.1 3,231,692 19.4
Operating income 13,810 4.2% 15,268 3.9% $ 130,496 10.6
------------------------------------------------------------------------------------------
EUROPE
Net sales 415,643 100.0% 438,753 100.0% $ 3,750,026 5.6
Operating expenses 391,271 94.1 417,341 95.1 3,567,017 6.7
Operating income 24,372 5.9% 21,412 4.9% $ 183,009 (12.1)
------------------------------------------------------------------------------------------
OTHER
Net sales 173,948 100.0% 200,288 100.0% $ 1,711,863 15.1
Operating expenses 162,042 93.2 185,283 92.5 1,583,615 14.3
Operating income 11,906 6.8% 15,005 7.5% $ 128,248 26.0
------------------------------------------------------------------------------------------
CORPORATE AND ELIMINATION
Net sales (492,659) (529,211) $(4,523,171)
Operating expenses (490,002) (530,311) (4,532,572)
Operating income (loss) (2,657) 1,100 $ 9,401
------------------------------------------------------------------------------------------
CONSOLIDATED
Net sales 1,807,406 100.0% 1,909,238 100.0% $16,318,274 5.6
Operating expenses 1,676,297 92.7 1,760,654 92.2 15,048,325 5.0
Operating income 131,109 7.3% 148,584 7.8% $ 1,269,949 13.3
------------------------------------------------------------------------------------------
Notes:
(1) During fiscal year 2007, a subsidiary of the Company sold its content
distribution business. As a result of such sale, the operating results of
such business was reclassified as a discontinued operation. Accordingly,
sales derived from such business was excluded from the above segment data
for all periods in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."
(2) The above consolidated financial data set forth under the heading "Thousands
of U.S. Dollars 2006"which has been translated from Japanese Yen to
U.S. Dollar for the year ended March 31, 2006, is included solely for the
convenience of readers outside Japan and has been made using the exchange
rate of Yen 117 to US$1, the approximate rate of exchange prevailing at the
Federal Reserve Bank of New York on March 31, 2006.
Japan
Sales in Japan for fiscal year 2006 increased by 1.9% (or Yen 26.0 billion)
to Yen 1,406.0 billion from Yen 1,380.0 billion for fiscal year 2005. In the
Office Solutions segment, sales of products in the Imaging Solutions category,
including color PPCs, MFPs and laser and GELJET printers, increased due to
Ricoh's strategic sales promotion activities and marketing strategies designed
to meet its customers' changing demand from stand-alone monochrome products to
networkable color high-speed products. Moreover, the performance of super
high-speed printers produced by Ricoh Printing Systems, Ltd., which was
acquired in fiscal year 2005, contributed favorably to increased sales in
Japan. In addition, sales of solution products such as support services,
document management applications and other software increased due to Ricoh's
successful promotion of such solutions to optimize the customers' total
printing costs. Meanwhile, sales in analog type equipment decreased as such
equipment was replaced by MFPs and color equipment, and sales of personal
computers and servers also decreased during fiscal year 2006 in Japan. In the
Industrial Products segment, sales of optical
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equipment decreased in Japan due to the sluggish market demand for such
equipment compared to fiscal year 2005.
Operating expenses in Japan for fiscal year 2006 increased by 1.1% (or Yen
13.8 billion) to Yen 1,310.2 billion from Yen 1,296.3 billion for fiscal year
2005. The increase in operating expenses was primarily due to the increase in
sales volume, especially in exports to foreign countries. While net sales in
this segment increased by 1.9% as compared to fiscal year 2005, operating
expenses increased by only 1.1% as compared to fiscal year 2005 because of the
increase in sales of value-added, high-margin products such as MFPs and laser
and GELJET printers. Although Ricoh was able to decrease its operating expenses
as it performed various cost-cutting measures to streamline some of its
businesses, the total operating expenses in Japan increased in fiscal year
2006, which is reflected in the 1.1% figure, as Ricoh incurred certain expenses
relating to (1) R&D geared towards the development of core products having
color printing capabilities, (2) the consolidation of certain operations at
Ricoh's headquarters in Tokyo, (3) the integration of domestic R&D facilities
and offices at the Ricoh Technology Center, and (4) investment in information
technology for the development of Ricoh's core operating system.
As the increase in net sales was greater than the increase in operating
expenses, operating income in Japan for fiscal year 2006 increased by 14.5% (or
Yen 12.1 billion) to Yen 95.7 billion from Yen 83.6 billion for fiscal year
2005.
The Americas
Net sales in the Americas for fiscal year 2006 increased by 19.0% (or Yen
62.9 billion) to Yen 393.3 billion from Yen 330.4 billion for fiscal year 2005.
Ricoh continued to focus on increasing sales of MFPs, digital PPCs, color PPCs
and laser and GELJET printers which meet the customers' demand for networking
capabilities, coloration, and high-speed products through our efforts to
enhance and expand its existing sales channels. In addition, Ricoh continued to
focus its marketing and promotional efforts towards major corporate clients for
fiscal year 2006.
Operating expenses in this geographic segment for fiscal year 2006 increased
by 19.4% (or Yen 61.4 billion) to Yen 378.1 billion from Yen 316.6 billion for
fiscal year 2005. The increase in operating expenses was due to the increase in
sales volume and the depreciation of the Japanese Yen relative to the U.S.
Dollar. The percentage change of operating expenses as compared to the previous
fiscal year in the Americas was greater than the percentage change of net sales
as compared to the previous fiscal year in the Americas as (1) Ricoh incurred
marketing expenses to expand its market share in the increasingly competitive
business environment in the Americas and (2) Ricoh made various investments in
information technology to develop and enhance its core operating system.
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Europe
Sales in Europe for fiscal year 2006 increased by 5.6% (or Yen 23.1 billion)
to Yen 438.7 billion from Yen 415.6 billion for fiscal year 2005, due primarily
to an increase in sales in the Imaging Solutions category for such products as
MFPs and laser and GELJET printers, reflecting Ricoh's continuing efforts to
strengthen its sales networks and reinforce the strength of its brand in the
European geographic segment. Sales of products with color capabilities
increased in fiscal year 2006 as compared to the previous fiscal year due to
the launch of new models and the black-color conversion strategy. Continuing
from previous fiscal years, Ricoh maintained its dominance in the copiers and
MFP product market in this geographic segment and was ranked number one in
terms of market share in the sales of copiers and MFPs in Europe.
Operating expenses in this geographic segment for fiscal year 2006 increased
by a higher percentage as compared to the percentage increase in net sales, due
primarily to the nonrecurring expenses for integration of Lanier operations
into its other subsidiaries in Europe.
Other
Net sales in the Other geographic segment, comprised of China, Asia and
Oceania, for fiscal year 2006, increased by 15.1% (or Yen 26.3 billion) to
Yen 200.2 billion from Yen 173.9 billion for fiscal year 2005. Sales in the
Imaging Solutions category increased in this geographic segment due to active
demand for digital, networkable and color products from stand-alone, analog and
monochrome equipment. In addition, sales in the semiconductor business in the
Industrial Products segment increased due to the recovery in demand for
products utilizing semiconductor devices, such as mobile and cellular phones.
An increase in demand for digital PPCs and MFPs led to an increase in global
exports of products manufactured by Ricoh's manufacturing subsidiaries in
China, which mainly manufacture low-end digital PPCs and MFPs. Such
subsidiaries maintained a high production level in China for fiscal year 2006,
and continued to contribute to the increase in net sales in this geographic
segment.
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B. Liquidity and Capital Resources
Cashflows
---------
The following summarizes our cashflows for each of the three fiscal years
ended March 31, 2005, 2006 and 2007, as reported in our Consolidated Statements
of Cashflows in the accompanying Consolidated Financial Statements.
(Billions of Yen)
For the year ended March 31,
-------------------------
2005 2006 2007
------ ------- -------
Net cash provided by operating activities 129.1 173.4 167.2
Net cash used in investing activities (96.0) (120.0) (115.4)
Net cash provided by (used in) financing
activities (56.4) (59.9) 9.2
Net increase in cash and cash equivalents from
discontinued operations 3.4 3.3 0.8
Increase (decrease) in cash and cash equivalents (18.6) 0.1 68.6
Cash and cash equivalents at beginning of year 203.0 186.8 187.0
Adjustment for change in fiscal year-end of
consolidated subsidiaries 2.4 -- --
Cash and cash equivalents at end of year 186.8 187.0 255.7
Operating Cashflows
For fiscal year 2007, net cash provided by operating activities consisted
primarily of net income from continuing operations of Yen 106.2 billion,
depreciation and amortization of Yen 89.6 billion, and an increase in accrued
income taxes and accrued expenses and other of Yen 11.1 billion, which were
partially offset by an increase in an increase in finance receivables of Yen
28.0 billion and an increase in trade receivables of Yen 15.9 billion. As
compared to fiscal year 2006, net cash provided by operating activities in
fiscal year 2007 decreased mainly because the increase in net sales, especially
in Japan, during the fourth quarter as compared to such period during fiscal
year 2006 resulted in an increase in Ricoh's finance receivables and trade
receivables for fiscal year 2007.
For fiscal year 2006, net cash provided by operating activities consisted
primarily of net income from continuing operations of Yen 95.0 billion,
depreciation and amortization of Yen 84.0 billion, a decrease in trade
receivables of Yen 13.4 billion and other, net of Yen 11.0 billion, which were
partially offset by an increase in finance receivables of Yen 30.0 billion,
deferred income taxes of Yen 4.6 billion and a decrease in trade payables of
Yen 4.4 billion. As
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compared to fiscal year 2005, net cash provided by operating activities in
fiscal year 2006 increased mainly because (1) the decrease in net sales in
Japan during the fourth quarter as compared to such period in fiscal year 2005
resulted in a decrease in Ricoh's trade receivables for fiscal year 2006 and
(2) the increase in capital expenditures also resulted in an increase in
depreciation expenses as compared to fiscal year 2005.
For fiscal year 2005, net cash provided by operating activities consisted
primarily of net income from continuing operations of Yen 80.5 billion,
depreciation and amortization of Yen 78.1 billion, an increase in trade
payables of Yen 27.3 billion and other, net of Yen 10.5 billion, which were
partially offset by an increase in finance receivables of Yen 30.2 billion, an
increase in trade receivables of Yen 26.4 billion, and a decrease in accrued
income taxes and accrued expenses and other of Yen 13.7 billion and an increase
in inventories of Yen 12.8 billion. As compared to fiscal year 2004, net cash
provided by operating activities in fiscal year 2005 decreased mainly because
(1) the increase in net sales in Japan from Ricoh's sales promotions resulted
in an increase in trade receivables for fiscal year 2005 and (2) the increase
in net sales also resulted in an increase in inventories as compared to fiscal
year 2004.
Investing Cashflows
For fiscal year 2007, net cash used in investing activities consisted mainly
of, Yen 97.1 billion in payments for purchases of available-for-sale
securities, Yen 85.7 billion of expenditures for property, plant and equipment,
Yen 23.2 billion for acquisitions of new subsidiaries, net of cash acquired,
and Yen 17.9 billion of other, net. Ricoh realized Yen 96.0 billion from the
sale of available-for-sale securities that were held by the Company and certain
subsidiaries and Yen 12.0 billion from sales of discontinued operations. As
compared to fiscal year 2006, net cash used in investing activities decreased
in fiscal year 2007 mainly because Ricoh did not incur the capital expenditures
that incurred in fiscal year 2006.
For fiscal year 2006, net cash used in investing activities consisted mainly
of Yen 138.6 billion in payments for purchases of available-for-sale
securities, Yen 101.7 billion of expenditures for property, plant and equipment
and Yen 24.2 billion of other, net. Ricoh realized Yen 141.6 billion from the
sale of available-for-sale securities that were held by the Company and certain
subsidiaries. As compared to fiscal year 2005, net cash used in investing
activities increased in fiscal year 2006 mainly because Ricoh incurred capital
expenditures for the consolidation of some of its operations at its headquarter
in Tokyo, the consolidation of its domestic R&D facilities and offices, and the
establishment of a new color toner factory in Japan.
For fiscal year 2005, net cash used in investing activities consisted mainly
of Yen 84.0 billion of expenditures for property, plant and equipment, Yen 79.4
billion in payments for purchases of available-for-sale securities and Yen 43.2
billion for acquisitions of new subsidiaries, net of cash acquired. Ricoh
realized Yen 118.1 billion from the sale of available-for-sale securities that
were held by the Company and certain subsidiaries. In fiscal year 2005, Ricoh
reinforced its production lines to manufacture new products, which resulted in
an increase in expenditure on property, plant and equipment. As
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compared to fiscal year 2004, net cash used in investing activities increased
in fiscal year 2005 as the Company used cash to acquire Ricoh Printing Systems,
Ltd. in fiscal year 2005.
Financing Cashflows
For fiscal year 2007, net cash provided by financing activities consisted
primarily of Yen 65.2 billion of proceeds from the issuance of long-term debt
securities, of which Yen 55.2 billion of consisted of cash proceeds from the
issuance of Euro Yen zero coupon convertible bonds due 2011, and Yen 60.1
billion of proceeds from long-term indebtedness. Ricoh repaid Yen 55.0 billion
of long-term debt securities, Yen 49.1 billion of long-term indebtedness and
paid Yen 18.2 billion of dividends. As compared to fiscal year 2006, net cash
from financing activities increased in fiscal year 2007 as Ricoh received
proceeded from the issuance of the Euro Yen zero coupon convertible bonds and
Ricoh reduced the amount of long-term indebtedness that it repaid.
For fiscal year 2006, net cash used in financing activities consisted
primarily of Yen 93.7 billion used to repay long-term indebtedness, Yen 52.0
billion used to repay long-term debt securities, Yen 16.1 billion used for
dividend payments and Yen 10.6 billion used for the purchase of treasury stock.
Ricoh received Yen 63.7 billion of proceeds from long-term indebtedness and
Yen 39.6 billion from the increase in short-term borrowings. In total, Ricoh
reduced its interest-bearing indebtedness provided by external parties by
Yen 32.3 billion as it continued to use its group cash management system for its
efficient cash management. As compared to fiscal year 2005, net cash used in
financing activities increased in fiscal year 2006 as Ricoh continued to reduce
its external borrowings.
For fiscal year 2005, net cash used in financing activities consisted
primarily of Yen 60.6 billion spent for the repayment of long-term
indebtedness, Yen 38.0 billion used to reduce short-term borrowings, Yen 22.0
billion used to repay long-term debt securities, Yen 14.7 billion used for
dividend payments and Yen 10.6 billion used for the purchase of treasury stock.
Ricoh received Yen 72.2 billion of proceeds from long-term indebtedness and Yen
18.0 billion of proceeds from the issuance of long-term debt securities. Ricoh
encouraged group companies to use the group cash management system to satisfy
their cash needs rather than borrowing from external sources. As compared to
fiscal year 2004, net cash used in financing activities decreased in fiscal
year 2005 as proceeds received by Ricoh from its long-term indebtedness
exceeded its repayments of long-term indebtedness.
Cash and Asset-Liability Management
Ricoh has in recent years tried to achieve greater efficiencies in the
utilization of cash balances held by its subsidiaries pursuant to its policy of
ensuring adequate financing and liquidity for its operations and growth, and
maintaining the strength of its balance sheet. One of the methods that Ricoh
has implemented to achieve greater efficiency is building up its cash
management system in Japan, the United States, and the Netherlands. This cash
management system functions as an arrangement whereby Ricoh's funds are pooled
together and cash resources are lent and borrowed from one
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group company to another company, with finance companies located within each of
the above countries coordinating this arrangement. This pooling-of-funds
arrangement has reduced the occurrence of excess accumulation of cash in one
group company while another group company engages in unnecessary borrowing from
third party institutions to meet its cash requirements. As such, the
pooling-of-funds arrangement has reduced interest expense and related costs
which were previously paid to third parties.
Ricoh also enters into various derivative financial instrument 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 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. Detailed discussion of these derivative contracts is provided in
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
Ricoh also engages in securitization activities through its domestic leasing
affiliate, Ricoh Leasing Co., Ltd. For a discussion of such activities, see
Item 5.E. Off-Balance Sheet Arrangements.
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 and medium-term notes. 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, 2007, lines of credit and short-term and medium-term
borrowings were as follows:
(Billions of Yen)
-------------------------------------------------------------------------------
Average
Interest Rate (%) Amount Available
----------------- ----------------
Bank loans 2.4 326.0
Commercial paper 3.7 237.8
Medium-term notes -- 129.8
-------------------------------------------------------------------------------
As of March 31, 2007, Ricoh had Yen 255.7 billion in cash and cash
equivalents and Yen 806.5 billion in aggregate borrowing facilities. Of the
Yen 806.5 billion in aggregate borrowing facilities, Yen 693.7 billion was
available to be borrowed by Ricoh as of March
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31, 2007. Ricoh Leasing Co., Ltd. has a Yen 27.0 billion committed credit line
with several banks having credit ratings satisfactory to Ricoh. This Yen 27.0
billion committed credit line amount is included in the Yen 806.5 billion figure
for aggregate borrowing facilities. Almost all such borrowings from financial
institutions and outstanding securities are unsecured.
The Company, Ricoh Leasing Co., Ltd. and certain overseas subsidiaries raise
capital by issuing commercial paper and medium-term notes. Ricoh Leasing Co.,
Ltd. and certain overseas subsidiaries of the Company issue commercial paper to
meet their short-term funding requirements. Of the Yen 693.7 billion available
under the borrowing facilities as of March 31, 2007, Yen 237.8 billion and
Yen 129.8 billion were available under commercial paper programs and medium-term
note, respectively. 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, as discussed below. Interest rates for commercial paper
issued by the Company and its subsidiaries ranged from 0.49% to 5.32% during
fiscal year 2007. As discussed in "Cash and Asset-Liability Management," Ricoh
has decreased its outstanding interest-bearing debt in recent years by using
its cash management systems in Japan, the United States and the Netherlands.
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, 2007, 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.
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, 2007. The Company is not subject
to any covenants limiting its ability to incur additional indebtedness. For
additional detail regarding these securities, see Note 11 to the Consolidated
Financial Statements.
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 2007. Even if there were a decrease in cashflows from
operations as a result of fluctuations in customer demands from one year to
another, 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
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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 capital markets.
Interest rates for long-term debt continues to increase as a result of the
improved Japanese and U.S. economies and it is possible that such continuous
rise in interest rates may affect Ricoh's ability to maintain liquidity.
However, Ricoh believes that the effect of such increase will not significantly
affect Ricoh's liquidity, mainly due to the fact that Ricoh has sufficient
amounts of cash and cash equivalents on hand, as well as a continuous cashflow
generated from its operating activities.
Ricoh expects that its capital expenditures for fiscal year 2008 will amount
to approximately Yen 90.0 billion, principally for investments in manufacturing
facilities of digital and networking equipment with new engines, toners,
semiconductor and thermal media. In addition, Ricoh is obligated to repay
long-term debt in the aggregate principal amount of Yen 87.1 billion during
fiscal year 2008, and in the aggregate principal amount of Yen 169.4 billion
during fiscal years 2009 through 2011.
The Company and certain of its subsidiaries have various employee pension
plans covering all of their employees. As described in Note 12 to the
Consolidated Financial Statements, the unfunded portion of these employee
pension plans amounted to Yen 77.3 billion, as of March 31, 2007. The unfunded
amount was recorded as an asset of Yen 25.1 and a liability of Yen 102.5 billion
on the consolidated balance sheet of Ricoh as of March 31, 2007. The amounts
contributed for pension plans for fiscal years 2005, 2006 and 2007 were Yen 12.3
billion, Yen 13.8 billion and Yen 14.7 billion, respectively.
Ricoh believes that its free cashflow (from operating and investing
activities) together with existing lines of credit and borrowing facilities
provide sufficient means to satisfy its liquidity needs and future obligations
as described above.
C. Research and Development, Patents and Licenses
Research and Development
------------------------
Since its formation, Ricoh's basic management philosophy has been to
contribute to society by developing and providing innovative and useful
products with an emphasis on the relationship between people and information.
Based on this management philosophy, Ricoh undertakes a variety of R&D
activities to develop new technologies, products and systems to facilitate
better communication. The Research and Development Group and the Software R&D
Group (collectively, the "R&D Groups") function as the headquarters of Ricoh's
R&D activities which are conducted at its R&D facilities throughout Japan and
certain satellite R&D facilities overseas. Ricoh conducts a wide range of R&D
activities, including technological research, research in elemental
technologies, product applications and manufacturing technologies, including
environmental technologies.
The R&D Groups conduct base and applications research in connection with
optical technologies, new materials, devices, information electronics,
environmental
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technologies and software technologies as well as elemental development for new
products. In addition to the R&D facilities in Japan, Ricoh has established
satellite R&D facilities in the United States and China. Ricoh seeks to realize
image communications through the development of Imaging Solutions products that
can adapt to changes in the broadband working environment and the development
of new technologies for multimedia. Ricoh also engages in R&D activities to
protect the environment in a variety of fields. For fiscal years 2005, 2006 and
2007, Ricoh's consolidated R&D expenditures were Yen 110.4 billion, Yen 110.3
billion and Yen 114.9 billion, respectively.
For fiscal year 2007, Yen 84.6 billion of the Yen 114.9 billion of R&D
expenditures were for R&D activities related to the Office Solutions segment.
Ricoh's R&D activities in the Office Solutions segment included R&D for the
following items: optical design for copiers and printers; imaging data
processing technology; electrophotographic supply technology; elemental
technology for the next-generation of image producing engines; key components;
cutting edge software technology; applications for the advancement of system
solutions; and manufacturing technology.
During fiscal year 2007, Ricoh formed an alliance with Hitachi Software
Engineering Co., Ltd. ("HitachiSoft") to develop and market digital MFPs with
security solutions. Through this alliance, Ricoh has been able to provide
higher value-added security solutions which incorporates HitachiSoft's finger
vein authentication monitoring system (called the "Johmon") as well as
watermark solution software (called the "Hibun AE Watermark Print") into
Ricoh's digital MFP imagio series. In addition to marketing their products
together, Ricoh and HitachiSoft intend to focus their marketing efforts on
financial institutions, which customarily place importance on maintaining
security of printed materials, by utilizing Ricoh's ability to provide
solutions through its sales network and HitachiSoft's technical capabilities to
provide systems integration.
Some of the significant R&D achievements in the Office Solutions segment for
fiscal year 2007 include a release of a line of MFPs for large-size paper, such
as the imagio MP W400 series (MFPs that can print on A2-size paper with various
communication tools and security functions and that digitizes drawings using a
common function as the imagio MP series (MFPs that can print on A3-size
paper)), and the imagio MP W3600/W2400 series (MFPs that can print on A0-size
paper having a copying speed that is 2.5 times faster than conventional
products due to improved computer aided design plotter performance). Ricoh also
released a line of environmentally-friendly digital MFP products (with a
recycle parts mass ratio of 88%), such as the imagio Neo 751RC/601RC (MFPs that
feature high speed printing capacity of 75 pages and 60 pages per minute
(A4-size horizontal line)), and the imagio Neo 452RC/352RC (MFPs that feature
high speed printing capability of 45 pages and 35 pages per minute (A4-size
horizontal line)). With respect to printers, Ricoh released the IPSiO SP
C811/C811M, a model equipped with high-speed printing capability of 40 pages
per minute (A4-size horizontal line), IC-card authentication and various
security functions.
For fiscal year 2007, Yen 10.3 billion of the Yen 114.9 billion of R&D
expenditures were for R&D activities related to the Industrial Products
segment. In the Industrial Products segment, Ricoh's R&D activities continued
to include: designing ASICs and
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ASSPs for imaging, audio and communication use; developing methods to utilize
electronic design automation; developing optical element technologies and new
recording methods; and R&D for supply parts such as thermal media.
More specifically, in the electronic devices business, Ricoh promoted the
development of devices that are compatible with next-generation interfaces that
have improved data transmission rates and reduced pin numbers. Such electronic
devices include voltage regulator ICs, which feature low input and output
voltage differences, high output voltage accuracy and enhanced temperature
characteristics enabled by the adoption of a new miniaturization process to
contribute to lower-power consumption current, improved operational stability
and further miniaturization of various information equipment, such as cell
phones. Some of the significant R&D achievements for the Industrial Products
segment for fiscal year 2007 include development and production of the
R1514x/RP1515x series (voltage ICs that are used for vehicle equipment and home
appliances) and the development and production of the RP103x/RP104x series (1
mm dimensional voltage regulator ICs that have been downsized by more than 60%
as compared to comparable conventional products and are used for portable
communications equipment such as cell phones).
For fiscal year 2007, Yen 2.0 billion of the Yen 114.9 billion of R&D
expenditures were for R&D activities related to the Other segment. In this
segment, Ricoh continued to develop its image capturing device technology for
digital cameras and its related applications technology, and conducted R&D
activities for optical discs. In the digital camera business, Ricoh developed
the Caplio R6 series, that features a 7.1x optical zoom lens in its 20.6mm slim
body that can enlarge images to a size that would be produced if a 28-200mm
telephoto lens was to be placed on a regular 35mm camera, a hand vibration
correction function using the charge coupled device shift method, as well as a
face recognition mode which automatically identifies faces in a scene, brings
them into clear focus and corrects exposure while adjusting for optimal white
balance. Furthermore, Ricoh released its third and fourth round of
function-enhancing firmware to update the GR DIGITAL camera. In the optical
discs business, Ricoh developed the new standard for 16x DVD+R DL (dual layer)
discs, which is expected to be released into the market in the near future.
In addition, Ricoh continues to engage in the development of its fundamental
research fields, which focus on R&D activities that can be applied to various
products. For fiscal year 2007, Yen 17.8 billion of Yen 114.9 billion of R&D
expenditures were for R&D activities relating to fundamental research fields.
Such R&D activities include R&D in nanotechnology; micro-machining; general
technologies in measuring, analysis and simulation; new materials and devices;
non-electrophotographic recording technologies; production techniques; system
software modules; photonics technology for high speed and high quality image
processing; the next-generation of office systems and office solutions; and
environmental technologies.
For a summary of Ricoh's R&D expenditures during for fiscal years 2005, 2006
and 2007, see Note 20 to the Consolidated Financial Statements.
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Patents and Licenses
--------------------
Ricoh owns approximately 25,150 patents on a worldwide basis, and has a
large number of licenses under various agreements with Japanese and foreign
companies. Although patents and licenses are important to Ricoh, it does not
believe that the expiration of any single patent or group of related patents or
of any license agreements will materially affect its business.
The following table lists some of the important patent and licensing
agreements which the Company is currently a party to:
Counterparty Country Summary of the Contract Contract Term
------------ ------- ------------------------ ------------------------
International USA Comprehensive cross March 28, 2007 to
Business Machines license patent agreement expiration date of the
Corporation relating to the patent subject to the
information processing agreement
technology area
(reciprocal agreement)
ADOBE Systems USA Patent licensing January 1, 1999 to
Incorporated agreements relating to January 1, 2009
development on printer
software and sales (the
counterparty as the
licensee)
Lemelson Medical, USA Patent licensing March 31, 1993 to
Education & agreement relating to expiration date of the
Research computer image analysis patent subject to the
Foundation Limited and other products (the agreement
Partnership counterparty as the
licensee)
Sharp Corporation Japan Patent licensing April 1, 1997 to March
agreement relating to 31, 2002 with automatic
facsimile machines (the renewal every 5 years
Company as the licensor) thereafter
Canon Inc. Japan Patent licensing October 1, 1998 to
agreement relating to expiration date of the
office equipment patent subject to the
(reciprocal agreement) agreement
Brother Japan Patent licensing October 1, 2004 to
Industries, Ltd. agreement relating to September 30, 2009
digital photography (the
Company as the licensor)
Kyocera Mita Japan Patent licensing January 1, 2007 to
Corporation agreement relating to December 31, 2012
method of controlling
multi function
peripheral (the Company
as the licensor)
D. Trend Information
See "OVERVIEW" above and "Cautionary Statement with Respect to
Forward-Looking Statements" elsewhere in this Annual Report.
E. Off-Balance Sheet Arrangements
As disclosed in Note 5 to the Consolidated Financial Statements, Ricoh,
through its domestic leasing affiliate, has certain procedure in place to sell
some of its lease receivables through securitization programs; however, no
lease receivables have been
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securitized during the last three fiscal years. Securitization involves the
creation of special purpose entities ("SPEs") for purposes of holding the
pooled assets. The SPEs are designed to place the pooled assets beyond the
reach of Ricoh and its creditors in the event of bankruptcy and when structured
in this manner (and subject to certain other conditions), the pooled assets are
removed from Ricoh's consolidated balance sheets. The SPEs are also designed so
that investors have no recourse to Ricoh in the event of any failure of payment
on the pooled assets. Therefore, when securitizing assets in this manner, Ricoh
does not have any exposed assets or contingent liabilities other than those
recognized as subordinated residual interests on Ricoh's consolidated balance
sheets. As of March 31, 2007, Ricoh had one such SPE that held assets it had
sold in a securitization totaling Yen 44.4 billion.
Ricoh does not dispose of troubled leases, loans or other problem assets by
means of nonconsolidated SPE. None of our officers, directors or employees
holds any equity interests in our SPE or receives any direct or indirect
compensation from the SPE. The SPE does not own shares or equity interests in
Ricoh or any of Ricoh's affiliates, and there are no agreements in place to do
so.
F. Tabular Disclosure of Contractual Obligations
The following table sets forth Ricoh's contractual obligations as of
March 31, 2007.
---------------------------------------------------------------------------------------------------
Millions of Yen
Payments due by period
---------------------------------------------------
Less than 1 More than 5
CONTRACTUAL OBLIGATIONS Total year 1-3 years 3-5 years years
---------------------------------------------------------------------------------------------------
Long-term Debt Obligations 321,835 86,764 147,038 88,018 15
Interest Expense Associated with Long-term Debt
Obligations 6,313 3,167 2,736 410 --
Capital (Finance) Lease Obligations 1,623 383 632 333 275
Operating Lease Obligations 74,633 19,702 28,851 13,366 12,714
Purchase Obligations 6,734 6,734 -- -- --
---------------------------------------------------------------------------------------------------
TOTAL 411,138 116,750 179,256 102,128 13,004
---------------------------------------------------------------------------------------------------
Ricoh expects to contribute Yen 13.9 million to its pension plan during
fiscal year 2008 and is currently unable to predict funding requirements for
periods beyond fiscal year 2007 due to uncertainties related to changes in
actuarial assumptions, return on plan assets, and changes to plan membership.
Ricoh had operating lease commitments with rental payments totaling Yen 40.7
billion for fiscal year 2007. In addition to the above, Ricoh acts as a
guarantor for some of its employees' housing loans. As of March 31, 2007, the
total amount of such guarantees was Yen 106 million.
G. New Accounting Standards
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments - an amendment of SFAS No. 133 and 140." SFAS 155
-67-
amends SFAS 133, and SFAS No.140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." SFAS 155 permits fair
value re-measurement for any hybrid financial instrument that contains an
embedded derivative, and establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded
derivative. SFAS 155 is effective for fiscal years beginning after
September 15, 2006 and is required to be adopted by Ricoh in fiscal year
beginning April 1, 2007. Ricoh is currently evaluating the effect that the
adoption of SFAS 155 will have on its consolidated results of operations and
financial condition.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No. 140." SFAS 156 amends
SFAS 140, to clarify the accounting for servicing assets and servicing
liabilities. Among other provisions, the new accounting standard requires all
separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable. SFAS 156 is effective for
fiscal years beginning after September 15, 2006 and is required to be adopted
by Ricoh in fiscal year beginning April 1, 2007. Ricoh is currently evaluating
the effect that the adoption of SFAS 156 will have on its consolidated results
of operations and financial condition.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. SFAS 157 applies under other
accounting pronouncements that require or permit fair value measurements, where
fair value is the relevant measurement attribute. The standard does not require
any new fair value measurements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007, and is required to be adopted by Ricoh in
fiscal year beginning April 1, 2008. Ricoh is currently evaluating the effect
that the adoption of SFAS 157 will have on its consolidated results of
operations and financial condition.
In September 2006, the FASB issued SFAS 158. SFAS 158 requires companies to
recognize an asset or liability for the overfunded or underfunded status of
their benefit plans in their financial statements and to recognize changes in
that funded status in comprehensive income in the year in which the changes
occur. SFAS 158 also requires the measurement date for plan assets and
liabilities to coincide with the sponsor's year-end. The standard provides two
transition alternatives related to the change in measurement date provisions.
The recognition of an asset and liability related to the funded status
provision is effective for fiscal years ending after December 15, 2006. The
effect of adoption of SFAS 158 on Ricoh's financial condition as of March 31,
2007 has been included in the accompanying consolidated financial statements.
The change in measurement date provisions is effective for fiscal years ending
after December 15, 2008 and is required to be adopted by Ricoh in fiscal year
beginning April 1, 2008. Ricoh is currently evaluating the effect that the
adoption measurement date provisions will have on its consolidated results of
operations and financial condition.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities--including an amendment of FASB
statement
-68-
No.115." SFAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. Unrealized gains and losses
on items for which the fair value option has been elected will be recognized in
earnings. SFAS 159 is effective for fiscal year beginning after November 15,
2007, and is required to be adopted by Ricoh in fiscal year beginning April 1,
2008. Ricoh is currently evaluating the effect that the adoption of SFAS 159
will have on its consolidated results of operations and financial condition.
In July 2006, the FASB released FASB Interpretation ("FIN") No. 48,
"Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109." FIN 48 clarifies the accounting and reporting for
uncertainties in income tax law. FIN 48 prescribes a comprehensive model for
the financial statement recognition, measurement, presentation and disclosure
of uncertain tax positions taken or expected to be taken in income tax returns.
FIN 48 shall be effective for fiscal years beginning after December 15, 2006
and is required to be adopted by Ricoh in fiscal year beginning April 1, 2007.
Ricoh is currently evaluating the effect that the adoption of FIN 48 will have
on its consolidated results of operations and financial condition.
-69-
Item 6. Directors, Senior Management and Employees
------------------------------------------
A. Directors and Senior Management
Directors and Corporate Auditors of the Company as of June 27, 2007 were as
follows:
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
------------------ ------------------------- --------- ------------------------
Masamitsu Sakurai Chairman of the Board Apr. 1966 Joined the Company
(January 8, 1942) and Representative May 1984 President of Ricoh UK
Director Products Ltd.
Apr. 1990 General Manager of
Purchasing Division
June 1992 Director
Apr. 1993 President of Ricoh
June 1994 Europe B.V.
Managing Director
Apr. 1996 President and
Representative
Director
June 2005 Representative
June 2005 Director (Current)
President
June 2005 Chairman of the Board
(Current)
June 2005 CEO (Chief Executive
Officer)
Apr. 2007 Chairman (Current)
Apr. 2007 Chairman of Japan
Association of
Corporate
Executives (Current)
Principal business activities and other principal
directorships performed outside Ricoh:
Chairman of Japan Association of Corporate Executives
Vice President of Japan Business Machine and Information
System Industries Association Representative of Asahi
Insurance Company Corporate Auditor of San-Ai Oil Co.,
Ltd. Director of Millea Holdings, Inc. Director of
Coca-Cola West Holdings Co., Ltd.
------------------ ------------------------- --------- ------------------------
Shiro Kondo Representative Director Apr. 1973 Joined the Company
(October 7, 1949) July 1999 Deputy General
Manager of Imaging
System Business
Group
June 2000 Senior Vice President
Oct. 2000 General Manager of
Imaging System
Business Group
June 2002 Executive Vice
President
June 2003 Managing Director
Oct. 2004 General Manager of
MFP Business Group
June 2005 Director
June 2005 Corporate Executive
Vice President
Apr. 2007 Representative
Director (Current)
Apr. 2007 President (Current)
Apr. 2007 CEO (Chief Executive
Officer) (Current)
-70-
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
------------------ ------------------------- --------- ------------------------
Koichi Endo Director Apr. 1966 Joined the Company
(February 16, 1944) Apr. 1987 President of Ricoh
Electronics, Inc.
Oct. 1990 General Manager of
Components Division
June 1992 Director
June 1997 Managing Director
Apr. 1998 General Manager of
Production Business
Group
June 2000 Executive Managing
Director
June 2000 Executive Vice President
Apr. 2004 General Manager of Fact
Base Management
Innovation Office
(Current)
June 2005 Director (Current)
June 2005 Corporate Executive
Vice President (Current)
June 2005 CINO (Chief Innovation
Officer) (Current)
Apr. 2006 CSO (Chief Strategy
Officer) (Current)
Principal business activities and other principal
directorships performed outside Ricoh:
Director of San-Ai Plant Construction Co., Ltd. Corporate
Auditor of TOYO KANETSU K.K.
------------------ ------------------------- --------- ------------------------
Masayuki Matsumoto Director Apr. 1970 Joined the Company
(December 10, 1944) July 1993 Manager of Tokyo Branch
of Imaging Equipment
Marketing Division of
Marketing Group
June 1994 Director
Oct. 1998 Managing Director
Oct. 1998 General Manager of
Marketing Group
June 2000 Executive Vice President
June 2002 Executive Managing
Director
Apr. 2005 General Manager of
Corporate Social
Responsibility
Division
June 2005 Director (Current)
June 2005 Corporate Executive
Vice President
(Current)
June 2005 CMO (Chief Marketing
Officer) (Japan)
(Current)
Apr. 2007 In charge of Corporate
Social Responsibility
(Current)
------------------ ------------------------- --------- ------------------------
Katsumi Yoshida Director Apr. 1967 Joined the Company
(August 20, 1944) Feb. 1996 Chairman of Ricoh
Electronics, Inc.
Apr. 2000 President of Ricoh
Corporation
Apr. 2001 Executive Vice President
June 2002 Managing Director
Oct. 2003 General Manager of
International
Marketing Group
Oct. 2003 Chairman of Ricoh China
Co., Ltd. (Current)
June 2004 Executive Managing
Director
June 2005 Director (Current)
-71-
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
------------------ ------------------------- --------- ------------------------
June 2005 Corporate Executive
Vice President
(Current)
June 2005 CMO (Chief Marketing
Officer)
(Overseas) (Current)
Apr. 2006 In charge of Office
Business Strategic
Planning (Current)
Oct. 2006 In charge of Production
Printing Business
(Current)
------------------ ------------------------- --------- ------------------------
Takashi Nakamura Director Apr. 1972 Joined the Company
(September 2, 1946) Apr. 1990 President of Ricoh UK
Products Ltd.
Jan. 1995 President of Ricoh
Europe B.V.
May 1998 Deputy General Manager
of Corporate Planning
Division
June 1998 Director
June 2000 Senior Vice President
June 2002 President of Ricoh
Elemex Corporation
June 2004 Managing Director
June 2005 Director (Current)
June 2005 In charge of Legal
Affairs and
Intellectual Property
(Current)
June 2006 Corporate Executive
Vice President
(Current)
Jan. 2006 CHO (Chief Human
Resource Officer)
(Current)
Jan. 2006 CPO (Chief Production
Officer) (Current)
------------------ ------------------------- --------- ------------------------
Kazunori Azuma Director Apr. 1971 Joined the Company
(February 11, 1949) Oct. 1994 President of Hokkaido
Ricoh Co., Ltd.
June 2000 Senior Vice President
Oct. 2000 President of Ricoh
Technosystems Co., Ltd.
June 2003 Managing Director
June 2003 Executive Vice President
Nov. 2003 General Manager of
Marketing Group
(Current)
June 2005 Director (Current)
June 2005 Corporate Executive
Vice President
(Current)
------------------ ------------------------- --------- ------------------------
Zenji Miura Director Apr. 1976 Joined the Company
(January 5, 1950) Jan. 1993 President of Ricoh
France S.A.
Apr. 1998 Deputy General Manager
of Finance and
Accounting Division
Oct. 2000 Senior Vice President
Oct. 2000 General Manager of
Finance and
Accounting Division
June 2003 Executive Vice President
June 2004 Managing Director
June 2005 Director (Current)
-72-
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
------------------ ------------------------- --------- ------------------------
June 2005 Corporate Executive
Vice President
(Current)
June 2005 CFO (Chief Financial
Officer) (Current)
June 2005 In charge of IR (Current)
Apr. 2006 CIO (Chief Information
Officer) (Current)
Apr. 2006 In charge of Corporate
Communication
Apr. 2006 In charge of Management
of Group Companies
(Current)
Apr. 2006 General Manager of
Corporate Planning
Division (Current)
------------------ ------------------------- --------- ------------------------
Kiyoshi Sakai Director Apr. 1970 Joined the Company
(December 25, 1945) Jan. 1996 General Manager of
Corporate Planning
Division
June 1996 Director
Apr. 1999 General Manager of
Research and
Development Group
June 2000 Senior Vice President
June 2002 Managing Director
June 2002 Executive Vice President
Aug. 2002 General Manager of
Corporate Technology
Planning Division
June 2005 Corporate Senior Vice
President
Apr. 2006 In charge of Corporate
Environment (Current)
June 2006 Director (Current)
June 2006 Corporate Executive
Vice President
(Current)
June 2006 Chief Technology
Officer (Current)
------------------ ------------------------- --------- ------------------------
Takaaki Wakasugi Director June 1985 Professor, Faculty of
(March 11, 1943) Economics, the
University of Tokyo
Sep. 1990 Co-director of Mitsui
Life Financial
Research Center,
University of
Michigan Ross School
of Business (Current)
Apr. 2003 Director and General
Manager of Japan
Corporate Governance
Research Institute,
Inc. (Current)
Apr. 2004 Professor, Faculty of
Business
Administration, Tokyo
Keizai University
(Current)
June 2004 Professor Emeritus, the
University of Tokyo
June 2005 Director (Current)
Principal business activities and other principal
directorships performed outside Ricoh:
Corporate Auditor of JFE Holdings, Inc.
-73-
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
------------------ ------------------------- --------- ------------------------
Takuya Goto Director Apr. 1964 Joined Kao Soap Company
(August 19, 1940) (renamed Kao
Corporation in 1985)
May 1987 General Manager of
Tochigi Plant of Kao
Corporation
May 1990 General Manager of
Chemical Business
Division of Kao
Corporation
June 1990 Director of Kao
Corporation
July 1991 Managing Director of
Kao Corporation
June1996 Executive Managing
Director of Kao
Corporation
June 1997 President of Kao
Corporation
June 2004 Chairman of Kao
Corporation (Current)
June 2006 Director (Current)
Principal business activities and other principal
directorships performed outside Ricoh:
Chairman of Kao Corporation
Director of ASAHI GLASS CO., LTD.
Director of NAGASE & CO., LTD.
------------------ ------------------------- --------- ------------------------
Kohji Tomizawa Corporate Auditor Apr. 1971 Joined the Company
(May 25, 1946) July 1988 President of Ricoh
Finance Ltd.
May 1991 Head of Administration
Office of System
Development Division
June 1993 General Manager of
Marketing
Administration
Department of
International Division
June 1997 Managing Director of
Ricoh Logistics System
Co., Ltd.
July 2001 Director of Tokyo Ricoh
Co., Ltd.
June 2004 Corporate Auditor
(Current)
------------------ ------------------------- --------- ------------------------
Shigekazu Iijima Corporate Auditor Apr. 1972 Joined the Company
(July 7, 1948) Oct. 1990 General Manager of
Accounting Department
of Finance and
Accounting Division
Apr. 1993 General Manager of
Administration
Department of
Electronic Device
Division
June 1996 Leader of Management
Planning Group of
Corporate Planning
Division
June 1999 Director of Ricoh
Elemex Corporation
Apr. 2004 General Manager of
Business Planning
Department of
International Business
Group
July 2005 General Manager of
Business Strategy &
Planning Center of
International Business
Group
June 2006 Corporate Auditor
(Current)
------------------ ------------------------- --------- ------------------------
Kenji Matsuishi Corporate Auditor Apr. 1965 Graduated from the
(July 24, 1937) National Legal Training
and Research Institute.
Apr. 1965 Legal registration as a
Japanese attorney
Apr. 1965 Joined Takano & Higuchi
Legal Services
-74-
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
------------------ ------------------------- --------- ------------------------
Feb. 1972 General Manager of
Matsuishi Legal
Services (Current)
June 1994 Corporate Auditor
(Current)
------------------ ------------------------- --------- ------------------------
Takehiko Wada Corporate Auditor Apr. 1958 Joined San-Ai Oil Co.,
(October 24, 1935) Ltd.
June 1985 Director of said company
June 1990 Managing Director of
said company
July 1994 Executive Managing
Director of said
company
July 1999 President of said
company
June 2001 Corporate Auditor
(Current)
June 2007 Chairman of said
company (Current)
------------------ ------------------------- --------- ------------------------
Satoshi Itoh Substitute Corporate Jan. 1967 Joined Japan Office,
(July 25, 1942) Auditor Arthur Anderson
Dec. 1970 Registered as Certified
Public Accountant
Aug. 1975 Served at London
Office, Arthur
Anderson
Sep. 1978 Partner of Arthur
Anderson
Sep. 1993 Representative Partner
of Asahi & Co.
Aug. 2001 Retired from Arthur
Anderson and Asahi &
Co.
Apr. 2002 Professor of Graduate
School of
International
Accounting, Specialty
Graduate School
(presently
Professional Graduate
School), Chuo
University
Directors and Corporate Auditors are elected at a general meeting of
shareholders for two and four years terms, respectively, and may serve any
number of consecutive terms. The Board of Directors appoints from among its
members a Chairman and one or more Representative Directors in accordance with
the Corporation Law of Japan.
The Company maintains an executive officer system and under such system
there are 44 such officers each with one of the following roles:
. Executive officers: Oversee operations under the authority granted from
the president and report to the president.
. Group executive officers: Assist the president with the management of
Ricoh Group.
Executive Officers of the Company as of June 27, 2007 were as follows:
Current Position
Name (Function/Business area) Date Business Experience
------------------ ------------------------- --------- ------------------------
Masamitsu Sakurai Chairman and Chairman of See above for his business
the Board experience and other information.
-75-
Current Position
Name (Function/Business area) Date Business Experience
------------------ ------------------------- --------- ------------------------
Shiro Kondo President and Corporate See above for his business
Executive Officer experience and other information.
------------------ ------------------------- --------- ------------------------
Koichi Endo Corporate Executive Vice See above for his business
President experience and other information.
(Chief Strategy Officer)
(Chief Innovation
Officer)
(General Manager of Fact
Base
Management Innovation
Office)
------------------ ------------------------- --------- ------------------------
Masayuki Matsumoto Corporate Executive Vice See above for his business
President experience and other information.
(Chief Marketing Officer
for Japan)
(Corporate Social
Responsibility)
------------------ ------------------------- --------- ------------------------
Katsumi Yoshida Corporate Executive Vice See above for his business
President experience and other information.
(Chief Marketing Officer
for Overseas)
(Office Business
Strategic Planning)
(Production Printing
Business)
(Chairman of Ricoh China
Co., Ltd.)
------------------ ------------------------- --------- ------------------------
Takashi Nakamura Corporate Executive Vice See above for his business
President experience and other information.
(Chief Human Resource
Officer)
(Chief Production
Officer)
(Legal & Intellectual
Property)
------------------ ------------------------- --------- ------------------------
Kazunori Azuma Corporate Executive Vice See above for his business
President experience and other information.
(General Manager of
Marketing Group)
------------------ ------------------------- --------- ------------------------
Zenji Miura Corporate Executive Vice See above for his business
President experience and other information.
(Chief Financial Officer)
(Chief Information
Officer)
(Investor Relation)
(Corporate Communication)
(Management of Group
Companies)
(General Manager of
Corporate Planning
Division)
------------------ ------------------------- --------- ------------------------
Kiyoshi Sakai Corporate Executive Vice See above for his business
President experience and other information.
(Chief Technology
Officer)
(Corporate Environment)
76
Current Position
Name (Function/Business area) Date Business Experience
------------------ ------------------------ --------- ------------------------
Kazuo Togashi Corporate Senior Vice Apr. 1972 Joined the Company
(November 28, President Apr. 1998 President of Ricoh
1949) (General Manager of Europe B.V.
International Business June 2000 Senior Vice President
Group) Apr. 2002 Chairman of said company
(General Manager of Apr. 2002 Chairman of NRG Group PLC
Regional Business June 2002 Executive Vice President
Support Center of June 2003 Managing Director
International Business June 2005 Corporate Senior Vice
Group) President (Current)
(General Manager of Apr. 2006 General Manager of
Trade Affairs & International
Export/Import Business Group
Administration Center (Current)
of International Apr. 2006 General Manager of
Business Group) Regional Business
Support Center of
International
Business Group
(Current)
Aug. 2006 General Manager of
Trade Affairs &
Export/Import
Administration Center
of International
Business Group
(Current)
------------------ ------------------------ --------- ------------------------
Terumoto Nonaka Corporate Senior Vice Jan. 1988 Joined the Company
(October 28, 1947) President Jan. 1990 Deputy General Manager
(President of Electronic of Electronic Devices
Devices Company) Division
(Chairman of Ricoh June 2000 Senior Vice President
Electronics Devices Oct. 2000 President of
Shanghai Co., Ltd.) Electronic Devices
Company (Current)
June 2002 Executive Vice President
June 2005 Corporate Senior Vice
President (Current)
July 2006 Chairman of Ricoh
Electronics Devices
Shanghai Co., Ltd.
(Current)
------------------ ------------------------ --------- ------------------------
Etsuo Kobayashi Corporate Senior Vice Apr. 1970 Joined the Company
(July 4, 1947) President Apr. 1998 General Manager of
(General Manager of Personnel Division
Personnel Division) (Current)
June 2000 Senior Vice President
June 2003 Executive Vice President
June 2005 Corporate Senior Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Haruo Nakamura Corporate Senior Vice Aug. 2000 Joined the Company
(April 29, 1952) President (General Nov. 2000 Leader of
Manager of GJ (GEL Apr. 2004 alpha Task Force
JET) Business Division) Executive Vice
President
Apr. 2004 General Manager of GJ
(GELJET) Business
Division (Current)
June 2005 Corporate Senior Vice
President (Current)
-77-
Current Position
Name (Function/Business area) Date Business Experience
----------------- ------------------------ --------- ------------------------
Kenji Hatanaka Corporate Senior Vice Apr. 1969 Joined the Company
(July 1, 1946) President June 2000 Senior Vice President
(General Manager of June 2003 General Manager of
Tokyo Branch) Tokyo Branch (Current)
(General Manager of June 2003 General Manager of
Kanto Branch) Kanto Branch (Current)
(President of Ricoh June 2004 Executive Vice President
Sales Co., Ltd.) Jan. 2005 President of Ricoh
Sales Co., Ltd.
(Current)
June 2005 Corporate Senior Vice
President (Current)
----------------- ------------------------ --------- ------------------------
Hideko Kunii Corporate Senior Vice May 1982 Joined the Company
(December 13, President Oct. 1999 General Manager of
1947) (General Manager of Software Research
Software R&D Group) Center
(Chairman of Ricoh June 2000 Senior Vice President
Software Research Oct. 2000 Deputy General Manager of
Center (Beijing) Co., P&S Products Division
Ltd.) June 2002 Chairman of Ricoh
Software Technology
(Shanghai) Co., Ltd.
Oct. 2002 General Manager of
Software R&D Group
(Current)
Feb. 2004 Chairman of Ricoh
Software Research Center
(Beijing) Co., Ltd.
(Current)
June 2004 Executive Vice President
June 2005 Corporate Senior Vice
President (Current)
----------------- ------------------------ --------- ------------------------
Hiroshi Kobayashi Corporate Senior Vice Apr. 1974 Joined the Company
(July 2, 1948) President Apr. 2002 General Manager of
(General Manager of Corporate Planning
Printer Business Group) Division
June 2002 Senior Vice President
Apr. 2003 General Manager of
Corporate
Communication Center
June 2004 Executive Vice President
Oct. 2004 General Manager of LP
Business Group
June 2005 Corporate Senior Vice
President (Current)
Apr. 2007 General Manager of
Printer Business
Group (Current)
----------------- ------------------------ --------- ------------------------
Susumu Ichioka Corporate Senior Vice Apr. 1971 Joined the Company
(April 23, 1948) President Oct. 2003 Senior Vice President
(Chairman of Ricoh Oct. 2003 President of Ricoh
Americas Corporation) Finance Corporation
June 2004 Executive Vice President
June 2004 Chairman of Ricoh
Corporation (now
Ricoh Americas
Corporation)
June 2005 Corporate Senior Vice
President (Current)
-78-
Current Position
Name (Function/Business area) Date Business Experience
------------------ ------------------------ --------- ------------------------
Yoshimasa Matsuura Corporate Senior Vice Apr. 1971 Joined the Company
(June 23, 1947) President May 1999 General Manager of
(General Manager of MFP Supply Chain
Business Group) Management Planning
(General Manager of Division
Office Business Apr. 2004 General Manager of
Planning Center) Imaging System
(General Manager of MFP Business Strategy
Business Group) Center
(General Manager of June 2004 Senior Vice President
Business Strategy Oct. 2004 General Manager of
Center of MFP Business Office Business
Group) Planning Center
(General Manager of (Current)
Products Management & June 2005 Deputy General Manager
Planning Center of MFP of MFP Business Group
Business Group) June 2005 General Manager of
Business Strategy
Center of MFP
Business Group
(Current)
June 2005 Corporate Vice President
Oct. 2006 General Manager of
Products Management &
Planning Center of
MFP Business Group
(Current)
Apr. 2007 Corporate Senior Vice
President (Current)
Apr. 2007 General Manager of MFP
Business Group
(Current)
------------------ ------------------------ --------- ------------------------
Norio Tanaka Corporate Senior Vice Feb. 1978 Joined the Company
(March 22, 1948) President Apr. 2004 Deputy General Manager
(General Manager of of Imaging System
Production Printing Business Strategy
Business Group) Center
(General Manager of Apr. 2004 General Manager of
Marketing Center of Imaging Products
Production Printing Business Center of
Business Group) International
(General Manager of Business Center
Products Strategy June 2004 Senior Vice President
Center of Production June 2004 Deputy General Manager
Printing Business of International
Group) Business Group
Oct. 2004 Deputy General Manager
of MFP Business Group
Oct. 2004 General Manager of
Products Management &
Planning Center of
MFP Business Group
Oct. 2004 General Manager of
Marketing Center of
MFP Business Group
June 2005 Corporate Vice President
Apr. 2007 Corporate Senior Vice
President (Current)
Apr. 2007 General Manager of
Production Printing
Business Group
(Current)
Apr. 2007 General Manager of
Marketing Center of
Production Printing
Business Group
(Current)
Apr. 2007 General Manager of
Products Strategy
Center of Production
Printing Business
Group (Current)
------------------ ------------------------ --------- ------------------------
Kiyoto Nagasawa Corporate Vice President Apr. 1973 Joined the Company
(August 16, 1948) (General Manager of Apr. 2001 General Manager of C&F
Quality of Management Business Division 2
Division) June 2002 Senior Vice President
-79-
Current Position
Name (Function/Business area) Date Business Experience
------------------ ------------------------ --------- -----------------------
June 2005 General Manager of
Quality of Management
Division (Current)
June 2005 Corporate Vice
President (Current)
------------------ ------------------------ --------- -----------------------
Yutaka Ebi Corporate Vice President Apr. 1972 Joined the Company
(October 20, 1949) (General Manager of Apr. 2001 General Manager of
Legal & Intellectual Imaging Technology
Property Division) Division
June 2002 Senior Vice President
Oct. 2004 General Manager of
Legal & Intellectual
Property Division
(Current)
June 2005 Corporate Vice
President (Current)
------------------ ------------------------ --------- -----------------------
Hiroo Matsuda Corporate Vice President Apr. 1972 Joined the Company
(April 19, 1948) (General Manager of Apr. 2002 General Manager of
Printing Solution Major Accounts
Division of Marketing Marketing Division
Group) June 2002 Senior Vice President
(General Manager of Apr. 2004 General Manager of
Japan Market Sales Solution Partner
Center of Production Sales Division of
Printing Business Marketing Group
Group) Oct. 2004 General Manager of
Solution Partner
Sales Center of LP
Business Group
June 2005 Corporate Vice
President (Current)
Apr. 2006 General Manager of
Printing Solution
Division of Marketing
Group (Current)
Apr. 2007 General Manager of
Japan Market Sales
Center of Production
Printing Business
Group (Current)
------------------ ------------------------ --------- -----------------------
Hiroshi Adachi Corporate Vice President Apr. 1968 Joined the Company
(January 8, 1946) (President of Thermal Oct. 2000 President of Thermal
Media Company) Media Company
(Chairman of Ricoh (Current)
Electronic Technology, Nov. 2001 Chairman of Ricoh
Ltd. (Beijing)) Electronic
(Chairman of Ricoh Technology, Ltd.
International (Beijing) (Current)
(Shanghai) Co., Ltd.) June 2002 Senior Vice President
(Chairman of Ricoh June 2004 Chairman of Ricoh
Thermal Media (Wuxi) International
Co., Ltd.) (Shanghai) Co., Ltd.
(Current)
June 2005 Corporate Vice
President (Current)
Dec. 2005 Chairman of Ricoh
Thermal Media (Wuxi)
Co., Ltd.(Current)
------------------ ------------------------ --------- -----------------------
Kohji Sawa Corporate Vice President Apr. 1971 Joined the Company
(June 5, 1948) (General Manager of Apr. 1998 General Manager of
Information Technology Imaging System
and Solution Division) Component Production
Division
Apr. 2000 General Manager of
Procurement Control
Center
July 2001 General Manager of
Optical Component
Development Center
June 2002 Senior Vice President
June 2005 Corporate Vice
President (Current)
June 2005 General Manager of
Information
Technology and
Solution Division
(Current)
-80-
Current Position
Name (Function/Business area) Date Business Experience
----------------- ------------------------ --------- -----------------------
Sadahiro Arikawa Corporate Vice President Apr. 1971 Joined the Company
(March 31, 1949) (General Manager of Dec. 2001 President of Ricoh
Major Accounts Kyusyu Co., Ltd.
Marketing Division) Apr. 2004 General Manager of
Major Accounts
Marketing Division
(Current)
June 2004 Senior Vice President
June 2005 Corporate Vice
President (Current)
----------------- ------------------------ --------- -----------------------
Kenichi Kanemaru Corporate Vice President Apr. 1973 Joined the Company
(November 19, (General Manager of Apr. 1998 General Manager of
1952) Imaging System Production Strategic
Production Business Center
Group) June 1999 President of Ricoh UK
(General Manager of Products Ltd.
Procurement Control June 2004 Senior Vice President
Center) June 2005 Deputy General Manager
of Imaging System
Production Business
Group
June 2005 General Manager of
Procurement Control
Center (Current)
June 2005 Corporate Vice
President (Current)
Apr. 2006 General Manager of
Imaging System
Production Business
Group (Current)
----------------- ------------------------ --------- -----------------------
Daisuke Segawa Corporate Vice President Mar. 1980 Joined the Company
(July 21, 1954) (General Manager of Dec. 1998 General Manager of
Finance and Accounting Treasury Department
Division) Oct. 2004 General Manager of
Corporate Planning
Division
June 2005 Corporate Vice
President (Current)
Apr. 2006 General Manager of
Finance and
Accounting Division
(Current)
----------------- ------------------------ --------- -----------------------
Hisashi Takata Corporate Vice President Apr. 1974 Joined the Company
(May 20, 1951) (Deputy General Manager Apr. 1999 General Manager of
of Printing Business Business Strategy
Division) Division of
(General Manager of GJ International
Marketing Division of Marketing Group
Marketing Group) Oct. 2004 Deputy General Manager
of GJ (GEL JET)
Business Division
Oct. 2004 General Manager of
Marketing Center of
GJ (GEL JET) Business
Division
June 2005 Corporate Vice
President (Current)
Oct. 2005 General Manager of GJ
Marketing Division of
Marketing Group
(Current)
Apr. 2007 Deputy General Manager
of Printing Business
Division (Current)
----------------- ------------------------ --------- -----------------------
Kenichi Corporate Vice President Apr. 1971 Joined the Company
Matsubayashi (General Manager of RS Apr. 1995 Manager of RS Business
(June 5, 1948) Products Division) Planning Department
Oct. 2003 General Manager of RS
Products Division
(Current)
June 2005 Corporate Vice
President (Current)
81
Current Position
Name (Function/Business area) Date Business Experience
----------------- ------------------------ --------- ------------------------
Sohichi Nagamatsu Corporate Vice President July 2004 Joined the Company
(March 25, 1951) (General Manager of July 2004 Vice General Manager of
Research and Research and
Development Group) Development Group
(General Manager of Apr. 2006 Corporate Vice
Office System President (Current)
Development Center of Apr. 2006 General Manager of
Research and Research and
Development Group) Development Group
(General Manager of (Current)
Corporate Technology Apr. 2006 General Manager of
Planning Division) Corporate Technology
Planning Division
(Current)
Apr. 2007 General Manager of
Office System
Development Center of
Research and
Development Group
(Current)
Group Executive Officers of the Company as of June 27, 2007 were as follows:
----------------- ------------------------ --------- ------------------------
Makoto Hashimoto Corporate Executive Vice Nov. 1972 Joined the Company
(August 26, 1945) President Apr. 1993 General Manager of PPC
(President and CEO of Division of Imaging
Ricoh Elemex System Business Group
Corporation) June 1994 Director
Apr. 1998 General Manager of
Imaging System
Business Group
June 1998 Managing Director
June 2000 Executive Vice President
Oct. 2000 President of Personal
MultiMedia Products
Company
June 2003 General Manager of CSM
(Customer
Satisfaction
Management) Division
June 2005 Corporate Executive
Jan. 2006 Vice President
(Current)
President and CEO of
Ricoh Elemex
Corporation (Current)
----------------- ------------------------ --------- ------------------------
Yuji Inoue Corporate Senior Vice Apr. 1971 Joined the Company
(April 4, 1948) President Apr. 1998 General Manager of
(President of Ricoh Finance and
Leasing Co., Ltd.) Accounting Division
Apr. 2000 President of Ricoh
Leasing Co., Ltd.
(Current)
June 2000 Senior Vice President
June 2004 Managing Director
June 2005 Corporate Senior Vice
President (Current)
----------------- ------------------------ --------- ------------------------
Shiroh Sasaki Corporate Senior Vice Apr. 1972 Joined the Company
(December 23, President Apr. 2000 President of Gestetner
1949) (Chairman of Ricoh Holdings PLC
Europe PLC) Apr. 2002 President of NRG Group
(Chairman of Ricoh PLC
Europe (Netherlands) June 2004 Senior Vice President
B.V.) June 2005 Corporate Vice President
Apr. 2006 Corporate Senior Vice
President (Current)
Apr. 2006 Chairman of Ricoh
Europe B.V.
Apr. 2006 Chairman of NRG Group
PLC
82
Current Position
Name (Function/Business area) Date Business Experience
------------------ ------------------------ --------- ------------------------
Apr. 2007 Chairman of Ricoh
Europe PLC (Current)
Apr. 2007 Chairman of Ricoh
Europe (Netherlands)
B.V. (Current)
------------------ ------------------------ --------- ------------------------
Peter E. Hart Corporate Vice President Mar. 1997 President of Ricoh
(February 27, (Chairman and President Silicon Valley, Inc.
1941) of Ricoh Innovations, (now Ricoh
Inc.) Innovations, Inc.)
Feb. 2000 Chairman and President
of Ricoh Silicon
Valley, Inc. (now
Ricoh Innovations,
Inc.) (Current)
June 2000 Senior Vice President
June 2005 Corporate Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Bernard Decugis Corporate Vice President Aug. 1993 President of Ricoh
(October 23, 1942) (President of Ricoh France S.A. (now
France S.A.S.) Ricoh France S.A.S.)
(Current)
Apr. 2001 Senior Vice President
June 2005 Corporate Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Hiroshi Tsuruga Corporate Vice President Apr. 1971 Joined the Company
(November 18, (President of Tohoku Apr. 1999 General Manager of
1948) Ricoh Co., Ltd.) Information
Technology and
Solution Division
June 2002 Senior Vice President
June 2005 Deputy President of
Tohoku Ricoh Co., Ltd.
June 2005 Corporate Vice
President (Current)
Apr. 2006 President of Tohoku
Ricoh Co., Ltd.
(Current)
------------------ ------------------------ --------- ------------------------
Norihisa Goto Corporate Vice President Apr. 1972 Joined the Company
(March 8, 1949) (Vice Chairman of Ricoh Oct. 1997 President of Ricoh
Americas Corporation) Deutschland GmbH
(CEO of Ricoh U.S. - Mar. 2001 Chairman of Lanier
Ricoh Americas Worldwide, Inc.
Corporation) Jan. 2003 President of Lanier
Worldwide, Inc.
June 2003 Senior Vice President
June 2005 Corporate Vice
President (Current)
June 2006 Vice Chairman of Ricoh
Corporation (now
Ricoh Americas
Corporation) (Current)
June 2006 CEO of Ricoh U.S. -
Ricoh Corporation
(now Ricoh U.S. -
Ricoh Americas
Corporation) (Current)
------------------ ------------------------ --------- ------------------------
Shunsuke Nakanishi Corporate Vice President Apr. 1972 Joined the Company
(October 12, 1948) (President of Ricoh May 1999 General Manager of
Electronics Inc.) Production Strategic
Center
July 2001 President of Ricoh
Electronics Inc.
(Current)
June 2004 Senior Vice President
June 2005 Corporate Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Mitsuhiko Ikuno Corporate Vice President May 1975 Joined the Company
(March 26, 1953) (President of Shanghai June 2000 President of Ricoh Asia
Ricoh Facsimile Co., Industry Ltd.
Ltd.) June 2004 President of Shanghai
(President of Shanghai Ricoh Facsimile Co.,
Ricoh Digital Ltd. (Current)
Equipment Co., Ltd.) June 2004 Senior Vice President
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Current Position
Name (Function/Business area) Date Business Experience
------------------ ------------------------ --------- ------------------------
June 2005 Corporate Vice
President (Current)
Oct. 2006 President of Shanghai
Ricoh Digital
Equipment Co., Ltd.
(Current)
------------------ ------------------------ --------- ------------------------
Yoshihiro Niimura Corporate Vice President Apr. 1975 Joined the Company
(May 22, 1951) (President of Ricoh June 2004 President of Ricoh
China Co., Ltd.) China Co., Ltd.
(Chairman and President (Current)
of Ricoh Electronic June 2004 Chairman and President
Technology (China) of Ricoh Electronic
Co., Ltd.) Technology (China)
Co., Ltd. (Current)
June 2004 Senior Vice President
June 2005 Corporate Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Michel De Corporate Vice President June 1993 Managing Director of
Bosschere (President of NRG Nashua/ tec Benelux
(June 16, 1948) Benelux B.V.) Jan. 2000 President of NRG
Benelux B.V. (Current)
June 2004 Senior Vice President
June 2005 Corporate Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Toshiaki Katayama Corporate Vice President Oct. 2004 President of Ricoh
(November 28, (President of Ricoh Printing Systems,
1947) Printing Systems, Ltd.) Ltd. (Current)
(Deputy General Manager June 2005 Corporate Vice
of Production Printing President (Current)
Business Group) Apr. 2007 Deputy General Manager
of Production
Printing Business
Group (Current)
------------------ ------------------------ --------- ------------------------
Kunihiko Satoh Corporate Vice President Mar. 1979 Joined the Company
(October 21, 1956) (Vice President of Ricoh Apr. 2002 President of Hokkaido
Sales Co., Ltd.) Ricoh Co., Ltd.
Apr. 2004 General Manager of
Solution Marketing
Center
June 2004 General Manager of
Customer Contact
Center
June 2005 Corporate Vice
President (Current)
Apr. 2006 General Manager of
Business Strategic
Planning Office of
Marketing Group
Apr. 2006 General Manager of
Business Partner
Division of Marketing
Group
Apr. 2006 General Manager of Net
RICOH Marketing
Division of Marketing
Group
Apr. 2007 Vice President of Ricoh
Sales Co., Ltd.
(Current)
------------------ ------------------------ --------- ------------------------
Thomas Salierno Corporate Vice President Apr. 2003 President of Ricoh U.S.
(June 29, 1954) (COO of Ricoh U.S. - Division - Ricoh
Ricoh Americas Corporation (now
Corporation) Ricoh Americas
Corporation)
Apr. 2006 Corporate Vice
President (Current)
June 2006 COO of Ricoh U.S. -
Ricoh Corporation
(now Ricoh U.S. -
Ricoh Americas
Corporation) (Current)
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There are no family relationships between any Director, Corporate Auditor or
Executive Officer and any other Director, Corporate Auditor or Executive
Officer of the Company. There are no arrangements or understandings with major
shareholders, customers, suppliers or others pursuant to which any person named
above was selected as a Director, Corporate Auditor, Executive Officer, or a
Group Executive Officer.
B. Compensation
The aggregate remuneration, including bonuses but excluding retirement
allowances, paid by the Company for fiscal year 2007 to all Directors,
Corporate Auditors, Executive Officers and Group Executive Officers of the
Company who served during fiscal year 2007 was Yen 1,349 million.
In accordance with customary Japanese business practice, annual bonuses are
paid to the Directors and Corporate Auditors of the Company out of the profits
of the Company available for dividends, as such profits are determined in
accordance with the Corporation Law of Japan. Such bonuses are approved at the
annual shareholders meeting customarily held in June of each year. Bonuses so
paid are not deductible by the Company for tax purposes. Included in the figure
for aggregate remuneration set forth above is a total of Yen 136 million in
bonuses paid to Directors and Corporate Auditors as a group in their capacity
as such (excluding bonuses for their services as employees) in respect of
fiscal year 2007, as approved by the Company's shareholders at the Ordinary
General Meeting of Shareholders held on June 28, 2006. During fiscal year
ending March 31, 2008, the Company will pay bonuses in the total amount of Yen
185 billion to Directors and Corporate Auditors as a group in their capacity as
such (excluding bonuses for their services as employees) in respect of fiscal
year 2008, as approved by the Company's shareholders at the Ordinary General
Meeting of Shareholders held on June 27, 2007.
In accordance with customary Japanese business practice, when a Director or
Corporate Auditor retires, a proposal to pay a lump-sum retirement allowance is
submitted to the shareholders for their approval. After shareholders' approval
is obtained, the amount of the retirement allowance for a Director or Corporate
Auditor is fixed by the Board of Directors or Board of Corporate Auditors and
generally reflects his remuneration and position at the time of retirement, the
length of his service as a Director or Corporate Auditor and his contribution
to the Company's performance. At the Ordinary General Meeting of Shareholders
held on June 27, 2007, the shareholders approved the abolishment of this
retirement allowance system. Accordingly, the Company will pay incumbent
Directors and Corporate Auditors their final retirement allowances
corresponding to their tenure through June 27, 2007 in accordance with
standards prescribed by the Company. The amount of such final retirement
allowance through June 27, 2007 is Yen 466 billion, for which the Company has
established a reserve.
At the Ordinary General Meeting of Shareholders held on June 27, 2007, the
shareholders approved the implementation of a stock price-linked remuneration
system for Directors (other than outside Directors). Under this new system, the
Company will pay a specified amount of remuneration to Directors each month,
which amount will be
-85-
contributed to the stock purchasing system to purchase the Company's stock.
Each Director will be required to hold the Company's stock purchased under this
system for the tenure of their office. One of the objectives of this system is
to align the interests of the Directors with the interests of the shareholders
on a long-term basis, which Ricoh believes will also strengthen the incentives
to enhance shareholder value.
C. Board Practices
Under the Corporation Law of Japan, all Directors and Corporate Auditors
shall be elected at the General Meeting of Shareholders. In general, under the
Articles of Incorporation of the Company, the terms of office of Directors
shall expire at the conclusion of the Ordinary General Meeting of Shareholders
held with respect to the last fiscal year ending within two years after their
election, and the terms of office of Corporate Auditors shall expire at the
conclusion of the Ordinary General Meeting of Shareholders held with respect to
the last fiscal year ending within four years after their election. However,
both the Directors and Corporate Auditors may serve any number of consecutive
terms.
From among the Directors, the Board of Directors shall elect one or more
Representative Directors. Each of the Representative Directors has the
statutory authority to represent the Company in the conduct of its affairs.
The Corporate Auditors of the Company are not required to be and are not
certified public accountants. However, at least half of the Corporate Auditors
must be a person who has not been a Director, executive officer, manager, or
employee of the Company or any of its subsidiaries prior to his or her election
as a Corporate Auditor. The Corporate Auditors may not at the same time be
Directors, executive officers, managers, or employees of the Company or any of
its subsidiaries. Each Corporate Auditor has the statutory duty to examine the
financial statements and business reports to be submitted by the Board of
Directors at the General Meeting of Shareholders and also to supervise the
administration by the Directors of the Company's affairs. Corporate Auditors
are entitled and obligated to participate in meetings of the Board of Directors
but are not entitled to vote. Under the Corporation Law, the Board of Corporate
Auditors has a statutory duty to prepare and submit its audit report to the
Board of Directors each year. A Corporate Auditor may note his or her opinion
in the audit report if it is different from the opinion of the Board of
Corporate Auditors that is expressed in the audit report. The Board of
Corporate Auditors is empowered to establish audit principles, the method of
examination by the Corporate Auditors of the Company's affairs and financial
position, and other matters concerning the performance of the Corporate
Auditors' duties. The Company does not have an audit committee.
There are no Director's service contracts with Ricoh providing for benefits
upon termination of service. For additional information regarding director
compensation, see Item 6.B.
-86-
D. Employees
The table below provides information about employees.
--------------------------------------------------------
As of March 31,
--------------------
2005 2006 2007
------ ------ ------
Categorized by Operating Segment
Office Solutions 67,710 68,685 73,845
Industrial Products 3,054 3,045 3,340
Other 3,384 3,401 3,645
Headquarters 949 1,019 1,109
Total 75,097 76,150 81,939
Categorized by Geographic Location
Domestic 40,107 39,930 40,342
Overseas 34,990 36,220 41,597
Total 75,097 76,150 81,939
--------------------------------------------------------
Ricoh believes it is one of the few companies with a base in Japan with a
large labor force which is not unionized. There has been no significant labor
dispute in the fiscal year 2007 and Ricoh knows of no efforts to organize a
union. Ricoh generally believes its employee relations to be good.
-87-
E. Share Ownership
The following table lists the number of Common Stock owned by each Director,
Corporate Auditor and Executive Officer of the Company as of June 27, 2007.
None of the Company's Directors, Corporate Auditors or Executive Officers is a
beneficial owner of more than 1% of the Company's Common Stock. Collectively,
the Directors, Corporate Auditors and Executive Officers beneficially own
approximately 0.02% of the total Company Common Stock issued.
Name Position Number of Shares
-------------------- ---------------------------------------- ----------------
Masamitsu Sakurai Chairman of the Board and Representative 9,000
Director
Shiro Kondo Representative Director 6,000
Koichi Endo Director 14,747
Masayuki Matsumoto Director 4,000
Katsumi Yoshida Director 5,100
Takashi Nakamura Director 7,693
Kazunori Azuma Director 6,000
Zenji Miura Director 6,000
Kiyoshi Sakai Director 5,000
Takaaki Wakasugi Director 3,000
Koji Tomizawa Corporate Auditor 4,000
Shigekazu Iijima Corporate Auditor 1,000
Kazuo Togashi Corporate Senior Vice President 7,000
Terumoto Nonaka Corporate Senior Vice President 7,050
Etsuo Kobayashi Corporate Senior Vice President 8,000
Kenji Hatanaka Corporate Senior Vice President 3,000
Hideko Kunii Corporate Senior Vice President 6,000
Hiroshi Kobayashi Corporate Senior Vice President 3,000
Susumu Ichioka Corporate Senior Vice President 3,000
Yoshimasa Matsuura Corporate Senior Vice President 4,000
Norio Tanaka Corporate Senior Vice President 1,000
Kiyoto Nagasawa Corporate Vice President 4,000
Yutaka Ebi Corporate Vice President 2,000
Hiroshi Adachi Corporate Vice President 8,000
Kohji Sawa Corporate Vice President 4,000
Sadahiro Arikawa Corporate Vice President 2,000
Kenichi Kanemaru Corporate Vice President 4,000
Hisashi Takata Corporate Vice President 1,000
Kenichi Matsubayashi Corporate Vice President 1,000
Makoto Hashimoto Corporate Executive Vice President 11,000
Yuji Inoue Corporate Senior Vice President 10,000
Shiroh Sasaki Corporate Senior Vice President 1,000
Hiroshi Tsuruga Corporate Vice President 3,000
Norihisa Goto Corporate Vice President 3,000
Yoshihiro Niimura Corporate Vice President 1,000
Kunihiko Satoh Corporate Vice President 1,000
-------
Total 169,590
=======
-88-
All shares of Common Stock of the Company carry the same voting rights.
No options to purchase securities from the Company or any of its
subsidiaries were outstanding on June 27, 2007.
Item 7. Major Shareholders and Related Party Transactions
-------------------------------------------------
A. Major Shareholders
Major shareholders that are beneficial owners of 5% or more of the Common
Stock as of March 31, 2007 are as follows:
Number of Percentage of
Shares Owned Outstanding
Title of Class Name (in thousands) Shares Owned
-------------- ------------------------------------ -------------- -------------
Common Stock The Master Trust Bank of Japan, Ltd. 66,141 9.06%
Common Stock Japan Trustee Services Bank, Ltd. 39,260 5.38%
The Master Trust Bank of Japan, Ltd. is a joint venture managed by
Mitsubishi UFJ Trust and Banking Corporation, Nippon Life Insurance Company,
Meiji Yasuda Life Insurance Company and the Norinchukin Trust and Banking Co.,
Ltd.
Japan Trustee Services Bank, Ltd. is a joint venture managed by Resona Bank,
Ltd., the Sumitomo Trust and Banking Co., Ltd. and Mitsui Trust Holdings, Inc.
As far as is known to the Company, there has not been any significant change
in the percentage ownership held by any major shareholders during fiscal year
2007. The major shareholders do not have different voting rights.
American Depositary Receipts ("ADRs") evidencing American Depositary Shares
are issued by The Bank of New York. The normal trading unit is 5 American
Depositary Shares. As of March 31, 2007, 1,189,092 American Depositary Shares
were held of record by two institutional registered holders in the United
States of America.
As far as is known to the Company as of this date, it is not directly or
indirectly owned or controlled by any other corporation or by the Japanese or
any foreign government. As far as is known to the Company as of this date,
there is no arrangement, the operation of which may at a subsequent date result
in a change in control of the Company.
B. Related Party Transactions
Ricoh sells or purchases products, materials, supplies and services to or
from affiliated companies on normal commercial terms and conditions. See Note 7
to the Consolidated Financial Statements.
-89-
No Directors, Corporate Auditors or Executive Officers were indebted to the
Company or its subsidiaries at any time during the latest three fiscal years.
Neither the Company nor its subsidiaries expect to make any loans to Directors,
Corporate Auditors or Executive Officers in the future.
C. Interest of Experts and Counsel
Not applicable.
Item 8. Financial Information
---------------------
A. Consolidated Statements and Other Information
See Item 18. Financial Statements and pages F-1 through F-50.
Legal or arbitration proceedings
--------------------------------
There are no material pending legal or arbitration proceedings to which
Ricoh is a party.
Dividend Policy
---------------
Ricoh endeavors to provide stable dividends to its shareholders by boosting
profitability. At the same time, Ricoh undertakes to increase retained earnings
to reinforce its corporate structure and to cultivate new businesses. Ricoh
uses such retained earnings to strengthen its core businesses and invest in new
fields with medium- and long-term perspectives. See Item 10 "Dividends" for
important information on the Company's dividend payment procedure and
restrictions.
B. Significant Changes
On June 1, 2007, Ricoh and IBM completed formation of a joint venture
company based on IBM's Printing Systems Division to provide output solutions
for production printing area. Initially, Ricoh acquired 51% of the joint
venture. Ricoh will progressively acquire the remaining 49 percent over the
next three years as the joint venture becomes a fully owned subsidiary. Ricoh
paid $725 million (including management fee $35 million) in cash at the
closing. The cash payment was consideration for the initial 51 percent
acquisition of the joint venture by Ricoh as well as a prepayment for the
remaining 49 percent to be acquired and certain royalties and services to be
provided by IBM to InfoPrint Solutions Company.
Item 9. The Offer and Listing
---------------------
A. Offer and Listing Details
The primary market for the Company's Common Stock is the Tokyo Stock
Exchange (the "TSE") in the form of original Common Stock.
-90-
The Company's Common Stock has been listed on the TSE since 1949, and in
Japan it is also listed on the Osaka Stock Exchange, the Nagoya Stock Exchange,
the Fukuoka Stock Exchange and the Sapporo Stock Exchange. In addition, the
Company's Common Stock is listed outside of Japan on the following stock
exchanges: Amsterdam, Frankfurt and Paris.
In the United States, the Company's American Depositary Shares are traded on
the Over-the-Counter Market in the form of ADRs and are issued and exchanged by
The Bank of New York, as depositary. The following table sets forth for the
periods indicated the reported high and low sales prices of the Company's
Common Stock on the TSE and the reported high and low sales prices per share of
the Company's ADSs on the Over-the-Counter Market.
-91-
Over-the-Counter
Market Price Per
Tokyo Stock American
Exchange Price Depositary Share (5
Per Share of shares of Common
Common Stock Stock)
(Japanese Yen) (U.S. Dollars)
-------------- -------------------
High Low High Low
----- ----- ------ ------
Annual highs and lows
---------------------
Fiscal Year 2003 2,470 1,637 95.75 62.50
Fiscal Year 2004 2,365 1,607 104.50 68.55
Fiscal Year 2005 2,345 1,782 107.50 84.80
Fiscal Year 2006 2,360 1,646 110.00 73.00
Fiscal Year 2007 2,775 1,991 116.50 88.00
Quarterly highs and lows
------------------------
Fiscal Year 2006
1st quarter 1,897 1,646 87.30 78.70
2nd quarter 1,855 1,651 110.00 75.55
3rd quarter 2,205 1,780 91.25 73.00
4th quarter 2,360 1,917 101.00 83.75
Fiscal Year 2007
1st quarter 2,420 1,991 108.00 88.00
2nd quarter 2,415 2,130 105.25 91.00
3rd quarter 2,515 2,130 107.25 91.00
4th quarter 2,775 2,320 116.50 98.00
Monthly highs and lows
----------------------
December 2006 2,465 2,135 103.75 91.80
January 2007 2,665 2,320 110.00 98.00
February 2007 2,775 2,535 116.50 106.00
March 2007 2,695 2,470 113.00 105.00
April 2007 2,870 2,615 121.25 109.15
May 2007 2,725 2,550 113.50 106.00
Notes: (1) Price per share of Common Stock is as reported by the TSE.
(2) Price per ADSs is based upon one ADS representing 5 shares of Common
Stock as reported by the Over-the-Counter Market Bulletin Board(R).
B. Plan of Distribution
Not applicable.
C. Markets
See Item 9.A. for a list of the stock exchanges on which the securities are
listed.
-92-
See Item 10.B. for certain information relating to the Common Stock of the
Company.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
----------------------
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
ORGANIZATION
Ricoh Company, Ltd. was incorporated in Japan under the Commercial Code of
Japan and is deemed to remain to exist under the Corporation Law (KAISHA-HO;
Law No. 86 of 2005) which took effect as of May 1, 2006. It is registered in
the Commercial Register (SHOGYO TOKIBO) maintained by the Tokyo Legal Affairs
Bureau of the Ministry of Justice.
OBJECTIVES AND PURPOSES
Article 3 of the Articles of Incorporation of the Company provides that its
purpose is to engage in the following business activities:
1. Manufacture, sale and installation work and electrical communication
work of optical, office, audio, electric and measuring equipment, other
general machinery and equipment and accessories and supplies therefor.
2. Manufacture and sale of photographic sensitive materials and duplicating
papers.
3. Manufacture and sale of various raw materials for photographic sensitive
materials, and various chemical materials for chemical industries.
4. Manufacture, processing and sale of papers, pulps, textiles, general
merchandise and by-products thereof.
5. Investment in, or sale of the products of, other companies.
-93-
6. Import and Export of the goods described in any of the foregoing items
and other goods of every kind and description.
7. Brokerage business for casualty insurance and insurance brokerage under
the Automobile Liability Security Law of Japan.
8. Direct marketing through the Internet, facsimile, telephone, etc.
9. Any and all business incidental or relating to any of the foregoing
items.
DIRECTORS
Under the Corporation Law, the Board of Directors has executive powers and
duties to manage the affairs of the Company and each Representative Director,
who is elected from among the Directors by the Board of Directors, has the
statutory authority to represent the Company in all respects. Under the
Corporation Law, the Directors must refrain from engaging in any business
competing with the Company unless approved by the Board of Directors and any
Director who has a material interest in the subject matter of a resolution to
be taken by the Board of Directors cannot vote in such resolution. The total
amount of remuneration to Directors and to Corporate Auditors is subject to
approval at the General Meeting of Shareholders. Within such authorized amounts
the Board of Directors and the Board of Corporate Auditors respectively
determine the compensation to each Director and Corporate Auditor.
Except as stated below, neither the Corporation Law nor the Company's
Articles of Incorporation make a special provision as to the Director's or
Corporate Auditor's power to vote in connection with their compensation,
borrowing powers exercisable by a Representative Director (or a Director who is
given power by a Representative Director to exercise such powers), their
retirement age or requirement to hold any shares of capital stock of the
Company. The Corporation Law specifically requires the resolution of the Board
of Directors for a corporation to acquire or dispose of material assets; to
borrow substantial amounts of money; to employ or discharge from employment
important employees, such as managers (SHIHAININ); to establish, change or
abolish a material corporate organization such as a branch office; to decide
certain important matters related to the offering as to subscription of bonds;
to establish a system necessary to ensure appropriateness of business
operations of a joint stock corporation (KABUSHIKI KAISHA), including
compliance with the laws and regulations and the Articles of Incorporation by
the Directors in performing their duties. The Regulations of the Board of
Directors of the Company require a resolution of the Board of Directors for the
Company's borrowing or lending of a significant amount of money or giving of a
guarantee in a large amount.
Set forth below is certain information relating to the Common Stock of the
Company, including brief summaries of certain provisions of the Company's
Articles of Incorporation and Share Handling Regulations, as currently in
effect, and of the Corporation Law of Japan relating to a joint stock company
(KABUSHIKI KAISHA) and certain related legislation.
-94-
GENERAL
The presently authorized capital stock of the Company is 1,500,000,000
shares. Under the Corporation Law, shares of the Company (which chose under
Article 7 of its Articles of Incorporation to issue share certificates) are
transferable by delivery of share certificates, but in order to assert
shareholders' rights against the Company, the transferee must generally have
his name registered in the Company's register of shareholders. Shareholders are
required to file their names, addresses and seals with The Chuo Mitsui Trust &
Banking Co., Ltd., the custodian of the shareholders' register (KABU-NUSHI
MEIBO KANRININ), transfer agent for the Company's Common Stock, and
shareholders not resident in Japan are required to file a mailing address in
Japan or appoint a resident proxy in Japan. These requirements do not apply to
the holders of ADRs.
The central clearing system of share certificates under the Law Concerning
Central Clearing of Share Certificates and Other Securities of Japan applies to
the shares of Common Stock of the Company. Pursuant to this system a holder of
shares of Common Stock is able to choose, at his discretion, to participate in
this system and all certificates of shares of Common Stock elected to be put
into this system are deposited with the central clearing system and all such
shares are registered in the name of the clearing house in the Company's
register of shareholders. Each participating shareholder is in turn registered
in the register of beneficial shareholders and treated the same way as
shareholders registered in the Company's register of shareholders.
DIVIDENDS
The Articles of Incorporation of the Company provide that the accounts shall
be closed on March 31 of each year and that dividends, if any, shall be paid to
the shareholders of record as of the end of such fiscal period. After the close
of the fiscal period, the Board of Directors prepares, among other things,
accounting documents (financial statements) and the attachments thereto for
dividends and other purposes; these documents are to be submitted to the
Corporate Auditors of the Company and to the Accounting Auditors and then
submitted for approval by an annual Ordinary General Meeting of Shareholders,
which is normally held in June of each year and the distribution of surplus
(JOYO-KIN) is to be decided upon by shareholders at such Meeting. In addition
to provisions for dividends, if any, and for the reserve, bonuses to Directors
and Corporate Auditors will also be decided upon at this Meeting. In addition
to a distribution of annual dividends, the Board of Directors of the Company
may by its resolution declare an interim dividend pursuant to Article 454,
paragraph 5 of the Corporation Law to shareholders who are registered in the
Company's register of shareholders at the end of each September 30, subject to
the limitations described below.
The Corporation Law provides that the Company may not make any distribution
of surplus by way of dividends in cash unless it has set aside in its reserve
an amount equal to at least one-tenth of any amount paid out as an
appropriation of retained earnings (including any payment by way of annual
dividend and bonuses to Directors and Corporate Auditors) or equal to one-tenth
of any interim dividend. The Corporation Law permits the Company to distribute
surplus by way of dividends. First, surplus is
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calculated by adding (i), (ii), (iii) and (iv) described below and subtracting
(v), (vi) and (vii) described below from such aggregate of (i) through (iv):
(i) amount determined by subtracting the aggregate of (c), (d) and
(e) described below from the aggregate of (a) and (b) described below as of the
final date of the last fiscal year; (a) amount of assets, (b) the aggregate
amount of the book value of the treasury stock, (c) amount of liabilities,
(d) the aggregate amount of the stated capital and the reserve and (e) the
aggregate of each amount entered under respective accounting titles (KANJO
KAMOKU) set forth under the relevant Ordinance of the Ministry of Justice,
(ii) amount determined by subtracting the book value of the treasury stock from
the consideration for the treasury stock disposed of, if any, after the final
date of the last fiscal year, (iii) amount of reduction of the stated capital,
if any, after the final date of the last fiscal year, (iv) amount of reduction
of the reserve, if any, after the final date of the last fiscal year, (v) book
value of the treasury stock, if any, cancelled after the final date of the last
fiscal year, (vi) amount determined by adding (a) through (c) described below
in the event that surplus is distributed after the final date of the last
fiscal year: (a) the aggregate of the book value of assets for distribution set
forth under Article 454, paragraph 1, item 1 of the Corporation Law (regarding
distribution of surplus), (b) the aggregate of each sum of the money given to
the shareholders who exercised the right to monetary distribution set forth
under Article 454, paragraph 4, item 1 of the Corporation Law (regarding
distribution in kind) and (c) the aggregate of each sum of the money given to
each shareholder holding shares of which number is less than a certain number
to be set forth by the Company pursuant to Article 454, paragraph 4, item 2 of
the Corporation Law (regarding distribution in kind), (vii) the aggregate of
each amount entered under respective accounting titles set forth under the
relevant Ordinance of the Ministry of Justice. Second, the distributable amount
is calculated by subtracting the aggregate of (iii), (iv), (v) and
(vi) described below from the aggregate of (i) and (ii) described below:
(i) surplus; (ii) the aggregate of the following items (a) and (b) in the event
that extraordinary accounting documents are approved by the shareholders'
meeting or by the Board of Directors, as the case may be; (a) the aggregate of
each amount entered as profit under respective accounting titles set forth
under the relevant Ordinance of the Ministry of Justice during a period of time
in question, (b) consideration for the treasury stock disposed of, if any,
during such period; (iii) the book value of the treasury stock; (iv) the
consideration for treasury stock disposed of, if any, after the final date of
the last fiscal year; (v) the aggregate of each amount entered as loss under
respective accounting titles set forth under the relevant Ordinance of the
Ministry of Justice during the same period as stated in (ii) above; and
(vi) the aggregate of each amount entered under the respective accounting
titles set forth under the relevant Ordinance of Ministry of Justice. The
Company may distribute such distributable amount to shareholders.
The Corporation Law does not provide for stock dividends but provides for
"free share allotment" under Article 185. The Board of Directors may by
resolution issue and allot new shares to the shareholders on a prorated basis
without receiving any consideration/contribution as issue price. In addition,
under the Corporation Law, the Board of Directors may by resolution issue
additional shares by way of a stock split, while the General Meeting of
Shareholders by resolution transfers any amount which is distributable as
dividends to stated capital, and thus the same effect as a stock dividend can
be achieved.
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In Japan, the "ex-dividend" date and the record date for dividends precede
the date of determination of the amount of the dividend to be paid.
In accordance with the Company's Articles of Incorporation, once a right to
any dividends is accrued and has become due and payable, such right to
dividends will lapse after three years from the due date.
TRANSFER OF RESERVE TO STATED CAPITAL AND STOCK SPLITS
When the Company issues new shares of Common Stock, the entire amount of the
issue price of such new shares is required to be accounted for as stated
capital, although the Company may account for an amount not exceeding one-half
of such issue price as capital surplus. The General Meeting of Shareholders may
by resolution transfer the whole or any part of reserve to stated capital. On
the other hand, the Board of Directors may by resolution issue to shareholders
additional shares of Common Stock without receiving any
consideration/contribution as issue price by way of free allotment of shares or
stock split without referring to the whole or any part of the amount of reserve
so transferred to stated capital.
GENERAL MEETING OF SHAREHOLDERS
The Ordinary General Meeting of Shareholders to settle accounts of the
Company for each fiscal period is normally held in June each year in Ota-ku,
Tokyo, Japan. In addition, the Company may hold an extraordinary General
Meeting of Shareholders whenever necessary by giving at least two weeks'
advance notice to shareholders.
Notice of a Shareholders' Meeting setting forth the place, time and purpose
thereof, must be mailed to each shareholder having voting rights (or, in the
case of a non-resident shareholder, to his resident proxy or mailing address in
Japan) at least two weeks prior to the date set for the meeting. Such notice
may also be furnished to shareholders by electronic means with such
shareholders' consent.
Any shareholders' holding at least 300 voting shares or 1% of the total
number of outstanding voting shares for six months or more may propose a matter
to be considered at a General Meeting of Shareholders by submitting a written
request to Directors at least eight weeks prior to the date set for such
Meeting. Such request may be submitted by electronic means with the Company's
consent.
VOTING RIGHTS
A shareholder is entitled to one vote per share subject to the limitations
on voting rights set forth in the following paragraph below and in the sections
entitled "'Unit share system" through "Voting rights of a holder of shares
representing less than one unit" below. Except as otherwise provided by law or
by the Company's Articles of Incorporation, a resolution can be adopted at a
General Meeting of Shareholders by a majority of the shares having voting
rights represented at the meeting. Special resolutions provided for in
paragraph 2, Article 309 of the Corporation Law shall be adopted by the vote of
the shareholders not less than two-thirds (2/3) of those present at a
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meeting whereby one-third (1/3) of voting rights of all of the shareholders
shall constitute a quorum. The Corporation Law and the Company's Articles of
Incorporation provide, however, that the quorum for the election of Directors
and Corporate Auditors shall not be less than one-third of the total number of
outstanding shares having voting rights. The Company's shareholders are not
entitled to cumulative voting in the election of Directors. A corporate
shareholder, more than one-quarter of whose outstanding voting shares are
directly or indirectly owned by the Company, may not exercise its voting rights
in respect of the shares of the Company. The Company has no voting rights with
respect to its own Common Stock. Shareholders may exercise their voting rights
through proxies provided that the proxies are also shareholders holding voting
rights. The Company's shareholders also may cast their votes in writing.
The Corporation Law provides that in order to amend the Articles of
Incorporation and in certain other instances, including an increase in the
total number of shares authorized to be issued, a reduction of the stated
capital, the removal of a Director or Corporate Auditor, dissolution, merger
(with an exception of a merger with a company of very small business) or
consolidation of a corporation, the transfer of the whole or an important part
of the business, the taking over of the whole of the business of any other
corporation (with an exception of a merger with a company of very small
business), any offering of new shares at a "specially favorable" price (or any
offering of convertible bonds or debentures with "specially favorable"
conversion conditions or of bonds or debentures with warrants or rights to
subscribe for new shares with "specially favorable" conditions) to persons
other than shareholders, the quorum shall be one-third of the total number of
shares having voting rights outstanding and the approval of the holders of at
least two-thirds of the shares having voting rights represented at the Meeting
is required (the "special shareholders resolution").
SUBSCRIPTION RIGHTS (KABUSHIKI WARIATEWO UKERU KENRI)
Holders of the Company's Common Stock have no preemptive rights under its
Articles of Incorporation. Authorized but unissued shares may be issued at such
times and upon such terms as the Board of Directors determines, subject to the
limitations as to the offering of new shares at a "specially favorable" price
mentioned above. The Board of Directors may, however, determine that
shareholders shall be given subscription rights regarding a particular issue of
new shares, in which case such rights must be given on uniform terms to all
shareholders and a notice must be given to shareholders not less than two weeks
prior to the date when such rights are to be vested to shareholders. The
Corporation Law provides that if a shareholder to whom such rights are given
does not apply for subscription by a certain date of subscription, such
shareholder will lose such rights.
Rights to subscribe for new shares may be made generally transferable by the
Board of Directors. In such case, such transferable right is called "call
option of new shares (SHINKABU YOYAKUKEN). Whether the Company will make
subscription rights generally transferable in future rights offerings will
depend upon the circumstances at the time of such offerings. If subscription
rights are not made generally transferable, transfers by a non-resident of
Japan or a corporation organized under the laws of a
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foreign country or whose principal office is located in a foreign country will
be enforceable against the Company and third parties only if the Company's
consent to each such transfer is obtained. When such consent is necessary in
the future for the transfer of subscription rights, the Company intends to
consent, on request, to all such transfers by such a non-resident or foreign
corporation.
DILUTION
In the future it is possible that market conditions and other factors might
make a rights offering to shareholders substantially below the market price of
shares of Common Stock desirable. If the number of shares offered in a rights
offering is substantial in relation to the number of shares outstanding and the
market price exceeds the subscription price at the time of the offering, a
shareholder who does not exercise and is unable otherwise to realize the full
value of his subscription rights would suffer economic dilution of his equity
interest in the Company.
LIQUIDATION RIGHTS
In the event of a liquidation of the Company, the assets remaining after
payment of all debts and liquidation expenses and taxes will be distributed
among the shareholders in proportion to the respective numbers of shares held.
LIABILITY TO FURTHER CALLS OR ASSESSMENTS
All the Company's presently outstanding shares of Common Stock including
shares represented by the American Depository Shares are fully paid and
non-assessable.
CUSTODIAN OF THE SHAREHOLDERS' REGISTER
The Chuo Mitsui Trust and Banking Co., Ltd. is the custodian of the
shareholders' register of the Company's Common Stock; as such custodian, it
keeps the Company's register of shareholders and register of the lost share
certificates in its office at 33-1, Shiba 3-chome, Minato-ku, Tokyo, Japan, and
makes transfer of record ownership upon presentation of the certificates
representing the transferred shares.
RECORD DATE
March 31 is the record date for the Company's year-end dividends. The
shareholders who are registered as the holders of 1,000 shares or more in the
Company's register of shareholders at the end of each March 31 are also
entitled to exercise shareholders' rights at the Ordinary General Meeting of
Shareholders with respect to the fiscal period ending on such March 31.
September 30 is the record date for interim dividends. In addition, the Company
may set a record date for determining the shareholders entitled to other rights
and for other purposes by giving at least two weeks' public notice.
The price of the shares generally goes ex-dividend or ex-rights on Japanese
stock exchanges on the third business day prior to a record date (or if the
record date is not a
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business day, the fourth business day prior thereto), for the purpose of
dividends or rights offerings.
PURCHASE BY THE COMPANY OF ITS COMMON STOCK
The Company may purchase its own shares only in case of the events falling
under Article 155 of the Corporation Law. As a matter of manner of such
purchase, the Company may purchase of its own shares (i) through the Tokyo
Stock Exchange or other stock exchange on which the shares are listed or by way
of tender offer, if authorized by a resolution of the Board of Directors,
(ii) from a specific party, if authorized by a special resolution of an
Ordinary General Meeting of Shareholders, or (iii) from the Company's own
subsidiary, if authorized by a resolution of the Board of Directors.
When a repurchase is made by the Company from a specified party pursuant to
an authorization by a special resolution of an Ordinary General Meeting of
Shareholders as noted above, shareholders may make a demand to a Representative
Director, five days or more prior to the relevant Shareholders' Meeting, that
the Company also repurchase the shares held by that shareholder. Purchase of
shares falling under Article 461, paragraph 1 of the Corporation Law must
satisfy, among others, the requirement that the total amount of the repurchase
price (of book value) may not exceed the distributable amount as described in
"Dividends" above. The Company may hold its own shares as treasury stock so
purchased without restriction as to a period of time to hold. However, the
Company is not entitled to any voting rights or right to dividends as to such
treasury stock. The Company may cancel its treasury stock that it holds by a
resolution of the Board of Directors. The Company may otherwise dispose of its
treasury stock by a resolution of the Board of Directors.
"UNIT" SHARE SYSTEM (TANGENKABU SEIDO)
Pursuant to the Corporation Law the Company has adopted 1,000 shares as one
unit of shares.
TRANSFERABILITY OF SHARES REPRESENTING LESS THAN ONE UNIT
As adopted in the Company's Articles of Incorporation, the Company will not
issue certificates for shares representing less than one unit. Since the
transfer of shares normally requires delivery of the certificates therefor,
fractions of a unit for which no share certificates are issued are not
transferable. Shares representing less than one unit for which share
certificates have been issued continue to be transferable.
RIGHT OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT TO REQUIRE THE
COMPANY TO PURCHASE SUCH SHARES
A holder of shares representing less than one unit may at any time require
the Company to purchase such shares at their last reported sale price on the
Tokyo Stock Exchange on the day when such request is made less applicable
brokerage commission. The usual securities transfer tax is applicable to such
transactions.
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RIGHT OF THE HOLDER OF SHARES TO DEMAND THE PURCHASE OF SHARES REPRESENTING
LESS THAN ONE UNIT
As adopted in the Company's Articles of Incorporation and set forth in the
Share Handling Regulations, a holder of shares of less-than-one-unit may
request the Company to sell additional shares so that their less-than-one-unit
can share constitute one unit of shares.
OTHER RIGHTS OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT
A holder of shares representing less than one unit has certain rights in
respect of such shares, including the following: (i) the right to receive
dividends (including interim dividends), (ii) the right to receive shares
and/or cash by way of a stock split or upon consolidation or subdivision of
shares or upon a capital decrease or merger of the Company, (iii) the right to
be allotted subscription rights with respect to new shares, convertible bonds
and bonds with warrants to subscribe for shares when such rights are granted to
shareholders and (iv) the right to participate in the distribution of surplus
assets in the event of the liquidation of the Company. Other rights, including
voting rights, cannot be exercised with respect to shares representing less
than one unit.
VOTING RIGHTS OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT
A holder of shares representing less than one unit cannot exercise any
voting rights with respect to such shares. A holder of shares representing one
or more whole units will have one vote for each such unit, except as stated in
"Voting rights" above.
C. Material Contracts
All contracts entered into by Ricoh or any member of the Ricoh Group during
the two years preceding this report were entered into in the ordinary course of
business.
D. Exchange Controls
The Foreign Exchange and Foreign Trade Law of Japan, as amended, and the
cabinet orders and ministerial ordinances thereunder (the "Exchange Law")
govern certain matters relating to the issuance of equity-related securities by
the Company and the acquisition and holding of shares of Common Stock or ADSs
representing such shares by "exchange non-residents" and by "foreign investors"
as hereinafter defined. The Exchange Law currently in effect does not affect
the right of an exchange non-resident to purchase or sell an ADS outside Japan.
"Exchange non-residents" are defined under the Exchange Law as individuals
who are not resident in Japan and corporations whose principal offices are
located outside Japan. Generally branches and other offices of Japanese
corporations located outside Japan are regarded as exchange non-residents, but
branches and other offices located within Japan of non-resident corporations
are regarded as residents of Japan. "Foreign investors" are defined to be
(i) individuals not resident in Japan, (ii) corporations which are organized
under the laws of foreign countries or whose principal offices are located
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outside Japan, and (iii) corporations of which (a) 50% or more of the shares
are held by (i) and/or (ii) above, (b) a majority of officers consists of
non-resident individuals or (c) a majority of the officers having the power of
representation consists of non-resident individuals.
Dividends and Proceeds of Sales
Under the Exchange Law, dividends paid on, and the proceeds of sales in
Japan of, shares of Common Stock held by exchange non-residents in general may
be converted into any foreign currency and repatriated abroad. The acquisition
of shares of Common Stock by exchange non-resident shareholders by way of stock
splits is not subject to any requirements under the Exchange Law.
Acquisition of Shares
Under the Exchange Law, acquisition of shares of a Japanese company listed
on any Japanese stock exchange or traded on the over-the-counter market in
Japan ("listed shares") by an exchange non-resident from a resident of Japan is
generally not subject to a prior filing requirement. In case a foreign investor
acquires listed shares (whether from a resident of Japan or an exchange
non-resident, from another foreign investor or from or through a designated
securities company) and as a result of such acquisition the number of shares
held directly or indirectly by such foreign investor would become 10% or more
of the total outstanding shares of the company, the foreign investor is
required to make a subsequent report on such acquisition to the Minister of
Finance and other Ministers having jurisdiction over the business of the
subject company (the "Competent Ministers"). In certain exceptional cases, a
prior filing is required and the Competent Ministers may recommend the
modification or abandonment of the proposed acquisition and, if the foreign
investor does not accept the recommendation, order its modification or
prohibition. The deposit of shares of Common Stock by an exchange non-resident
of Japan, the issuance of ADRs in exchange therefor and the withdrawal of the
underlying shares of Common Stock by an exchange non-resident upon surrender of
ADRs are not subject to any requirements under the Exchange Law, except where
as a result of such deposit or withdrawal the aggregate number of shares of
Common Stock held by the Depositary (or its nominee) or the holder surrendering
ADRs, as the case may be, would be 10% or more of the total outstanding shares
of Common Stock, in which event a subsequent reporting may be required as
described above.
E. Taxation
JAPANESE TAXATION
Generally, a non-resident of Japan or a non-Japanese corporation is subject
to Japanese withholding tax on dividends paid by a Japanese corporation.
Generally, stock splits are not subject to Japanese income tax. According to
the Income Tax Law of Japan, the rate of Japanese national withholding tax
applicable to dividends paid on listed shares issued by the Company to
non-residents of Japan or non-Japanese corporations is (i) 7% for the period
from January 1, 2004 to March 31, 2008, and (ii) 15% thereafter, except for
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dividends paid to any individual shareholder who holds 5% or more of the
outstanding total of the shares issued by the Company, for which the applicable
rate is 20%. Under the new income tax convention between the U.S. and Japan
(the "Convention") ratified in March 2004, the maximum rate of Japanese
withholding tax that may be imposed on dividends paid to a U.S. resident or
corporation not having a "permanent establishment" (as defined therein) in
Japan is generally 10%. This 10% withholding tax rate is applicable to
dividends declared on or after July 1, 2004. The 15% withholding tax rate under
the old income tax convention is still applicable to dividends declared before
July 1, 2004. If the tax rate under the domestic tax law is lower than that
under the Convention, the domestic tax rate is still applicable.
Gains derived by a non-resident of Japan or a non-Japanese corporation from
the sale of Common Stock or ADRs outside Japan, or from the sale of Common
Stock within Japan by a non-resident of Japan or by a non-Japanese corporation
not having a permanent establishment in Japan, are in general not subject to
Japanese income or corporation tax. Japanese inheritance or gift tax at
progressive rates may be payable by an individual who has acquired Common Stock
or ADRs as a legatee, heir or donee.
For purposes of the Convention and the U.S. Internal Revenue Code of 1986,
as amended (the "Code"), U.S. holders of ADRs will be treated as the owners of
the Common Stock underlying the American Depositary Shares evidenced by the
ADRs.
U.S. TAXATION
This summary describes the material U.S. federal income tax consequences for
a U.S. holder (as defined below) of owning and disposing of shares of Common
Stock or American Depositary Shares evidenced by the ADRs. This summary applies
to you only if you hold shares of Common Stock or American Depositary Shares as
capital assets for U.S. federal income tax purposes. This summary does not
apply to you if you are a member of a class of holders subject to special
rules, such as:
. a dealer in securities or currencies;
. a trader in securities that elects to use a mark-to-market method of
accounting for securities holdings;
. a bank;
. a life insurance company;
. a tax-exempt organization;
. a person that holds shares of Common Stock or American Depositary Shares
that are a hedge or that are hedged against interest rate or currency
risks;
. a person that is subject to the alternative minimum tax;
. a person that holds shares of Common Stock or American Depositary Shares
as part of a straddle or conversion transaction for tax purposes;
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. a person whose functional currency for U.S. federal income tax purposes
is not the U.S. Dollar; or
. a person that actually or constructively owns or is deemed to own 10% or
more of any class of our stock.
This summary is based on laws, treaties, and regulatory interpretations in
effect on the date hereof, all of which are subject to change, possibly on a
retroactive basis. Moreover, this summary assumes that the Company will not be
treated as a passive foreign investment company (a "PFIC") for U.S. federal
income tax purposes. See the summary below under the heading "PFIC Rules."
Please consult your own tax advisers concerning the U.S. federal, state,
local, and other tax consequences of purchasing, owning, and disposing of
shares of Common Stock or American Depositary Shares in your particular
circumstances.
For purposes of this summary, you are a "U.S. holder" if you are a
beneficial owner of a share of Common Stock or an American Depositary Share
that is for U.S. federal income tax purposes: (i) a citizen or a resident of
the United States, (ii) a corporation or a partnership (including an entity
treated as a corporation or a partnership for U.S. federal income tax purposes)
created or organized in or under the laws of the United States, any state
thereof or the District of Columbia (unless, in the case of a partnership,
Treasury regulations are adopted that provide otherwise), (iii) an estate whose
income is subject to U.S. federal income tax regardless of its source, or
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
Certain trusts not described in clause (iv) above in existence on August 20,
1996 that elect to be treated as a United States person will also be a U.S.
holder for purposes of this discussion.
In general, if you hold ADRs evidencing American Depositary Shares, you will
be treated as the owner of the shares of Common Stock represented by those
American Depositary Shares for U.S. federal income tax purposes, and no gain or
loss will be recognized if you exchange an American Depositary Share for the
shares of Common Stock represented by that American Depositary Share.
DIVIDENDS
The gross amount of cash dividends paid out of the Company's current or
accumulated earnings and profits, as determined for U.S. federal income tax
purposes, that a U.S. holder receives (prior to deduction of Japanese taxes)
generally will be subject to U.S. federal income taxation as foreign source
ordinary dividend income. However, in certain circumstances, all or a portion
of the cash dividends paid by the Company may be treated as U.S. source
dividend income. You should consult your tax advisers regarding the U.S.
federal income tax consequences of all or a portion of the cash dividends paid
by the Company being treated as U.S. source dividend income.
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Dividends paid in Japanese Yen will be included in your income in a
U.S. Dollar amount calculated by reference to the exchange rate in effect on
the date of your (or, in the case of American Depositary Shares, the
depositary's) receipt of the dividend, regardless of whether the payment is in
fact converted into U.S. Dollars. If such a dividend is converted into U.S.
Dollars on the date of receipt, you generally should not be required to
recognize a foreign currency gain or loss in respect of the dividend income.
You should consult your own tax adviser regarding the treatment of any foreign
currency gain or loss realized with respect to any Japanese Yen received by you
(or, in the case of American Depositary Shares, the depositary) that are
converted into U.S. Dollars on a date subsequent to receipt. Dividends paid by
the Company generally will not be eligible for the dividends-received deduction
allowed to corporations that are U.S. holders.
Notwithstanding the foregoing, pursuant to recently enacted legislation,
certain dividends received by individual U.S. holders that constitute
"qualified dividend income" will be subject to a reduced maximum marginal U.S.
federal income tax rate. Qualified dividend income generally includes, among
other dividends, dividends received during the taxable year from "qualified
foreign corporations." In general, the term "qualified foreign corporation"
includes a foreign corporation that is eligible for the benefits of a
comprehensive income tax treaty with the United States which the U.S. Treasury
Department determines to be satisfactory, and which includes an exchange of
information program. In addition, a foreign corporation is treated as a
qualified foreign corporation with respect to any dividend paid by the
corporation with respect to stock of the corporation that is readily tradable
on an established securities market in the United States. Notwithstanding this
previous rule, dividends received from a foreign corporation that was a foreign
investment company (as defined in section 1246(b) of the Code), a passive
foreign investment company (as defined in section 1297 of the Code), or a
foreign personal holding company (as defined in section 552 of the Code) in
either the taxable year of the corporation in which the dividend was paid or
the preceding taxable year will not constitute qualified dividend income. In
addition, the term qualified dividend income will not include, among other
dividends, any (i) dividends on any share of stock which is held by a taxpayer
for 60 days or less during the 121-day period beginning on the date which is 60
days before the date on which such share becomes ex-dividend with respect to
such dividends (as measured under section 246(c) of the Code) or (ii) dividends
to the extent that the taxpayer is under an obligation (whether pursuant to a
short sale or otherwise) to make related payments with respects to positions in
substantially similar or related property. Moreover, special rules apply in
determining a taxpayer's foreign tax credit limitation under section 904 of the
Code in the case of qualified dividend income. Individual U.S. holders should
consult their own tax advisors to determine whether or not amounts received as
dividends from the Company will constitute qualified dividend income subject to
a reduced maximum marginal U.S. federal income tax rate and, in such case, the
effect, if any, on the individual U.S. holder's foreign tax credit.
In addition to the foregoing, you should consult your own tax advisers to
determine whether any rules limit your ability to make effective use of foreign
tax credits, including the possible adverse impact of failing to take advantage
of benefits under the income tax treaty between the United States and Japan. If
no such rules apply, you
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generally may claim a credit against your U.S. federal income tax liability for
Japanese taxes withheld from dividends on shares of Common Stock or American
Depositary Shares, so long as you have owned the shares of Common Stock or
American Depositary Shares (and not entered into specified kinds of hedging
transactions) for at least a 16-day period that includes the ex-dividend date.
Instead of claiming a credit, you may, at your election, deduct such Japanese
taxes in computing your taxable income, subject to generally applicable
limitations under U.S. federal income tax law. The calculation of foreign tax
credits and, in the case of a U.S. holder that elects to deduct foreign taxes,
the availability of deductions involve the application of complex rules that
depend, in part, on a U.S. holder's particular circumstances. You should
consult your own tax advisers regarding the creditability or deductibility of
such taxes.
SALES AND OTHER DISPOSITIONS
A U.S. holder will recognize a gain or loss on the sale or other disposition
of shares of Common Stock or American Depositary Shares evidenced by ADRs in an
amount equal to the difference between the U.S. Holder's adjusted tax basis in
such shares of Common Stock or American Depositary Shares (in U.S. Dollars) and
the amount realized on the disposition (in U.S. Dollars, generally determined
at the spot rate on the date of disposition if the amount realized is
denominated in a foreign currency). For U.S. federal income tax purposes, a
gain or loss realized by a U.S. holder on a sale or other disposition of shares
of Common Stock or American Depositary Shares will be a capital gain or loss,
and will be a long-term capital gain or loss if the shares of Common Stock or
American Depositary Shares were held for more than one year. Such gain or loss
generally will be treated as U.S. source gain or loss for U.S. foreign tax
credit purposes. Your ability to offset capital losses against ordinary income
is limited. Long-term capital gain recognized by an individual U.S. holder
generally is subject to taxation at a reduced maximum marginal U.S. federal
income tax rate.
PFIC RULES
The Company believes that it will not be treated as a PFIC for U.S. federal
income tax purposes. However, that is a factual determination made annually and
therefore may be subject to change. If the Company was treated as a PFIC, a
U.S. holder of shares of Common Stock or American Depositary Shares evidenced
by ADRs would be subject to certain adverse U.S. federal income tax
consequences.
U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING RULES
Payments in respect of the shares of Common Stock or American Depositary
Shares that are made within the United States or through certain U.S.-related
financial intermediaries are subject to information reporting and may be
subject to backup withholding unless the holder (i) is a corporation or other
exempt recipient or (ii) provides a taxpayer identification number and
certifies that no loss of exemption from backup withholding has occurred (and
certain other conditions are met).
-106-
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended. In accordance with these requirements,
the Company files reports and other information with the U.S. Securities and
Exchange Commission (the "SEC"). These materials, including this annual report
and exhibits thereto, may be inspected and copied at the SEC's Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of the materials may
be obtained from the SEC's Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549 at prescribed rates. The public may obtain information
on the operation of the Public Reference Room by calling the SEC in the U.S. at
1-800-SEC-0330. The documents filed via the Electronic Data Gathering,
Analysis, and Retrieval system are also available for inspection on the SEC's
website (http://www.sec.gov).
I. Subsidiary Information
Not Applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------s
Ricoh is exposed to market risks primarily from changes in foreign currency
exchange rates and interest rates, which affect outstanding debt and certain
assets and liabilities denominated in foreign currencies. To a lesser extent,
Ricoh is also exposed to equity price risk. In order to manage these risks that
arise in the normal course of business, Ricoh enters into various hedging
transactions pursuant to its policies and procedures covering such areas as
counterparty exposure and hedging practices. Ricoh does not hold or issue
derivative financial instruments for trading purposes or to generate income.
Ricoh regularly assesses these market risks based on the policies and
procedures established to protect against adverse effects of these risks and
other potential exposures, primarily by reference to the market value of the
financial instruments. As a result of the latest assessment, Ricoh does not
anticipate any material losses in these areas for the fiscal year 2007, and
there are no material quantitative changes in market risk exposure at March 31,
2007 when compared to March 31, 2006. In the normal course of business, Ricoh
also faces risks that are either non-financial or nonquantifiable. Such risks
principally include credit risk and legal risk, and are not represented in the
following tables.
-107-
FOREIGN CURRENCY RISK
In the ordinary course of business, Ricoh uses foreign exchange forward
contracts to manage the effects of foreign currency exchange risk on monetary
assets and liabilities denominated in foreign currencies. The contracts with
respect to the operating activities generally have maturities of less than six
months, while the contracts with respect to the financing activities have the
same maturities as the underlying assets and liabilities.
The table below provides information about Ricoh's material derivative
financial instruments that are sensitive to foreign currency exchange rates.
The table below relating to foreign exchange forward contracts presents the
notional amounts, weighted average exchange rates and estimated fair value.
These notional amounts generally are used to calculate the contractual payments
to be exchanged under the contracts.
Foreign Exchange Forward Contracts
------------------------------------------------------------------------
Year Ended March 31, 2007
----------------------------------------------------------------
Average contractual rates Contract amounts Estimated fair value
(Millions of Yen) (Millions of Yen)
------------------------------------------------------------------------
US$/Yen 116.22 Yen 10,344 Yen 128
EUR/Yen 155.54 8,710 (76)
US$/EUR 0.75 7,806 (71)
------------------------------------------------------------------------
INTEREST RATE RISK
In the ordinary course of business, Ricoh enters into interest rate swap
agreements to reduce interest rate risk and to modify the interest rate
characteristics of its outstanding debt. These agreements primarily involve the
exchange of fixed and floating rate interest payments over the life of the
agreement without the exchange of the underlying principal amounts.
The below table provides information about Ricoh's major derivative and
other financial instruments that are sensitive to changes in interest rates,
including interest rate swaps and debt obligations. For debt obligations, the
table presents principal cash flows by expected maturity date, related weighted
average interest rates and estimated fair value. For interest rate swaps, the
table presents notional amounts by expected maturity date, weighted average
interest rates. Notional amounts are generally used to calculate the
contractual payments to be exchanged under the contract.
-108-
-----------------------------------------------------------------------------------------
LONG-TERM INDEBTEDNESS Year ended March 31, 2007
-----------------------------------------------------------------------------------------
Millions of Yen
-------------------------------------------------------------
(Excluding Capital
Lease Obligations Expected maturity date
and SFAS No. 133 -----------------------------------------------------
fair value Average Fair
adjustment) pay rate Total 2008 2009 2010 2011 2012 Thereafter Value
-----------------------------------------------------------------------------------------
Bonds 1.32% 64,999 10,000 25,000 20,000 9,999 -- -- 63,900
Convertible Bonds -- 55,256 -- -- -- -- 55,256 -- 50,650
Loans 1.48 201,580 76,764 52,119 49,919 11,594 11,169 15 200,464
-----------------------------------------------------------------------------------------
TOTAL 321,835 86,764 77,119 69,919 21,593 66,425 15 315,014
-----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
INTEREST RATE\SWAPS Year ended March 31, 2007
----------------------------------------------------------------------------------------------
Millions of Yen
----------------------------------------------------------
Expected maturity date
- ---------------------------------------------------
Notional Average Average
amounts Type of receive pay Fair
(Millions) swap rate rate Total 2008 2009 2010 2011 2012 Thereafter Value
----------------------------------------------------------------------------------------------
90,000 Receive
floating
/Pay
fixed 0.64% 0.95% 90,000 10,000 45,000 15,000 20,000 -- -- 1
24,000 Receive
fixed /
Pay
floating 1.92 0.61 24,000 -- 6,000 -- 10,000 8,000 -- 517
----------------------------------------------------------------------------------------------
US$ 190 Receive
floating
/Pay
fixed 5.62% 4.64% 22,430 -- -- 22,430 -- -- -- 227
45 Receive
fixed /
Pay
fixed 6.00 5.90 5,312 5,312 -- -- -- -- -- 6
----------------------------------------------------------------------------------------------
CREDIT RISK
Ricoh is also exposed to credit-related losses in the event of
nonperformance by counterparties to the financial instrument; however, credit
risk arising from the nonperformance of counterparties to meet the terms of
financial instrument contracts is generally limited to the amounts by which the
counterparties' obligations exceed the obligations of Ricoh. It is Ricoh's
policy to only enter into financial instrument contracts with a diversified
group of financial institutions having credit ratings satisfactory to Ricoh to
minimize the concentration of credit risk. Therefore, Ricoh does not expect to
incur material credit losses on its financial instruments.
DEBT/EQUITY PRICE RISK
Ricoh has a relatively small portion of marketable securities which are
subject to equity price risk arising from changes in their market prices.
Marketable securities consist of a diversified pool of Japanese equity
securities. Ricoh's overall investment policy is to invest in highly-liquid,
low risk investments.
-109-
The table below provides information about contractual maturities for
available-for-sale securities and the fair values for market risk sensitive
securities as of March 31, 2007.
--------------------------------------------------------------
(Millions of Yen)
Year ended March 31,
2007
--------------------------------------------------------------
Cost Fair Value
------- ----------
Debt Securities
Due within one year 176 176
Due after one year through five years 6,000 6,010
Equity Securities 49,261 64,110
Other 243 243
--------------------------------------------------------------
TOTAL 55,680 70,539
--------------------------------------------------------------
Item 12. Description of Securities Other Than Equity Securities
------------------------------------------------------
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
-----------------------------------------------
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of
-------------------------------------------------------------------
Proceeds
---------
None.
Item 15. Controls and Procedures
-----------------------
DISCLOSURE CONTROLS AND PROCEDURES
Ricoh's disclosure controls and procedures are designed with the objective
of ensuring that information required to be disclosed by Ricoh in the reports
it files or submits under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms, and is accumulated and communicated to Ricoh's
management, including its Chief Executive Officer ("CEO") and the Chief
Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding
required disclosure. Under the supervision and with the participation of its
management, including the CEO and CFO, Ricoh evaluated its disclosure controls
and procedures. Based on this evaluation, the CEO and the CFO concluded that
Ricoh's disclosure controls and procedures were effective as of March 31, 2007
at a reasonable assurance level, provided that it be understood that any system
of control is based in part upon certain assumptions designed to obtain
reasonable (but not absolute) assurance as to its effectiveness, and there can
be no assurance that our system of control will succeed in achieving its stated
objectives.
-110-
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Ricoh's management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Rule 13a-15(f) and
Rule 15d-15(f) of the Securities Exchange Act of 1934, as amended. Ricoh's
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that (1) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the
assets of Ricoh; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of Ricoh are being made only in accordance with authorizations of
management and directors of Ricoh; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of Ricoh's assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. In addition, projections of
any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with internal control policies or procedures may
deteriorate.
Ricoh's management assessed the effectiveness of Ricoh's internal control
over financial reporting as of March 31, 2007. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in INTERNAL CONTROL--INTEGRATED
FRAMEWORK. Management's assessment included evaluating the design of Ricoh's
internal control over financial reporting and testing of the operational
effectiveness of Ricoh's internal control over financial reporting. Based on
such assessment, management concluded that, as of March 31, 2007, Ricoh's
internal control over financial reporting was effective based on the criteria
issued by COSO.
Management's assessment of internal control over financial reporting as of
March 31, 2007 has been audited by KPMG AZSA & Co., an independent registered
public accounting firm, as stated in their report, which is included on page
F-3 of the Consolidated Financial Statements.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There has been no change in Ricoh's internal control over financial
reporting that occurred during the period covered by this Form 20-F that has
materially affected, or is reasonably likely to materially affect, its internal
control over financial reporting.
-111-
Item 16. [RESERVED]
Item16A. Audit Committee Financial Expert
--------------------------------
The Board of Directors of the Company has determined that it does not have
an "audit committee financial expert" as defined in Item 16A. of Form 20-F
serving on the Board of Corporate Auditors.
The Company is considering the issues related to and the ramifications of
such a designation. In Japan, there are limited numbers of qualified persons
who meet all of the criteria established by the SEC for financial experts to be
designated by issuers. Accordingly, it is taking some time for the Company to
identify such a qualified person. Although the Board of Directors is satisfied
that that members of the Board of Corporate Auditors possess the appropriate
skills and experience, as a group, to carry out their duties as members of the
Board of Corporate Auditors, the Company will continue to strive to identify
potential candidates that might qualify for this position. The Board of
Corporate Auditors will keep under active review the financial expert matter
during fiscal year 2008 as part of their overall risk management and compliance
program.
Item16B. Code of Ethics
--------------
Ricoh has adopted a code of ethics that applies to its employees, including
the President, Chief Executive Officer, Chief Operating Officer, and the senior
management of accounting and finance. Such code of ethics of Ricoh is provided
hereto as Exhibit 11.
Item16C. Principal Accountant Fees and Services
--------------------------------------
The aggregate fees for professional services and other services rendered by
KPMG AZSA & Co. and the various member firms of KPMG International to Ricoh for
the years ended March 31, 2006 and 2007, were:
(Millions of Yen)
------------------------------------------------------------------
Year ended March 31,
--------------------
2006 2007
------------------------------------------------------------------
Audit Fees 697 1,486
Audit-related Fees 71 10
Tax Fees 84 43
All Other Fees 34 135
------------------------------------------------------------------
TOTAL 886 1,674
------------------------------------------------------------------
Audit Fees consist of fees for the annual audit of Ricoh's consolidated
financial statements, and audit services that are normally provided by our
independent accountants.
Audit-related Fees consist of fees for assurance and related services that
are reasonably related to due diligence related to mergers and acquisitions and
consultation concerning financial accounting and reporting standards.
-112-
Tax Fees consist of fees for tax compliance, tax advice and tax consulting
associated with international transfer prices.
All Other Fees consist of fees for all other services not included in any of
the categories noted above.
-113-
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
In accordance with Japanese law, the Company's independent accountants
(KAIKEI KANSANIN) ("Accounting Auditors") are appointed by the shareholders at
the Ordinary General Meeting of Shareholders with the consent of the Company's
Board of Corporate Auditors. In addition, the Board of Corporate Auditors may,
by its resolution, request the Company's Board of Directors to submit a
proposal as to the appointment of Accounting Auditors at the Ordinary General
Meeting of Shareholders. Subsequent to the appointment of the Accounting
Auditors, the Board of Corporate Auditors is responsible, among other matters,
for the oversight of the Accounting Auditors, subject to the requirements of
Japanese law. No proposal was submitted to discharge KPMG AZSA & Co. as the
Company's Accounting Auditors at the most recent Ordinary General Meeting of
Shareholders held on June 27, 2007.
The Board of Corporate Auditors has adopted policies and procedures to
pre-approve all audit and permissible non-audit services provided by the
Accounting Auditor ("Pre-approval Policies"). Under the Pre-approval Policies,
proposed services either (i) may be pre-approved by the Board of Corporate
Auditors without specific consideration on a case-by-case basis if such
services do not exceed pre-approved fee levels ("general pre-approval"), or
(ii) require the specific pre-approval of the Board of Corporate Auditors
("specific pre-approval"). The Board of Corporate Auditors may delegate its
specific pre-approval authority to one or more of its independent members who
shall be designated by the Board of Corporate Auditors. Under the Pre-approval
Policies, the Accounting Auditors are not allowed to perform any non-audit
services which may impair the auditors independence under the rules of the SEC.
The appendices to the Pre-approval Policies set out the audit, audit-related,
tax and other services, including those described above, that have received the
general pre-approval of the Board of Corporate Auditors.
The term of any general pre-approval is twelve months from the date of
pre-approval, unless the Board of Corporate Auditors specifically provides for
a different period and sets forth such different period in the relevant
appendix to the Pre-approval Policies. The Board of Corporate Auditors will
annually review the Pre-approval Policies and revise the list of services that
it has provided general pre-approval. Requests or applications to provide
services that require specific pre-approval by the Board of Corporate Auditors
will be submitted to the Board of Corporate Auditors by the Chief Officer of a
company or division to which services are provided, accompanied by a draft
engagement letter from the Accounting Auditor.
During fiscal year 2007, none of the services provided to the Company by
KPMG AZSA & Co. were approved by the Board of Corporate Auditors pursuant to
the de minimis exception to the pre-approval requirement provided by paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
-114-
Item16D. Exemptions from the Listing Standards for Audit Committees
----------------------------------------------------------
Not applicable.
Item16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
----------------------------------------------------------------------
Not applicable.
PART III
Item 17. Financial Statements
--------------------
Not applicable.
Item 18. Financial Statements
--------------------
See Consolidated Financial Statements and Schedule attached hereto.
Item 19. Exhibits
--------
Documents filed as exhibits to this annual report:
1.1 Articles of Incorporation, as amended (English translation)
1.2 Share Handling Regulations, as amended (English translation)
1.3 Regulations of the Board of Directors, as amended (English translation)
1.4 Regulation of the Board of Corporate Auditors, as amended (English translation)
8.1 List of Significant Subsidiaries (See "Organizational structure" in Item 4.C. of this Form 20-F)
11 Code of Ethics (English translation)
12.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a)
12.2 Certification Pursuant to Rule 13a-14(a)/15d-14(a)
13(a)(1) Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
13.(a)(2) Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
-115-
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Company hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
RICOH COMPANY, LTD.
By: /s/ Zenji Miura
-----------------------------
Zenji Miura
Director, Corporate Executive
Vice President and Chief
Financial Officer
Date: June 29, 2007
RICOH COMPANY, LTD.
Consolidated Financial Statements and Schedule
For the years ended March 31, 2005, 2006 and 2007
With Reports of Independent Registered Public Accounting Firm Thereon
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
------------
Reports of Independent Registered Public Accounting Firm....... F-2 to F-3
Consolidated Balance Sheets as of March 31, 2006 and 2007...... F-4 to F-5
Consolidated Statements of Income for the years ended
March 31, 2005, 2006 and 2007................................ F-6
Consolidated Statements of Shareholders' Investments for the
years ended March 31, 2005, 2006 and 2007.................... F-7 to F-8
Consolidated Statements of Cash Flows for the years ended
March 31, 2005, 2006 and 2007................................ F-9
Notes to Consolidated Financial Statements..................... F-10 to F-49
Schedule:
II. Valuation and Qualifying Accounts and Reserves.......... F-50
All schedules not listed have been omitted because they are not applicable, or
the required information has been otherwise supplied in the consolidated
financial statements or the notes thereto.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Ricoh Company, Ltd.:
We have audited the consolidated financial statements of Ricoh Company, Ltd.
(a Japanese corporation) and subsidiaries as listed in the accompanying index.
In connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ricoh Company, Ltd.
and subsidiaries as of March 31, 2006 and 2007, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 2007, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Ricoh Company,
Ltd. and subsidiaries' internal control over financial reporting as of March 31,
2007, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated June 29, 2007 expressed an unqualified opinion on
management's assessment of, and the effective operation of, internal control
over financial reporting.
As described in note 2 to the consolidated financial statements, the Company
changed its method of quantifying errors in 2006 in accordance with Securities
and Exchange Commission Staff Accounting Bulletin No.108, Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements.
The accompanying consolidated financial statements as of and for the year ended
March 31, 2007 have been translated into United States dollars solely for the
convenience of the reader. We have audited the translation and, in our opinion,
the consolidated financial statements, expressed in yen, have been translated
into dollars on the basis set forth in Note 2 to the consolidated financial
statements.
/s/ KPMG AZSA & Co.
Tokyo, Japan
June 29, 2007
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Ricoh Company, Ltd.:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that Ricoh
Company, Ltd. (a Japanese corporation) and subsidiaries maintained effective
internal control over financial reporting as of March 31, 2007, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Ricoh Company, Ltd. and
subsidiaries maintained effective internal control over financial reporting as
of March 31, 2007, is fairly stated, in all material respects, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Also, in our
opinion, Ricoh Company, Ltd. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of March 31,
2007, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements of Ricoh Company, Ltd. and subsidiaries as listed in the accompanying
index, and our report dated June 29, 2007 expressed an unqualified opinion on
those consolidated financial statements.
/s/ KPMG AZSA & Co.
Tokyo, Japan
June 29, 2007
F-3
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2006 AND 2007
Thousands of
Millions of Yen U.S. Dollars
-------------------- ------------
ASSETS 2006 2007 2007
-----------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents 187,055 255,737 $ 2,167,263
Time deposits 1,470 1,417 12,008
Marketable securities 162 177 1,500
Trade receivables-
Notes 75,678 66,474 563,339
Accounts 391,972 450,231 3,815,517
Less--Allowance for doubtful receivables (16,031) (16,555) (140,297)
Current maturities of long-term finance receivables, net 178,882 193,087 1,636,331
Inventories-
Finished goods 104,218 113,379 960,839
Work in process and raw materials 65,027 70,975 601,483
Deferred income taxes and other 55,110 65,170 552,288
-----------------------------------------------------------------------------------------------
Total current assets 1,043,543 1,200,092 10,170,271
-----------------------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land 46,721 47,007 398,364
Buildings 217,302 227,900 1,931,356
Machinery and equipment 622,038 636,577 5,394,720
Construction in progress 11,541 12,512 106,034
-----------------------------------------------------------------------------------------------
Total 897,602 923,996 7,830,475
Less--accumulated depreciation (629,359) (659,328) (5,587,525)
-----------------------------------------------------------------------------------------------
Net property, plant and equipment 268,243 264,668 2,242,949
-----------------------------------------------------------------------------------------------
Investments and other assets:
Long-term finance receivables, net 415,435 435,874 3,693,847
Investment securities 36,419 74,836 634,203
Investments in and advances to affiliates 52,028 15,608 132,271
Goodwill 51,934 72,048 610,576
Other intangible assets 79,175 81,925 694,280
Lease deposits and other 94,406 98,355 833,517
-----------------------------------------------------------------------------------------------
Total investments and other assets 729,397 778,646 6,598,695
-----------------------------------------------------------------------------------------------
Total 2,041,183 2,243,406 $19,011,915
===============================================================================================
F-4
Thousands of
Millions of Yen U.S. Dollars
-------------------- ------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT 2006 2007 2007
---------------------------------------------------------------------------------------------------------
Current liabilities:
Short-term borrowings 82,520 91,673 $ 776,890
Current maturities of long-term indebtedness 103,131 87,174 738,763
Trade payables-
Notes 25,591 25,000 211,864
Accounts 313,561 342,211 2,900,093
Accrued income taxes 40,936 46,194 391,475
Accrued expenses and other 118,289 143,360 1,214,915
---------------------------------------------------------------------------------------------------------
Total current liabilities 684,028 735,612 6,234,000
---------------------------------------------------------------------------------------------------------
Long-term liabilities:
Long-term indebtedness 195,626 236,801 2,006,788
Accrued pension and severance costs 97,020 99,028 839,220
Deferred income taxes 51,374 44,183 374,432
---------------------------------------------------------------------------------------------------------
Total long-term liabilities 344,020 380,012 3,220,441
---------------------------------------------------------------------------------------------------------
Minority interests 52,890 56,869 481,941
---------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Note 17)
Shareholders' investment:
Common stock;
Authorized--1,500,000,000 shares in 2006 and 2007
Issued and outstanding--744,912,078 shares and 729,552,274
shares in 2006 and 744,912,078 shares and 729,987,673
shares in 2007 135,364 135,364 1,147,153
Additional paid-in capital 186,450 186,454 1,580,119
Retained earnings 665,394 752,398 6,376,254
Accumulated other comprehensive income 4,099 26,998 228,797
Treasury stock at cost; 15,359,804 shares in 2006 and 14,924,405
shares in 2007 (31,062) (30,301) (256,788)
---------------------------------------------------------------------------------------------------------
Total shareholders' investment 960,245 1,070,913 9,075,534
---------------------------------------------------------------------------------------------------------
Total 2,041,183 2,243,406 $19,011,915
=========================================================================================================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE BALANCE SHEETS.
F-5
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 2005, 2006 AND 2007
Thousands of
Millions of Yen U.S. Dollars
------------------------------- ------------
2005 2006 2007 2007
-------------------------------------------------------------------------------
Net sales:
Products 1,067,736 1,108,746 1,189,548 $10,080,915
Post sales and rentals 627,991 693,138 768,965 6,516,653
Other revenue 111,679 107,354 110,412 935,695
-------------------------------------------------------------------------------
Total 1,807,406 1,909,238 2,068,925 17,533,263
-------------------------------------------------------------------------------
Cost of sales:
Products 713,057 738,962 783,681 6,641,364
Post sales and rentals 259,591 293,559 335,444 2,842,746
Other revenue 85,584 81,717 87,394 740,627
-------------------------------------------------------------------------------
Total 1,058,232 1,114,238 1,206,519 10,224,737
-------------------------------------------------------------------------------
Gross profit 749,174 795,000 862,406 7,308,525
Selling, general and
administrative expenses 618,065 646,416 688,026 5,830,729
-------------------------------------------------------------------------------
Operating income 131,109 148,584 174,380 1,477,797
-------------------------------------------------------------------------------
Other (income) expenses:
Interest and dividend
income (2,242) (2,896) (5,501) (46,619)
Interest expense 4,686 5,244 7,350 62,288
Foreign currency exchange
(gain) loss, net (1,547) (3,748) 1,199 10,161
Other, net (771) (2,782) (3,187) (27,008)
-------------------------------------------------------------------------------
Total 126 (4,182) (139) (1,178)
-------------------------------------------------------------------------------
Income from continuing
operations before Income
taxes, minority interests
and equity in earnings of
affiliates 130,983 152,766 174,519 1,478,975
Provision for income taxes:
Current 39,279 60,857 66,523 563,754
Deferred 9,561 (4,692) (2,197) (18,619)
-------------------------------------------------------------------------------
Total 48,840 56,165 64,326 545,136
-------------------------------------------------------------------------------
Income from continuing
operations before minority
interests and equity in
earnings of affiliates 82,143 96,601 110,193 933,839
Minority interests 4,726 4,185 5,508 46,678
Equity in earnings of
affiliates 3,120 2,606 1,539 13,042
-------------------------------------------------------------------------------
Income from continuing
operations 80,537 95,022 106,224 900,203
Income from discontinued
operations, net of tax 2,606 2,035 5,500 46,610
-------------------------------------------------------------------------------
Net income 83,143 97,057 111,724 $ 946,814
===============================================================================
Yen U.S. Dollars
------------------------------- ------------
Per share of common stock: 2005 2006 2007 2007
-------------------------------------------------------------------------------
Basic:
Income from continuing
operations 109.11 129.56 145.56 $ 1.23
Income from discontinued
operations, net of tax 3.53 2.77 7.54 0.06
-------------------------------------------------------------------------------
Net income 112.64 132.33 153.10 1.30
-------------------------------------------------------------------------------
Diluted:
Income from continuing
operations 109.11 129.56 144.41 1.22
Income from discontinued
operations, net of tax 3.53 2.77 7.48 0.06
-------------------------------------------------------------------------------
Net income 112.64 132.33 151.89 1.29
===============================================================================
Cash dividends paid per share 20.00 22.00 25.00 $ 0.21
===============================================================================
Per American Depositary
Share, each representing
5 shares of common stock:
Basic:
Income from continuing
operations 545.55 647.80 727.80 $ 6.17
Income from discontinued
operations, net of tax 17.65 13.85 37.70 0.32
-------------------------------------------------------------------------------
Net income 563.20 661.65 765.50 6.49
-------------------------------------------------------------------------------
Diluted:
Income from continuing
operations 545.55 647.80 722.05 6.12
Income from discontinued
operations, net of tax 17.65 13.85 37.40 0.32
-------------------------------------------------------------------------------
Net income- 563.20 661.65 759.45 6.44
===============================================================================
Cash dividends paid per share 100.00 110.00 125.00 $ 1.06
===============================================================================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
F-6
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED MARCH 31, 2005, 2006 AND 2007
Millions of Yen
----------------------------------------------------------------
Accumulated
Additional other Total
Common paid-in Retained comprehensive Treasury shareholders'
stock capital earnings income (loss) stock investment
------------------------------------------------------------------------------------------------------------
Balance at March 31, 2004 135,364 186,599 515,372 (30,272) (11,932) 795,131
------------------------------------------------------------------------------------------------------------
Adjustment for change in fiscal year end of
consolidated subsidiaries - - 777 (1,665) - (888)
------------------------------------------------------------------------------------------------------------
Balance at April 1, 2004, as adjusted 135,364 186,599 516,149 (31,937) (11,932) 794,243
------------------------------------------------------------------------------------------------------------
Gain (Loss) on disposal of treasury stock (48) (48)
Dividends declared and approved (14,777) (14,777)
Comprehensive income (loss)
Net income 83,143 83,143
Net unrealized holding gains (losses)
on available-for-sale securities 765 765
Minimum pension liability
adjustments 27 27
Net unrealized gains (losses) on
derivative instruments 141 141
Cumulative translation adjustments 9,041 9,041
---------
Total comprehensive income (loss) 93,117
Net changes in treasury stock (9,537) (9,537)
------------------------------------------------------------------------------------------------------------
Balance at March 31, 2005 135,364 186,551 584,515 (21,963) (21,469) 862,998
------------------------------------------------------------------------------------------------------------
Gain (Loss) on disposal of treasury stock (101) (101)
Dividends declared and approved (16,178) (16,178)
Comprehensive income (loss)
Net income 97,057 97,057
Net unrealized holding gains (losses)
on available-for-sale securities 4,137 4,137
Minimum pension liability
adjustments 7,009 7,009
Net unrealized gains (losses) on
derivative instruments 40 40
Cumulative translation adjustments 14,876 14,876
---------
Total comprehensive income (loss) 123,119
Net changes in treasury stock (9,593) (9,593)
------------------------------------------------------------------------------------------------------------
Balance at March 31, 2006 135,364 186,450 665,394 4,099 (31,062) 960,245
------------------------------------------------------------------------------------------------------------
Cumulative effect of adjustment from
applying SAB 108 - - (6,464) - - (6,464)
------------------------------------------------------------------------------------------------------------
Balance at April 1, 2006, as adjusted 135,364 186,450 658,930 4,099 (31,062) 953,781
------------------------------------------------------------------------------------------------------------
Gain (loss) on disposal of treasury stock 4 4
Dividends declared and approved (18,256) (18,256)
Comprehensive income (loss)
Net income 111,724 111,724
Net unrealized holding gains (losses)
on available-for-sale securities 73 73
Minimum pension liability
adjustments 970 970
Net unrealized gains (losses) on
derivative instruments (185) (185)
Cumulative translation adjustments 24,774 24,774
---------
Total comprehensive income (loss) 137,356
Adjustment to initially apply SFAS 158 (2,733) (2,733)
Net changes in treasury stock 761 761
------------------------------------------------------------------------------------------------------------
Balance at March 31,2007 135,364 186,454 752,398 26,998 (30,301) 1,070,913
============================================================================================================
F-7
Thousands of U.S. Dollars
-----------------------------------------------------------------------
Accumulated
Additional other Total
Common paid-in Retained comprehensive Treasury shareholders'
stock capital earnings income (loss) stock investment
------------------------------------------------------------------------------------------------------------------------
Balance at March 31,2006 $1,147,153 $1,580,085 $5,638,932 $ 34,737 $(263,237) $8,137,669
------------------------------------------------------------------------------------------------------------------------
Cumulative effect of adjustment from applying
SAB108 - - (54,780) - - (54,780)
------------------------------------------------------------------------------------------------------------------------
Balance at April 1,2006,as adjusted 1,147,153 1,580,085 5,584,153 34,737 (263,237) 8,082,890
------------------------------------------------------------------------------------------------------------------------
Gain (loss) on disposal of treasury stock 34 34
Dividends declared and approved (154,712) (154,712)
Comprehensive income (loss)
Net income 946,814 946,814
Net unrealized holding gains (losses) on
available-for-sale securities 619 619
Minimum pension liability adjustments 8,220 8,220
Net unrealized gains (losses) on derivative
instruments (1,568) (1,568)
Cumulative translation adjustments 209,949 209,949
----------
Total comprehensive income (loss) 1,164,034
Adjustment to initially apply SFAS 158 (23,161) (23,161)
Net changes in treasury stock 6,449 6,449
------------------------------------------------------------------------------------------------------------------------
Balance at March 31,2007 $1,147,153 $1,580,119 $6,376,254 $228,797 $(256,788) $9,075,534
========================================================================================================================
F-8
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2005, 2006 AND 2007
THOUSANDS
OF U.S.
MILLIONS OF YEN DOLLARS
--------------------------- ----------
2005 2006 2007 2007
-----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 83,143 97,057 111,724 $ 946,814
Income from discontinued operations, net of tax (2,606) (2,035) (5,500) (46,610)
------- -------- -------- ----------
Income from continuing operations 80,537 95,022 106,224 900,203
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 78,120 84,089 89,632 759,593
Equity in earnings of affiliates, net of dividends
received (1,966) (1,431) (711) (6,025)
Deferred income taxes 9,561 (4,692) (2,197) (18,619)
Losses on disposals and sales of property, plant and
equipment 4,056 920 3,722 31,542
Pension and severance costs, less payments 4,306 3,340 (773) (6,551)
Changes in assets and liabilities, net of effects from
acquisition-
(Increase) decrease in trade receivables (26,418) 13,411 (15,919) (134,907)
(Increase) decrease in inventories (12,885) 3,726 (1,494) (12,661)
Increase in finance receivables (30,294) (30,029) (28,047) (237,686)
(Decrease) increase in trade payables 27,364 (4,442) 2,199 18,636
(Decrease) increase in accrued income taxes and
accrued expenses and other (13,740) 2,505 11,175 94,703
Other, net 10,529 11,060 3,486 29,542
-----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 129,170 173,479 167,297 1,417,771
-----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment 721 3,085 463 3,924
Expenditures for property, plant and equipment (84,074) (101,788) (85,747) (726,669)
Payments for purchases of available-for-sale securities (79,431) (138,607) (97,158) (823,373)
Proceeds from sales of available-for-sale securities 118,120 141,620 96,087 814,297
(Increase) decrease in time deposits (484) (136) 64 542
Proceeds from sales of discontinued operations - - 12,000 101,695
Acquisitions of subsidiaries, net of cash acquired (43,214) - (23,200) (196,610)
Other, net (7,719) (24,225) (17,941) (152,042)
-----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (96,081) (120,051) (115,432) (978,237)
-----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term indebtedness 72,206 63,751 60,157 509,805
Repayment of long-term indebtedness (60,613) (93,752) (49,115) (416,229)
(Decrease) increase in short-term borrowings, net (38,052) 39,618 8,362 70,864
Proceeds from issuance of long-term debt securities 18,000 10,000 65,274 553,169
Repayment of long-term debt securities (22,000) (52,000) (55,000) (466,102)
Dividends paid (14,793) (16,178) (18,240) (154,576)
Payment for purchase of treasury stock (10,624) (10,653) (799) (6,771)
Other, net (563) (775) (1,357) (11,500)
-----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (56,439) (59,989) 9,282 78,661
-----------------------------------------------------------------------------------------------------------
CASH FLOWS OF DISCONTINUED OPERATIONS:
(Revised -Note 2 (u))
Net, operating cash flows 3,610 3,390 838 7,102
Net, investing cash flows (117) (14) (13) (110)
Net, financing cash flows - - - -
Effect of exchange rate change on cash and cash equivalents
from discontinued operations - - - -
-----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents
from discontinued operations 3,493 3,376 825 6,992
-----------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS 1,200 3,383 6,710 56,864
-----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (18,657) 198 68,682 582,051
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 203,039 186,857 187,055 1,585,212
ADJUSTMENT FOR CHANGE IN FISCAL YEAR END OF
CONSOLIDATED SUBSIDIARIES 2,475 - - -
-----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 186,857 187,055 255,737 $2,167,263
-----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR-
Interest 5,402 5,717 8,222 $ 69,678
Income taxes 40,803 44,854 66,603 564,432
===========================================================================================================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
F-9
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Ricoh Company, Ltd. (the "Company") was established in 1936 and is
headquartered in Tokyo, Japan. The Company and its consolidated subsidiaries
("Ricoh" as a consolidated group) is a world-wide supplier of office automation
equipment, including copiers, facsimile machines, data processing systems,
printers and related supplies. Ricoh is also well known for its
state-of-the-art electronic devices, digital photographic equipment and other
products.
Ricoh distributes its products primarily through domestic (Japanese) and
foreign sales subsidiaries. Overseas, Ricoh owns and distributes not only Ricoh
brand products but also other brands, such as Gestetner, Lanier and Savin.
Ricoh manufactures its products primarily in 15 plants in Japan and 6 plants
overseas, which are located in the United States, United Kingdom, France and
China.
2. SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The accompanying consolidated financial statements of Ricoh have been prepared
in conformity with U.S. generally accepted accounting principles. Significant
accounting and reporting policies are summarized below:
(A) BASIS OF PRESENTATION
The accompanying consolidated financial statements for each of the years in the
three year period ended March 31, 2007 are presented in Japanese yen, the
functional currency of the Company and its domestic subsidiaries. The
translation of Japanese yen into U.S. Dollar equivalents for the year ended
March 31, 2007 is included solely for the convenience of readers outside Japan
and has been made using the exchange rate of Yen 118 to US$1, the approximate
rate of exchange prevailing at the Federal Reserve Bank of New York on
March 31, 2007.
The books of the Company and its domestic subsidiaries are maintained in
conformity with Japanese accounting principles and practices, while foreign
subsidiaries maintain their books in conformity with the standards of their
country of domicile.
The accompanying consolidated financial statements reflect necessary
adjustments, not recorded in the books, to present them in conformity with U.S.
generally accepted accounting principles.
F-10
(B) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Ricoh. Investments in entities in which Ricoh has the ability to exercise
significant influence over the entities' operating and financial policies
(generally 20 to 50 % ownership) are accounted for on an equity basis. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The accounts of certain consolidated subsidiaries have been included on the
basis of fiscal periods ended within three months prior to March 31.
At the beginning of fiscal year 2005, Ricoh changed the year end of certain
overseas subsidiaries from December 31 to March 31. As a result, unappropriated
retained earnings increased by Yen 777 million and accumulated other
comprehensive income (loss) in shareholders' investment decreased by Yen 1,665
million.
(C) REVENUE RECOGNITION
Ricoh generates revenue principally through the sale of equipment, supplies and
related services under separate contractual arrangements for each. Ricoh
recognizes revenue when (1) it has a firm contract, (2) the product has been
shipped to and accepted by the customer or the service has been provided,
(3) the sales price is fixed or determinable and (4) amounts are reasonably
assured of collection.
Products sales is recognized at the time of delivery and installation at the
customer location. Equipment revenues are based on established prices by
product type and model and are net of discounts. A sales return is accepted
only when the equipment is defective and does not meet Ricoh's product
performance specifications. Other than installation, there are no customer
acceptance clauses in the sales contract.
Post sales and rentals result primarily from maintenance contracts that are
normally entered into at the time the equipment is sold. Standard service fee
prices are established depending on equipment classification and include a cost
value for the estimated services to be performed based on historical experience
plus a profit margin thereon. As a matter of policy, Ricoh does not discount
such prices. On a monthly basis, maintenance service revenues are earned and
recognized by Ricoh and billed to the customer in accordance with the contract
and include a fixed monthly fee plus a variable amount based on usage. The
length of the contract ranges up to five-years, however, most contracts are
cancelable at any time by the customer upon a short notice period. Leases not
qualifying as sales-type leases or direct financing leases are accounted for as
operating leases and related revenue is recognized over the lease term.
Ricoh enters into arrangements with multiple elements, which may include any
combination of products, equipment, installation and maintenance. Ricoh
allocates revenue to each element based on its relative fair value if such
element meets the criteria for treatment as a separate unit of accounting as
prescribed in Emerging Issues Task Force Issue ("EITF") 00-21, "Revenue
Arrangements with Multiple Deliverables." Pursuant to EITF 00-21, the delivered
item in a multiple element arrangement should be considered a separate unit of
accounting if all of the following criteria are met: (1) a delivered item has
value to customers on a stand-alone basis, (2) there is objective and reliable
evidence of fair value of an undelivered item, and (3) the delivery of the
undelivered item must be probable and controlled by Ricoh if the arrangement
includes the right of return. The price charged when the element is sold
separately generally determines fair value. Otherwise, revenue is deferred
until the undelivered elements are fulfilled as a single unit of accounting.
Revenue from the sale of equipment under sales-type leases is recognized as
product sales at the inception of the lease. Other revenue consists primarily
of interest income on sales-type leases and direct-financing leases, which are
recognized as Other revenue over the life of each respective lease using the
interest method.
F-11
(D) FOREIGN CURRENCY TRANSLATION
For foreign operations with functional currencies other than the Japanese yen,
assets and liabilities are translated at the exchange rates in effect at each
fiscal year-end, and income and expenses are translated at the average rates of
exchange prevailing during each fiscal year. The resulting translation
adjustments are included as a part of accumulated other comprehensive income
(loss) in shareholders' investment.
All foreign currency transaction gains and losses are included in other income
and expenses in the period incurred.
(E) CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with maturities of
three months or less at the date of purchase such as time deposits and
short-term investment securities which are available-for sale at any time,
present insignificant risk of changes in value due to being readily convertible
into cash and have an original maturity of three months or less, such as money
management funds and free financial funds.
(F) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
As discussed further in Note 16, Ricoh manages its exposure to certain market
risks, primarily foreign currency and interest rate risks, through the use of
derivative instruments. As a matter of policy, Ricoh does not enter into
derivative contracts for trading or speculative purposes.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.133
"Accounting for Derivative Instruments and Hedging Activities" as amended,
Ricoh recognizes all derivative instruments as either assets or liabilities in
the consolidated balance sheets and measures those instruments at fair value.
When Ricoh enters into a derivative contract, it makes a determination as to
whether or not for accounting purposes the derivative is part of a hedging
relationship. In general, a derivative may be designated as either (1) a hedge
of the fair value of a recognized asset or liability or an unrecognized firm
commitment ("fair value hedge"), (2) a hedge of the variability of the expected
cash flows associated with an existing asset or liability or a forecasted
transaction ("cash flow hedge"), or (3) a foreign currency fair value or cash
flow hedge ("foreign currency hedge"). Ricoh formally documents all
relationships between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivatives that are designated
as fair value, cash flow, or foreign currency hedges to specific assets and
liabilities on the consolidated balance sheets or to specific firm commitments
or forecasted transactions.
For derivative contracts that are designated and qualify as fair value hedges
including foreign currency fair value hedges, the derivative instrument is
marked-to-market with gains and losses recognized in current period earnings to
offset the respective losses and gains recognized on the underlying exposure.
For derivative contracts that are designated and qualify as cash flow hedges
including foreign currency cash flow hedges, the effective portion of gains and
losses on these contracts is reported as a component of accumulated other
comprehensive income (loss) and reclassified into earnings in the same period
the hedged item or transaction affects earnings. Any hedge ineffectiveness on
cash flow hedges is immediately recognized in earnings. For all derivative
instruments that are not designated as part of a hedging relationship and for
designated derivative instruments that do not qualify for hedge accounting, the
contracts are recorded at fair value with the gain or loss recognized in
current period earnings.
F-12
(G) ALLOWANCE FOR DOUBTFUL TRADE RECEIVABLES AND FINANCE RECEIVABLES
Ricoh records allowances for doubtful receivables that are based upon
historical experience and specific customer collection issues. The estimated
amount of probable credit losses in its existing receivables is determined from
write-off history adjusted to reflect current economic conditions and specific
allowances for receivables including nonperforming leases, impaired loans or
other accounts for which Ricoh has concluded it will be unable to collect all
amounts due according to original terms of the lease or loan agreement. Account
balances net of expected recovery from available collateral are charged-off
against the allowances when collection is considered remote.
(H) SECURITIES
Ricoh applies SFAS No.115, "Accounting for Certain Investments in Debt and
Equity Securities" which requires all investments in debt and marketable equity
securities to be classified as either held-to-maturity, trading, or
available-for-sale securities. As of March 31, 2006 and 2007, all of Ricoh's
investments in debt and marketable equity securities are classified as
available-for-sale securities. Those available-for-sale securities are reported
at fair value with unrealized gains and losses, net of related taxes, excluded
from earnings and reported in accumulated other comprehensive income (loss).
Available-for-sale securities, which mature or are expected to be sold in one
year, are classified as current assets.
Individual securities classified as available-for-sale securities are reduced
to fair market value by a charge to income for other than temporary declines in
value. Factors considered in assessing whether an indication of other than
temporary impairment exists with respect to available-for-sale securities
include: length of time and extent of decline, financial condition and near
term prospects of issuer and intent and ability of Ricoh to retain its
investments for a period of time sufficient to allow for any anticipated
recovery in market value.
The cost of the securities sold is computed based on the average cost of each
security held at the time of sale.
Non-marketable equity securities owned by Ricoh primarily relate to less than
20% owned companies and are stated at cost.
(I) INVENTORIES
Inventories are mainly stated at the lower of average cost or net realizable
values. Inventory costs include raw materials, labor and manufacturing
overheads.
(J) PROPERTY, PLANT AND EQUIPMENT
For the Company and its domestic subsidiaries, depreciation of property, plant
and equipment is computed principally by using the declining-balance method
over the estimated useful lives. Most of the foreign subsidiaries have adopted
the straight-line method for computing depreciation, which currently accounts
for approximately 30% of the consolidated depreciation expense. The
depreciation period generally ranges from 5 years to 50 years for buildings and
2 years to 12 years for machinery and equipment.
Effective rates of depreciation for the years ended March 31, 2005, 2006 and
2007 are summarized below:
2005 2006 2007
------------------------------------------------------------------------------
Buildings 8.5% 8.9% 9.8%
Machinery and equipment 43.8 40.5 40.8
=============================================================================
F-13
Certain leased buildings, machinery and equipment are accounted for as capital
leases in conformity with SFAS No.13, "Accounting for Leases." The aggregate
cost included in property, plant and equipment and related accumulated
depreciation as of March 31, 2006 and 2007 are as follows:
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------
2006 2007 2007
-------------------------------------------------------------------------------
Aggregate cost 6,895 7,341 $62,212
Accumulated depreciation 4,911 5,761 48,822
===============================================================================
The related future minimum lease payments and the present value of the net
minimum lease payments as of March 31, 2007 were Yen 1,735 million ($14,703
thousand) and Yen 1,623 million ($13,754 thousand), respectively.
Ordinary maintenance and repairs are charged to expense as incurred. Major
replacements and improvements are capitalized. When properties are retired or
otherwise disposed of, the property and related accumulated depreciation
accounts are relieved of the applicable amounts, and any differences are
included in earnings.
(K) CAPITALIZED SOFTWARE COSTS
In accordance with Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," Ricoh
capitalizes qualifying cost of computer software. Costs incurred during the
application development stage as well as upgrades and enhancements that results
in additional functionality are capitalized. The capitalized software is
amortized on a straight line basis over their estimated useful lives.
(L) GOODWILL AND OTHER INTANGIBLE ASSETS
SFAS No.141, "Business Combinations" requires the use of only the purchase
method of accounting for business combinations and refines the definition of
intangible assets acquired in a purchase business combination. SFAS No.142,
"Goodwill and Other Intangible Assets" eliminates the amortization of goodwill
and instead requires annual impairment testing thereof. SFAS 142 also requires
acquired intangible assets with a definite useful life to be amortized over
their respective estimated useful lives and reviewed for impairment when an
indication of impairment is identified in accordance with SFAS No.144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." Other
intangible assets with definite useful lives, consisting primarily of software,
patents, customer relationships and tradenames are amortized on a straight line
basis over 3 years to 20 years. Any acquired intangible asset determined to
have an indefinite useful life is not amortized, but instead is tested annually
for impairment based on its fair value until its life would be determined to no
longer be indefinite.
Ricoh completed its annual assessment of the carrying value of indefinite-lived
intangible assets, including goodwill for the years ended March 31, 2005, 2006
and 2007 and determined that no impairment charge was necessary.
F-14
(M) PENSION AND RETIREMENT ALLOWANCES PLANS
The measurement of pension costs and liabilities is determined in accordance
with SFAS No.87, "Employers' Accounting for Pensions" and SFAS No.158,
"Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans." Under SFAS 158, Ricoh recognized the funded status (i.e., the
difference between the fair value of plan assets and the projected benefit
obligations) of its pension fund plans as of the end of fiscal year's
consolidated balance sheets, with a corresponding adjustment in initially
applying SFAS 158 to accumulated other comprehensive income (loss), net of tax.
The expected long-term rate of return on plan assets used for pension
accounting is determined based on the historical long-term rate of return on
plan assets. The discount rate is determined based on the rates of return of
high-quality fixed-income investments currently available and expected to be
available during the period to maturity of the pension benefits.
(N) INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences and carryforwards are expected to be
realized or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(O) RESEARCH AND DEVELOPMENT EXPENSES AND ADVERTISING COSTS
Research and development expenses and advertising costs are expensed as
incurred.
(P) SHIPPING AND HANDLING COSTS
Shipping and handling costs, which mainly include transportation to customers,
are included in selling, general and administrative expenses on the
consolidated statements of income.
(Q) IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
Long-lived assets and acquired intangible assets with a definite life are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or group of assets may not be recoverable.
Recoverability of assets to be held and used is assessed by comparing the
carrying amount of an asset or asset group to the expected future undiscounted
net cash flows of the asset or group of assets. If an asset or group of assets
is considered to be impaired, the impairment charge to be recognized is
measured as the amount by which the carrying amount of the asset or group of
assets exceeds fair value. Long-lived assets meeting the criteria to be
considered as held for sale are reported at the lower of their carrying amount
or fair value less costs to sell.
(R) EARNINGS PER SHARE
Basic net income per share of common stock is calculated by dividing net income
by the weighted-average number of shares of common stock outstanding during the
period. The calculation of diluted net income per share of common stock is
similar to the calculation of basic net income per share, except that the
weighted-average number of shares outstanding includes the additional dilution
from potential common stock equivalents such as convertible bonds.
F-15
(S) NON-CASH TRANSACTIONS
The following non-cash transactions have been excluded from the consolidated
statements of cash flows:
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------
2005 2006 2007 2007
-------------------------------------------------------------------------------
Capital lease obligations incurred 865 261 54 $458
Issuance of treasury stock in exchange for
subsidiary's stock 2,545 905 - -
===============================================================================
(T) USE OF ESTIMATES
Management of Ricoh has made a number of estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, including
impairment losses of long-lived assets and the disclosures of fair value of
financial instruments and contingent assets and liabilities, to prepare these
financial statements in conformity with U.S. generally accepted accounting
principles. Actual results could differ from those estimates.
Ricoh has identified five areas where it believes assumptions and estimates are
particularly critical to the consolidated financial statements. These are
determination of the allowance for doubtful receivables, impairment of
securities, impairment of long-lived assets including goodwill, realizability
of deferred tax assets and pension accounting.
(U) DISCONTINUED OPERATIONS
On May 31, 2006, the Company's subsidiary San-Ai Co., Ltd. sold its digital
content distribution business to Giga Networks Co., Ltd. (former Mobile
Alliance Co., Ltd.). As a result of the sale, the operating result of the
business units sold were reclassified to discontinued operations pursuant to
the requirement on SFAS 144, because Ricoh has no significant continuing
involvement in the operating sold. Reclassifications have been made to the
prior year's consolidated statements of income and consolidated statements of
cash flows to conform the presentation used for the year ended March 31, 2007.
(V) ADOPTION OF SAB 108
The Securities and Exchange Commission of the U.S. issued Staff Accounting
Bulletin ("SAB") No. 108, "Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements" in
September 2006. SAB 108 requires companies to quantify misstatements using both
the balance sheet approach and the income statement approach ("dual" method),
and to evaluate the importance of misstatements taking into account relevant
quantitative and qualitative factors. Historically, Ricoh used the income
statement ("rollover") approach to quantify misstatements. Upon adoption, SAB
108 permits Ricoh to adjust the cumulative effect of misstatements that were
previously considered immaterial under the rollover method that are now
considered material under the dual method. SAB108 is effective for fiscal years
ending after November 15, 2006. Ricoh adopted SAB108 in the fourth quarter of
fiscal year 2007.
The Company and some of its domestic consolidated subsidiaries previously set
the residual value of tangible fixed assets at 5% of acquisition cost in
principle using the standards provided in the Corporate Tax Law. However, based
on an evaluation of residual values realized from disposition of property,
plant and equipment, Ricoh concluded that the residual value of substantially
all long lived assets is negligible at the
F-16
end of useful life. This misstatement was considered immaterial to Ricoh's
historical consolidated financial statements using the income statement
approach.
Accordingly, Ricoh recorded an increase in accumulated depreciation of Yen
11,464 million ($97,153 thousand) and an increase in deferred tax assets
(included in "Lease deposits and other") of Yen 4,675 million ($39,619
thousand) as of April 1, 2006 with a reduction of the beginning balance of
retained earnings of Yen 6,464 million ($54,780 thousand).
(W) NEW ACCOUNTING STANDARDS
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments - an amendment of SFAS No. 133 and 140." SFAS 155 amends
SFAS 133, and SFAS No.140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." SFAS 155 permits fair value
re-measurement for any hybrid financial instrument that contains an embedded
derivative, and establishes a requirement to evaluate interests in securitized
financial assets to identify interests that are freestanding derivatives or
that are hybrid financial instruments that contain an embedded derivative. SFAS
155 is effective for fiscal years beginning after September 15, 2006 and is
required to be adopted by Ricoh in fiscal year beginning April 1, 2007. Ricoh
is currently evaluating the effect that the adoption of SFAS 155 will have on
its consolidated results of operations and financial condition.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No. 140." SFAS 156 amends
SFAS 140, to clarify the accounting for servicing assets and servicing
liabilities. Among other provisions, the new accounting standard requires all
separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable. SFAS 156 is effective for
fiscal years beginning after September 15, 2006 and is required to be adopted
by Ricoh in fiscal year beginning April 1, 2007. Ricoh is currently evaluating
the effect that the adoption of SFAS 156 will have on its consolidated results
of operations and financial condition.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. SFAS 157 applies under other
accounting pronouncements that require or permit fair value measurements, where
fair value is the relevant measurement attribute. The standard does not require
any new fair value measurements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007, and is required to be adopted by Ricoh in
fiscal year beginning April 1, 2008. Ricoh is currently evaluating the effect
that the adoption of SFAS 157 will have on its consolidated results of
operations and financial condition.
In September 2006, the FASB issued SFAS 158. SFAS 158 requires companies to
recognize an asset or liability for the overfunded or underfunded status of
their benefit plans in their financial statements and to recognize changes in
that funded status in comprehensive income (loss) in the year in which the
changes occur. SFAS 158 also requires the measurement date for plan assets and
liabilities to coincide with the sponsor's year-end. The standard provides two
transition alternatives related to the change in measurement date provisions.
The recognition of an asset and liability related to the funded status
provision is effective for fiscal years ending after December 15, 2006. The
effect of adoption of SFAS 158 on Ricoh's financial condition as of March 31,
2007 has been included in the accompanying consolidated financial statements.
The change in measurement date provisions is effective for fiscal years ending
after December 15, 2008 and is required to be adopted by Ricoh in fiscal year
beginning April 1, 2008. Ricoh is currently evaluating the effect that the
adoption measurement date provisions will have on its consolidated results of
operations and financial condition.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB
statement No.115." SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Unrealized gains
and
F-17
losses on items for which the fair value option has been elected will be
recognized in earnings. SFAS 159 is effective for fiscal year beginning after
November 15, 2007, and is required to be adopted by Ricoh in fiscal year
beginning April 1, 2008. Ricoh is currently evaluating the effect that the
adoption of SFAS 159 will have on its consolidated results of operations and
financial condition.
In July 2006, the FASB released FASB Interpretation ("FIN") No. 48, "Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109."
FIN 48 clarifies the accounting and reporting for uncertainties in income tax
law. FIN 48 prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of uncertain tax
positions taken or expected to be taken in income tax returns. FIN 48 shall be
effective for fiscal years beginning after December 15, 2006 and is required to
be adopted by Ricoh in fiscal year beginning April 1, 2007. Ricoh is currently
evaluating the effect that the adoption of FIN 48 will have on its consolidated
results of operations and financial condition.
3. ACQUISITION
In January 2007, Ricoh Europe B.V. , which is a wholly-owned subsidiary of the
Company acquired the European operations of Danka Business Systems PLC (now
known as Infotec Europe B.V. ) for total cash consideration of Yen
27,132 million ($229,932 thousand) including direct acquisition costs. Ricoh
made the acquisition to strengthen its sales and service network in major
countries in Europe.
Ricoh used the purchase method of accounting to account for the acquisition
and, accordingly, the purchase price has been allocated to the tangible and
intangible net assets of Infotec Europe B.V. based on the estimated fair value
of such net assets. The amount of consideration paid in excess of the estimated
fair value of the net assets acquired of Yen 18,658 million ($158,119 thousand)
was recorded as goodwill which is not tax deductible. Assets, liabilities and
operations of Infotec Europe B.V. have been included in the accompanying
consolidated financial statements since the acquisition date.
The following table reflects the January 31, 2007 condensed balance sheet of
Infotec Europe B.V., as adjusted to give effect to the purchase method
accounting adjustments:
Thousands of
Millions of Yen U.S. dollars
-------------------------------------------------------------------------------
Cash and cash equivalents 3,839 $ 32,534
Receivables and other assets 22,385 189,703
Property and equipment 1,434 12,153
Identifiable intangible assets 4,883 41,381
Goodwill 18,658 158,119
Liabilities (24,067) (203,958)
-------------------------------------------------------------------------------
27,132 $ 229,932
===============================================================================
Identifiable intangible assets of Infotec Europe B.V. primarily comprised
customer relationships of Yen 4,700 million ($39,831 thousand), which were
estimated to have a remaining useful life of 10 years to 18 years. Goodwill
arising from the acquisition of Infotec Europe B.V. has all been allocated to
the Office Solutions segment.
F-18
4. DISCONTINUED OPERATIONS
Summarized selected financial information for the years ended March 31, 2005,
2006 and 2007 for the discontinued operations reclassified during the year
ended March 31, 2007 is as follows:
Thousands of
Millions of Yen U.S. Dollars
----------------- ------------
2005 2006 2007 2007
---------------------------------------------------------------------------------------------
Net sales 6,702 5,852 1,487 $12,602
---------------------------------------------------------------------------------------------
Income from discontinued operations before gain on disposal of
discontinued operations and provision for income taxes 4,400 3,433 866 7,339
Gain on disposal of discontinued operations - - 8,830 74,831
Provision for income taxes 1,794 1,398 4,196 35,559
---------------------------------------------------------------------------------------------
Income from discontinued operations, net of tax 2,606 2,035 5,500 $46,610
=============================================================================================
The carrying amounts of assets and liabilities of the disposal group classified
as discontinued operations were immaterial for the years ended March 31, 2005
and 2006.
5. FINANCE RECEIVABLES
Finance receivables as of March 31, 2006 and 2007 are comprised primarily of
lease receivables and installment loans.
Ricoh's products are leased to domestic customers primarily through Ricoh
Leasing Company, Ltd., a majority-owned domestic subsidiary, and to overseas
customers primarily through certain overseas subsidiaries. These leases are
accounted for as sales-type leases in conformity with SFAS 13. Sales revenue
from sales-type leases is recognized at the inception of the leases.
Information pertaining to Ricoh's lease receivables as of March 31, 2006 and
2007 is as follows:
Thousands of
Millions of Yen U.S. Dollars
------------------ ------------
2006 2007 2007
--------------------------------------------------------------------------------
Minimum lease payments receivable 603,698 636,174 $ 5,391,305
Estimated non-guaranteed residual value 4,144 5,000 42,373
Unearned income (50,797) (52,341) (443,568)
Allowance for doubtful receivables (15,023) (12,520) (106,102)
--------------------------------------------------------------------------------
Lease receivables, net 542,022 576,313 4,884,008
--------------------------------------------------------------------------------
Less - Current portion of lease receivable, net (177,414) (191,529) (1,623,127)
--------------------------------------------------------------------------------
Amounts due after one year, net 364,608 384,784 $ 3,260,881
================================================================================
F-19
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 Yen 52,295 million and Yen 52,648 million
($446,169 thousand), respectively. The current portion of loans receivable was
Yen 1,468 million and Yen 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%
==============================================================================
F-20
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)
===============================================================================
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.
The following table summarizes certain cash flows received from and paid to the
special purpose entities for all securitization activity for the years ended
March 31, 2005, 2006 and 2007:
Thousands of
Millions of Yen U.S. Dollars
----------------- ------------
2005 2006 2007 2007
------------------------------------------------------------------------------
Servicing fees received 22 22 21 $ 178
Repurchases of delinquent or ineligible assets 4,060 2,575 2,776 23,525
==============================================================================
The components of all receivables managed and securitized, amounts of
delinquencies and the components of net credit losses as of March 31, 2006 and
2007, and for the years then ended, are as follows:
Millions of Yen
---------------------------------------------------------------------------------
2006 2007
---------------------------------------- ----------------------------------------
Principal Principal
amount of amount of
Total principal receivables Total principal receivables
amount of 4 months or Net credit amount of 4 months or Net credit
receivables more past due losses receivables more past due losses
---------------------------------------------------------------------------------------------------------
Principal amount
outstanding 601,594 919 2,401 633,324 1,619 2,808
Less--Receivables
securitized (44,549) (44,491)
------- -------
Receivables held in
portfolio 557,045 588,833
=========================================================================================================
Thousands of U.S. Dollars
2007
----------------------------------------
Principal
amount of
Total principal receivables
amount of 4 months or Net credit
receivables more past due losses
--------------------------------------------------------------------------------------------------------
Principal amount
outstanding $5,367,153 $13,720 $23,797
Less--Receivables
securitized (377,042)
----------
Receivables held in
portfolio $4,990,110
========================================================================================================
F-21
6. SECURITIES
Marketable securities and investment securities as of March 31, 2006 and 2007
consist of the following:
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------
2006 2007 2007
-----------------------------------------------------------------
Marketable securities:
Available-for-sale securities 162 177 $ 1,500
-----------------------------------------------------------------
Investment securities:
Available-for-sale securities 29,934 70,362 $596,288
Non-marketable equity securities 6,485 4,474 37,915
-----------------------------------------------------------------
36,419 74,836 $634,203
=================================================================
The current and noncurrent security types of available-for-sale securities, and
the respective cost, gross unrealized holding gains, gross unrealized holding
losses and fair value as of March 31, 2006 and 2007 are as follows:
Millions of Yen
----------------------------------------------------------------------------------------
2006 2007
--------------------------------------- ------------------------------------------------
Gross Gross Gross Gross
unrealized unrealized unrealized unrealized
holding holding holding holding
Cost gains losses Fair value Cost gains losses Fair value Cost
---------------------------------------------------------------------------------------------------------
Current:
Corporate
debt
securities 161 - - 161 176 - - 176 $ 1,492
Other 1 - - 1 1 - - 1 8
---------------------------------------------------------------------------------------------------------
162 - - 162 177 - - 177 $ 1,500
=========================================================================================================
Non-current:
Equity
securities 8,034 15,716 37 23,713 49,261 14,991 142 64,110 $417,466
Corporate
debt
securities 6,000 50 - 6,050 6,000 10 - 6,010 50,847
Other 171 0 0 171 242 - - 242 2,051
---------------------------------------------------------------------------------------------------------
14,205 15,766 37 29,934 55,503 15,001 142 70,362 $470,364
=========================================================================================================
Thousands of U.S. Dollars
---------------------------------
2007
---------------------------------
Gross Gross
unrealized unrealized
holding holding
gains losses Fair value
--------------------------------------------------
Current:
Corporate
debt
securities $ - $ - $ 1,492
Other - - 8
--------------------------------------------------
$ - $ - $ 1,500
==================================================
Non-current:
Equity
securities $127,042 $1,203 $543,305
Corporate
debt
securities 85 - 50,932
Other - - 2,051
--------------------------------------------------
$127,127 $1,203 $596,288
==================================================
Other non-current securities mainly include investment trusts consisting of
investment in marketable debt and equity securities.
F-22
Gross unrealized holding losses on available-for-sale securities and the fair
value of the related securities, aggregated by investment category and length
of time that individual securities have been in a continuous unrealized loss
position at March 31, 2007 are as follows:
Millions of Yen
---------------------------------------
Less than 12 months 12 months or longer
------------------- -------------------
Gross Gross
unrealized unrealized
Fair holding Fair holding
value losses value losses
---------------------------------------------------------------------------
2007:
Noncurrent:
Available-for-sale:
Equity securities 752 142 - -
===========================================================================
Thousands of U.S. Dollars
---------------------------------------
Less than 12 months 12 months or longer
------------------- -------------------
Gross Gross
unrealized unrealized
Fair holding Fair holding
value losses value losses
---------------------------------------------------------------------------
2007:
Noncurrent:
Available-for-sale:
Equity securities $6,373 $1,203 $- $ -
===========================================================================
The contractual maturities of debt securities classified as available-for-sale
as of March 31, 2007, regardless of their balance sheet classification, are as
follows:
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------------
Fair
Cost value Cost Fair value
------------------------------------------------------------------------
Due within one year 176 176 $ 1,492 $ 1,492
Due after one year through five years 6,000 6,010 50,847 50,932
------------------------------------------------------------------------
6,176 6,186 $52,339 $52,424
========================================================================
Proceeds from the sales of available-for-sale securities were
Yen 118,120 million, Yen 141,620 million and Yen 96,087 million ($814,297
thousand) for the years ended March 31, 2005, 2006 and 2007, respectively.
The realized gains on the sales of available-for-sale securities for the year
ended March 31, 2006 was Yen 1,053 million. There were no significant realized
gains of available-for-sale securities for the years ended March 31, 2005 and
2007. There were no significant realized losses of available-for-sale
securities for the years ended March 31, 2005, 2006 and 2007.
Effective October 1, 2005, UFJ Holdings, Inc. ("UFJ") and Mitsubishi Tokyo
Financial Group, Inc. completed a merger, in which the UFJ shares of common
stock owned by the Company were exchanged for shares of common stock of the
newly merged entity, Mitsubishi UFJ Financial Group, Inc. ("MUFG"). As a result
of this merger and common stock exchange, Ricoh recognized a gain on securities
of Yen 992 million between the cost of UFJ shares surrendered and the current
market value of MUFG shares in "Other, net" as other (income) expenses on its
consolidated statements of income for the year ended March 31, 2006.
F-23
7. INVESTMENTS IN AND ADVANCES TO AFFILIATES
The investments in and advances to affiliates primarily relate to 20% to 50%
owned companies. Included in these companies is SINDO RICOH CO., LTD., a 20.0%
owned affiliate. The common stock of this company is publicly traded. The
carrying value of the investment in this company was equal to its underlying
book value and amounted to Yen 12,212 million and Yen 13,816 million ($117,085
thousand) as of March 31, 2006 and 2007, respectively. The quoted market value
of Ricoh's investment in this company was Yen 13,635 million ($115,551 thousand)
as of March 31, 2007.
Ricoh's equity in the underlying net book values of the other 20% to 50% owned
companies is approximately equal to their individual carrying values of
Yen 39,816 million and Yen 1,792 million ($15,186 thousand) at March 31, 2006
and 2007, respectively.
On July 1, 2006, "Coca-Cola West Japan Co., Ltd. (former affiliate company)"
and "Kinki Coca-Cola Bottling Co., Ltd (former unrelated company)." established
a joint holding company "Coca-Cola West Holdings Co., Ltd."
As a result, proportion of ownership interest of Coca-Cola West Holdings Co.,
Ltd. by Ricoh decreased under 20% and according to Accounting Principles Board
("APB") Opinion No. 18, "The Equity Method of Accounting for Investments in
Common Stock," Ricoh excluded the Coca-Cola West Holdings Co., Ltd from
affiliate company on October 1, 2006. Since then, assets, liabilities and
operations of Coca-Cola West Holdings Co., Ltd. have been excluded from the
accompany consolidated financial statements.
Summarized financial information for all affiliates as of March 31, 2006 and
2007 and for the years ended March 31, 2005, 2006 and 2007 is as follows:
Thousands of
Millions of Yen U.S. Dollars
-------------- ------------
FINANCIAL POSITION 2006 2007 2007
---------------------------------------------------------------------
Assets:
Current assets 112,312 63,626 $539,203
Other assets 174,529 20,791 176,195
---------------------------------------------------------------------
286,841 84,417 $715,398
=====================================================================
Liabilities and shareholders'
investment:
Current liabilities 29,084 10,217 $ 86,585
Other liabilities 20,335 3,399 28,805
Shareholders' investment 237,422 70,801 600,008
---------------------------------------------------------------------
286,841 84,417 $715,398
=====================================================================
Thousands of
Millions of Yen U.S. Dollars
----------------------- ------------
OPERATIONS 2005 2006 2007 2007
---------------------------------------------------------------------
Sales 330,362 320,537 193,753 $1,641,975
Costs and expenses 315,729 309,164 186,199 1,577,958
---------------------------------------------------------------------
Net income 14,633 11,373 7,554 $ 64,017
=====================================================================
F-24
The significant transactions of Ricoh with these affiliates for the years ended
March 31, 2005, 2006 and 2007, and the related account balances at March 31,
2006 and 2007 are summarized as follows:
Thousands of
Millions of Yen U.S. Dollars
-------------------- ------------
2005 2006 2007 2007
---------------------------------------------------------------------
Transactions:
Sales 19,365 20,205 16,158 $136,932
Purchases 27,286 25,617 28,993 245,703
Dividend income 1,154 1,175 828 7,017
=====================================================================
Unrealized profits regarding the above transactions were eliminated in the
consolidated financial statements.
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------
2006 2007 2007
--------------------------------------------------------------------
Account balances:
Receivables 3,493 3,541 $30,008
Payables 2,706 2,611 22,127
====================================================================
As of March 31, 2007, consolidated retained earnings included undistributed
earnings of 20% to 50% owned companies accounted for by the equity method in
the amount of Yen 46,667 million ($395,483 thousand). This amount included
undistributed earnings of Yen 35,104 million ($297,492 thousand) of Coca-Cola
West Holdings Co., Ltd. as of September 30, 2006, the date that Ricoh ceased
using the equity method.
F-25
8. GOODWILL AND OTHER INTANGIBLE ASSETS
The information for intangible assets subject to amortization and for
intangible assets not subject to amortization is as follows:
Millions of Yen
---------------------------------------------------------------------------------
2006 2007
---------------------------------------- ----------------------------------------
Gross carrying Accumulated Net carrying Gross carrying Accumulated Net carrying
amount amortization amount amount amortization amount
--------------------------------------------------------------------------------------------------------------------
Other intangible assets subject to
amortization:
Software 89,331 (43,593) 45,738 100,903 (55,659) 45,244
Trade name and customer base 30,799 (11,994) 18,805 34,306 (15,286) 19,020
Other 22,074 (8,940) 13,134 28,260 (11,923) 16,337
------- ------- ------ ------- ------- ------
Total 142,204 (64,527) 77,677 163,469 (82,868) 80,601
Other intangible assets not
subject to amortization 1,498 1,324
------ ------
Total other intangible assets 79,175 81,925
====================================================================================================================
Thousands of U.S. Dollars
----------------------------------------
2007
----------------------------------------
Gross carrying Accumulated Net carrying
amount amortization amount
--------------------------------------------------------------------------------------------------------------------
Other intangible assets subject to
amortization:
Software $ 855,110 $(471,686) $383,424
Trade name and customer base 290,729 (129,542) 161,186
Other 239,492 (101,042) 138,449
---------- --------- --------
Total 1,385,331 (702,271) 683,059
Other intangible assets not
subject to amortization 11,220
--------
Total other intangible assets $694,280
====================================================================================================================
Gross carrying amount of software was increased for the year ended March 31,
2007 mainly due to the capitalization of costs to develop back-office
information systems.
The aggregate amortization expense of other intangible assets subject to
amortization for the years ended March 31, 2005, 2006 and 2007 was
Yen 11,327 million, Yen 16,624 million and Yen 17,200 million
($145,763 thousand). The future amortization expense for each of the next five
years relating to intangible assets currently recorded in the consolidated
balance sheets is estimated to be the following at March 31, 2007:
Millions Thousands of
Years ending March 31 of Yen U.S. Dollars
---------------------------------------------------------
2008 18,282 $154,932
2009 16,001 135,602
2010 10,293 87,229
2011 7,299 61,856
2012 5,497 46,585
=========================================================
F-26
The changes in the carrying amounts of goodwill for the year ended March 31,
2006 and 2007, are as follows:
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------
2006 2007 2007
--------------------------------------------------------------
Balance at beginning of year 47,502 51,934 $440,119
Goodwill acquired during the year 1,783 20,172 170,949
Goodwill sold during the year -- 608 5,153
--------------------------------------------------------------
Foreign exchange impact 2,649 550 4,661
--------------------------------------------------------------
Balance at end of year 51,934 72,048 $610,576
==============================================================
As of March 31, 2007, all of the carrying value of goodwill was allocated to
the Office Solutions segment.
9. INCOME TAXES
Income from continuing operations before income taxes, minority interests and
equity in earnings of affiliates and provision for income taxes for the years
ended March 31, 2005, 2006 and 2007 are as follows:
Thousands of
Millions of Yen U.S. Dollars
------------------------ ------------
2005 2006 2007 2007
---------------------------------------------------------------------------------------------
Income from continuing operations before income
taxes, minority interests and equity in
earnings of affiliates:
Domestic 84,162 105,785 107,749 $ 913,127
Foreign 46,821 46,981 66,770 565,847
---------------------------------------------------------------------------------------------
130,983 152,766 174,519 $1,478,975
=============================================================================================
Provision for income taxes:
Current:
Domestic 28,079 43,584 47,530 $ 402,797
Foreign 11,200 17,273 18,993 160,958
---------------------------------------------------------------------------------------------
39,279 60,857 66,523 563,754
=============================================================================================
Deferred:
Domestic 6,945 (2,178) (741) (6,280)
Foreign 2,616 (2,514) (1,456) (12,339)
---------------------------------------------------------------------------------------------
9,561 (4,692) (2,197) (18,619)
---------------------------------------------------------------------------------------------
Consolidated provision for income taxes 48,840 56,165 64,326 $ 545,136
=============================================================================================
F-27
Total income taxes are allocated as follows:
Thousands of
Millions of Yen U.S. Dollars
-------------------- ------------
2005 2006 2007 2007
-------------------------------------------------------------------------------------------------
Provision for income taxes relating to continuing operations 48,840 56,165 64,326 $545,136
Provision for income taxes relating to discontinued operations 1,794 1,398 4,196 35,559
Shareholders' investment:
Foreign currency translation adjustments 3,378 1,266 (50) (424)
Unrealized gains on securities 407 2,472 25 212
Unrealized gains (losses) on derivatives 97 27 (128) (1,085)
Minimum pension liability adjustments 129 5,195 693 5,873
Adjustment to initially apply SFAS 158 - - 1,066 9,034
-------------------------------------------------------------------------------------------------
54,645 66,523 70,128 $594,305
=================================================================================================
The Company and its domestic subsidiaries are subject to a National Corporate
tax of 30%, an inhabitant tax of approximately 6% and a deductible Enterprise
tax approximately 8%, which in the aggregate resulted in the normal statutory
tax rate of approximately 41%. The normal statutory tax rate differs from the
effective tax rate for the years ended March 31, 2005, 2006 and 2007 as a
result of the following:
2005 2006 2007
---------------------------------------------------------------------------------------------------
Normal statutory tax rate 41% 41% 41%
Nondeductible expenses 1 0 0
Tax benefits not recognized on operating losses of certain consolidated subsidiaries 1 2 1
Utilization of net operating loss carryforward not previously recognized (3) (2) (1)
Tax credit for increased research and development expense (3) (4) (3)
Other, net 0 0 (1)
---------------------------------------------------------------------------------------------------
Effective tax rate 37% 37% 37%
===================================================================================================
Nondeductible expenses include directors' bonuses and entertainment expenses.
The tax effects of temporary differences and carryforwards giving rise to the
consolidated deferred tax assets and liabilities as of March 31, 2006 and 2007
are as follows:
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------
2006 2007 2007
---------------------------------------------------------------------
Assets:
Accrued expenses 21,417 22,622 $ 191,712
Property, plant and equipment 3,014 7,197 60,992
Accrued pension and severance costs 30,888 25,139 213,042
Net operating loss carryforwards 4,941 9,574 81,136
Other 29,601 32,813 278,076
---------------------------------------------------------------------
89,861 97,345 824,958
Less--Valuation allowance (8,197) (12,399) (105,076)
---------------------------------------------------------------------
81,664 84,946 $ 719,881
=====================================================================
F-28
Thousands of
Millions of Yen U.S. Dollars
---------------- ------------
2006 2007 2007
------------------------------------------------------------------------------------------------------
Liabilities:
Sales-type leases (6,460) (6,463) $ (54,771)
Undistributed earnings of foreign subsidiaries and affiliates, etc. (18,618) (21,170) (179,407)
Net unrealized holding gains on available-for-sale securities (6,613) (5,664) (48,000)
Basis difference of acquired intangible assets (9,372) (8,358) (70,831)
Other (13,498) (7,506) (63,610)
------------------------------------------------------------------------------------------------------
(54,561) (49,161) $(416,619)
======================================================================================================
Net deferred tax assets 27,103 35,785 $ 303,263
======================================================================================================
Net deferred tax assets as of March 31, 2006 and 2007 are included in the
consolidated balance sheets as follows:
Thousands of
Millions of Yen U.S. Dollars
---------------- ------------
2006 2007 2007
-------------------------------------------------------------------------------
Deferred income taxes and other (Current Assets) 40,632 44,682 $ 378,661
Lease deposits and other (Non-current Assets) 38,053 35,652 302,136
Accrued expenses and other (Current Liabilities) (208) (366) (3,102)
Deferred income taxes (Long-Term Liabilities) (51,374) (44,183) (374,432)
-------------------------------------------------------------------------------
27,103 35,785 $ 303,263
===============================================================================
The net changes in the total valuation allowance for the years ended March 31,
2005 , 2006 and 2007 were a decrease of Yen 1,931 million , an increase of
Yen 1,118 million and an increase of Yen 4,202 million ($35,610 thousand),
respectively. The increase for the year ended March 31, 2007 included an
increase Yen 1,463 million ($12,398 thousand) resulting from deferred tax assets
from acquisitions. The valuation allowance primarily relates to deferred tax
assets of the consolidated subsidiaries with net operating loss carryforwards
for tax purposes that are not expected to be realized.
In assessing the realizability of deferred tax assets, Ricoh considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible and whether loss
carryforwards are utilizable. Ricoh considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical
taxable income and projections for future taxable income over the periods in
which the deferred tax assets are deductible, Ricoh believes it is more likely
than not that the benefits of these deductible differences, net of the existing
valuation allowance will be realized. The amount of the deferred tax asset
considered realizable, however, would be reduced if estimates of future taxable
income during the carryforward period are reduced.
As of March 31, 2007, certain subsidiaries had net operating losses carried
forward for income tax purposes of approximately Yen 27,289 million ($231,263
thousand) which were available to reduce future income taxes, if any.
Approximately Yen 1,911 million ($16,195 thousand) of the operating losses will
expire within 3 years and Yen 9,410 million ($79,746 thousand) will expire
within 4 years to 7 years. The remainder principally have an indefinite
carryforward period.
Ricoh has not recognized a deferred tax liability for certain portion of the
undistributed earnings of its foreign subsidiaries of Yen 215,390 million
($1,825,339 thousand) as of March 31, 2007 because Ricoh
F-29
considers these earnings to be permanently reinvested. Calculation of related
unrecognized deferred tax liability is not practicable.
10. SHORT-TERM BORROWINGS
Short-term borrowings as of March 31, 2006 and 2007 consist of the following:
Weighted average Thousands of
interest rate Millions of Yen U.S. Dollars
--------------- --------------- ------------
2006 2007 2006 2007 2007
--------------------------------------------------------------------------------
Borrowings, principally from banks 3.8% 2.4% 16,056 21,682 $183,746
Commercial paper 3.1 3.7 66,464 69,991 593,144
--------------------------------------------------------------------------------
82,520 91,673 $776,890
================================================================================
These short-term borrowings included borrowings, principally from banks and
commercial paper denominated in foreign currencies amounting to
Yen 55,212 million and Yen 57,480 million ($487,119 thousand) as of March 31,
2006 and 2007, respectively.
The Company and certain of its subsidiaries enter into the contracts with
financial institutions regarding lines of credit and overdrawing. Those same
financial institutions hold the issuing programs of commercial paper and
medium-term notes. Ricoh had aggregate lines of credit of Yen 801,630 million
and Yen 806,526 million ($6,834,966 thousand) as of March 31, 2006 and 2007,
respectively. Unused lines of credit amounted to Yen 703,949 million and
Yen 693,791 million ($5,879,585 thousand) as of March 31, 2006 and 2007,
respectively, of which Yen 252,843 million and Yen 237,854 million ($2,015,712
thousand) related to commercial paper and Yen 154,458 million and
Yen 129,855 million ($1,100,466 thousand) related to medium-term notes programs
at prevailing interest rates and the unused portion is available for immediate
borrowings.
F-30
11. LONG-TERM INDEBTEDNESS
Long-term indebtedness as of March 31, 2006 and 2007 consists of the followings:
Thousands of
Millions of Yen U.S. Dollars
----------------- ------------
2006 2007 2007
-----------------------------------------------------------------------
Bonds:
0.87%, straight bonds, payable
in yen, due March 2007 35,000 - $ -
1.34%, straight bonds, payable
in yen, due March 2009 25,000 25,000 211,864
0.73%, straight bonds, payable
in yen, due June 2006 issued
by a consolidated subsidiary 10,000 - -
0.70%, straight bonds, payable
in yen, due June 2007 issued
by a consolidated subsidiary 10,000 10,000 84,746
2.10%, straight bonds, payable
in yen, due October 2009
issued by a consolidated
subsidiary 10,000 10,000 84,746
1.11%, straight bonds, payable
in yen, due March 2010 issued
by a consolidated subsidiary 10,000 10,000 84,746
1.30%, straight bonds, payable
in yen, due December 2010
issued by a consolidated
subsidiary - 9,999 84,737
Euro Yen Zero Coupon
Convertible Bonds,
due December 2011 - 55,256 468,271
Medium-term notes, 0.17%
weighted average, due through
2015 issued by a consolidated
subsidiary 10,000 - -
-----------------------------------------------------------------------
Total bonds 110,000 120,255 1,019,110
-----------------------------------------------------------------------
Unsecured loans-
Banks and insurance companies,
1.48% weighted average, due
through 2012 183,956 200,983 1,703,246
-----------------------------------------------------------------------
Secured loans-
Banks, insurance companies and
other financial institution,
0.83% weighted average, due
through 2013 795 597 5,059
-----------------------------------------------------------------------
Capital lease obligations (see
Note 2(j)) 3,453 1,623 13,754
-----------------------------------------------------------------------
Total 298,204 323,458 2,741,169
SFAS 133 fair value adjustment 553 517 4,381
Less- Current maturities included
in current liabilities (103,131) (87,174) (738,763)
-----------------------------------------------------------------------
195,626 236,801 $2,006,788
=======================================================================
Secured loans are collateralized by land, buildings and lease receivables with
a book value of Yen 3,186 million ($27,000 thousand) as of March 31, 2007.
All bonds outstanding as of March 31, 2007 are redeemable at the option of
Ricoh at 100% of the principal amounts under certain conditions as provided in
the applicable agreements.
Bonds are subject to certain covenants such as restrictions on certain
additional secured indebtedness, as defined in the agreements. Ricoh presently
is in compliance with such covenants as of March 31, 2007.
The Company issued Euro Yen Zero Coupon Convertible Bonds of Yen 55,275 million
($468,432 thousand) in December 2006. Bondholders are able to acquire common
stock under certain circumstances. As of March 31, 2007, the conversion price
was Yen 2,800 per share and 19,741 thousand shares would have been issued on
conversion of all convertible debt. The conversion price shall be adjusted for
certain events such as a stock split, consolidation of stock or issuance of
stock at less than the current market price of the shares.
As is customary in Japan, substantially all of the bank borrowings are subject
to general agreements with each bank which provide, among other things, that
the banks may request additional security for these loans if there is
reasonable and probable cause and may treat any security furnished to the banks
as well as cash
F-31
deposited as security for all present and future indebtedness. Ricoh has never
been requested to submit such additional security.
The aggregate annual maturities of long-term indebtedness subsequent to
March 31, 2007 are as follows:
Thousands of
Years ending March 31 Millions of Yen U.S. Dollars
-------------------------------------------------------------------------------
2008 87,147 $ 738,534
2009 77,521 656,958
2010 70,149 594,483
2011 21,780 184,576
2012 66,571 564,161
2013 and thereafter 290 2,458
-------------------------------------------------------------------------------
Total 323,458 $2,741,169
===============================================================================
F-32
12. PENSION AND RETIREMENT ALLOWANCE PLANS
The Company and certain of its subsidiaries have various contributory and
noncontributory employees' pension fund plans in trust covering substantially
all of their employees. Under the plans, employees are entitled to lump-sum
payments at the time of termination or retirement, or to pension payments.
Contributions to above pension plans have been made to provide future pension
payments in conformity with an actuarial calculation determined by the current
basic rate of pay.
On March 31, 2007, Ricoh adopted the recognition and disclosure provisions of
SFAS No.158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans," for the measurement of pension liabilities. Under SFAS
158, Ricoh recognized the funded status (i.e., the difference between the fair
value of plan assets and the projected benefit obligations) of its pension fund
plans in the consolidated balance sheets as of March 31, 2007, with a
corresponding adjustment in initially applying SFAS 158 to accumulated other
comprehensive income, net of tax. The adjustment to accumulated other
comprehensive income at adoption represents the unrecognized net actuarial
loss, unrecognized prior service cost, and unrecognized transition obligations,
all of which were previously netted against the plans' funded status in the
consolidated balance sheets pursuant to the provisions of SFAS 87. These
amounts will be subsequently recognized as net periodic benefit cost pursuant
to Ricoh's historical accounting policy for amortizing such amounts.
Furthermore, actuarial gains and losses that arise in subsequent periods and
are not recognized as net periodic benefit cost in the same periods will be
recognized as a component of other comprehensive income. Those amounts will be
subsequently recognized as a component of total net periodic benefit cost on
the same basis as the amounts recognized in accumulated other comprehensive
income at adoption of SFAS 158.
The changes in the consolidated balance sheets as of March 31, 2007 arising
from the adoption of SFAS 158 are set out below:
Millions of Yen
------------------------------------------------
Before application After application
of SFAS 158 Adjustments of SFAS 158
-------------------------------------------------------------------------------
Lease deposits and other 97,645 710 98,355
Net deferred tax assets 36,287 (502) 35,785
Accrued expenses and other 138,946 4,414 143,360
Accrued pension and severance
costs 99,681 (653) 99,028
Minority interests 57,689 (820) 56,869
Accumulated other
comprehensive income 29,731 (2,733) 26,998
===============================================================================
Thousands of U.S. Dollars
------------------------------------------------
Before application After application
of SFAS 158 Adjustments of SFAS 158
-------------------------------------------------------------------------------
Lease deposits and other $ 827,500 $ 6,017 $ 833,517
Net deferred tax assets 307,517 (4,254) 303,263
Accrued expenses and other 1,177,508 37,407 1,214,915
Accrued pension and severance
costs 844,754 (5,534) 839,220
Minority interests 488,890 (6,949) 481,941
Accumulated other
comprehensive income 251,958 (23,161) 228,797
===============================================================================
F-33
The changes in the benefit obligations and plan assets of the pension plans for
the years ended March 31, 2006 and 2007 are as follows:
Thousands of
Millions of Yen U.S. Dollars
---------------------- ------------
2006 2007 2007
---------------------------------------------------------------------------
Change in benefit obligations:
Benefit obligations at beginning
of year 343,623 368,813 $3,125,534
Service cost 14,691 15,687 132,941
Interest cost 10,192 11,121 94,246
Plan participants' contributions 517 682 5,780
Actuarial loss 10,437 963 8,161
Settlement (654) (142) (1,203)
Benefits paid (14,408) (16,473) (139,602)
Foreign exchange impact 4,415 9,817 83,195
Benefit obligations assumed in
connection with business
acquisition - 7,503 63,585
---------------------------------------------------------------------------
Benefit obligations at end of year 368,813 397,971 $3,372,636
---------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year 237,500 294,936 $2,499,458
Actual return on plan assets 49,560 6,889 58,381
Employer contribution 13,853 14,725 124,788
Plan participants' contributions 517 682 5,780
Settlement - (57) (483)
Benefits paid (9,855) (10,924) (92,576)
Foreign exchange impact 3,361 7,957 67,432
Plan assets acquired in connection
with business acquisition - 6,372 54,000
---------------------------------------------------------------------------
Fair value of plan assets at end
of year 294,936 320,580 $2,716,780
---------------------------------------------------------------------------
Funded status (73,877) (77,391) $ (655,856)
===========================================================================
Amounts recognized in the consolidated balance sheet as of March 31, 2007
consist of:
Thousands of
Millions of Yen U.S. Dollars
-------------------------------------------------------------------------------
Lease deposits and other 25,161 $ 213,229
Accrued expenses and other (4,414) (37,407)
Accrued pension and severance costs (98,138) (831,678)
-------------------------------------------------------------------------------
Net amount recognized (77,391) $(655,856)
===============================================================================
Amounts recognized in accumulated other comprehensive income as of March 31,
2007 consist of:
Thousands of
Millions of Yen U.S. Dollars
-------------------------------------------------------------------------------
Net actuarial loss 64,990 $ 550,763
Prior service cost (50,232) (425,695)
Net asset at transition, net of amortization (82) (695)
-------------------------------------------------------------------------------
Net amount recognized 14,676 $ 124,373
===============================================================================
F-34
The funded status as of March 31, 2006, reconciled to the net amount recognized
in the consolidated balance sheet at that date, is summarized as follows:
Millions of Yen
-----------------------------------------------------------------------
Funded status (73,877)
Unrecognized net actuarial loss 64,714
Unrecognized prior service cost (54,212)
Unrecognized net asset at transition, net of amortization (533)
-----------------------------------------------------------------------
Net amount recognized (63,908)
=======================================================================
Amounts recognized in the consolidated balance sheet as of March 31, 2006
consist of:
Millions of Yen
-----------------------------------------------------------------------
Prepaid benefit cost 18,170
Accrued benefit liability (94,765)
Intangible assets 55
Accumulated other comprehensive income (loss) 12,632
-----------------------------------------------------------------------
Net amount recognized (63,908)
=======================================================================
The accumulated benefit obligations are as follows:
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------
2006 2007 2007
------------------------------------------------------------------------
Accumulated benefit obligations 354,060 376,203 $3,188,161
========================================================================
Weighted-average assumptions used to determine benefit obligations as of
March 31, 2006 and 2007 are as follows:
2006 2007
------------------------------------------------------------------------
Discount rate 2.8% 3.1%
Rate of compensation increase 5.4% 5.3%
========================================================================
Weighted-average assumptions used to determine the net periodic benefit cost
for the years ended March 31, 2005, 2006 and 2007 are as follows:
2005 2006 2007
------------------------------------------------------------------------
Discount rate 2.9% 3.0% 2.8%
Rate of compensation increase 5.3% 5.0% 5.4%
Expected long-term return on plan assets 2.9% 3.2% 3.1%
========================================================================
F-35
The net periodic benefit costs of the pension plans for the years ended
March 31, 2005, 2006 and 2007 consist of the following components:
Thousands of
Millions of Yen U.S. Dollars
---------------------- ------------
2005 2006 2007 2007
-------------------------------------------------------------------
Service cost 14,762 14,691 15,687 $132,941
Interest cost 9,218 10,192 11,121 94,246
Expected return on plan assets (6,571) (7,645) (9,186) (77,847)
Net amortization 1,648 1,833 (1,420) (12,034)
Settlement benefit (980) (140) (18) (153)
-------------------------------------------------------------------
Total net periodic pension
cost 18,077 18,931 16,184 $137,153
===================================================================
The projected benefit obligations and the fair value of plan assets for the
pension plans with projected benefit obligations in excess of plan assets, and
the accumulated benefit obligations and the fair value of plan assets for the
pension plans with accumulated benefit obligations in excess of plan assets are
as follows:
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------
2006 2007 2007
---------------------------------------------------------------------
Plans with projected benefit
obligations in excess of plan assets:
Projected benefit obligations 222,095 240,593 $2,038,924
Fair value of plan assets 129,327 150,746 1,277,508
Plans with accumulated benefit
obligations in excess of plan assets:
Accumulated benefit obligations 190,144 221,023 $1,873,076
Fair value of plan assets 118,214 145,278 1,231,169
=====================================================================
Ricoh's benefit plan asset allocation as of March 31, 2006 and 2007 are as
follows:
2006 2007
----------------------------------------------------------------
Equity securities 51.7% 51.5%
Debt securities 21.1% 17.0%
Life insurance company general accounts 20.5% 24.2%
Other 6.7% 7.3%
----------------------------------------------------------------
Total 100.0% 100.0%
================================================================
Common stock and bonds of the Company and certain of its domestic subsidiaries
included in plan assets were immaterial as of March 31, 2006 and 2007.
Ricoh's investment policies and strategies for the pension benefits do not use
target allocations for the individual asset categories. Ricoh's investment
goals are to maximize returns subject to specific risk management policies. Its
risk management policies permit investments in mutual funds and debt and equity
securities and prohibit direct investment in derivative financial instruments.
Ricoh addresses diversification by the use of mutual fund investments whose
underlying investments are in domestic and international fixed income
securities and domestic and international equity securities. These mutual funds
are readily marketable and can be sold to fund benefit payment obligations as
they become payable.
Ricoh uses a December 31 measurement date for the pension plans.
F-36
Ricoh expects to contribute Yen 13,990 million ($118,559 thousand) to its
pension plans for the year ending March 31, 2008. The estimated net actuarial
loss, prior service cost and net asset at transition for Ricoh's pension fund
plans that will be amortized from accumulated other comprehensive income (loss)
into net periodic pension cost over the next fiscal year are Yen 3,666 million
($31,068 thousand), Yen (3,906) million ($(33,102) thousand) and Yen
(82) million ($(695) thousand), respectively.
The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid:
Millions of Thousands of
Years ending March 31 Yen U.S. Dollars
---------------------------------------------------------------------------
2008 18,520 $156,949
2009 19,077 161,670
2010 20,158 170,831
2011 19,013 161,127
2012 19,313 163,670
2013- 2017 104,154 882,661
===========================================================================
Employees of certain domestic subsidiaries not covered by the employee's
pension fund ("EPF") plan are primarily covered by unfunded retirement
allowances plans. The retirement allowances system for executives of Ricoh,
fixed remuneration, which had applied to Directors and Corporate Auditors, was
abolished at the closing of the 107th Ordinary General Meeting of Shareholders
held on June 27, 2007. On the abolishment, the Company will pay incumbent
Directors and Corporate Auditors final retirement allowances corresponding to
their tenures through the above Ordinary General Meeting of Shareholders in
accordance with the standards prescribed by the Company.
F-37
13. SHAREHOLDERS' INVESTMENT
The Corporation Law of Japan provides that an amount equal to 10% of cash
dividends and other distributions from retained earnings paid by the Company
and its domestic subsidiaries be appropriated as additional paid-in capital or
legal reserve. No further appropriation is required when the total amount of
the additional paid-in capital and legal reserve equals to 25% of common stock.
Certain foreign subsidiaries are also required to appropriate their earnings to
legal reserves under the laws of the respective countries. Legal reserves
included in retained earnings as of March 31, 2006 and 2007 were Yen
17,156 million and Yen 17,318 million ($146,763 thousand), respectively, and
are restricted from being used as dividends.
The Corporation Law of Japan requires a company to obtain the approval of
shareholders for transferring on amount between common stock and additional
paid-in capital. The Law also permits a company to transfer an amount of common
stock or additional paid-in capital to retained earnings in principle upon
approval of shareholders.
Semiannual cash dividends are approved by the shareholders after the end of
each fiscal period or are declared by the Board of Directors after the end of
each interim six-month period. Such dividends are payable to shareholders of
record at the end of each such fiscal or interim six-month period. At the
Ordinary General Meeting of Shareholders held on June 27, 2007, the
shareholders approved the declaration of a cash dividend (Yen 15 per share) on
the common stock totaling Yen 10,950 million ($92,797 thousand), which would be
paid to shareholders of record as of March 31, 2007. The declaration of this
dividend has not been reflected in the consolidated financial statements as of
March 31, 2007.
The amount of retained earnings legally available for dividend distribution is
that recorded in the Company's non-consolidated books and amounted to Yen
407,599 million ($3,454,229 thousand) as of March 31, 2007.
F-38
14. OTHER COMPREHENSIVE INCOME (LOSS)
Tax effects allocated to each component of other comprehensive income (loss)
are as follows:
Millions of Yen
-----------------------------
Before-tax Tax Net-of-tax
amount expense amount
----------------------------------------------------------------------------
2005:
Foreign currency translation adjustments 12,419 (3,378) 9,041
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the year 1,024 (347) 677
Less- Reclassification adjustment
for (gains) losses realized in
net income 148 (60) 88
Net unrealized gains (losses) 1,172 (407) 765
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses)
arising during the year 45 (17) 28
Less- Reclassification adjustment
for (gains) losses realized in
net income 193 (80) 113
Net unrealized gains (losses) 238 (97) 141
Minimum pension liability adjustments 156 (129) 27
----------------------------------------------------------------------------
Other comprehensive income (loss) 13,985 (4,011) 9,974
============================================================================
2006:
Foreign currency translation adjustments 16,142 (1,266) 14,876
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the year 8,662 (3,308) 5,354
Less- Reclassification adjustment
for (gains) losses realized in
net income (2,053) 836 (1,217)
Net unrealized gains (losses) 6,609 (2,472) 4,137
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses)
arising during the year (527) 216 (311)
Less- Reclassification adjustment
for (gains) losses realized in
net income 594 (243) 351
Net unrealized gains (losses) 67 (27) 40
Minimum pension liability adjustments 12,204 (5,195) 7,009
----------------------------------------------------------------------------
Other comprehensive income (loss) 35,022 (8,960) 26,062
============================================================================
2007:
Foreign currency translation adjustments 24,724 50 24,774
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the year 197 (65) 132
Less- Reclassification adjustment
for (gains) losses realized in
net income (99) 40 (59)
Net unrealized gains (losses) 98 (25) 73
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses)
arising during the year (749) 307 (442)
Less- Reclassification adjustment
for (gains) losses realized in
net income 436 (179) 257
Net unrealized gains (losses) (313) 128 (185)
Minimum pension liability adjustments 1,663 (693) 970
----------------------------------------------------------------------------
Other comprehensive income (loss) 26,172 (540) 25,632
============================================================================
F-39
Thousands of U.S. Dollars
-----------------------------
Before-tax Tax Net-of-tax
amount expense amount
----------------------------------------------------------------------------
2007:
Foreign currency translation adjustments $209,525 $ 424 $209,949
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the year 1,669 (551) 1,119
Less- Reclassification adjustment
for (gains) losses realized in
net income (839) 339 (500)
Net unrealized gains (losses) 831 (212) 619
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses)
arising during the year (6,347) 2,602 (3,746)
Less- Reclassification adjustment
for (gains) losses realized in
net income 3,695 (1,517) 2,178
Net unrealized gains (losses) (2,653) 1,085 (1,568)
Minimum pension liability adjustments 14,093 (5,873) 8,220
-----------------------------------------------------------------------------
Other comprehensive income (loss) $221,797 $(4,576) $217,220
=============================================================================
F-40
Changes in accumulated other comprehensive income (loss) are as follows:
Thousands
of U.S.
Millions of Yen Dollars
------------------------ ---------
2005 2006 2007 2007
-------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustments:
Beginning balance (19,411) (12,219) 2,657 $ 22,517
Adjustment for change in fiscal year end of consolidated subsidiaries (1,849) - - -
Change during the year 9,041 14,876 24,774 209,949
-------------------------------------------------------------------------------------------------------------
Ending balance (12,219) 2,657 27,431 $232,466
=============================================================================================================
Unrealized gains (losses) on securities:
Beginning balance 4,026 4,791 8,928 $ 75,661
Change during the year 765 4,137 73 619
-------------------------------------------------------------------------------------------------------------
Ending balance 4,791 8,928 9,001 $ 76,280
=============================================================================================================
Unrealized gains (losses) on derivatives:
Beginning balance (24) 117 157 $ 1,331
Change during the year 141 40 (185) (1,568)
-------------------------------------------------------------------------------------------------------------
Ending balance 117 157 (28) $ (237)
=============================================================================================================
Minimum pension liability adjustments:
Beginning balance (14,863) (14,652) (7,643) $(64,771)
Adjustment for change in fiscal year end of consolidated subsidiaries 184 - - -
Change during the year 27 7,009 970 8,220
Adjustment to initially apply SFAS 158 - - 6,673 56,551
-------------------------------------------------------------------------------------------------------------
Ending balance (14,652) (7,643) - $ -
=============================================================================================================
Pension liability adjustments:
Adjustment to initially apply SFAS 158 - - (9,406) $(79,712)
-------------------------------------------------------------------------------------------------------------
Ending balance - - (9,406) $(79,712)
=============================================================================================================
Total accumulated other comprehensive income (loss)
Beginning balance (30,272) (21,963) 4,099 $ 34,737
Adjustment for change in fiscal year end of consolidated subsidiaries (1,665) - - -
Change during the year 9,974 26,062 25,632 217,220
Adjustment to initially apply SFAS 158 - - (2,733) (23,161)
-------------------------------------------------------------------------------------------------------------
Ending balance (21,963) 4,099 26,998 $228,797
=============================================================================================================
F-41
15. PER SHARE DATA
Dividends per share shown in the consolidated statements of income are computed
based on dividends paid for the year.
A reconciliation of the numerator and the denominators of the basic and diluted
per share computations for income before cumulative effect of accounting
change, cumulative effect of accounting change, net of tax and net income is as
follows:
Thousands of shares
-----------------------
2005 2006 2007
-------------------------------------------------------------------------------------
Weighted average number of shares of common stock outstanding 738,160 733,434 729,745
Effect of dilutive securities:
Euro Yen Zero Coupon Convertible Bonds -
Due December 2011 - - 5,758
-------------------------------------------------------------------------------------
Diluted shares of common stock outstanding 738,160 733,434 735,503
=====================================================================================
Thousands of
Millions of Yen U.S. Dollars
--------------------- ------------
2005 2006 2007 2007
--------------------------------------------------------------------------------------------------
Income from continuing operations 80,537 95,022 106,224 $900,203
Income from discontinued operations, net of tax 2,606 2,035 5,500 46,610
--------------------------------------------------------------------------------------------------
Net income 83,143 97,057 111,724 946,814
--------------------------------------------------------------------------------------------------
Effect of dilutive securities:
Euro Yen Zero Coupon Convertible Bonds - Due December 2011 - - (8) (68)
--------------------------------------------------------------------------------------------------
Diluted net income 83,143 97,057 111,716 $946,746
==================================================================================================
Yen U.S. Dollars
--------------------- ------------
2005 2006 2007 2007
--------------------------------------------------------------------------------------------------
Earnings per share:
Basic
Income from continuing operations 109.11 129.56 145.56 $ 1.23
Income from discontinued operations, net of tax 3.53 2.77 7.54 0.06
--------------------------------------------------------------------------------------------------
Net income 112.64 132.33 153.10 1.30
--------------------------------------------------------------------------------------------------
Diluted:
Income from continuing operations 109.11 129.56 144.41 $ 1.22
Income from discontinued operations, net of tax 3.53 2.77 7.48 0.06
--------------------------------------------------------------------------------------------------
Net income 112.64 132.33 151.89 1.29
==================================================================================================
16. 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
F-42
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 those 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, 2005, 2006 and 2007 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, 2005, 2006 and 2007 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
expenses during the next 12 months approximately Yen 23 million ($195 thousand)
of the balance of accumulated other comprehensive income as of March 31, 2007.
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
statements of income.
17. COMMITMENTS AND CONTINGENT LIABILITIES
As of March 31, 2007, Ricoh had outstanding contractual commitments for
acquisition or construction of property, plant and equipment and other assets
aggregating Yen 6,734 million ($57,068 thousand).
As of March 31, 2007, Ricoh was also contingently liable for certain guarantees
including employees housing loans of Yen 1,092 million ($9,254 thousand).
Ricoh made rental payments totaling Yen 39,000 million, Yen 42,046 million and
Yen 40,722 million ($345,102 thousand) for the years ended March 31, 2005, 2006
and 2007, respectively, under cancelable and non-cancelable operating lease
agreements for office space and machinery and equipment.
F-43
The minimum rental payments required under operating lease that have lease
terms in excess of one year as of March 31, 2007 are as follows:
Thousands of
Years ending March 31 Millions of Yen U.S. Dollars
-------------------------------------------------------------------------------
2008 19,702 $169,966
2009 16,822 142,559
2010 12,029 101,941
2011 7,221 61,195
2012 6,145 52,076
2013 and thereafter 12,714 107,746
-------------------------------------------------------------------------------
Total 74,633 $632,483
===============================================================================
As of March 31, 2007, 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.
18. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
(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.
(E) INTEREST RATE SWAP AGREEMENTS
The fair value of interest rate swap agreements is estimated by obtaining
quotes from brokers.
(F) FOREIGN CURRENCY CONTRACTS AND FOREIGN CURRENCY OPTIONS
The fair value of foreign currency contracts and foreign currency options is
estimated by obtaining quotes from brokers.
F-44
The estimated fair value of the financial instruments as of March 31, 2006 and
2007 is summarized as follows:
Millions of Yen Thousands of U.S. Dollars
---------------------------------------- -------------------------
2006 2007 2007
------------------- ------------------- -------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value Amount Fair Value
-------------------------------------------------------------------------------------------------------------------
Marketable securities and Investment securities 36,581 36,581 75,013 75,013 $ 635,703 $ 635,703
Installment loans 52,295 52,404 52,648 52,697 446,169 446,585
Long-term indebtedness (195,626) (195,731) (236,801) (229,981) (2,006,788) (1,948,992)
Interest rate swap agreements, net 1,175 1,175 751 751 6,364 6,364
Foreign currency contracts, net (1,147) (1,147) 633 633 5,364 5,364
Foreign currency options, net (270) (270) (2) (2) (17) (17)
-------------------------------------------------------------------------------------------------------------------
Limitations: Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
19. SEGMENT INFORMATION
The operating segments presented below are the segments of Ricoh for which
separate financial information is available and for which a measure of profit
or loss is evaluated regularly by Ricoh's management in deciding how to
allocate resources and in assessing performance. The accounting policies of the
segments are substantially the same as those described in the summary of
significant accounting policies, as discussed in Note 2.
Ricoh's operating segments are comprised of Office Solutions, including copiers
and related supplies, communications and information systems, Industrial
Products, including thermal media and semiconductors, and Other, including
optical discs and digital cameras.
The following tables present certain information regarding Ricoh's operating
segments and operations by geographic areas for the years ended March 31, 2005,
2006 and 2007. During the year ended March 31, 2007, a subsidiary of the
Company sold its content distribution business. As a result of such sale, sales
and operating income of such business of Yen 6,702 million and Yen
4,397 million, Yen 5,852 million and Yen 3,430 million and Yen 1,487 million
($12,602 thousand) and Yen 865 million ($7,331 thousand) were reclassified as a
discontinued operations and was excluded from the segment data for all periods
in accordance with SFAS 144.
F-45
(A) OPERATING SEGMENT INFORMATION
Thousands of
Millions of Yen U.S. Dollars
------------------------------- ------------
2005 2006 2007 2007
----------------------------------------------------------------------------
Sales:
Office Solutions 1,531,428 1,637,228 1,774,467 $15,037,856
Industrial Products 121,914 123,200 138,112 1,170,441
Other 156,570 151,374 161,071 1,365,008
Intersegment transaction (2,506) (2,564) (4,725) (40,042)
----------------------------------------------------------------------------
Consolidated 1,807,406 1,909,238 2,068,925 $17,533,263
----------------------------------------------------------------------------
Operating expenses:
Office Solutions 1,335,059 1,434,279 1,549,156 $13,128,441
Industrial Products 121,872 124,108 135,164 1,145,458
Other 165,126 148,692 158,868 1,346,339
Intersegment transaction (2,475) (2,594) (4,727) (40,059)
Unallocated expense 56,715 56,169 56,084 475,288
----------------------------------------------------------------------------
Consolidated 1,676,297 1,760,654 1,894,545 $16,055,466
----------------------------------------------------------------------------
Operating income:
Office Solutions 196,369 202,949 225,311 $ 1,909,415
Industrial Products 42 (908) 2,948 24,983
Other (8,556) 2,682 2,203 18,669
Elimination and
unallocated expense (56,746) (56,139) (56,082) (475,271)
----------------------------------------------------------------------------
Consolidated 131,109 148,584 174,380 $ 1,477,797
----------------------------------------------------------------------------
Other income(expenses) (126) 4,182 139 $ 1,178
----------------------------------------------------------------------------
Income from continuing
operations before income
taxes, minority interests
and equity in earnings of
affiliates 130,983 152,766 174,519 $ 1,478,975
============================================================================
Thousands of
Millions of Yen U.S. Dollars
------------------------------- ------------
2005 2006 2007 2007
-----------------------------------------------------------------------------
Total assets:
Office Solutions 1,358,136 1,426,635 1,570,757 $13,311,500
Industrial Products 72,406 84,595 93,346 791,068
Other 125,278 114,925 112,255 951,314
Elimination (10,174) (2,088) (1,327) (11,246)
Corporate assets 408,023 417,116 468,375 3,969,280
-----------------------------------------------------------------------------
Consolidated 1,953,669 2,041,183 2,243,406 $19,011,915
-----------------------------------------------------------------------------
Expenditure for segment assets:
Office Solutions 70,638 90,383 72,465 $ 614,110
Industrial Products 8,509 7,451 8,580 72,712
Other 3,449 2,361 2,630 22,288
Corporate assets 2,103 1,854 2,125 18,008
-----------------------------------------------------------------------------
Consolidated 84,699 102,049 85,800 $ 727,119
=============================================================================
F-46
Thousands of
Millions of Yen U.S. Dollars
-------------------- ------------
2005 2006 2007 2007
-------------------------------------------------------------------------------
Depreciation:
Office Solutions 53,439 57,326 62,862 $532,729
Industrial Products 7,450 6,631 6,099 51,686
Other 2,632 2,352 2,072 17,559
Corporate assets 3,272 1,156 1,399 11,856
-------------------------------------------------------------------------------
Consolidated 66,793 67,465 72,432 $613,831
===============================================================================
Unallocated expense represents expenses for corporate headquarters.
Intersegment sales are not separated by operating segment because they are
immaterial.
Corporate assets consist primarily of cash and cash equivalents and marketable
securities maintained for general corporate purposes.
(B) GEOGRAPHIC INFORMATION
Sales which are attributed to countries based on location of customers and
long-lived assets by location for the years ended March 31, 2005, 2006 and 2007
are as follows:
Thousands of
Millions of Yen U.S. Dollars
----------------------------- ------------
2005 2006 2007 2007
-------------------------------------------------------------------------------
Sales:
Japan 966,273 966,224 1,002,251 $ 8,493,653
The Americas 325,597 387,412 426,453 3,614,008
Europe 408,906 434,800 507,158 4,297,949
Other 106,630 120,802 133,063 1,127,653
-------------------------------------------------------------------------------
Consolidated 1,807,406 1,909,238 2,068,925 $17,533,263
-------------------------------------------------------------------------------
Property, plant and equipment:
Japan 195,052 210,973 199,308 $ 1,689,051
The Americas 17,744 18,111 18,102 153,407
Europe 25,352 26,783 28,345 240,212
Other 9,262 12,376 18,913 160,280
-------------------------------------------------------------------------------
Consolidated 247,410 268,243 264,668 $ 2,242,949
===============================================================================
(C) ADDITIONAL INFORMATION
The following information shows net sales and operating income recognized by
geographic origin for the years ended March 31, 2005, 2006 and 2007. In
addition to the disclosure requirements under SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," Ricoh discloses this
information as supplemental information in light of the disclosure requirements
of the Japanese Securities and Exchange Law, which a Japanese public company is
subject to.
F-47
Thousands of
Millions of Yen U.S. Dollars
------------------------------- ------------
2005 2006 2007 2007
-------------------------------------------------------------------------------
Sales:
Japan
External customers 987,797 992,945 1,026,663 $ 8,700,534
Intersegment 392,216 413,087 495,304 4,197,492
-------------------------------------------------------------------------------
Total 1,380,013 1,406,032 1,521,967 12,898,025
-------------------------------------------------------------------------------
The Americas
External customers 322,975 385,746 426,009 3,610,246
Intersegment 7,486 7,630 3,253 27,568
-------------------------------------------------------------------------------
Total 330,461 393,376 429,262 3,637,814
-------------------------------------------------------------------------------
Europe
External customers 412,333 434,304 508,200 4,306,780
Intersegment 3,310 4,449 3,595 30,466
-------------------------------------------------------------------------------
Total 415,643 438,753 511,795 4,337,246
-------------------------------------------------------------------------------
Other
External customers 84,301 96,243 108,053 915,703
Intersegment 89,647 104,045 160,990 1,364,322
-------------------------------------------------------------------------------
Total 173,948 200,288 269,043 2,280,025
-------------------------------------------------------------------------------
Elimination of
intersegment sales (492,659) (529,211) (663,142) (5,619,847)
-------------------------------------------------------------------------------
Consolidated 1,807,406 1,909,238 2,068,925 $17,533,263
-------------------------------------------------------------------------------
Operating expenses:
Japan 1,296,335 1,310,233 1,411,653 $11,963,161
The Americas 316,651 378,108 408,150 3,458,898
Europe 391,271 417,341 478,380 4,054,068
Other 162,042 185,283 251,486 2,131,237
-------------------------------------------------------------------------------
Elimination of
intersegment sales (490,002) (530,311) (655,124) (5,551,898)
-------------------------------------------------------------------------------
Consolidated 1,676,297 1,760,654 1,894,545 $16,055,466
-------------------------------------------------------------------------------
Operating income:
Japan 83,678 95,799 110,314 $ 934,864
The Americas 13,810 15,268 21,112 178,915
Europe 24,372 21,412 33,415 283,178
Other 11,906 15,005 17,557 148,788
-------------------------------------------------------------------------------
Elimination of
intersegment profit (2,657) 1,100 (8,018) (67,949)
-------------------------------------------------------------------------------
Consolidated 131,109 148,584 174,380 $ 1,477,797
-------------------------------------------------------------------------------
Other expenses (126) 4,182 139 $ 1,178
-------------------------------------------------------------------------------
Income from continuing
operations before
income taxes, minority
interests and equity in
earnings of affiliates 130,983 152,766 174,519 $ 1,478,975
===============================================================================
Total assets:
Japan 1,187,190 1,220,780 1,282,085 $10,865,127
The Americas 206,979 240,726 256,049 2,169,907
Europe 228,568 235,897 314,815 2,667,924
Other 66,319 79,102 101,550 860,593
Elimination (143,410) (152,438) (179,468) (1,520,915)
Corporate assets 408,023 417,116 468,375 3,969,280
-------------------------------------------------------------------------------
Consolidated 1,953,669 2,041,183 2,243,406 $19,011,915
===============================================================================
Intersegment sales between geographic areas are made at cost plus profit.
Operating income by geographic area is sales less expense related to the area's
operating revenue.
F-48
No single customer accounted for 10% or more of the total revenues for t he
periods ended as of March 31, 2005, 2006 and 2007.
20. SUPPLEMENTARY INFORMATION TO THE STATEMENT OF INCOME
The following amounts are charged to selling, general and administrative
expenses for the years ended March 31, 2005, 2006 and 2007:
Thousands of
Millions of Yen U.S. Dollars
----------------------- ------------
2005 2006 2007 2007
-------------------------------------------------------------------------------
Research and development costs 110,471 110,381 114,985 $974,449
Advertising costs 16,441 15,725 14,456 122,508
Shipping and handling costs 14,043 16,058 19,280 163,390
-------------------------------------------------------------------------------
21. SUBSEQUENT EVENT
On June 1, 2007, Ricoh and International Business Machines Corporation ("IBM")
completed formation of a joint venture company based on IBM's Printing Systems
Division to provide output solutions for production printing area. Initially,
Ricoh acquired 51% of the joint venture. Ricoh will progressively acquire the
remaining 49% over the next three years as the joint venture becomes a fully
owned subsidiary. Ricoh paid $725 million (including management fee $35
million) in cash at the closing. The cash payment was consideration for the
initial 51% acquisition of the joint venture by Ricoh as well as a prepayment
for the remaining 49% to be acquired and certain royalties and services to be
provided by IBM to InfoPrint Solutions Company. Final consideration for this
transaction will be determined at the end of the three-year period based upon
the participation in the profits and losses recorded by the equity partners.
F-49
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II. - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED MARCH 31, 2007
(Millions of Yen)
Additions
--------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTION BALANCE AT
BEGINNING COSTS AND OTHER FROM TRANSLATION END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES (2)(3) ADJUSTMENT PERIOD
----------------------------------------------------------------------------------------------------------------
For the year ended March 31, 2005:
Allowance for doubtful
receivables (1) :
Trade receivables 17,039 1,822 (65) (1,729) 384 17,451
Finance receivables 15,239 3,584 - (2,280) 23 16,566
Deferred tax assets valuation
allowance 9,010 1,212 (23) (3,298) 178 7,079
For the year ended March 31, 2006:
Allowance for doubtful
receivables (1) -
Trade receivables 17,451 1,424 (27) (3,366) 549 16,031
Finance receivables 16,566 1,744 - (1,992) 76 16,394
Deferred tax assets valuation
allowance 7,079 3,843 (56) (2,959) 290 8,197
For the year ended March 31, 2007:
Allowance for doubtful
receivables (1) -
Trade receivables 16,031 716 2,224 (3,076) 660 16,555
Finance receivables 16,394 324 - (3,016) 77 13,779
Deferred tax assets valuation
allowance 8,197 2,160 2,483 (1,136) 695 12,399
----------------------------------------------------------------------------------------------------------------
Notes:
(1) See Note 2(g) to Consolidated Financial Statements.
(2) Receivables - Write-offs
(3) Deferred tax - Realization of tax benefits
F-50