SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20 - F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2004
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Commission file number 2 - 68279
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KABUSHIKI KAISHA RICOH
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(Exact name of registrant as specified in its charter)
RICOH COMPANY, LTD.
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(Translation of registrant's name into English)
Japan
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(Jurisdiction of incorporation or organization)
15-5, Minami-Aoyama 1-chome, Minato-ku, Tokyo 107-8544, Japan
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(Address of principal executive offices)
Securities registered or to be registered pursuant to
Section 12(b) of the Act.
Title of each class Name of each exchange on
which registered
None None
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Securities registered or to be registered pursuant to
Section 12(g) of the Act.
None
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(Title of Class)
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act.
Common Stock*
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(Title of Class)
* 331,043 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, 2004: 738,894,891 shares (excluding
6,017,187 shares of Treasury Stock)
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 which financial statement item the registrant has
elected to follow.
Item 17 [ ] Item 18 [X].
Defined Terms, Conventions and Presentation of Financial Information
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On June 25, 2004, 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 107.82 = 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 2004"
refers to Ricoh's fiscal year ended March 31, 2004, and other fiscal years of
Ricoh are referred to in a corresponding manner.
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 lineup 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 its 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 and laser 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.............................................9
Item 5. Operating and Financial Review and Prospects..........................24
Item 6. Directors, Senior Management and Employees............................61
Item 7. Major Shareholders and Related Party Transactions.....................75
Item 8. Financial Information.................................................76
Item 9. The Offer and Listing.................................................77
Item 10. Additional Information................................................79
Item 11. Quantitative and Qualitative Disclosures About Market Risk............93
Item 12. Description of Securities Other Than Equity Securities................96
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.......................96
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds...........................................................96
Item 15. Controls and Procedures...............................................96
Item 16. [RESERVED]............................................................96
PART III
Item 17. Financial Statements..................................................99
Item 18. Financial Statements..................................................99
Item 19. Exhibits..............................................................99
Item 1. Identity of Directors, Senior Management and Advisers
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Not applicable.
Item 2. Offer Statistics and Expected Timetable
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Not applicable.
Item 3. Key information
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A. Selected financial data.
The following selected consolidated financial data has been derived from
the audited consolidated financial statements of Ricoh prepared in accordance
with accounting principles generally accepted in the United States 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, 2003 and 2004, the related consolidated statements of income,
shareholders' investment and cash flows for the three years ended March 31,
2002, 2003 and 2004 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,
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2000 2001 2002 2003 2004
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA:
Net sales: 1,447,157 1,538,262 1,672,340 1,738,358 1,780,245
Operating income 88,921 105,105 129,695 133,654 150,006
Net income 41,928 53,228 61,614 72,513 91,766
PER AMERICAN DEPOSITARY SHARE:
Net income (Basic) 303.05 384.25 441.35 498.95 618.15
Net income (Diluted) 280.30 355.10 412.30 484.05 618.15
BALANCE SHEET DATA:
Total Assets 1,543,320 1,704,791 1,832,928 1,884,922 1,852,793
Shareholder's investment 541,506 556,728 633,020 657,514 795,131
Common Stock 103,112 103,434 120,461 135,364 135,364
Weighted Average Number of
shares outstanding 691,744,901 692,616,894 698,025,167 726,659,698 742,292,806
Cash dividends declared
Per American Depositary Share:
Interim 27.50 30.00 30.00 35.00 40.00
($0.29) ($0.27) ($0.24) ($0.28) ($0.36)
Year-end 27.50 30.00 35.00 35.00 50.00
($0.26) ($0.28) ($0.29) ($0.29) ($0.46)
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Millions of Yen except per share amounts and number of shares
Year ended March 31,
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2000 2001 2002 2003 2004
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At year-end:
Cash and cash equivalents 152,622 107,746 170,172 189,243 203,039
Capital investments 58,356 73,329 75,676 73,956 75,507
Long-term indebtedness 307,962 217,743 332,995 345,902 281,570
Notes:
1. Each American Depositary Share represents five shares of Ricoh Common
Stock.
2. Long-term indebtedness includes convertible bonds and debentures. (See
Note 10 to the Consolidated Financial Statements.)
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 25, 2004, 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 107.82 = 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
2003 2004 2004 2004 2004 2004
-------- ------- -------- ------ ------ ------
High 106.93 105.52 105.36 104.18 103.70 108.50
Low 109.61 107.17 109.59 112.12 110.37 114.30
Year ended March 31,
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2000 2001 2002 2003 2004
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Year-end 102.73 125.54 132.70 118.07 104.18
Average* 109.96 111.65 125.64 121.10 112.75
High 101.53 104.19 115.89 115.71 104.18
Low 124.45 125.54 134.77 133.40 120.55
*The average Japanese Yen exchange rates represent average noon buying rate on
the last business day of each month during the respective period.
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B. Capitalization and indebtedness.
Not applicable.
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;
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. 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.
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
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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 the majority of PPCs sold 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, computers, printers and scanners) 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 a 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
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manufacturers and distributors of office equipment as well as office superstores
and consumer electronics chains. 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 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:
. unexpected legal or regulatory changes;
. unfavorable political or economical factors;
. less developed infrastructure;
. difficulties in recruiting and retaining personnel, and managing
international operations;
. fluctuations in foreign currency exchange rates;
. lack of sufficient protection for intellectual property rights; and
. potentially adverse tax consequences.
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 are affected by cyclical changes in the economy
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.
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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 profit and loss statement. 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 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
appreciation in the value of Japanese Yen because the high volume of Ricoh's
production and sales activities in the Americas, Europe and Other, such as
China, result 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.
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 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
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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 the 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 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 unforeseeable 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 operation.
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'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.
RICOH'S PERFORMANCE CAN BE AFFECTED BY ALLIANCES WITH OTHER ENTITIES
Ricoh engages in alliances with other entities to create various products
and services for customers' demand. Ricoh believes that an alliance is an
effective method
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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
necessary alliance in the future may adversely affect Ricoh's financial position
and results of operation.
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.
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 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
is likely to record a decrease in revenue, and require large expenditures to
repair or replace the damaged facility, which could 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., leaks and falsifications or disappearance of information relating to our
customers) pose a
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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.
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, printers, optical
drives and discs, personal computers and servers, network related software and
other equipment, including semiconductors, metering instruments, educational
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.
April 1960 The Company starts operations at a paper plant in Numazu,
Shizuoka, which integrates everything from raw to sensitized
paper production (now known as the Numazu plant).
March 1961 The Company establishes a sensitized paper plant in Ikeda,
Osaka (now known as the Osaka plant).
October 1961 The Company lists its securities on the First Sections of the
Tokyo and Osaka Stock Exchanges.
February 1963 The Company establishes Ricoh of America, Inc. (a subsidiary,
now known as Ricoh Corporation).
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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.
March 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.
November 1971 The Company establishes Ricoh Nederland B.V. (a subsidiary, now
known as Ricoh Europe B.V.).
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 Leasing Co., Ltd. (a subsidiary).
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 constructs the Electronic Technologies Development
Center (now known as 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 copier manufacturing facility in
Fukui (now known as the Fukui plant), which takes over some of
the sensitized paper production from the Osaka plant.
October 1983 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 Gotenba,
Shizuoka (now known as the Gotenba plant), which takes over
some of the Atsugi plant's production.
April 1986 The Company opens a research and development facility in
Yokohama, Kanagawa (now known as the Ricoh Research and
Development Center), to which it transfers some of its research
and development 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).
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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.
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.
Our registered office and head office are as follows:
Address Telephone number
--------------------------------------- ----------------
Registered Head 3-6 Naka Magome 1-chome, Ohta-ku, +81-3-3777-8111
office Tokyo 143-8555, Japan
Executive office 15-5, Minami Aoyama 1-chome, Minato-ku, +81-3-3479-3111
Tokyo 107-8544, Japan
Principal Capital Investments
-----------------------------
Ricoh's capital expenditures for the fiscal years 2004, 2003 and 2002 were
Yen 75.5 billion, Yen 73.9 billion and Yen 75.6 billion, respectively. Ricoh
directs a significant portion of its capital expenditures towards digital and
networking equipment, such as digital plain paper copiers ("PPCs"),
multi-functional printers ("MFPs") and laser printers, and manufacturing
facilities to maintain or enhance competitiveness in the industry. In fiscal
year 2004, Ricoh also invested a significant amount of capital to upgrade its
information systems for its back-office operations, such as procurement,
accounting, and the management of intellectual property. With this upgrade in
the information systems,
-11-
Ricoh began installing a new accounting system and a new intellectual property
management system during the fiscal year 2003 to better track and manage its
operations. Ricoh projects that for the fiscal year ending March 31, 2005 its
capital expenditures will amount to approximately Yen 74.5 billion, principally
for the following categories: digital and networking equipment, and new
accounting and intellectual property management systems.
B. Business overview
Ricoh is a leading manufacturer of office automation equipment. Ricoh's
products include copiers, printers, facsimile machines, optical drives and
discs, and related supplies and services. Ricoh is also a prominent manufacturer
of digital and advanced electronic devices. In recent years, Ricoh is rapidly
building a solid presence worldwide as a comprehensive document solutions
provider that helps its customers streamline their businesses and cut operating
costs.
PRODUCTS
--------
SALES BY PRODUCT
--------------------------------------------------------------------------------------------
Millions of Yen (except for percentages)
For the Year Ended March 31,
--------------------------------------------------------------------------------------------
2002 2003 2004
----------------------------------------------------------
OFFICE EQUIPMENT
Imaging Solutions 934,180 55.8% 859,713 49.5% 803,574 45.1%
Network Input/Output Systems 344,247 20.6 463,379 26.7 558,237 31.4
Network System Solutions 206,962 12.4 197,482 11.3 195,822 11.0
OTHER BUSINESSES 186,951 11.2 217,784 12.5 222,612 12.5
--------------------------------------------------------------------------------------------
Total 1,672,340 100.0% 1,738,358 100.0% 1,780,245 100.0%
--------------------------------------------------------------------------------------------
OFFICE EQUIPMENT
----------------
This segment consists of products that are widely used in the office
environment, and is categorized as follows:
(1) Imaging Solutions
The primary function of products in this category is to produce copies or
duplications of images that are already in existence. This product category
consists of stand-alone equipment and related supplies and services. Products in
this category can be distinguished from products in the Network Input/Output
Systems category which can serve multiple functions with networking capabilities
(E.G., MFPs that can serve as printers and scanners).
-12-
This category is further separated into two sub-categories: (i) Digital
Imaging Solutions, which consist of all digital imaging solutions products, and
(ii) Other Imaging Solutions, which consist of other imaging solutions products
that are not included in Digital Imaging Solutions. The principal products in
each of these sub-categories are as follows:
Digital Imaging Solutions: Monochrome and color digital copiers, digital
-------------------------
duplicators and facsimile machines.
Other Imaging Solutions: Analog plain paper copiers ("PPCs"), diazo
-----------------------
copiers, and thermal paper.
In fiscal year 2004, the Imaging Solutions product category accounted for
45.1% of Ricoh's net sales. Ricoh has been a global leader in PPCs and a pioneer
in the development of digital machines. Ricoh manufactures a wide range of PPCs
and digital copiers with a variety of copying speeds and functions such as
double-sided printing, sorting, reducing and enlarging, and zoom adjustment of
copy sizes. PPCs 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 form toner.
In recent years, Ricoh has strengthened its digital PPC product lineup with
new product offerings that range from standard digital PPC models to high-end
digital PPC models. More specifically, the imagio Neo 752 series is a high-speed
model designed for customers who require outputs of 75 copies per minute. This
series is equipped with "HYBRID QSU" technology that Ricoh developed originally
in the application of the next generation electric storage device "Capacitor",
and realized the most efficient energy saving in this class. On the other hand,
the Aficio 2105 (imagio Neo 1050 pro in Japan) is designed for customers who
have high-volume copying needs. The Aficio 2105 delivers up to 105 copies per
minute and has a durability of 1.5 times more than its predecessor for an even
better resolution. As such, the Aficio 2105 is performing well in the overseas
markets.
Ricoh also supplies a comprehensive line of wide-format copiers and
duplicators. These machines have also sold well for their digital capabilities.
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
facsimile machines continues to mature, with demand shifting to small and home
offices seeking low-cost models. Corporate users tend to prefer multifunctional,
networkable machines and printers. In addition, corporate users also are moving
towards electronic forms of transmitting images using portable document formats
that were not widely used or available in the past.
-13-
(2) Network Input/Output Systems
The primary function of products in this category is to print or produce
images using a network. This category includes products such as MFPs, laser
printers and optical disks. This category is further separated into two
sub-categories: (i) Printing Systems, which consist of all printer and related
products and (ii) Other Input/Output Systems, which consist of other products
that are not included in Printing Systems. The principal products in each of
these sub-categories are as follows:
Printing Systems: MFPs, laser printers, and related software.
----------------
Other Input/Output Systems: Optical discs and systems, and scanners.
--------------------------
In fiscal year 2004, the Network Input/Output Systems product category
accounted for 31.4% of Ricoh's net sales. Ricoh continues to strengthen its
capabilities in color laser printers and mid- and high-volume or high-speed
printers that can be connected to a network to meet its customer needs in the
office environment. In fiscal 2004, Ricoh had the strong sales growth in these
printer categories as it greatly broadened its product lineup in this category,
reinforced its sales structure and expanded its marketing activities. In terms
of MFPs, imagio Neo 352/452 and imagio Neo C385/C325, which were well received
in Japan, are equipped with enhanced communications functions such as "Scan to
e-mail" (the function which enables users to send scanned images directly to
users without a mail server), "W-net fax function" (the function which enables
users to fax through the internet and decrease communication costs), and the
same is true for Aficio 2035/2045 and Aficio 1224C/1232C in overseas markets.
Sales of laser printers are also on increasing, with the IPSiO NX85S and IPSiO
CX7200 performing favorably in the domestic market, and the AP400/400N and
Aficio CL3000 moving well overseas. These MFPs and laser printers are designed
to provide information technology support for all types of office environment by
delivering enhanced basic features (i.e., reduction, enlargements, etc.),
simpler operation, reduced paper consumption through electronic storage, and
better connectivity with document distribution and storage systems.
As the office environment becomes more computer-networked to maximize
efficiency, demand for digital black-and-white copiers and digital color copiers
has been rapidly increasing. Ricoh offers a full line of PC-connective models
that draw on our expertise in digital and color technologies to respond to
customer demand, which also continues to shift towards increased printing speed,
networking capabilities, decrease in the total costs of ownership, and
enhancements to raise office productivity. Overseas, Ricoh has rapidly forged a
solid position in digital copier sales by releasing many new models under the
Aficio brand.
In addition, Ricoh has placed significant focus on CD and DVD-related
technologies for storing multimedia data in recent years. Ricoh helped establish
the global standard for CD-RW drives and discs and is a major player in both of
these areas worldwide. For the fiscal year 2004, Ricoh produced the MP5308D
drive, which can
-14-
handle DVD-ROM, DVD-R, DVD-RW, DVD+R and DVD+RW. Ricoh also produced 8 times
speed DVD+R media which is the fastest DVD recordable media.
(3) Network System Solutions
The primary function of products in this category is to assist in
establishing a network environment. The principal products in this category
include personal computers and servers, network systems, application software,
and related services and support.
For fiscal year 2004, this product category accounted for 11.0% of Ricoh's
net sales. Although Ricoh has enjoyed steady growth in its document solutions
software and support services, which allow customers to seamlessly manage
electronic and paper-based information, in recent years Ricoh sales in personal
computers and servers have decreased due to constrained corporate spending on
information technology in Japan as a result of the uncertain economy condition.
OTHER BUSINESSES
----------------
This segment, which accounted for 12.5% of Ricoh's net sales in fiscal year
2004, includes electronic semiconductor devices, optical equipment, such as
digital cameras, and measuring equipment. In addition, Ricoh includes its
financing and logistics services in this segment.
Ricoh is one of the pioneers of commercializing digital cameras, which have
tremendous potential as "image capturing devices." Because of its potential as
an input tool, Ricoh expects that sales in digital cameras will continuously
grow. In addition, Ricoh offers a wide range of electronic devices used to
process images, such as mobile and cellular phones. Ricoh also makes application
specific integrated circuits (ASICs) and application specific standard products
(ASSPs) that are often used in digital copiers, printers, personal computers and
mobile phones.
SALES AND DISTRIBUTION
----------------------
Ricoh's distribution to end-user customers in Japan is conducted through
three distribution channels: (1) direct sales by Ricoh to the end-user customer
through approximately 50 subsidiaries and affiliates; (2) sales through
independent office machine dealers; and (3) sales through independent stationery
wholesalers, which in turn sell Ricoh's copiers to stationery retailers. Ricoh
estimates that over one-half of its unit sales of copiers in Japan are through
direct sales to the end-user customer, with the balance being divided between
sales through independent office machine dealers and independent stationery
wholesalers. These sales channels are coordinated by Ricoh's five regional
headquarters located in Tohoku, Chubu, Kansai, Chugoku and Kyushu areas and the
Company's three regional branch offices.
Ricoh's overseas marketing activities can be distinguished from the
marketing channels in Japan and can be classified into two classes: (1) sales of
Ricoh brand name products by overseas sales subsidiaries, affiliates and
independent dealers, and (2) sales
-15-
of products under brand names which Ricoh purchased by acquisition (e.g.,
"Savin" brand, "Gestetner" brand, "Lanier" brand). The successful acquisition of
several office equipment sales companies in the 1990's in various locations
around the world has enhanced Ricoh's own marketing channel in the overseas
market. Ricoh has organized sales and distribution channels to accommodate 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 equipment delivery and installation
to the end-user customers. A certain portion of Ricoh's sales through dealers
are made on a trade-in basis, which are accounted for by Ricoh as discounted
sales. Equipment sales revenue generated under sales-type leases accounts for
approximately 15% of Ricoh's total sales revenues. Important information
regarding the methods in which Ricoh recognizes revenue is also set forth in
Item 5. Critical Accounting Policies and Note 2 to the Consolidated Financial
Statements which are a part of this annual report.
AFTER-SALES SERVICE
-------------------
Ricoh offers maintenance and repair services for all of its products. Ricoh
believes that periodic and timely maintenance services are important for Ricoh
to keep its market shares. As such, Ricoh provides repair and maintenance
services to its end-user customers for its products. These maintenance services
are furnished to its customers pursuant to maintenance service contracts
normally entered into at the time the equipment is sold.
In Japan, employees of Ricoh basically provide the repair and maintenance
services. 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 the Customer Support
System to enhance customer satisfaction and service efficiency. This system
allows Ricoh to remotely monitor copiers in the field and provide immediate
service. Ricoh's total number of sales and service personnel in Japan is
approximately 23,000. Similar to Japan, Ricoh employees and contracted
maintenance providers provide repair and maintenance services to end-user
customers who own Ricoh products in the overseas market. Overseas, Ricoh
provides services through its own service network and service outlets. Ricoh's
total number of sales and service personnel overseas is approximately 21,000.
Additional information regarding how Ricoh accounts for 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 2004. As noted below, for the fiscal year
2004, sales in Japan, the Americas, Europe and Other as a percentage of total
sales was 51.3%, 18.3%, 22.6% and
-16-
7.8%, respectively. The below table breaks down for each geographic area the
total sales amount and 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,
--------------------------------------------------------------------------------
2002 2003 2004
----------------------------------------------------------
JAPAN 902,655 54.0% 896,022 51.5% 914,060 51.3%
THE AMERICAS 341,747 20.4 343,940 19.8 326,380 18.3
EUROPE 311,312 18.6 354,477 20.4 402,392 22.6
OTHER 116,626 7.0 143,919 8.3 137,413 7.8
------------------------------------------------------------------------------
Total 1,672,340 100.0% 1,738,358 100.0% 1,780,245 100.0%
------------------------------------------------------------------------------
Note: 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.
(1) Japan
As the outlook for the Japanese economy remains unstable, many companies
have limited their information technology spending. In order to succeed in such
a severe environment, Ricoh strategically replaced its analog stand-alone
equipment with digital networkable equipment, and its monochrome products with
color products. Another strategy used by Ricoh was to help customers manage the
total document volume more effectively and offer business solutions with more
functional equipment and networking systems so as to increase efficiency in the
office. As a result of these strategies, the sale of certain products, such as
MFPs, color PPCs and color laser printers, increased despite the difficult
economic conditions.
(2) The Americas
In fiscal year 2004, Ricoh further broadened and reinforced its sales
network, especially in North America, against a background of a slowing U.S.
economy and severe competition. The Company stepped up its sales efforts for new
printing systems to match customer demand to replace analog equipment with
networked digital products, color copiers and printers. The Company also strove
to expand sales to major corporate accounts. Further, Ricoh continues to
strengthen its marketing efforts to major corporate clients in this geographic
segment by taking advantage of Ricoh's worldwide production and distribution
network, and high-quality products. As a result of the above effort of Ricoh,
net sales in the local currency increased by 2.1%. However, net sales
denominated in the Japanese Yen decreased by 5.1% due to the appreciation of the
Japanese Yen to the U.S. Dollar.
-17-
(3) Europe
With economic conditions in Europe remaining relatively stable, sales of
digital PPCs and printing systems increased as Ricoh continued in its efforts to
introduce new products in such product lines. Ricoh also strengthened its sales
network by continuously reinforcing its office equipment product offerings so
that customers may fulfill their office equipment needs through Ricoh. Further,
Ricoh maximized its business opportunity by increasing sales in networked
digital PPCs and color models, especially color MFPs, since these products are
able to satisfy many customer needs and bring about profit to Ricoh. All of
these efforts helped Ricoh maintain its top share position in the European
market for copiers and MFPs for fiscal year 2004. Ricoh intends to solidify this
position with reinforcement to the above strategies.
(4) Other
In China and other Asian or Oceania markets, a continuing shift during
fiscal year 2004 in business equipment from analog models to digital networked
and color models led to increased sales of printing systems, while demand for
optical discs business decreased. Because the Chinese market is expected to
continue its expansion, Ricoh has placed significant importance on the Chinese
market not only as a production site but also as a potential market to expand
its sales share in the future. In line with this strategy, Ricoh established a
new regional headquarters office in Shanghai to support and reinforce its
operations in the promising Chinese market in the previous year. Ricoh
integrated its production, sales, and services during fiscal year 2004 while
focusing even more on customer needs in China to strengthen its revenues and
earnings in this geographic segment.
COMPETITION
-----------
Ricoh competes primarily in the office equipment industry which is highly
competitive. In each of the product categories in the office equipment segment,
Ricoh encounters intense competition. Ricoh expects competition in each of these
product categories to increase in the future as existing competitors enhance and
expand their product and service offerings. Increased competition may result in
price reductions, reduced profitability and loss of market share. Ricoh cannot
provide assurances that it will be able to compete successfully against existing
or future competitors. Some of our customers and companies with which we have
strategic business relationships with also are, or may become in the future,
competitors of ours.
The size and number of our competitors vary across our product categories,
as do the resources allocated by our competitors to the markets we target. Our
competitors may have greater financial, personnel, and other resources than we
have in a particular market or overall. Competitors with greater financial
resources may be able to offer lower prices, additional products or services or
other incentives that we cannot match or offer. These competitors may be in a
stronger position to respond quickly to new technologies and may be able to
undertake more extensive marketing campaigns. They may also adopt more
aggressive pricing policies and make more attractive offers to potential
customers,
-18-
employees, and strategic partners. These competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties to increase their ability to gain market share.
Despite the intense competition in the office equipment industry, Ricoh's
management believes that we will be able to maintain and enhance our position in
the world market because of our experience, expertise and technical capabilities
as a leading provider of office equipment, and our dedication to meet our
customers' needs.
SEASONALITY
-----------
Especially in Japan, sales for the office equipment segment generally
increase in March of each year due to the increase demand arising at the end of
the fiscal year for most Japanese companies as many Japanese companies and
government entities try to expend their allotted capital expenditure budget for
the fiscal year. Approximately 13% of Ricoh's domestic sales in Japan are
generated during the month of March each year due to this seasonality. However,
the effect of this seasonality on a consolidated basis is minimal, as
approximately 5% of Ricoh's total consolidated sales are generated during the
month of March from domestic sales in Japan.
SOURCES OF SUPPLY
-----------------
Ricoh procures raw materials, parts, and components to be used in the
production of its products on a global basis. Generally, Ricoh maintains
multiple suppliers for the most significant categories of raw materials, parts
and components. In light of the fact that Japan produces very few of the raw
materials Ricoh uses in its manufacturing process, 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 raw materials,
parts and components and believes that it will be able to continue to obtain
comparable raw materials, parts and components in sufficient quantities to meet
its manufacturing needs in the future. Ricoh also believes that there is little
risk of price volatility with respect to obtaining raw materials, parts and
components that it uses in manufacturing its products.
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
agreement.
-19-
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 governmental 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 in those in
which it has manufacturing, research, or similar operations. Currently, Ricoh
operates its business without having significant difficulty complying with such
government regulations, and it hopes to do so in the future.
C. Organizational structure
As of March 31, 2004, the Ricoh Group is comprised of 360 subsidiaries and
21 affiliates located worldwide. Ricoh's research and development,
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
research and development 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:
------------------------------------------------------------------------------------------------------------------
Proportion
Country of of ownership
Company Name Formation interest Main businesses
------------------------------------------------------------------------------------------------------------------
(SUBSIDIARIES)
------------------------------------------------------------------------------------------------------------------
Ricoh Optical Industries Co., Ltd. Japan 100.0 Manufacturing optical 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 55.8 Manufacturing and sales of office equipment and
(55.7) minuteness equipment
------------------------------------------------------------------------------------------------------------------
Ricoh Microelectronics Co., Ltd. Japan 100.0 Manufacturing parts for office equipment
------------------------------------------------------------------------------------------------------------------
Ricoh Keiki Co., Ltd. Japan 100.0 Manufacturing parts for office equipment
-20-
------------------------------------------------------------------------------------------------------------------
Proportion
Country of of ownership
Company Name Formation interest Main businesses
------------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------
Tokyo Ricoh Co., Ltd. Japan 100.0 Sale of office equipment
------------------------------------------------------------------------------------------------------------------
Ricoh Technosystems Co., Ltd. Japan 100.0 Maintenance, service and sale of office
equipment
------------------------------------------------------------------------------------------------------------------
Ricoh Logistics System Co., Ltd. Japan 85.8 Logistics services and custom clearances
(87.6)
------------------------------------------------------------------------------------------------------------------
Ricoh Leasing Co., Ltd. Japan 51.0 General leasing
(51.1)
------------------------------------------------------------------------------------------------------------------
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 S.A.S. France 100.0 Manufacturing office equipment and related
supplies
------------------------------------------------------------------------------------------------------------------
Ricoh Asia Industry (Shenzhen) Ltd. China 91.0 Manufacturing office equipment and related
(100.0) supplies
------------------------------------------------------------------------------------------------------------------
Shanghai Ricoh Facsimile Co., Ltd. China 94.5 Manufacturing and sale of 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
------------------------------------------------------------------------------------------------------------------
Ricoh Asia Industry Ltd. Hong Kong, 90.0 Sale of office equipment
China
------------------------------------------------------------------------------------------------------------------
Ricoh Asia Pacific Pte, Ltd. Singapore 100.0 Sale of office equipment
------------------------------------------------------------------------------------------------------------------
Ricoh Finance Nederland B.V. Netherlands 100.0 Corporate finance
------------------------------------------------------------------------------------------------------------------
And 332other subsidiaries
------------------------------------------------------------------------------------------------------------------
(AFFILIATES)
------------------------------------------------------------------------------------------------------------------
Coca-Cola West Japan Co., Ltd. Japan 21.8 Manufacturing and sale of soft drink
(22.1)
------------------------------------------------------------------------------------------------------------------
Sindo Ricoh Co., Ltd. Korea 20.0 Manufacturing and sale of office equipment
------------------------------------------------------------------------------------------------------------------
And 19 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.
-21-
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, plants 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 by 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, 2004 regarding the Company's and its subsidiaries' principal
production and other facilities. With the exception of GR Advanced Materials
Ltd., the below production and other facilities have floor space exceeding
10,000 square meters.
-----------------------------------------------------------------------------------------------------------------------
Principal activities and products
Name (Location) Floor space manufactured
------------------------------------------------ ----------------- ------------------------------------------------
(in thousands
of square meters)
Japan:
Ricoh Company, Ltd.
Ohmori Plant (Tokyo) 44 Parts relating to copiers
Atsugi Plant (Kanagawa) 68 Office equipment and other products
Numazu Plant (Shizuoka) 76 Paper and toner
Ikeda Plant (Osaka) 17 Electronic devices
Hatano Plant (Kanagawa) 15 Printed circuit boards and electronic components
Fukui Plant (Fukui) 34 Papers and toner
Gotenba Plant (Shizuoka) 70 Copiers and data processing systems
Yashiro Plant (Hyogo) 31 Electronic devices
Aoyama Head Office (Tokyo) 9 Marketing of office equipment and head office
Research & Development Center 17 Research and development ("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 (Kanagawa) 40 Marketing of office equipment and other
business, related services and R&D
Subsidiaries:
Ricoh Optical Industries Co., Ltd. (Iwate) 18 Photographic equipment
-22-
-----------------------------------------------------------------------------------------------------------------------
Principal activities and products
Name (Location) Floor space manufactured
------------------------------------------------ ----------------- ------------------------------------------------
(in thousands
of square meters)
Tohoku Ricoh Co., Ltd. (Miyagi) 55 Office equipment and parts relating to copiers
Hasama Ricoh , Inc. (Miyagi) 14 Parts relating to copiers and data processing
equipment
Ricoh Unitechno Co., Ltd. (Saitama) 18 Facsimile and copiers
Ricoh Elemex Corporation. (Aichi) 47 Office equipment and measuring instruments
Ricoh Microelectronics Co., Ltd. (Tottori) 11 Printed circuit boards
Ricoh Keiki Co., Ltd. (Saga) 10 Parts relating to copiers and data processing
systems
Overseas:
Ricoh Electronics, Inc. 119 Copiers, parts relating to copiers, toner and
(Irvine, Santa Ana and Tustin, California and thermal paper
Lawrenceville, Georgia, U.S.A.)
Ricoh UK Products Ltd. 41 Copiers, parts relating to copiers and toner
(Telford, United Kingdom)
Ricoh Industries France S.A.S. (Colmar, 42 Copiers, facsimile equipment, parts relating to
France) copiers and thermal paper
Ricoh Asia Industry (Shenzhen) Ltd. 42 Copiers, parts relating to copiers, and toner
(Shenzhen, China)
Shanghai Ricoh Facsimile Co., Ltd. 17 Facsimile
(Shanghai, China)
GR Advanced Materials Ltd. 4 Supplies relating to duplicators
(Scotland, United Kingdom)
-----------------------------------------------------------------------------------------------------------------------
Ricoh considers its manufacturing facilities to be well maintained and
believes its plant capacity is adequate for its current needs, though successive
investment in manufacturing facilities is being made for its long-term success.
-23-
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, advanced
electronic devices and measuring equipment. 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-purchase
services to assist customers in fully utilizing the Ricoh product 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.
Ricoh's operating segments consist of Office Equipment, which includes
Imaging Solutions, Network Input/Output Systems and Network System Solutions,
and Other Businesses, which include optical equipment, such as digital cameras,
electronic semiconductor devices and measuring equipment, as well as financing
and logistics services. Ricoh distributes its products and competes in the
following four geographic areas: Japan, the Americas, Europe and Other, which
includes China, 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. Although the economies of Japan and the
United States began to exhibit some upswing momentum in the second half of
fiscal year 2004, prospects for the business climate in which Ricoh operates
remain unpredictable as a result of the continuing appreciation of the Japanese
Yen against the U.S. Dollar, and also due to repercussions of the Iraq war,
turmoil in the Middle East and other factors adversely affecting international
stability. Management believes that it will still take some time for the
Japanese economy to make a full recovery, due to such factors as the continued
high rate of unemployment and the unlikelihood of an increase in income on an
individual basis. In addition, the level of competition in our operating
environment has increased significantly. The two most significant trends in the
office equipment market are the shift in customers' demand toward color products
from monochrome products and the movement toward digital networking systems from
standalone devices. As these trends have accelerated, the level of competition
has increased significantly in the market for color products and digital
networking systems.
Historically, Ricoh's revenues have come mainly from the manufacturing and
retail of equipment (such as copiers and printers), while the key factor to
achieving revenue growth in the current environment is the expansion of products
and services for increased digitization, coloring and volume. 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
-24-
Total Document Volume") and the amount of revenue per copy or printed page. To
attain this goal, Ricoh's strategies 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. In fiscal year 2004, net sales of MFPs overall increased by 29.4% as
compared to fiscal year 2003. A 76.9% increase in net sales of MFPs with color
capabilities in fiscal year 2004 as compared to fiscal year 2003 especially
contributed to the 29.4% increase in net sales of overall MFPs as compared to
fiscal year 2003. In contrast, sales of other imaging systems products (e.g.,
analog PPCs) for fiscal year 2004 decreased by 15.2% compared to fiscal year
2003.
In this challenging environment, Ricoh strives to remain competitive and
achieve sustained growth by placing a high priority on creating new customer
values and managing its operations in a highly efficient manner. To this end,
Ricoh continues to reinforce its technological strengths by making capital
investments and investments in research and development to generate new values
for its customers with Ricoh's products and services. At the same time, Ricoh is
achieving steady progress in increased operating efficiency through cost-cutting
measures across its business units, including the reduction of product costs and
the streamlining of its business structure, as well as supply chain management.
Ricoh is also pursuing increased efficiency in the use of financial resources.
In fiscal year 2004, Ricoh reduced interest-bearing debt by Yen 51.8 billion,
while increasing cash and cash equivalents at fiscal year-end 2004 by Yen 13.7
billion from the prior fiscal year-end to Yen 203.0 billion.
Ricoh's consolidated net sales increased by 2.4% to Yen 1,780.2 billion for
the fiscal year ended March 31, 2004, from Yen 1,738.3 billion for the fiscal
year ended March 31, 2003, due primarily to the increase in net sales of
higher-margin value-added digital-based Network Input/Output products, which was
offset in part by a decline in sales of Imaging Solutions products, as well as
to the positive effect in fiscal 2004 of the appreciation of the Euro relative
to the Japanese Yen, which was partially offset by the depreciation of the U.S.
Dollar relative to the Japanese Yen. Ricoh's operating income increased 12.2%,
while operating income as a percentage of net sales increased from 7.7% to 8.4%,
reflecting primarily Ricoh's ability to keep the rate of increase in selling,
general and administrative expenses lower than the rate of increase in gross
profit, as well as a one-time net gain of Yen 8.3 billion which was recognized
in connection with the transfer of the substitutional portion of the Company and
certain subsidiaries' employee pension fund liabilities to the Japanese
government during fiscal year 2004. Excluding the effect of such transfer,
Ricoh's operating income would have increased by 6.0%, while operating income as
a percentage of net sales would have increased by 0.3 percentage point during
fiscal year 2004.
CRITICAL ACCOUNTING POLICIES
The preparation of the consolidated financial statements of Ricoh in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of
-25-
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. By their nature, these estimates and
assumptions are subject to an inherent degree of uncertainty, and are based on
Ricoh's historical experience, terms of existing contracts, Ricoh's observance
of trends in the industry, information provided by its customers and information
available from other outside sources, as appropriate. For a summary of the
significant accounting policies, including the critical accounting policies
discussed below, please 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 and trade-in allowances. 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) 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
-26-
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 their current 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
------------------
Ricoh believes that pension accounting is critical for its financial
statements because assumptions used to estimate pension benefit obligations and
pension expenses can have a significant effect on its operating results and
financial condition.
The determination of Ricoh's benefit obligation, net periodic expense and,
in fiscal year 2004 the gain on the transfer of the substitutional portion with
respect to our pension liability is dependent upon our selection of certain
assumptions used by actuaries and management in calculating such amounts. Those
assumptions are described in Note 11 to the Consolidated Financial Statements
and include, among others, the discount rate, expected long-term rate of return
on plan assets and rates of increase in compensation. In accordance with
accounting principles generally accepted in the United States of America, actual
results that differ from Ricoh's assumptions are accumulated and amortized over
future periods and therefore, generally affect Ricoh's recognized expense and
recorded obligation in such future periods. While Ricoh believes that its
assumptions are appropriate, significant differences in its actual experience or
significant changes in its assumptions may materially affect Ricoh's pension
obligation and future expense.
In preparing its financial statements for fiscal year 2004, Ricoh estimated
a discount rate of 2.9% and an expected long-term rate of return of 2.5% on plan
assets. In estimating the discount rate, Ricoh determined which of its long-term
risk free debt securities have the same maturity period as the remaining service
period, and matched this period with the remaining life expectancy of Ricoh's
pension plan participants. In addition, Ricoh also took into account estimates
with respect to future changes that are expected by management in the interest
rates on its debt securities when determining the discount rate. Ricoh
established the expected long-term rate of return on plan assets based on
management's expectations in respect of the long-term returns of various plan
asset categories in which it invests. Management developed expectations with
respect to
-27-
each plan asset category based on actual historical returns and its current
expectations for future returns.
Pursuant to the Contributed Benefit Pension Plan Law, Ricoh received from
the Minister of Health, Labor and Welfare, effective January 1, 2003, an
exemption from its obligation to contribute to the substitutional portion of its
Employee Pension Fund ("EPF") for future employee services. In January 2004,
Ricoh received from the Japanese government an exemption from its obligation to
contribute to the substitutional portion of its EPF relating to past employee
services. The transfer to the Japanese government of the substitutional portion
of the EPF was completed on March 16, 2004. With respect to the accounting
treatment of this transfer under accounting principles generally accepted in the
United States of America, Ricoh accounted for the transfer in accordance with
Emerging Issues Task Force Issue No. 03-02 "Accounting for the Transfer to the
Japanese Government of the Substitutional Portion of Employee Pension Fund
Liabilities" ("EITF 03-02").
In returning the substitutional portion of its employee pension fund
liabilities, management exercised judgment and developed estimates, such as the
discount rate and expected long-term rate of return, which judgment and
estimates could materially affect Ricoh's results of operations and financial
conditions.
Impairment of Long-Lived Assets and Goodwill
--------------------------------------------
Ricoh believes that impairment of long-lived assets and goodwill is
critical for its financial statements because Ricoh has significant amounts of
property, goodwill, and other intangible assets, the recoverability of which or
lack thereof, could significantly affect its results of operations.
Ricoh periodically reviews the carrying value of its long-lived assets and
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. While Ricoh believes that its
estimates of future cashflows are reasonable, different assumptions regarding
such cashflows could materially affect Ricoh's evaluations.
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
considered as held for sale are reported at the lower of their carrying amount
or fair value less costs to sell.
-28-
Impairment of Securities
------------------------
Individual securities classified as available-for-sale securities are
marked down to their then fair value to reflect any declines in market values
determined to be other than temporary. These impairment losses are charged
against earnings at the time that a decline has been determined to be other than
temporary based primarily on the financial condition of the issuer and the
extent and length of time of the decline. Investments whose market values have
declined below cost and where such decline extend for nine months or more are
automatically marked-down to their then fair values.
Realizability of Deferred Tax Assets
------------------------------------
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.
-29-
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:
Millions of Yen (except percentages) Thousands in
Year Ended March 31, U.S. Dollars % Change
2002 2003 2004 2004 2003 2004
-------------------------------------------------------------------------------------------------------------------------------
Net Sales 1,672,340 100.0% 1,738,358 100.0% 1,780,245 100.0% $17,117,740 3.9 2.4
Cost of Sales 972,394 58.1% 993,009 57.1% 1,014,619 57.0% 9,755,952 2.1 2.2
-------------------------------------------------------------------------------------------------------------------------------
Gross Profit 699,946 41.9% 745,349 42.9% 765,626 43.0% 7,361,788 6.5 2.7
Selling, General and
Administrative Expenses 570,251 34.1% 611,695 35.2% 623,935 35.0% 5,999,375 7.3 2.0
Transfer of the substitutional
portion of the Employee's
Pension Fund:
Settlement loss -- -- 48,657 467,856
Subsidy from government -- -- (56,972) (547,808)
-------------------------------------------------------------------------------------------------------------------------------
Operating income 129,695 7.8% 133,654 7.7% 150,006 8.4% 1,442,365 3.1 12.2
-------------------------------------------------------------------------------------------------------------------------------
Other (Income) Expenses:
Interest and dividend income (4,753) (3,772) (1,925) (18,510)
Interest expense 8,233 6,853 5,290 50,865
Foreign currency exchange
(gain) loss, net 5,732 566 6,136 59,000
Other, net 6,533 6,537 (2,558) (24,596)
-------------------------------------------------------------------------------------------------------------------------------
Total 15,745 1.0% 10,184 0.6% 6,943 0.4% 66,759 (35.3) (31.8)
-------------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes,
Minority Interests and Equity
in earnings of Affiliates and
Cumulative Effect of
Accounting Change 113,950 6.8% 123,470 7.1% 143,063 8.0% 1,375,606 8.4 15.9
-------------------------------------------------------------------------------------------------------------------------------
Provisions for Income Taxes: 51,147 3.0% 51,984 3.0% 56,641 3.2% 544,625 1.6 9.0
-------------------------------------------------------------------------------------------------------------------------------
Income before Minority Interests
and Equity in Earnings of
Affiliates and Cumulative
Effect of Accounting Change 62,803 71,486 86,422 830,981
Minority Interests 3,080 1,376 4,094 39,365
Equity in Earnings of Affiliates 1,891 2,403 2,065 19,855
-------------------------------------------------------------------------------------------------------------------------------
Income Before Cumulative Effect
of Accounting Change 61,614 3.7% 72,513 4.2% 84,393 4.7% 811,471 17.7 16.4
-------------------------------------------------------------------------------------------------------------------------------
Cumulative Effect of Accounting
Change, Net of tax -- -- 7,373 0.5% 70,894 -- --
-------------------------------------------------------------------------------------------------------------------------------
Net Income 61,614 3.7% 72,513 4.2% 91,766 5.2% 882,365 17.7 26.6
-------------------------------------------------------------------------------------------------------------------------------
Reference:
Exchange Rates*
US$ 1 Yen 125.10 Yen 121.96 Yen 113.09 Yen(3.14) Yen(8.87)
EURO 1 Yen 110.60 Yen 121.00 Yen 132.65 Yen10.40 Yen11.65
*These rates are the annual average exchange rate of the daily average TTM rates
published by The Bank of Tokyo Mitsubishi, Ltd. These rates are used when
consolidating the financial results of Ricoh's overseas subsidiaries with those
of the Company.
--------------------------------------------------------------------------------
-30-
SALES BY PRODUCT
--------------------------------------------------------------------------------
Millions of Yen (except percentages) % Change
------------------------------------------------------------------------------------------ Thousands in -----------
2002 2003 2004 U.S. Dollars 2003 2004
-----------------------------------------------------------------------------------------------------------------------
OFFICE EQUIPMENT
Imaging Solutions 934,180 55.8% 859,713 49.5% 803,574 45.1% $ 7,726,673 (8.0) (6.5)
Network Input/Output
Systems 344,247 20.6 463,379 26.7 558,237 31.4 5,367,663 34.6 20.5
Network System Solutions 206,962 12.4 197,482 11.3 195,822 11.0 1,882,904 (4.6) (0.8)
OTHER BUSINESSES 186,951 11.2 217,784 12.5 222,612 12.5 2,140,500 16.5 2.2
-----------------------------------------------------------------------------------------------------------------------
Total 1,672,340 100.0% 1,738,358 100.0% 1,780,245 100.0% $17,117,740 3.9 2.4
-----------------------------------------------------------------------------------------------------------------------
FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003
NET SALES. Consolidated net sales of Ricoh for the fiscal year ended March
31, 2004 increased by 2.4% (or Yen 41.8 billion) to Yen 1,780.2 billion from Yen
1,738.3 billion for the fiscal year ended March 31, 2003. This was the 10th
consecutive year in which Ricoh recorded revenue growth. The increase in net
sales was primarily due to an increase in net sales in the Office Equipment
segment and favorable foreign currency rates.
The increase in net sales in the Office Equipment segment resulted from an
increase in net sales in the Network Input/Output Systems category which was
partially offset by a decrease in net sales in the Imaging Solutions category.
As a percentage of net sales, sales in the Network Input/Output Systems category
accounted for 31.4% of consolidated net sales, up 4.7 percentage points from the
previous fiscal year. As many of Ricoh's customers are medium to large
institutions that have increasing needs for improving operations by expanding
their digital color networking capacity, printing systems in the Network
Input/Output System product category which have networking and color
capabilities, were in high demand during fiscal year 2004. In the fiscal year
ended March 31, 2004, net sales of MFPs overall increased by 29.4% as compared
to the fiscal year ended March 31, 2003. A 76.9% increase in net sales of MFPs
with color capabilities in fiscal year 2004 as compared to fiscal year 2003
especially contributed to the 29.4% increase in net sales of overall MFPs as
compared to fiscal year 2003.
As a percentage of net sales, sales from the Imaging Solutions category
accounted for 45.1% of consolidated net sales, down 4.4 percentage points from
the previous fiscal year. While the decrease in net sales in the Imaging
Solutions category reflected the shift in customer demand towards products that
have networking capabilities, digital PPC products performed well in the
overseas markets and sales of color PPC products continued to increase in Japan
and the overseas market. Sales of the other products (e.g.,
-31-
analog PPC) in the Imaging Solutions category decreased by 15.2% in the fiscal
year ended March 31, 2004 compared to the fiscal year ended March 31, 2003,
reflecting the recent trend away from analog-type equipment in favor of products
with networking capabilities, such as MFPs and laser printers.
With respect to the Other Input/Output systems, net sales in this category
decreased 10.1%, due primarily to decreased demand of optical disc, especially
in China, Asia and Oceania.
Overall, an increase in net sales of higher-margin, value-added
digital-based office equipment in the Network Input/Output System product
category more than offset a decrease in net sales of some products in the
Imaging Solutions product category (e.g., analog PPCs and facsimile machines).
As a result, net sales in the Office Equipment segment accounted for
a 1.8% increase in net sales before giving effect to foreign currency
fluctuations.
The appreciation of the Euro in relation to the Japanese Yen also
contributed to the increase in net sales for the fiscal year ended March 31,
2004, more than offsetting the decrease in U.S. Dollar-denominated net sales
when converted to Japanese Yen resulting from the depreciation of the U.S.
Dollar in relation to the Japanese Yen.
In the Other Business segment, where sales increased 2.2% as compared to
the fiscal year ended March 31, 2003, optical equipment, leasing and other
business performed favorably. On the other hand, sales of measuring equipment
decreased due to sluggish market demand.
COST OF SALES. Consolidated cost of sales for the fiscal year ended March
31, 2004 increased by 2.2% (or Yen 21.6 billion) to Yen 1,014.6 billion from Yen
993.0 billion for the fiscal year ended March 31, 2003. This increase was due
primarily to the increase in net sales and to the appreciation of the Euro
against the Japanese Yen that resulted in higher Japanese Yen equivalents of
Euro-denominated cost of sales. As a percentage of net sales, however, cost of
sales decreased slightly due to the elimination of costs associated with
correcting the quality of Ricoh's measuring equipment, depreciation of the U.S.
Dollar against the Japanese Yen, and various cost-cutting measures taken by
Ricoh.
The most significant factor contributing to the reduction in cost of sales
as a percentage of net sales was Ricoh's resolution of quality problems relating
to its measuring equipment expense during the fiscal year ended March 31, 2003.
The elimination of this cost accounted for approximately Yen 8.0 billion of the
cost of sales in fiscal year ended March 31, 2003. Ricoh did not incur any
additional costs relating to this problem during the fiscal year ended March 31,
2004.
The various cost-cutting measures undertaken by Ricoh during the fiscal
year ended March 31, 2004 included the following: shortening the length of time
in which products are designed by standardizing various product parts thereby
allowing for the elimination of the cost of separately designing each product
part when designing new products; increased utilization of standardized product
components thereby increasing production efficiency; shifting production towards
generic products that can be sold in various countries; making efforts to manage
its supply chain by establishing a production process in which products are
assembled once an order is placed at a local factory, thereby reducing the costs
of inventory and distribution; procuring materials from suppliers at lower
costs; and providing employee training programs and opportunities to its
-32-
employees so that they obtain more experience and become more productive,
thereby allowing Ricoh to minimize production line inefficiencies.
GROSS PROFIT. Consolidated gross profit for the fiscal year ended March 31,
2004 increased by 2.7% to Yen 765.6 billion from Yen 745.3 billion for the
fiscal year 2003. Gross margin increased by 0.1 percentage point from 42.9% of
net sales for the fiscal year ended March 31, 2003 to 43.0% of net sales for the
fiscal year ended March 31, 2004. Ricoh's gross margin increased as a result of
the shift to higher-margin products and the cost-cutting efforts described
above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses for the fiscal year ended March 31, 2004 increased
by 2.0% (or Yen 12.2 billion) to Yen 623.9 billion from Yen 611.6 billion for
the fiscal year ended March 31, 2003. This increase was primarily due to the
following: (1) the appreciation of the Euro against the Japanese Yen that
resulted in higher Japanese Yen equivalents of Euro-denominated expenses, which
was partially offset by the depreciation of the U.S. Dollar against the Japanese
Yen, (2) an increase in pension costs reflecting a Yen 5.9 billion loss
resulting from the liquidation of a defined benefit plan that served as a
supplemental plan for certain qualified employees, (3) a one-time advertising
cost incurred in sponsoring the " '04 Ricoh Major League Baseball Opening
Series" held in Tokyo in March 2004, (4) various advertising costs associated
with the new release of ink-jet printers that use Ricoh's unique gel-jet
technology in an effort to cultivate a market for ink-jet printers intended for
business usage, and (5) strategic spending on research and development and
back-office information systems development continuing from the previous fiscal
year. Research and development expenses for the fiscal year ended March 31, 2004
increased by 10.7% (or Yen 8.9 billion) to Yen 92.5 billion from Yen 83.5
billion for the fiscal year ended March 31, 2003. For additional details as to
expenditures on research and development activities, see Item 5.C.
TRANSFER TO THE JAPANESE GOVERNMENT OF THE SUBSTITUTIONAL PORTION OF THE
EMPLOYEE'S PENSION FUND. Ricoh completed its transfer to the Japanese government
of the substitutional portion of the EPF pursuant to the Contributed Benefit
Pension Plan Law during fiscal year 2004. As set forth under the heading
"Pension Information" below, Ricoh accounted for the transfer in accordance with
EITF 03-2. In applying EITF 03-2, Ricoh recognized a one-time gain of Yen 56.9
billion as a subsidy from the Japanese government. In addition, Ricoh recognized
a one-time net loss of Yen 48.6 billion for the transfer of such substitutional
portion of the EPF in accordance with EITF 03-2.
OPERATING INCOME. Consolidated operating income for the fiscal year ended
March 31, 2004 increased by 12.2% (or Yen 16.3 billion) to Yen 150.0 billion
from Yen 133.6 billion for the fiscal year ended March 31, 2003. This increase
was mainly due to (1) the higher rate of increase in gross profit relative to
selling, general and administrative expenses between the fiscal years ended
March 31, 2003 and 2004, and (2) net gain of Yen 8.3 billion on the transfer of
the substitutional portion of the EPF to the Japanese government, which
consisted of the subsidy from the government and the recognized net loss related
to the transfer of the substitutional portion of the EPF to the Japanese
government. Excluding the net effect of the transfer to the Japanese government
of the substitutional portion of the EPF, operating income would have increased
by 6.0%.
-33-
INTEREST AND DIVIDEND INCOME. Consolidated interest and dividend income for
the fiscal year ended March 31, 2004 decreased by Yen 1.8 billion to Yen 1.9
billion from Yen 3.7 billion for the fiscal year ended March 31, 2003. This
decrease in consolidated interest and dividend income resulted primarily from
lower interest rates and lower dividend income from Japanese companies whose
performance has been adversely affected by difficult economic conditions in
Japan. As dividend income that Ricoh received during fiscal year 2004 was based
upon the financial results for the fiscal year 2003, dividend income did not
increase despite improved economic conditions in Japan during the latter half of
fiscal year 2004.
INTEREST EXPENSE. Consolidated interest expense for the fiscal year ended
March 31, 2004 decreased by Yen 1.5 billion to Yen 5.2 billion from Yen 6.8
billion for the fiscal year ended March 31, 2003. This decrease in consolidated
interest expense resulted primarily from the decrease in the amount of Ricoh's
interest-bearing debt outstanding for the fiscal year ended March 31, 2004 as
compared to the fiscal year ended March 31, 2003. Ricoh was able to decrease its
outstanding interest-bearing debt for fiscal year 2004 as it continued to
utilize its group cash management systems in Japan, the United States and Europe
as an alternative to external borrowings. As a result, Ricoh's interest-bearing
debt as of March 31, 2004 decreased by Yen 51.8 billion to Yen 432.7 billion
from Yen 484.6 billion as of March 31, 2003.
FOREIGN CURRENCY EXCHANGE (GAIN) LOSS, NET. Consolidated foreign currency
exchange loss, net included in other (income) expenses for the fiscal year ended
March 31, 2004 increased by Yen 5.5 billion to a loss of Yen 6.1 billion from a
loss of Yen 0.5 billion for the fiscal year ended March 31, 2003. This increase
was primarily due to foreign exchange losses resulting from the appreciation of
the Japanese Yen relative to the U.S. Dollar. While Ricoh uses foreign exchange
currency forward contracts to manage the effects of foreign currency exchange
risks, the U.S. Dollar depreciated relative to the Japanese Yen more rapidly
than Ricoh expected throughout the fiscal year ended March 31, 2004 and Ricoh's
hedging activities, which are short-term in nature, were not able to
sufficiently cover such losses. The most significant monetary assets that caused
the gain or loss were foreign currency denominated receivables. For additional
information on Ricoh's foreign exchange hedging activities, see Item 11.
OTHER, NET. Consolidated other, net included in other (income) expenses was
income of Yen 2.5 billion for the fiscal year ended March 31, 2004 as compared
to an expense of Yen 6.5 billion for the fiscal year ended March 31, 2003. A
gain was recognized for the fiscal year ended March 31, 2004 primarily due to a
realization of gains resulting from employee pension contributions by Ricoh of
equity securities for the fiscal year ended March 31, 2004, while a loss was
recognized for the fiscal year ended March 31, 2003 primarily due to the
valuation loss of investment securities.
TOTAL PROVISIONS FOR INCOME TAXES. Total consolidated provisions for income
taxes for the fiscal year ended March 31, 2004 increased by 9.0% (or Yen 4.6
billion) to Yen 56.6 billion from Yen 51.9 billion for fiscal year ended March
31, 2003. This lower percentage increase in provisions for income taxes as
compared to the percentage increase in income before income taxes, minority
interests and equity in earnings of affiliates was primarily due to a decrease
in the effective tax rate.
-34-
The effective tax rate decreased by 2.5 percentage points to 39.6% for the
fiscal year ended March 31, 2004 from 42.1% for the previous fiscal year. This
2.5 percentage points decrease in the effective tax rate was attributable to a
tax credit being applied in Japan to (1) the increase in research and
development expense and (2) investment in information technologies used by
Ricoh. As a result, the effective tax rate was lower than the Japanese statutory
tax rate. See Note 8 to the Consolidated Financial Statements.
MINORITY INTERESTS. Consolidated minority interests for the fiscal year
ended March 31, 2004 increased by Yen 2.7 billion to Yen 4.0 billion from Yen
1.3 billion for the fiscal year ended March 31, 2003. This increase primarily
reflected an improvement in the business performance of Ricoh Elemex Corporation
as it resolved the quality problems it faced with respect to its measuring
equipment.
EQUITY IN EARNINGS OF AFFILIATES. Consolidated equity in earnings of
affiliates for the fiscal year ended March 31, 2004 decreased by Yen 0.3 billion
to Yen 2.0 billion from Yen 2.4 billion for the fiscal year ended March 31,
2003. This decrease was primarily due to the conversion of Shanghai Ricoh
Facsimile Co., Ltd. from an affiliate to a subsidiary in fiscal year 2004
through the purchase of the outstanding stock of such entity not already owned
by Ricoh. As a result, Ricoh consolidated its interest in Shanghai Ricoh
Facsimile Co., Ltd. for fiscal year 2004 rather than using the equity method as
in the fiscal year ended March 31, 2003.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. The cumulative effect of accounting
change represents gains on marketable securities transferred to a pension trust
in fiscal year 2000. In connection with a similar transfer made in fiscal year
2004, Ricoh changed its method of accounting for such transfers to reflect the
realized gain upon transfer to the pension trust. For additional detail as to
the accounting change that resulted in a recognition of gain, see Note 5 to the
Consolidated Financial Statements.
OPERATING SEGMENTS
----------------------------------------------------------------------------------------------
Millions of Yen (except for percentages)
---------------------------------------- Thousands in % Change
2003 2004 U.S. Dollars
----------------------------------------------------------------------------------------------
OFFICE EQUIPMENT
Net sales 1,520,574 100.0% 1,557,633 100.0% $14,977,240 2.4
Operating expenses 1,329,776 87.5 1,353,304 86.9 13,012,538 1.8
Operating income 190,798 12.5% 204,329 13.1% $ 1,964,702 7.1
----------------------------------------------------------------------------------------------
OTHER BUSINESSES
Net sales 220,539 100.0% 225,074 100.0% $ 2,164,173 2.1
Operating expenses 222,772 101.0 220,391 97.9 2,119,144 (1.1)
Operating income (2,233) (1.0%) 4,683 2.1% $ 45,029 --
----------------------------------------------------------------------------------------------
CORPORATE AND ELIMINATION
Net sales (2,755) (2,462) $ (23,673)
Operating expenses 52,156 56,544 543,693
Operating income (54,911) (59,006) $(567,366)
----------------------------------------------------------------------------------------------
CONSOLIDATED
Net sales 1,738,358 100.0% 1,780,245 100.0% $17,117,740 2.4
Operating expenses 1,604,704 92.3 1,630,239 91.6 15,675,375 1.6
Operating income 133,654 7.7% 150,006 8.4% $ 1,442,365 12.2
----------------------------------------------------------------------------------------------
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Office Equipment
Sales in the Office Equipment segment for the fiscal year ended March 31,
2004 increased by 2.4% (or Yen 37.0 billion) to Yen 1,557.6 billion from Yen
1,520.5 billion for the fiscal year ended March 31, 2003. This increase was
primarily due to a boost in sales of high-margin, value-added digital-based
products in the Printing Systems as printers with various functions, from
input/output to sharing and administration as well as color capabilities, were
introduced in a wide range of models from standard models to high-speed digital
models. In fiscal year 2004, domestic and overseas sales of color PPC and MFPs
grew, and the retail volume for laser printers increased, particularly in terms
of color models. Sales continued to increase for support services, software, and
other solutions aimed at satisfying the diverse needs of customers. However,
sales from the optical disc business decreased, as compared to a gain during the
previous fiscal year period. The increase in sales of Network Input/Output
Systems products was partly offset by a decrease in sales of Imaging Solutions
products in both Japan and the overseas markets. These sales results were
consistent with Ricoh's efforts to support the shift in customers' demand to
digital networking and color-based products from monochrome analog-based
stand-alone products. This trend, which has been continuing in the last five
years, is also reflected in Ricoh's sales results: as a percentage of total
sales, the percentage of sales of Imaging Solutions decreased 16.9 percentage
points from 62.0% to 45.1% in the past five years; conversely, the percentage of
sales of Input/Output Systems increased 19.4 percentage points from 12.0% to
31.4% in the past five years. Ricoh forecasts that this trend will continue for
at least the next few years based on its understanding of customers' demand.
Sales in the Imaging Solutions product category for the fiscal year ended
March 31, 2004 decreased by 6.5% (or Yen 56.1 billion) to Yen 803.5 billion from
Yen 859.7 billion for the fiscal year ended March 31, 2003. In Digital Imaging
Solutions, Ricoh strengthened its product lineup from standard models to
high-speed digital models, in addition to introducing new color PPC products.
Digital PPC products performed well in the overseas market and sales of color
PPC products increased in both Japan and overseas. In Other Imaging Solutions,
the decrease in sales reflected the shift from analog-type equipment to
digital-type equipment and MFPs.
In contrast to the above product lines that historically have been Ricoh's
core business, the MFP and laser printer product lines under the Network
Input/Output Systems product category have seen an increase in their sales
volume in both Japan and overseas. This trend is especially noticeable from the
increase in sales of color MFPs and color laser printers for the fiscal year
ended March 31, 2004. To respond to this trend, Ricoh introduced new MFPs
products, such as Imagio Neo 352/452 and Imagio Neo C385/C325 in Japan, and
Aficio 2035/2045 and Aficio 1224C/1232C overseas. Ricoh also introduced new
laser printer models, IPSiO NX85S and IPSiO CX7200 in the domestic market, and
AP400/400N and Aficio CL3000 in the overseas market. All of these new products
performed well in each of the markets where they were introduced.
During the fiscal year ended March 31, 2004, Ricoh also continued its
efforts to strengthen its sales in the Network Systems Solutions category of the
solutions business relating to its office equipment products so as to assist its
customers in optimizing their total printing costs. Such network system
solutions include support services, document
-36-
management applications and related software. These continuing efforts by Ricoh
have led to an increase in domestic and overseas sales of its solutions
products. Despite this increase in sales in the solutions business, sales of
personal computers and servers, which are also included in the Network System
Solutions category, continued to decline in Japan for the fiscal year ended
March 31, 2004, reflecting sluggish information technology spending. As a
result, overall sales within the Network System Solutions product category
decreased for the fiscal year ended March 31, 2004 as compared to the fiscal
year ended March 31, 2003.
On the whole, the increase in sales in the Network Input/Output Systems
product category exceeded the decrease in sales in the Imaging Solutions product
category and the net sales in the Office Equipment segment increased by 2.4% for
the year ended March 31, 2004 as compared to the fiscal year ended March 31,
2003. Excluding the exchange rate fluctuations of the U.S. Dollar and the Euro
to the Japanese Yen, sales in the Office Equipment segment would have increased
by 1.8% (or Yen 27.6 billion) for the fiscal year ended March 31, 2004 as
compared to the fiscal year ended March 31, 2003.
Ricoh was able to lower operating expenses in the Office Equipment segment
for the fiscal year ended March 31, 2004 by engaging in various cost reduction
activities, such as streamlining its supply chain management. On the other hand,
Ricoh increased strategic expenditures in its research and development
activities and invested in enhancing its back-office information systems. As a
result, operating expenses in the Office Equipment segment for the fiscal year
ended March 31, 2004 increased by 1.8% (or Yen 23.5 billion) to Yen 1,353.3
billion from Yen 1,329.7 billion for the fiscal year ended March 31, 2003.
As a result of the above factors, operating income for the Office Equipment
segment for the fiscal year ended March 31, 2004 increased by 7.1% (or Yen 13.5
billion) to Yen 204.3 billion from Yen 190.7 billion for the fiscal year ended
March 31, 2003. The operating income as a percentage of net sales for the fiscal
year ended March 31, 2004 rose by 0.6 percentage point to 13.1% from 12.5% as
compared to the fiscal year ended March 31, 2003, due primarily to the
depreciation of the Japanese Yen relative to the Euro and an increase in the
sale of higher-margin value-added products, which favorably affected
profitability.
Other Business
Sales in the Other Business segment for the fiscal year ended March 31,
2004 increased by 2.1% (or Yen 4.5 billion) to Yen 225.0 billion from Yen 220.5
billion for the fiscal year ended March 31, 2003. This increase in sales was due
primarily to the favorable performance of optical equipment and leasing
activities despite the fact that sales of measuring equipment became stagnant
due to the sluggish market for such equipment as it entered a period of low
demand. The increase in sales in the Other Business segment was also helped by
the fact that no additional expenses were incurred to resolve the quality
problems in measuring equipment, as compared to the fiscal year ended March 31,
2003.
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GEOGRAPHIC SEGMENTS
----------------------------------------------------------------------------------------------
Millions of Yen (except for percentages)
---------------------------------------- Thousands in % Change
2003 2004 U.S. Dollars
----------------------------------------------------------------------------------------------
JAPAN
Net sales 1,274,906 100.0% 1,313,197 100.0% $ 12,626,894 3.0
Operating expenses 1,188,760 93.2 1,215,875 92.6 11,691,106 2.3
Operating income 86,146 6.8% 97,322 7.4% $ 953,788 13.0
----------------------------------------------------------------------------------------------
THE AMERICAS
Net sales 339,555 100.0% 320,753 100.0% $ 3,084,163 (5.5)
Operating expenses 325,228 95.8 305,284 95.2 2,935,423 (6.1)
Operating income 14,327 4.2% 15,469 4.8% $ 148,740 8.0
----------------------------------------------------------------------------------------------
EUROPE
Net sales 355,962 100.0% 404,416 100.0% $ 3,888,615 13.6
Operating expenses 337,693 94.9 382,383 94.6 3,676,759 13.2
Operating income 18,269 5.1% 22,033 5.4% $ 211,856 20.6
----------------------------------------------------------------------------------------------
OTHER
Net sales 169,834 100.0% 193,341 100.0% $ 1,859,048 13.8
Operating expenses 159,864 94.1 182,870 94.6 1,758,365 14.4
Operating income 9,970 5.9% 10,471 5.4% $ 100,683 5.0
----------------------------------------------------------------------------------------------
CORPORATE AND ELIMINATION
Net sales (401,899) (451,462) ($4,340,980)
Operating expenses (406,841) (456,173) (4,386,278)
Operating income 4,942 4,711 $ 45,298
----------------------------------------------------------------------------------------------
CONSOLIDATED
Net sales 1,738,358 100.0% 1,780,245 100.0% $ 17,117,740 2.4
Operating expenses 1,604,704 92.3 1,630,239 91.6 15,675,375 1.6
Operating income 133,654 7.7% 150,006 8.4% $ 1,442,365 12.2
----------------------------------------------------------------------------------------------
Japan
Sales in Japan for the fiscal year ended March 31, 2004 increased by 3.0%
(or Yen 38.2 billion) to Yen 1,313.1 billion from Yen 1,274.9 billion for the
fiscal year ended March 31, 2003. Sales to other Ricoh companies located outside
of this geographic segment increased by 9.5% (or Yen 30.4 billion) between the
fiscal years ended March 31, 2004 and 2003, due primarily to the depreciation of
the Japanese Yen against the Euro and increased exports of products from Japan.
In terms of sales to external customers, Ricoh recorded an increase in sales of
its Printing Systems, such as MFPs and laser printers. This increase reflects
the results of Ricoh's strategic promotion activities and marketing strategy in
the Office Equipment segment, which focused on responding to the change in
customer demand from stand-alone monochrome products to networkable color
products. In addition, sales of solution business products such as support
services, document management applications and other software increased in this
geographic segment. The increase in sales of MFPs, laser printers and solution
business products is a trend that has continued in fiscal year 2004. Meanwhile,
sales in analog equipment decreased as such equipment was replaced with MFPs and
color equipment, and sales of personal computers and servers declined as a
result of restrained spending on information technology equipment in Japan. In
the Other Business segment, sales for measuring equipment decreased due to the
sluggish market for such equipment, although leasing and other businesses
performed favorably compared to the previous fiscal year.
-38-
Operating expenses in this geographic segment for the fiscal year ended
March 31, 2004 increased by 2.3% (or Yen 27.1 billion) to Yen 1,215.8 billion
from Yen 1,188.7 billion for the fiscal year ended March 31, 2003. This increase
in operating expenses was primarily due to an increase in sales volume,
especially in exports to foreign countries. Even though net sales in this
segment increased by 3.0% as compared to the previous year, operating expense
increased by only 2.3% as compared to the previous year. This was primarily due
to (1) the increase in sales of value-added high-margin products, such as MFPs
and products with color capabilities, (2) no additional expenses being incurred
during fiscal year 2004 to resolve the quality problems that arose with respect
to measuring equipment during the fiscal year ended March 31, 2003, and (3) the
net gain of Yen 8.3 billion recognized from the transfer to the Japanese
government of the substitutional portion of the EPF in respect of this
geographic segment for the fiscal year ended March 31, 2004.
Because the increase in sales was greater than the increase in operating
expenses, operating income in Japan for the fiscal year ended March 31, 2004
increased by 13.0% (or Yen 11.1 billion) to Yen 97.3 billion from Yen 86.1
billion for the fiscal year ended March 31, 2003. Excluding net gains recognized
from the transfer to the Japanese government of the substitutional portion of
the EPF, operating income in Japan would have increased by 3.3%.
The Americas
Sales in the Americas for the fiscal year ended March 31, 2004 decreased by
5.5% (or Yen 18.8 billion) to Yen 320.7 billion from Yen 339.5 billion for the
fiscal year ended March 31, 2003, primarily due to the appreciation of the
Japanese Yen against the U.S. Dollar. Despite repercussions from the Iraq war,
turmoil in the Middle East, and severe competition in the Americas, Ricoh
enhanced its existing sales channels and devoted significant effort to the
retail of MFPs, color PPCs and color laser printer as these products are
responsive to customers' changing needs for networking, coloration, and high
speed products. In addition, Ricoh focused on marketing and promotional efforts
towards major corporate clients for the fiscal year ended March 31, 2004.
Nevertheless, the decrease in net sales due to the appreciation of the Japanese
Yen against the U.S. Dollar exceeded the increase in net sales in the local
currency. Without foreign currency fluctuations, net sales in the Americas would
have increased by 1.9%.
Although sales in the Americas decreased as mentioned above, operating
expenses in this geographic segment for the fiscal year ended March 31, 2004
decreased by a greater percentage due to (1) a greater percentage of sales being
derived from higher-margin value-added digital-based office equipment such as
MFPs, color PPCs and color laser printers, which share similar parts thereby
allowing Ricoh to achieve cost efficiencies, and (2) on-going cost-cutting
efforts through the management of the supply chain and other activities.
Europe
Sales in Europe for the fiscal year ended March 31, 2004 increased by 13.6%
(or Yen 48.4 billion) to Yen 404.4 billion from Yen 355.9 billion for the fiscal
year ended March 31,
-39-
2003, due primarily to the depreciation of the Japanese Yen against the Euro and
an increase in sales of Printing Systems, such as MFPs and laser printers,
reflecting Ricoh's efforts to strengthen its sales networks and continuously
reinforce its brand power. In Europe, sales of products with color capability
increased greatly compared to the previous fiscal year. Continuing the trend
from previous fiscal years, Ricoh extended in fiscal year 2004 its number one
ranking in terms of market share in the sales of copiers and MFPs in Europe.
Despite the increase in sales in this geographic segment, as noted above,
operating expenses in this geographic segment for the fiscal year ended March
31, 2004 increased by a lower percentage as compared to the percentage increase
in sales, due to (1) a greater portion of its sales being derived from
higher-margin value-added digital-based office equipment, especially with color
capabilities, (2) Ricoh' ability to relocate its production facilities for those
products closer to its customers, thereby eliminating costs associated with
transporting such finished products, and (3) the depreciation of the Japanese
Yen against the Euro.
Other
Sales in the Other geographic segment, which includes China, Asia and
Oceania for the fiscal year ended March 31, 2004 increased by 13.8% (or Yen 23.5
billion) to Yen 193.3 billion from Yen 169.8 billion for the fiscal year ended
March 31, 2003. Sales of Printing Systems increased, reflecting a full-fledged
shift to digital, networkable and color products from stand-alone, analog and
monochrome equipment in this geographic segment, while demand for optical discs
and semiconductor sales decreased. The increase in sales of Printing Systems
exceeded the decrease in sales of optical discs and semiconductors.
Ricoh Asia Industry (Shenzhen), Ltd., a manufacturing subsidiary in China
which mainly manufactures low-end digital PPCs and MFPs, continued to contribute
to increased sales in this geographic segment. This subsidiary also provides
Ricoh with access to lower labor costs in China. The products manufactured by
this subsidiary have been exported to marketing operations in Japan, the U.S.
and Europe. Ricoh maintained a high production level at this subsidiary for the
fiscal year ended March 31, 2004 to respond to an increase in demand for digital
PPCs and MFPs in the various markets around the world.
FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002
NET SALES. Consolidated net sales for the fiscal year ended March 31, 2003
increased by 3.9% (or Yen 66.0 billion) to Yen 1,738.3 billion from Yen 1,672.3
billion for the fiscal year ended March 31, 2002. The U.S. Dollar depreciated in
relation to the Japanese Yen for the fiscal year ended March 31, 2003 compared
to the fiscal year ended March 31, 2002, resulted in a decrease in U.S.
Dollar-denominated net sales. The increase in net sales resulting from the
appreciation of the Euro was greater than the decrease in net sales resulting
from the depreciation of the U.S. Dollar. Accordingly, net sales for the fiscal
year ended March 31, 2003 increased compared to the net sales for the
-40-
fiscal year ended March 31, 2002. Excluding the appreciation of the Euro and the
depreciation of the U.S. Dollar, net sales would have increased by 2.7%.
An increase in net sales in the Office Equipment segment, which resulted
primarily from a boost in net sales in the Network Input/Output Systems product
category, also contributed to the increase in consolidated net sales. More
specifically, in the Network Input/Output Systems product category, Ricoh
launched new networkable MFPs and laser printers to meet customer needs during
fiscal year 2003. Sale of higher-margin value-added digital-based equipment
especially contributed to the increase in net sales in this product category.
This increase in net sales principally in the Network Input/Output Systems
product category was offset by a decrease in domestic sales of products in the
Imaging Solutions product category due to Japan's prolonged recession. The
decrease in sales in the Imaging Solutions product category was primarily due to
the shift in customer needs in Japan towards products that are included in the
Network Input/Output systems category, such as MFPs and laser printers machines.
All in all, net sales in the Office Equipment segment resulting from an increase
in net sales of higher-margin value-added digital-based office equipment in the
Network Input/Output Systems product category offset by the domestic decrease in
net sale in the Imaging Solutions product category, accounted for a 2.4%
increase in net sales.
In particular, Ricoh's introduction of new MFPs and laser printers, which
are higher-margin value-added digital-based office equipment products, in the
Network Input/Output Systems category contributed to the increase in net sales
for the fiscal year ended March 31, 2003 when compared to the fiscal year ended
March 31, 2002. Printers with color printing capabilities in both of these
Network Input/Output Systems product lines especially contributed to the
increase in net sales, as customers demand for color printers increased. Sales
of MFPs increased by 31.1% and sales of laser printers increased by 44.7% for
the fiscal year ended March 31, 2003 as compared to the fiscal year ended March
31, 2002. Sales in the digital PPC product line in the overseas market increased
by 4.2% as customer needs for digital printing equipment increased. However,
during the fiscal year ended March 31, 2003, sales in the analog PPC product
line decreased by 23.4% as compared to the fiscal year ended March 31, 2002 as
customer needs shifted towards digital equipment. Sales also decreased in the
facsimile machine product line by 16.4% for the fiscal year ended March 31, 2003
as compared to the fiscal year ended March 31, 2002 as alternative methods to
facsimile transmission, such as scanning and emailing documents, became more
widespread.
COST OF SALES. Consolidated cost of sales for the fiscal year ended March
31, 2003 increased by 2.1% (or Yen 20.6 billion) to Yen 993.0 billion from Yen
972.3 billion for the fiscal year ended March 31, 2002. This increase was due
primarily to an increase in net sales and the appreciation of the Euro to the
Japanese Yen resulting in higher Japanese Yen equivalents of Euro-denominated
cost of sales. These increases were offset by various cost-cutting measures
taken by Ricoh as discussed below.
As a percentage of net sales, cost of sales decreased by 1.0% to 57.1% for
the fiscal year ended March 31, 2003 from 58.1% for the fiscal year ended March
31, 2002. Cost of sales increased by only 2.1% even though net sales increased
by 3.9% for the same periods, primarily due to various cost-cutting measures
taken by Ricoh. These cost-
-41-
cutting measures included the following: (1) procuring materials from suppliers
at lower costs, and (2) providing employee training programs and opportunities
to its employees so that they obtain more experience and become more productive,
thereby allowing Ricoh to minimize and eliminate production line inefficiencies.
The increase in sales of higher-margin value-added digital-based products also
allowed Ricoh to take advantage of production efficiencies that result from
using standardized equipment parts or standardized production specifications,
thereby attaining higher recovery of fixed costs.
GROSS PROFIT. Consolidated gross profit for the fiscal year ended March 31,
2003 increased by 6.5% (or Yen 45.4 billion) to Yen 745.3 billion from Yen 699.9
billion for the fiscal year ended March 31, 2002.
As a percentage of net sales, gross profit increased by 1.0% to 42.9% for
the fiscal year ended March 31, 2003 from 41.9% for the fiscal year ended March
31, 2002. This increase in gross profit as a percentage of net sales was
primarily due to the various cost-cutting measures taken by Ricoh and the
increase in net sales of the higher-margin value-added digital-based products
(notably MFPs and laser printers) in both Japan and abroad, as discussed above,
while the company incurred additional costs to correct quality problems on some
of its measuring equipment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses for the fiscal year ended March 31, 2003 increased
by 7.3% (or Yen 41.4 billion) to Yen 611.6 billion from Yen 570.2 billion for
the fiscal year ended March 31, 2002, due primarily to the following reasons:
(1) the appreciation of the Euro to the Japanese Yen that resulted in higher
Japanese Yen equivalents of Euro-denominated expenses and (2) strategic spending
on research and development and back-office information systems development.
Research and development expenses for the fiscal year ended March 31, 2003
increased by 3.4% (or Yen 2.7 billion) to Yen 83.5 billion from Yen 80.7 billion
for the fiscal year ended March 31, 2002. For additional detail as to
expenditures on research and development activities, see Item 5.C.
OPERATING INCOME. Consolidated operating income for the fiscal year ended
March 31, 2003 increased by 3.1% (or Yen 3.9 billion) to Yen 133.6 billion from
Yen 129.6 billion for the fiscal year ended March 31, 2002. Despite the fact
that the percentage increase in selling, general and administrative expenses
between the fiscal years ended March 31, 2002 and 2003 was greater than the
percentage increase in gross profit for the same fiscal years, Ricoh's operating
income increased by 3.1% due to the fact that the total gross profit amount was
higher than the amount for selling, general and administrative expenses.
INTEREST AND DIVIDEND INCOME. Consolidated interest and dividend income for
the fiscal year ended March 31, 2003 decreased by Yen 0.9 billion to Yen 3.7
billion from Yen 4.7 billion for the fiscal year ended March 31, 2002. This
decrease in consolidated interest and dividend income resulted primarily from
lower interest rates and difficult economic conditions in Japan.
-42-
INTEREST EXPENSE. Consolidated interest expense for the fiscal year ended
March 31, 2003 decreased by Yen 1.3 billion to Yen 6.8 billion from Yen 8.2
billion for the fiscal year ended March 31, 2002. This decrease in consolidated
interest expense resulted primarily from the decrease in the amount of Ricoh's
interest-bearing debt outstanding for the fiscal year ended March 31, 2003 as
compared to the fiscal year ended March 31, 2002. Ricoh was able to decrease
outstanding interest-bearing debt for the fiscal year 2003 as it used its cash
management systems in Japan, the United States and Europe as an alternative
method of obtaining funds. As a result, Ricoh's interest-bearing debt as of
March 31, 2003 decreased by Yen 76.7 billion to Yen 484.6 billion from Yen 561.4
billion for the fiscal year ended March 31, 2002.
FOREIGN CURRENCY EXCHANGE (GAIN) LOSS, NET. Consolidated foreign currency
exchange loss, net included in other (income) expenses for the fiscal year ended
March 31, 2003 decreased by Yen 5.1 billion to a loss of Yen 0.5 billion from a
loss of Yen 5.7 billion for the fiscal year ended March 31, 2002. This decrease
was primarily due to foreign exchange gains resulting from the depreciation of
the Japanese Yen relative to the Euro.
OTHER, NET. Consolidated other, net included in other (income) expenses for
the fiscal year ended March 31, 2003 did not change significantly from the
other, net for the fiscal year ended March 31, 2002. Consolidated other, net for
the fiscal year ended March 31, 2003 mainly consisted of valuation loss of
investment securities.
TOTAL OTHER (INCOME) EXPENSES. Consolidated total other expenses, net for
the fiscal year ended March 31, 2003 decreased by 35.3% (or Yen 5.5 billion) to
Yen 10.1 billion from Yen 15.7 billion for the fiscal year ended March 31, 2002.
This significant decrease in total other expenses, net was due primarily to the
significant decrease in foreign currency exchange losses and the decrease in
interest expense as discussed above.
INCOME BEFORE INCOME TAXES, MINORITY INTERESTS AND EQUITY IN EARNINGS OF
AFFILIATES. Consolidated income before income taxes, minority interests and
equity in earnings of affiliates for the fiscal year ended March 31, 2003
increased by 8.4% (or Yen 9.5 billion) to Yen 123.4 billion from Yen 113.9
billion for the fiscal year ended March 31, 2002, even though operating income
increased by only 3.1% for the same periods. This higher percentage increase of
income before income taxes, minority interests and equity in earnings of
affiliates was attributable to the 35.3% decrease in other expenses, net during
the same period.
TOTAL PROVISIONS FOR INCOME TAXES. Total consolidated provisions for income
taxes for the fiscal year ended March 31, 2003 increased by 1.6% (or Yen 0.8
billion) to Yen 51.9 billion from Yen 51.1 billion for the fiscal year ended
March 31, 2002. This lower percentage increase in provisions for income taxes as
compared to the percentage increase in income before income taxes, minority
interests and equity in earnings of affiliates was primarily due to a decrease
in the effective tax rate.
The actual effective tax rate decreased by 2.8% to 42.1% for the fiscal
year ended March 31, 2003 from 44.9% for the previous fiscal year. This 2.8%
decrease in the effective tax rate was attributable to (1) a tax credit being
applied for increased research
-43-
and development expense and (2) tax benefits previously not recognized with
respect to net operating losses of certain consolidated subsidiaries. As a
result, the effective tax rate is almost the same as the statutory tax rate.
MINORITY INTERESTS. Consolidated minority interests for the fiscal year
ended March 31, 2003 decreased by Yen 1.7 billion to Yen 1.3 billion from Yen
3.0 billion for the fiscal year ended March 31, 2002. This decrease was
primarily attributable to the losses generated by Ricoh's manufacturing
affiliates in Japan to resolve quality problems in its measuring equipment.
EQUITY IN EARNINGS OF AFFILIATES. Consolidated equity in earnings of
affiliates for the fiscal year ended March 31, 2003 increased by Yen 0.5 billion
to Yen 2.4 billion from Yen 1.8 billion for the fiscal year ended March 31,
2002. This increase was primarily due to the increase in net income of Ricoh's
foreign affiliates.
OPERATING SEGMENTS
-------------------------------------------------------------------------------
Millions of Yen (except for percentages)
----------------------------------------
2002 2003 % Change
-------------------------------------------------------------------------------
OFFICE EQUIPMENT
Net sales 1,485,389 100.0% 1,520,574 100.0% 2.4
Operating expenses 1,304,079 87.8 1,329,776 87.5 2.0
Operating income 181,310 12.2% 190,798 12.5% 5.2
-------------------------------------------------------------------------------
OTHER BUSINESSES
Net sales 190,815 100.0% 220,539 100.0% 15.6
Operating expenses 187,424 98.2 222,772 101.0 18.9
Operating income 3,391 1.8% (2,233) (1.0%) --
-------------------------------------------------------------------------------
CORPORATE AND ELIMINATION
Net sales (3,864) (2,755)
Operating expenses 51,142 52,156
Operating income (55,006) (54,911)
-------------------------------------------------------------------------------
CONSOLIDATED
Net sales 1,672,340 100.0% 1,738,358 100.0% 3.9
Operating expenses 1,542,645 92.2 1,604,704 92.3 4.0
Operating income 129,695 7.8% 133,654 7.7% 3.1
-------------------------------------------------------------------------------
Office Equipment
Sales in the Office Equipment segment for the fiscal year ended March 31,
2003 increased by 2.4% (or Yen 35.1 billion) to Yen 1,520.5 billion from Yen
1,485.3 billion for the fiscal year ended March 31, 2002. This increase was
primarily due to (i) a boost in sales of Printing Systems as printers with
increased printing speed, network capabilities and color printing capabilities
were introduced and (ii) an increase in sales of Other Input/Output Systems
mainly due to the increase in sales of DVDs in the United States and CD-R/RW
shipments in other regions. This increase in sales of Network Input/Output
Systems products was partly offset by a decrease in sales of Imaging Solutions
products, as domestic sales of Digital Imaging Solutions products decreased, and
sales of Other Imaging Solutions products decreased both in Japan and the
overseas markets. These sales results are consistent with Ricoh's effort to
support the shift in
-44-
customers' demand to digital networking and color-based products from monochrome
analog-based stand-alone products.
Sales in the Imaging Solutions product category for the fiscal year ended
March 31, 2003 decreased by 8.0% (or Yen 74.4 billion) to Yen 859.7 billion from
Yen 934.1 billion for the fiscal year ended March 31, 2002. In Digital Imaging
Solutions, Ricoh strengthened its product lineup with new digital PPC offerings,
which included both low-end models and high-end models. Despite the introduction
of new digital PPC products, sales of digital PPC products decreased
domestically due to the depressed Japanese economy and the shift towards MFPs
included in the Network Input/Output Systems product category. Sales of digital
PPC products increased, however, in Europe and the other regions. In Other
Imaging Solutions, sales decreased reflecting the trend from analog-type
equipment to digital-type equipment and MFPs. The profit margin of such
analog-based office equipment has decreased over the past years in line with the
decrease in sales of this equipment as analog-based equipment are being replaced
by digital-based equipment.
In contrast to the above product lines that have been Ricoh's core
business, the MFP and laser printer product lines under the Network Input/Output
Systems product category have seen an increase in its sales volume in both Japan
and the overseas markets in recent years. During the fiscal year ended March 31,
2003, Ricoh focused on the sale of color products in these product lines
resulting in the replacement of monochrome products in many of our customers'
offices. This sales strategy led to increased sales in this product category.
For the fiscal year ended March 31, 2003, Ricoh also strengthened its sales
of various Network System Solutions products relating to its office equipment
products to assist its customers in optimizing their total printing costs. Such
network system solutions included support services, document management
applications and related software. Sales in these Network System Solutions
products increased both in Japan and the overseas market. In contrast, sales of
personal computers and servers, which also fall within the Network System
Solutions product category, continued to decline in Japan for the fiscal year
ended March 31, 2003 as compared to the fiscal year ended March 31, 2002, due to
sluggish information technology spending in Japan. As a result, sales within the
Network System Solutions product category decreased for the fiscal year ended
March 31, 2003 as compared to the fiscal year ended March 31, 2002.
Overall, the increase in sales in the Network Input/Output Systems product
category exceeded the decrease in sales in the Imaging Solutions product
category and the Network System Solutions product category.
Excluding the exchange rate fluctuations of the U.S. Dollar and the Euro,
sales in the Office Equipment segment would have increased by 1.1% (or Yen 16.0
billion) for the fiscal year ended March 31, 2003 as compared to the fiscal year
ended March 31, 2002.
With respect to operating expenses, Ricoh was able to lower operating
expenses for the fiscal year ended March 31, 2003 as production of various
digital-based office equipment was shifted to factories located in China where
production costs are lower
-45-
than other locations. Ricoh's productivity for its production lines in China
also increased due to the application of continuous cost-cutting efforts. On the
other hand, Ricoh increased strategic expenditures in research and development
activities and back-office information systems development. As a result,
operating expenses in the Office Equipment segment for the fiscal year ended
March 31, 2003 increased by 2.0% (or Yen 25.6 billion) to Yen 1,329.7 billion
from Yen 1,304.0 billion for the fiscal year ended March 31, 2002.
As a result of the above factors, operating income within the Office
Equipment segment for the fiscal year ended March 31, 2003 increased by 5.2% (or
Yen 9.4 billion) to Yen 190.7 billion from Yen 181.3 billion for the fiscal year
ended March 31, 2002. The operating income as a percentage of net sales for the
fiscal year ended March 31, 2003 rose by 0.3 percentage point to 12.5% from
12.2% as compared to the fiscal year ended March 31, 2002, due primarily to the
depreciation of the Japanese Yen to the Euro, which favorably affected
profitability.
Other Business
Sales within the Other Business segment for the fiscal year ended March 31,
2003 increased by 15.6% (or Yen 29.7 billion) to Yen 220.5 billion from Yen
190.8 billion for the fiscal year ended March 31, 2002. As a percentage of total
sales, sales to unaffiliated customers within the Other Business segment
increased by 1.3% from 11.2% for the fiscal year ended March 31, 2002 to 12.5%
for the fiscal year ended March 31, 2003. This increase in sales was due
primarily to the recovery in demand for semiconductors in the domestic market
and a buoyant increase in demand in the overseas markets. The steady performance
of the leasing business also contributed to the increase in sales in this
segment. At the same time, however, Ricoh incurred additional expense to resolve
quality problems in its measuring equipment, which shortened the life of such
equipment.
As a result, operating income within the Other Business segment for the
fiscal year ended March 31, 2003 decreased by Yen 5.6 billion to Yen 2.2 billion
net loss from Yen 3.3 billion for the fiscal year ended March 31, 2002.
-46-
GEOGRAPHIC SEGMENTS
--------------------------------------------------------------------------------
Millions of Yen (except for percentages)
--------------------------------------------------------------------- % Change
2002 2003 --------
-----------------------------------------
JAPAN
Net sales 1,248,691 100.0% 1,274,906 100.0% 2.1
Operating expenses 1,142,522 91.5 1,188,760 93.2 4.0
Operating income 106,169 8.5% 86,146 6.8% (18.9)
--------------------------------------------------------------------------------
THE AMERICAS
Net sales 346,953 100.0% 339,555 100.0% (2.1)
Operating expenses 335,521 96.7 325,228 95.8 (3.1)
Operating income 11,432 3.3% 14,327 4.2% 25.3
--------------------------------------------------------------------------------
EUROPE
Net sales 313,351 100.0% 355,962 100.0% 13.6
Operating expenses 301,152 96.1 337,693 94.9 12.1
Operating income 12,199 3.9% 18,269 5.1% 49.8
--------------------------------------------------------------------------------
OTHER
Net sales 146,947 100.0% 169,834 100.0% 15.6
Operating expenses 139,874 95.2 159,864 94.1 14.3
Operating income 7,073 4.8% 9,970 5.9% 41.0
--------------------------------------------------------------------------------
CORPORATE AND ELIMINATION
Net sales (383,602) (401,899)
Operating expenses (376,424) (406,841)
Operating income (7,178) 4,942
--------------------------------------------------------------------------------
CONSOLIDATED
Net sales 1,672,340 100.0% 1,738,358 100.0% 3.9
Operating expenses 1,542,645 92.2 1,604,704 92.3 4.0
Operating income 129,695 7.8% 133,654 7.7% 3.1
--------------------------------------------------------------------------------
Japan
Sales in Japan for the fiscal year ended March 31, 2003 increased by 2.1%
(or Yen 26.2 billion) to Yen 1,274.9 billion from Yen 1,248.6 billion for the
fiscal year ended March 31, 2002. Sales to external customers in this geographic
segment increased by 1.6% (or Yen 15.3 billion) between the fiscal year ended
March 31, 2003 and 2002, due primarily to the depreciation of the Japanese Yen
relative to the Euro and higher exports of products manufactured in Japan.
Despite the continuing recession in Japan, Ricoh recorded an increase in sales
of its Printing Systems such as MFPs and laser printers, which reflects the
shift in customer demand from stand-alone monochrome products to networkable
color products and extended marketing efforts of such products undertaken by
Ricoh. In addition, sales in the Network System Solutions business such as
support services, document management applications and software also increased.
On the other hand, sales declined for analog PPCs, facsimile machines, and
personal computers and servers, as a result of restrained spending on
information technology equipment. In the Other Business segment, the demand for
semiconductors in Japan increased due to the recovery in demand in the
businesses that use Ricoh's semiconductors, while the demand for measuring
equipment decreased due primarily to a low demand cycle for such equipment. In
addition to the increase in sales to external customers in Japan, intersegment
sales increased by 3.5% (or Yen 10.8 billion) for the fiscal year ended March
31, 2003 as compared to the fiscal year ended March 31, 2002 in Japan.
Intersegment sales of office equipment rose amid strong exports and the
appreciation of the Euro relative to the Japanese Yen. Export of high-speed
PPCs, MFPs and laser printers, which are mostly
-47-
manufactured in Japan, increased, as demand for such equipment increased in
foreign countries.
Operating expenses in this geographic segment for the fiscal year ended
March 31, 2003 increased by 4.0% (or Yen 46.2 billion) to Yen 1,188.7 billion
from Yen 1,142.5 billion for the fiscal year ended March 31, 2002. This increase
in operating expenses was primarily due to an increase in sales volume. In
addition, Ricoh incurred additional expenses to resolve the quality problems
that arose with respect to its measuring equipment and to comply with changes in
the laws and regulations of Japan affecting social insurance premiums. Although
Ricoh took various cost-cutting measures to lower its expenses, such
cost-cutting measures did not offset the additional expense incurred by Ricoh in
this geographic segment. The cost-cutting measures taken by Ricoh included the
following: (1) reduction of expenses incurred in connection with the procurement
of materials from its suppliers, and (2) minimizing and eliminating
inefficiencies in its production lines as employees became more productive
through enhanced training and as they gained more experience.
As a result of the increase in operating expenses in excess of the increase
in sales described above, operating income in Japan for the fiscal year ended
March 31, 2003 decreased by 18.9% (or Yen 20.0 billion) to Yen 86.1 billion from
Yen 106.1 billion for the fiscal year ended March 31, 2002. As a percentage of
sales, operating income in Japan declined for the fiscal year ended March 31,
2003 by 1.7% as compared to the fiscal year ended March 31, 2002.
The Americas
Sales in the Americas for the fiscal year ended March 31, 2002 decreased by
2.1% (or Yen 7.3 billion) to Yen 339.5 billion from Yen 346.9 billion for the
fiscal year ended March 31, 2002, primarily due to the appreciation of the
Japanese Yen to the U.S. Dollar. Despite the economic slowdown in the United
States and severe competition in the Americas, Ricoh expanded its existing sales
channels to major corporate clients through Lanier Worldwide, Inc. ("Lanier"),
especially in North America, for the fiscal year ended March 31, 2003. Through
such expanded marketing channels, Ricoh increased sales of its new printing
systems to match customer demand that shifted from analog-based products to
networked digital PPC and color models. As a result of such stepped up sales
efforts, sales of digital PPCs and MFPs increased in this geographic segment for
the fiscal year ended March 31, 2003.
Though sales in the Americas decreased, as mentioned above, operating
expenses in this geographic segment for the fiscal year ended March 31, 2003
decreased by a greater percentage as compared to the percentage decrease in
sales, due to the fact that a greater portion of the higher-margin value-added
digital-based office equipment was sold to wholesalers. This sales strategy was
used by Lanier to increase the sale of digital-based office equipment. The
greater percentage decrease in operating expenses was also due to the
appreciation of the Japanese Yen relative to the U.S. Dollar.
-48-
As a result, operating income in the Americas for the fiscal year ended
March 31, 2003 increased by 25.3% (or Yen 2.8 billion) to Yen 14.3 billion from
Yen 11.4 billion for the fiscal year ended March 31, 2002.
Europe
Sales in Europe for the fiscal year ended March 31, 2003 increased by 13.6%
(or Yen 42.6 billion) to Yen 355.9 billion from Yen 313.3 billion for the fiscal
year ended March 31, 2002, due primarily to the depreciation of the Japanese Yen
to the Euro and an increase in sales of higher-margin digital-based office
equipment, such as digital PPC and MFPs, as customer demand for such products
increased in Europe. Continuing the trend from previous fiscal years, Ricoh was
ranked number one in terms of market share in sales of digital PPCs and MFPs in
Europe.
Despite the increase in sales in this geographic segment, as noted above,
operating expenses in this geographic segment for the fiscal year ended March
31, 2002 increased by a lower percentage amount as compared to the percentage
increase in sales, as Ricoh was able to relocate its production facilities for
higher-margin value-added digital-based office equipment closer to its
customers, thereby eliminating costs associated with transporting such finished
products.
As a result, operating income in this segment for the fiscal year ended
March 31, 2003 increased by 49.8% (or Yen 6.0 billion) to Yen 18.2 billion from
Yen 12.1 billion for the fiscal year ended March 31, 2002.
Other
Sales in the Other geographic segment, which includes countries such as
China, for the fiscal year ended March 31, 2003 increased by 15.6% (or Yen 22.8
billion) to Yen 169.8 billion from Yen 146.9 billion for the fiscal year ended
March 31, 2002, due primarily to a full-fledged shift to digital, networkable
and color products from stand-alone, analog and monochrome equipment in this
geographic segment. Demand for optical discs also continued to improve in
response to the strong demand in such products, while semiconductor sales
remained solid.
Ricoh Asia Industry (Shenzhen), Ltd., a manufacturing subsidiary in China
which mainly manufactures low-end digital PPCs and MFPs, continued to contribute
to increased sales in this geographic segment. This subsidiary also provides
Ricoh with access to lower labor costs in China. The products manufactured by
this subsidiary have been exported to marketing operations in Japan, the U.S.
and Europe, and its sales volume has increased annually. Ricoh also established
a regional headquarters in China during the fiscal year ended March 31, 2003 to
focus on integrating manufacturing, sales and services, and to support strategic
growth in the promising Chinese market.
As a result, operating income in the Other geographic segment for the
fiscal year ended March 31, 2003 increased by 41.0% (or Yen 2.8 billion) to Yen
9.9 billion from Yen 7.0 billion for the fiscal year ended March 31, 2002.
-49-
PENSION INFORMATION
Ricoh, like many large corporations in Japan, has an Employee Pension Fund
("EPF"), which is a defined benefit pension fund established under the Japanese
Welfare Pension Insurance Law ("JWPIL"). This fund is composed of (i) a
substitutional portion based on the pay-related part of the old-age pension
benefits prescribed by JWPIL (similar to social security benefits in the United
States) and (ii) a corporate portion based on a contributory defined benefit
pension arrangement established by Ricoh. The fund assets of the EPF are
invested and managed as a single portfolio for the entire EPF and are not
statutorily attributed to the substitutional and corporate portions. The
substitutional portion represented 39% of the total projected benefit obligation
of Ricoh's EPF as of March 31, 2003.
On June 15, 2001, the JWPIL was amended to permit an employer to elect to
separate the substitutional portion from the EPF and transfer the substitutional
portion to the Japanese government. Upon completion of the separation and
transfer, the employer and the EPF are released from paying the substitutional
portion of the benefits to EPF beneficiaries. Pursuant to the Contributed
Benefit Pension Plan Law, Ricoh received from the Minister of Health, Labor and
Welfare, effective January 1, 2003, an exemption from its obligation to
contribute to the substitutional portion of its EPF for future employee
services. In January 2004, Ricoh received from the Japanese government an
exemption from its obligation to contribute to the substitutional portion of its
EPF relating to past employee services. The transfer to the Japanese government
of the substitutional portion of the EPF was completed on March 16, 2004.
With respect to the accounting treatment of this transfer under accounting
principles generally accepted in the United States of America, Ricoh accounted
for the transfer in accordance with Emerging Issues Task Force Issue No. 03-02
"ACCOUNTING FOR THE TRANSFER TO THE JAPANESE GOVERNMENT OF THE SUBSTITUTIONAL
PORTION OF EMPLOYEE PENSION FUND LIABILITIES" ("EITF 03-02"). As specified in
EITF 03-02, the entire separation process and transfer is to be accounted for at
the time of completion of the transfer to the government of the substitutional
portion of the benefit obligation and related plan assets in accordance with
Statement of Financial Accounting Standards No. 88 "EMPLOYERS' ACCOUNTING FOR
SETTLEMENTS AND CURTAILMENTS OF DEFINED BENEFIT PENSION PLANS AND FOR
TERMINATION BENEFITS". As a result of the transfer in March 2004, Ricoh
recognized as a subsidy from the Japanese government the difference between the
fair value of the obligation deemed "settled" with the Japanese government and
the assets required to be transferred to the government. The subsidy that Ricoh
recognized amounted to Yen 56.9 billion. In addition, Ricoh recognized as a
settlement loss the amount calculated as the ratio of the obligation settled to
the total EPF obligation immediately prior to settlement, both of which exclude
the effect of future salary progression relating to the substitutional portion,
times the net unrecognized gain/loss immediately prior to settlement, which
amounted to Yen 48.6 billion.
In addition, during the fiscal year ended March 31, 2004, the Company
modified its pension plan system from a seniority-based system wherein benefits
increase relative to the number of years of employment to a performance-based
system in which benefits
-50-
reflect the individual employee's performance. By implementing this new pension
plan system, Ricoh believes that it can limit future retirement benefit
expenses. While the Company has implemented a pension plan system that limits
future retirement benefit expenses, Ricoh believes that changing to a
performance-based system in which each employee's performance rather than
seniority is evaluated will maintain employee morale and motivation. Employees
of the Company who retired or left the Company prior to the implementation of
this new pension plan system will still receive benefits based on the previous
seniority-based system.
B. Liquidity and capital resources
Cashflows
---------
The following summarizes our cashflows for each of the three fiscal years
ended March 31, 2002, 2003 and 2004, as reported in our Consolidated Statements
of Cashflows in the accompanying Consolidated Financial Statements.
(Billions of Japanese Yen)
For the year ended March 31,
----------------------------
2002 2003 2004
----- ----- -----
Net cash provided by operating activities 105.1 185.7 154.9
Net cash used in investing activities (81.4) (98.1) (63.3)
Net cash (used in) provided by financing activities 36.2 (67.1) (74.8)
Increase in cash and cash equivalents 62.4 19.0 13.7
Cash and cash equivalents at beginning of year 107.7 170.1 189.2
Cash and cash equivalents at end of year 170.1 189.2 203.0
Operating Cashflows
For fiscal year 2004, net cash provided by operating activities consisted
primarily of net income of Yen 91.7 billion, depreciation and amortization of
Yen 76.9 billion and an increase in trade payables of Yen 21.3 billion, which
was offset by an increase in trade receivables of Yen 11.3 billion, an increase
in finance receivables of Yen 32.6 billion, as well as a decrease in accrued
income taxes and other of Yen 5.9 billion. As compared to fiscal year 2003, net
cash provided from operating activities decreased because (1) the increase in
net sales in the United States and Japan during the fourth quarter as compared
to such period during fiscal year 2003 resulted in an increase in Ricoh's trade
receivables for fiscal year 2004 and (2) the decrease in demand for optical
discs resulted in an increase in the volume of such products being held as
inventory.
For fiscal year 2003, net cash provided by operating activities consisted
primarily of net income of Yen 72.5 billion, depreciation and amortization of
Yen 76.5 billion and a decrease in trade receivables of Yen 22.1 billion, which
was offset in part by an increase in
-51-
finance receivables of Yen 33.1 billion. As compared to fiscal year 2002, net
cash provided from operating activities increased for fiscal year 2003 because
(1) the decrease in net sales during the fourth quarter as compared to such
period during fiscal year 2002 resulted in a decrease in Ricoh's trade
receivables for fiscal year 2003 and (2) the decrease in inventory held by
Lanier and Ricoh's efforts to streamline its supply chain by establishing a
production process by which products are assembled once an order is placed at a
local factory resulted in decreases in inventory.
For fiscal year 2002, net cash provided from operating activities consisted
primarily of net income of Yen 61.6 billion, depreciation and amortization of
Yen 73.7 billion and a decrease in inventories of Yen 21.1 billion, which was
offset by an increase in trade receivables of Yen 20.0 billion, a decrease in
trade payables of Yen 19.5 billion, an increase in finance receivables of Yen
13.6 billion and a decrease in accrued income taxes and accrued expenses of Yen
13.5 billion.
Investing Cashflows
For fiscal year 2004, net cash used in investing activities consisted
mainly of Yen 75.4 billion of expenditures for property, plant and equipment and
Yen 35.5 billion in payments for purchase of available-for-sale securities, as
well as Yen 8.0 billion of other, net. Ricoh realized Yen 45.4 billion from
sales of available-for-sale securities that were held by the Company and certain
subsidiaries and Yen 9.9 billion from a decrease in time deposits. As compared
to fiscal year 2003, net cash used in investing activities decreased for fiscal
year 2004 because Ricoh disposed of certain of its available-for-sale securities
that were not performing as expected and did not make alternative investments.
For fiscal year 2003, net cash used in investing activities consisted
primarily of Yen 71.9 billion of expenditures for property, plant and equipment
and Yen 52.2 billion in payments for purchases of available-for-sale securities.
Ricoh realized Yen 24.5 billion in sales of available-for-sale securities that
were held by the Company and certain subsidiaries as a result of repayments of
such securities, and Yen 0.9 billion from a decrease in time deposits due to
such time deposits reaching maturity. Net cash used in investing activities for
fiscal year 2003 increased from fiscal year 2002 as Ricoh purchased additional
available-for-sale securities by taking advantage of favorable market
conditions. These additional purchases were funded in part by the cash provided
by the sale of certain available-for-sale securities.
For fiscal year 2002, net cash used in investing activities consisted
primarily of Yen 75.2 billion of expenditures for property, plant and equipment,
Yen 21.0 billion of other, net, and Yen 10.0 billion in payments for purchases
of available-for-sale securities. Ricoh realized Yen 24.5 billion in sales of
available-for-sale securities that were held by the Company and certain
subsidiaries, and Yen 0.7 billion in proceeds from sales of property, plant and
equipment.
-52-
Financing Cashflows
For fiscal year 2004, net cash used in financing activities consisted
primarily of Yen 31.5 billion spent for the repayment of long-term loans, Yen
23.9 billion used for the repayment of long-term debt securities, Yen 10.7
billion used to reduce short-term borrowings and Yen 11.4 billion used for the
purchase of treasury stock. Ricoh has not sought authorization for additional
share repurchases during fiscal year 2005, although it may decide to do so
in the future. Ricoh received Yen 13.3 billion as proceeds from long-term loans
and Yen 1.0 billion from the issuance of long-term debt securities. During
fiscal year 2004, Ricoh focused on reducing its long-term borrowings provided by
external parties as its group cash management system developed. As compared to
fiscal year 2003, net cash used in financing activities increased for fiscal
year 2004 as Ricoh continued to reduce its external borrowings, which resulted
in lower proceeds being received from borrowings.
For fiscal year 2003, net cash used in financing activities consisted
primarily of Yen 73.3 billion used to reduce short-term borrowings, Yen 23.1
billion spent for the repayment of long-term loans, Yen 17.2 billion used for
the purchase of treasury stock, and Yen 11.7 billion used for the repayment of
long-term debt securities. Ricoh received Yen 58.1 billion as proceeds from
long-term loans and Yen 11.0 billion from the issuance of long-term debt
securities. As previously discussed, Ricoh used significant amounts of cash
during fiscal year 2003 to repay both short-term and long-term borrowings
provided by external parties as it continued to use its group cash management
system to satisfy its cash management needs. Long-term debt securities noted
above were issued by Ricoh Leasing Co., Ltd., which issued such securities as
part of its ordinary fund-raising activities as a finance company. Ricoh Leasing
Co., Ltd. issued such securities during fiscal year 2003 to take advantage of
favorable market conditions. As compared to fiscal year 2002, Ricoh used
significant amounts of cash during fiscal year 2003 to reduce its external
borrowings as it fully utilized its group cash management system as a means to
satisfy its cash needs previously fulfilled by external parties.
For fiscal year 2002, net cash provided by financing activities primarily
resulted from Yen 103.5 billion received as proceeds from the issuance of
long-term debt securities and Yen 71.0 billion received as proceeds from
long-term loans. During fiscal year 2002, Ricoh used Yen 79.6 billion to repay
its long-term loans, Yen 39.4 billion to reduce short-term borrowings and Yen
10.0 billion to repay its long-term securities. During fiscal year 2002, Ricoh
issued corporate bonds in a relatively large amount so as to take advantage of
the favorable interest rates as it forecasted that interest rates generally
would rise during subsequent fiscal years.
Cash and Asset-Liability Management
It is Ricoh's policy to ensure adequate financing and liquidity for its
operations and growth, and to maintain the strength of its balance sheet.
Pursuant to this policy, Ricoh has in recent years tried to achieve greater
efficiencies in the utilization of cash balances held by its subsidiaries. One
method that Ricoh has implemented to achieve greater efficiency is to build up
its cash management system in each of its geographic
-53-
segments. With finance companies located within each geographic segment as the
center of this cash management system, Ricoh has established a group
pooling-of-funds arrangement in which cash resources are lent and borrowed from
one group company to another group company. As a result of this pooling-of-funds
arrangement, Ricoh has succeeded in reducing the occurrence of excess
accumulation of cash in one group company and the unnecessary borrowing from
third party institutions by another group company. As such, the pooling-of-funds
arrangement has reduced interest expenses and related costs which were
previously paid to third parties. For the fiscal years ended March 31, 2003 and
2004, Ricoh managed to reduce interest-bearing debt by Yen 76.7 billion and Yen
51.8 billion, respectively, on a consolidated basis.
Ricoh also enters into various derivative financial instrument contracts in
the normal course of business and in connection with the management of its
assets and liabilities. Ricoh enters into foreign exchange contracts and foreign
currency options to hedge against the potentially adverse impacts of foreign
currency fluctuations on assets and liabilities denominated in foreign
currencies. Ricoh enters into interest rate swap agreements to hedge against the
potential adverse impacts of fair value or cashflow fluctuations on the
interests in its outstanding debt. Ricoh uses derivative instruments to reduce
risk and protect market value of 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. For a discussion of such activities, please see Item 5.E.
Off-balance sheet arrangements below.
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.
Lines of credit and short-term and medium-term borrowings were as follows
as of March 31, 2004:
(Billions of Japanese Yen)
Average
-------
Amount Outstanding Interest Rate(%) Amount Available
------------------ ---------------- ----------------
Bank borrowings 22.1 1.7 319.5
Commercial paper 129.5 0.8 182.7
Medium-term notes 16.0 0.3 131.9
-54-
As of March 31, 2004, Ricoh had Yen 203.0 billion in cash and cash
equivalents and Yen 802.0 billion in aggregate borrowing facilities. Of the
Yen 802.0 billion in aggregate borrowing facilities, Yen 634.2 billion was
available to be borrowed by Ricoh as of the fiscal year ended March 31, 2004.
The Company has no committed lines of credit with financial institutions. Ricoh
Leasing Co., Ltd., however, has a Yen 77.0 billion committed credit line with
several banks having credit ratings satisfactory to Ricoh, which amount is
included in the Yen 802.0 billion figure for aggregate borrowing facilities.
Under such borrowing facilities, the Company and its subsidiaries are able to
borrow from financial institutions at local market-based interest rates. Such
local market-based interest rates ranged from 0% to 8.25% during the fiscal year
ended March 31, 2004. Almost all of 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 foreign subsidiaries of the Company issue commercial paper
to meet their short-term funding requirements. Of the Yen 634.2 billion
available under the borrowing facilities as of March 31, 2004, capacity
available under commercial paper programs and medium-term note programs
consisted of Yen 182.7 billion and Yen 131.9 billion, 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 and medium-term notes issued by the
Company and its subsidiaries ranged from 0.009% to 1.380% and 0.152% to 1.000%,
respectively during the fiscal year ended March 31, 2004. In recent years, Ricoh
has decreased its outstanding interest-bearing debt by using its cash management
systems in Japan, the United States and Europe. Accordingly, Ricoh recorded a
decrease in cashflows from financing activities in the past five years except in
fiscal year ended March 31, 2002 when the Company issued corporate debt
securities as noted above and recorded an increase in cash cashflow from
financing activities.
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, 2004, the long-term and short-term credit ratings for
both the Company. were A and A1, respectively, by S&P, and A2 and P-1,
respectively by Moody's. On December 10, 2003, the Company's long-term credit
ratings was upgraded to A2 from A3 by Moody's mainly due to the Company's stable
profitability and financial conditions during the past several years. A
downgrade in short-term debt ratings by any of these major rating agencies
generally increases the commercial paper issuing costs and narrows access to the
commercial paper markets. While the outlook of the Company's long-term debt is
rated "Stable" by both S&P and Moody's, a change in such rating could affect the
funding capacity of Ricoh and its subsidiaries thereby affecting liquidity and
the ability to finance growth or capital expenditures.
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 bank may
-55-
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 cash deposited in such bank as security for all
present and future indebtedness. The Company has never been requested to submit
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 at March 31, 2004. The Company is not subject to any covenants
limiting its ability to incur additional indebtedness.
For additional detail regarding these securities, see Note 10 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 2005. Even if there were a decrease in cashflow from
operations as a result of fluctuations in customer demands from one year to
another, Ricoh believes current funds on hand along with funds available under
existing borrowing facilities would be sufficient to finance its foreseeable
operations. In addition, Ricoh believes that it is able to secure adequate
resources to fund ongoing operating requirements and investments related to the
expansion of existing businesses and the development of new projects through its
access to the financial and capital markets. As the Japanese and U.S. economies
begin to exhibit some upswing momentum, the interest rates for long-term debt
are expected to rise. Though it is possible that the rise in interest rates will
affect Ricoh's ability to maintain liquidity, Ricoh believes that the effect of
such increase will not significantly affect Ricoh's liquidity mainly because
Ricoh has sufficient amounts of cash and cash equivalents on hand as well as a
continuous cashflow generated from its operating activity.
Ricoh expects that its capital expenditures for fiscal year 2005 will
amount to approximately Yen 74.5 billion, principally for the following
categories: digital and networking equipment and new accounting and intellectual
property management systems. In addition, Ricoh is obligated to repay long-term
debt in the aggregate principal amount of Yen 81.9 billion during fiscal year
2005, and in the aggregate principal amount of Yen 231.6 billion during fiscal
years 2006 through 2008.
The Company and certain of its subsidiaries have various employee pension
plans covering all of their employees. As described in Note 11 to the
Consolidated Financial Statements, the unfunded portion of these employee
pension plans amounted to Yen 97.0 billion, as of March 31, 2004. The unfunded
portion decreased significantly by Yen 189.9 billion during fiscal year 2004 as
compared to fiscal year 2003 due to the transfer of the substitutional portion
of the EPF to the government as described in Section A. above. However, out of
this unfunded amount, Yen 78.8 billion was recorded as a liability on the
consolidated balance sheet of Ricoh, as of March 31, 2004, after the Company
introduced its cash balance plan. A cash balance plan is a form of a defined
contribution pension plan provided for in the Contributed Benefit Pension Law.
In a cash balance plan,
-56-
contributed amounts are managed on an individual basis but the Company
guarantees a fixed rate yield. The Company and certain of its subsidiaries have
contributed to this new plan in conformity with Japanese governmental
regulations. Although Ricoh does not expect its cash funding requirements to
increase significantly in the medium- or short-term, Ricoh's cash funding
requirements may be affected by possible changes in interest rates, actual
returns on plan assets and governmental regulations on a long-term basis. The
amount of the benefit liability for domestic pension plans accounted for
approximately 79.0% of the total benefit liability as of the fiscal year ended
March 31, 2004, and the percentage of the benefit liability for domestic pension
plans to the total benefit liability decreased by 9.0 percentage points compared
to the fiscal year ended March 31, 2003. The amount contributed for domestic
pension plans for the fiscal years ended March 31, 2004, 2003 and 2002 were
Yen 13.2 billion, Yen 11.7 billion and Yen 11.4 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 has devoted its resources to research and
development ("R&D") activities. As such, Ricoh has established a tradition of
technological innovation and product development. It is this tradition and
Ricoh's continuing emphasis on the importance of R&D activities that allows
Ricoh to produce competitive and high quality products.
Many of Ricoh's R&D activities are conducted by the Research and
Development Group and the Software R&D Group that have their main R&D facility
in Kanagawa, Japan (the "Center"). The Center's activities include research and
development in connection with optics, new materials, mechatronics, computer
simulation and environmental technologies. Ricoh also conducts various
specialized and peripheral R&D activities at its other facilities located
throughout Japan. In addition to the R&D facilities in Japan, Ricoh Innovations,
Inc., located in the United States and founded in March 1997, conducts market
research to assist in the marketing of information technologies for the
digitally networked office. Ricoh Innovations, Inc. also conducts extensive
research and makes strategic investments in promising new business fields. Most
recently in February 2004, Ricoh established Ricoh Software Research Center
(Beijing) Co., Ltd. in an effort to further establish its global R&D
infrastructure. Ricoh Software Research Center (Beijing) Co., Ltd. will focus on
employing and educating talented young researchers, cooperating with other
research organizations, conducting research in China to foresee the needs of the
Chinese market and providing consultation services.
In fiscal year 2004, Ricoh spent Yen 67.7 billion in R&D activities related
to the Office Equipment segment. Some of the more significant R&D achievements
for the
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Office Equipment segment for fiscal year 2004 include the following: the
development of Ricoh's own energy-saving technology "HYBRID QSU" utilizing the
next-generation battery device "Capacitor" and installing such new technology in
Office Equipment products; the development of an "organic photoconductor unit"
to increase the durability of copiers and printers and technology to control the
writing position to obtain higher image quality for copiers using the tandem
method; the development of methods to manufacture oil-less full-color toner that
enables the encapsulated toner to produce the same image quality, energy-savings
and cost savings as polymerized toner, and the development of technology that
eliminates the process of flattening and smoothing the surface of the OPC
aluminum body, thereby decreasing both manufacturing costs and the burden on the
environment; the development of the world's first DVD+R DL (Double Layer) in the
optical disc drive field, which has a recording capacity of 1.8 times the
existing DVD using a double layer recording technology on a single side of a
disk, and the development and production of HBCD-R (Hybrid CD-R) that has
characteristics of both a CD-ROM and CD-R.
In fiscal year 2004, Ricoh spent Yen 8.8 billion in R&D activities relating
to the Other Business segment. In the Other Business segment, Ricoh's R&D
activities included designing ASIC (Application Specific Integrated Circuit) and
ASSP (Application Specific Standard Product) for purposes of imaging, audio and
communication, the development of the technology to utilize EDA (Electronic
Design Automation), and the development of digital camera technology as an ICD
(Image Capturing Device) and development of its application technology. One of
the R&D activities that produced results during fiscal year 2004 was the
technological development to install the voltage regulator IC to a SON1612
package (1.6mm x 1.6mm x MAX0.6mm in size) and the success in decreasing the
equipment square footage by 40% and equipment height by 45% when compared to the
previous model.
In addition, Ricoh also engages in the development of its fundamental
research fields, which focus on research and development activities that can be
applied to various products. For fiscal year 2004, Ricoh spent Yen 15.9 billion
in R&D activities in its fundamental research fields. Such R&D activities
include R&D in nanotechnology, micro-machining, photonics technology, and
technology to create the next generation of office system and office solutions.
Ricoh's total research and development expenses for the fiscal years 2002,
2003 and 2004 were Yen 80.7 billion, Yen 83.5 billion and Yen 92.5 billion,
respectively. For a summary of Ricoh's research and development expenditures
during each of the last three fiscal years, see Note 19 to the Consolidated
Financial Statements.
Patents and Licenses
--------------------
Ricoh owns approximately 19,000 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.
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The following table lists some of the important patent and licensing
agreement which the Company is currently a party to:
-------------------------------------------------------------------------------------------------------------------------------
Counterparty Country Summary of the Contract Contract Term
-------------------------------------------------------------------------------------------------------------------------------
Xerox Corporation USA Cross license patent agreement relating to the October 7, 1980 to expiration date of
digital photography area (reciprocal agreement) the patent subject to the agreement
-------------------------------------------------------------------------------------------------------------------------------
International Comprehensive cross license patent agreement
Business Machines USA relating to the information processing technology April 1, 1999 to expiration date of
Corporation area (reciprocal agreement) the patent subject to the agreement
-------------------------------------------------------------------------------------------------------------------------------
Lemelson Medical, USA Patent licensing agreement relating to computer March 31, 1993 to expiration date of
Education & Research image analysis and other products (the Company as the patent subject to the agreement
Foundation Limited the licensee)
Partnership
-------------------------------------------------------------------------------------------------------------------------------
Texas Instruments USA Comprehensive cross license agreement relating to October 11, 1996 to October 10, 2006
Incorporated copiers, etc. (reciprocal agreement)
-------------------------------------------------------------------------------------------------------------------------------
Sharp Corporation Japan Patent licensing agreement relating to facsimile April 1, 1997 to March 31, 2002 with
machines (the Company as licensor) automatic renewal every 5 years
thereafter
-------------------------------------------------------------------------------------------------------------------------------
Canon Inc. Japan Patent licensing agreement relating to office October 1, 1998 to expiration date of
equipment (reciprocal agreement) the patent subject to the agreement
-------------------------------------------------------------------------------------------------------------------------------
Brother Industries, Ltd. Japan Patent licensing agreement relating to digital December 20, 1999 to December 19, 2005
photography (reciprocal agreement)
-------------------------------------------------------------------------------------------------------------------------------
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 4 to the Consolidated Financial Statements, Ricoh,
through its domestic leasing affiliate, periodically has sold small amounts of
lease receivables through securitization. The total amount of lease receivables
sold during the fiscal years ended March 31, 2002 equaled Yen 25.0 billion, and
no lease receivables were sold during the fiscal year ended March 31, 2003 and
2004. For the past three fiscal years, securitization averaged approximately
0.65% of Ricoh's total funding. Securitization involves the creation of SPEs to
hold 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
-59-
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, 2004, Ricoh had two such SPEs that held assets
it had sold in securitizations totaling Yen 47.9 billion.
Ricoh does not dispose of troubled leases, loans or other problem assets by
means of nonconsolidated SPEs. None of our officers, directors or employees hold
any equity interests in our SPEs or receives any direct or indirect compensation
from the SPEs. The SPEs do 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. Contractual Obligations
The following table sets forth Ricoh's contractual obligations as of March
31, 2004.
------------------------------------------------------------------------------------------------------
Millions of yen
Payments due by period
-----------------------------------------------------------
Total Less than 1 More than 5
CONTRACTUAL OBLIGATION year 1-3 years 3-5 years years
------------------------------------------------------------------------------------------------------
Long-term Debt Obligations 357,771 81,017 200,512 55,794 20,448
------------------------------------------------------------------------------------------------------
Capital (Finance) Lease Obligations 3,141 926 1,269 262 684
------------------------------------------------------------------------------------------------------
Purchase Obligations 895 895 -- -- --
------------------------------------------------------------------------------------------------------
Other Long-term Liabilities Reflected on -- -- -- -- --
Ricoh's Balance Sheet under US GAAP
------------------------------------------------------------------------------------------------------
TOTAL 361,807 82,838 201,781 56,056 21,132
------------------------------------------------------------------------------------------------------
Ricoh also had operating lease commitments with rental payments totaling
Yen 51.7 billion for the fiscal year ended March 31, 2004. Ricoh is unable to
disclose additional details with respect to its operating lease obligations
because Ricoh's material operating leases consist primarily of leases that may
be cancelled with short notice.
In addition to the above, Ricoh acts as a guarantor for some of its
employees' housing loans. As of March 31, 2004, the total amount of such
guarantees was Yen 283 million.
G. New Accounting Standards
No new accounting standards were issued during fiscal year 2004 which had a
material impact on Ricoh's financial statements for the fiscal year ended March
31, 2004. No new accounting standards are expected to have a material impact on
Ricoh's financial statements for the fiscal year 2005.
-60-
Item 6. Directors, Senior Management and Employees
------------------------------------------
A. Directors and senior management
Directors and Corporate Auditors of the Company as of June 25, 2004 were as
follows:
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
---------------------- ------------------------------------ --------- -------------------------------------
Masamitsu Sakurai President, Apr. 1966 Joined the Company
(January 8, 1942) Chief Executive Officer and Apr. 1990 General Manager of Procurement
Chief Operating Officer Division
June 1992 Director
June 1994 Managing Director
Apr. 1996 President (Current)
June 2000 Chief Operating Officer (Current)
June 2003 Chief Executive Officer (Current)
Principal business activities and other principal directorships performed outside Ricoh:
Vice Chairperson of Japan Association of Corporate Executives
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.
---------------------- ------------------------------------ --------- -------------------------------------
Tatsuo Hirakawa Deputy President Apr. 1960 Joined the Company
(November 17, 1937) (Corporate Strategy and Personnel) Jan. 1982 Deputy General Manager of Accounting
and Management Division
June 1983 Director
June 1990 Managing Director
June 1994 Executive Managing Director
June 2000 Executive Vice President (Current)
Oct. 2001 Deputy president (Current)
Principal business activities and other principal directorships performed outside Ricoh:
Corporate Auditor of Coca-Cola West Japan Co., Ltd.
---------------------- ------------------------------------ --------- -------------------------------------
Koichi Endo Executive Managing Director Apr. 1966 Joined the Company
(February 16, 1944) (Corporate Planning, and Corporate Oct. 1990 General Manager of Component
Communication) Division
(Restructuring by Supply Chain June 1992 Director
Management) June 1997 Managing Director
(Legal, Intellectual Property and Apr. 1998 General Manager of Production
Public Relation) Business Group
June 2000 Executive Managing Director (Current)
June 2000 Executive Vice President (Current)
Principal business activities and other principal directorships performed outside Ricoh:
Director of Sindo Ricoh Co., Ltd.
Director of San-Ai Plant Construction Co., Ltd.
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Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
---------------------- ------------------------------------ --------- -------------------------------------
Masayuki Matsumoto Executive Managing Director Apr. 1970 Joined the Company
(December 10, 1944) (Domestic Sales Strategy) July 1993 General Manager of General Manager
(Corporate Social Responsibility Staff Office in Tokyo Branch
and Corporate Citizenship June 1994 Director
Promotion ) Oct. 1998 Managing Director
Oct. 1998 General Manager of Marketing Group
June 2000 Executive Vice President (Current)
June 2002 Executive Managing Director (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Katsumi Yoshida Executive Managing Director Apr. 1967 Joined the Company
(August 20, 1944) (International Marketing Apr. 1989 General Manager of Product Division
Business) Feb. 1996 Chairman of Ricoh Electronics, Inc.
(General Manager of Apr. 2000 President of Ricoh Corporation
International Business Group) Apr. 2001 Executive Vice President (Current)
June 2002 Managing Director
Jan. 2003 Chairman of Ricoh Corporation
Oct. 2003 General Manager of International
Marketing Group
Oct. 2003 Chairman of Ricoh China Co., Ltd.
(Current)
Apr. 2004 General Manager of International
Business Group (Current)
June 2004 Executive Managing Director (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Makoto Hashimoto Managing Director Nov. 1972 Joined the Company
(August 26, 1945) (Customer Satisfaction and Apr. 1993 General Manager of PPC Division of
Quality Control) Imaging System Business Group
(Production and Procurement) June 1994 Director
(General Manager of Customer Apr. 1998 General Manager of Imaging System
Satisfaction Management Business Group
Division) June 1998 Managing Director (Current)
June 2000 Executive Vice President (Current)
Oct. 2000 President of MultiMedia Products
Company
June 2003 General Manager of Customer
Satisfaction Management (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Kiyoshi Sakai Managing Director Apr. 1970 Joined the Company
(December 25, 1945) (Research and Development) Jan. 1996 General Manger of Corporate Planning
(Corporate Environment) Division
(General Manager of Research June 1996 Director
and Development Group) Apr. 1999 General Manager of Research and
(General Manager of Group Development Group (Current)
technology planning) June 2000 Senior Vice President
June 2002 Executive Vice President (Current)
June 2002 Managing Director (Current)
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Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
---------------------- ------------------------------------ --------- -------------------------------------
Takashi Nakamura Managing Director Apr. 1972 Joined the Company
(September 2, 1946) (Strategy of Production Apr. 2000 President of Ricoh UK Products Ltd.
Technology) Jan. 1995 President of Ricoh Europe B.V.
June 1998 Director
June 2000 Senior Vice President
Apr. 2002 Group Senior Vice President (Current)
June 2002 President of Ricoh Elemex Corporation
(Current)
June 2004 Managing Director (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Shiroh Kondoh Managing Director Apr. 1973 Joined the Company
(October 7, 1949) (Imaging System Business) Apr. 1998 Manager of Printing Division of
(Planning, Development and Imaging System Business Group
Design of Imaging System) June 2000 Senior Vice President
(Gel jet Business) Oct. 2000 General Manager of Imaging System
(General Manger of Imaging Business Group (Current)
System Business Group) June 2002 Executive Vice President (Current)
June 2003 Managing Director (Current)
Principal business activities and other principal directorships performed outside Ricoh:
Director of Sindo Ricoh Co., Ltd.
---------------------- ------------------------------------ --------- -------------------------------------
Kazuo Togashi Managing Director Apr. 1972 Joined the Company
(November 28, 1949) (Sales in Europe) Apr. 1998 President of Ricoh Europe B.V.
June 2000 Group Senior Vice President
Apr. 2002 Chairman of said company (Current)
Apr. 2002 Chairman of NRG Group PLC (Current)
June 2002 Executive Vice President (Current)
June 2003 Managing Director (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Kazunori Azuma Managing Director Apr. 1971 Joined the Company
(February 11, 1949) (Domestic Sales Business) Oct. 1994 President of Hokkaido Ricoh Co., Ltd.
(General Manager of June 2000 Senior Vice President
Marketing Group) Oct. 2000 Group Senior Vice President
Oct. 2000 President of Ricoh Technosystems Co.,
Ltd.
June 2003 Executive Vice President (Current)
Managing Director (Current)
Oct. 2003 Chairman of Ricoh Technosystems Co.,
Ltd.
Deputy General Manager of Marketing
Group
Nov. 2003 General Manager of Marketing Group
(Current)
---------------------- ------------------------------------ --------- -------------------------------------
Yuji Inoue Managing Director Apr. 1971 Joined the Company
(April 4, 1948) (Finance Solution) Apr. 1998 General Manger of Finance and
Accounting Division
Apr. 2000 President of Ricoh Leasing Co., Ltd.
(Current)
June 2000 Group Senior Vice President (Current)
June 2004 Managing Director (Current)
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Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
---------------------- ------------------------------------ --------- -------------------------------------
Zenji Miura Managing Director Apr. 1976 Joined the Company
(January 5, 1950) (Management Control, Internal Jan. 1993 President of Ricoh France S.A.
Control, Finance and Aug. 1993 Chairman of Ricoh France S.A.
Accounting and Investor Oct. 2000 Senior Vice President
Relation) Oct. 2000 General Manager of Finance and
(General Manager of Accounting Division (Current)
Accounting Division)
June 2003 Executive Vice President (Current)
June 2004 Managing Director (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Nobuo Mii Director Apr. 1955 Joined the Nippon Hoso Kyokai (Japan
(July 4, 1931) (Technical of Information and Broadcasting Corporation)
Communication) Jan. 1969 Joined IBM Japan Ltd.
Jan. 1969 Joined IBM Corporation
Mar. 1977 Director of IBM Japan Ltd.
Apr. 1990 Vice President of IBM Japan Ltd.
Oct. 1997 Managing Partner of IGNITE Group
(Current)
June 2000 Director of the Company (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Hisaaki Koga Corporate Auditor Apr. 1967 Joined the Company
(April 5, 1943) Oct. 1991 Deputy General Manager of Personnel
Division
Jan. 1996 General Manger of Sendai Branch in
Marketing Division
Apr. 1998 General Manager of General Manager
Staff Office in Marketing Group
June 1998 Corporate Auditor of the Company
(Current)
---------------------- ------------------------------------ --------- -------------------------------------
Hideyuki Takamatsu Corporate Auditor Apr. 1966 Joined the Company
(May 21, 1942) July 1987 General Manger of Accounting
Department in Finance and
Accounting Division
Dec. 1997 Executive Managing Director of San-Ai
Co., Ltd.
June 2000 Corporate Auditor of the Company
(Current)
---------------------- ------------------------------------ --------- -------------------------------------
Kohji Tomizawa Corporate Auditor Apr. 1971 Joined the Company
(May 25, 1946) July 1988 President of Ricoh Finance Ltd.
June 1997 Managing Director of Ricoh Logistics
System Co., Ltd.
July 2001 Director of Tokyo Ricoh Co., Ltd.
June 2004 Corporate Auditor of the Company
(Current)
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Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
---------------------- ------------------------------------ --------- -------------------------------------
Kenji Matsuishi Corporate Auditor Apr. 1965 Graduated from the National Legal
(July 24, 1937) Training and Research Institute.
Apr. 1965 Legal registration as a Japanese
attorney
Apr. 1965 Joined Takano & Higuchi Legal
Services
Feb. 1972 General Manager of Matsuishi Legal
Services (Current)
June 1994 Corporate Auditor of the Company
(Current)
---------------------- ------------------------------------ --------- -------------------------------------
Takehiko Wada Corporate Auditor Apr. 1958 Joined San-Ai Oil Co., Ltd.
(October 24, 1935) 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 (Current)
June 2001 Corporate Auditor of the Company
(Current)
Directors and Corporate Auditors are elected at a general meeting of
shareholders for two and three years terms, respectively, and may serve any
number of consecutive terms.
The Board of Directors has appointed from among its members a Chairman, a
President, and one or more Vice Presidents, Executive Managing Directors and
Managing Directors, in accordance with Japanese commercial law. As of June 25,
2004, the Company maintains an executive officer system and under such system
there are 43 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 25, 2004 were as follows:
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
---------------------- ------------------------------------ --------- -------------------------------------
Masamitsu Sakurai President, See above for his business experience and other
Chief Executive Officer and information.
Chief Operating Officer
---------------------- ------------------------------------ --------- -------------------------------------
Tatsuo Hirakawa Executive Vice President See above for his business experience and other
(Corporate Strategy and information.
Personnel)
-65-
Current Position
Name (Function/Business area) Date Business Experience
---------------------- ------------------------------------ --------- -------------------------------------
Koichi Endo Executive Vice President See above for his business experience and other
(Corporate Planning, and information.
Corporate Communication)
(Restructuring)
(Legal, Intellectual Property
and Public Relation)
(General Manger of Management
Transparency Promotion)
---------------------- ------------------------------------ --------- -------------------------------------
Masayuki Matsumoto Executive Vice President See above for his business experience and other
(Domestic Sales Strategy) information.
(Corporate Social Responsibility
and Corporate Citizenship
Promotion)
---------------------- ------------------------------------ --------- -------------------------------------
Katsumi Yoshida Executive Vice President See above for his business experience and other
(General Manger of International information.
Business Group)
(Chairman of Ricoh China Co.,
Ltd.)
---------------------- ------------------------------------ --------- -------------------------------------
Makoto Hashimoto Executive Vice President See above for his business experience and other
(General Manager of Customer information.
Satisfaction Management
Division)
---------------------- ------------------------------------ --------- -------------------------------------
Kiyoshi Sakai Executive Vice President See above for his business experience and other
(General Manager of Research and information.
Development Group)
(General Manager of Group
Technology Planning)
(Corporate Environment)
---------------------- ------------------------------------ --------- -------------------------------------
Shiroh Kondoh Executive Vice President See above for his business experience and other
(General Manger of Imaging information.
System Business Group)
---------------------- ------------------------------------ --------- -------------------------------------
Kazuo Togashi Executive Vice President See above for his business experience and other
(Chairman of Ricoh Europe B.V.) information.
(Chairman of NRG Group PLC)
---------------------- ------------------------------------ --------- -------------------------------------
Kazunori Azuma Executive Vice President See above for his business experience and other
(General Manager of Marketing information.
Group)
(Chairman of Ricoh Technosystems
Co., Ltd.)
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Current Position
Name (Function/Business area) Date Business Experience
---------------------- ------------------------------------ --------- -------------------------------------
Zenji Miura Executive Vice President See above for his business experience and other
(General Manager of Accounting information.
Division)
(Management Control, Internal
Control and Investor Relation)
---------------------- ------------------------------------ --------- -------------------------------------
Terumoto Nonaka Executive Vice President Jan. 1988 Joined the Company
(October 28, 1947) (President of Electronic Devices Oct. 2000 President of Electronic Devices
Company) Company (Current)
June 2002 Executive Vice President of the
Company (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Tadatoshi Sakamaki Executive Vice President Apr. 1967 Joined the Company
(April 23, 1942) (President of Personal June 2000 Senior Vice President of the Company
MultiMedia Products Company) Apr. 2002 General Manager of Marketing Center
of Personal MultiMedia Products
Company
June 2003 President of Personal MultiMedia
Products Company (Current)
June 2003 Executive Vice President of the
Company (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Etsuo Kobayashi Executive Vice President Apr. 1970 Joined the Company
(July 4, 1947) (General Manager of Personnel Apr. 1998 General Manager of Personnel Division
Division) (Current)
June 2000 Senior Vice President of the Company
June 2003 Executive Vice President of the
Company (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Hiroshi Tategami Executive Vice President Apr. 1962 Joined the Company
(March 31, 1941) (General Manager of Production June 2000 Senior Vice President of the Company
Business Group) Oct. 2000 General Manager of RS Products
Division
June 2003 General Manager of Production
Business Group (Current)
June 2003 Executive Vice President of the
Company (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Haruo Nakamura Executive Vice President Aug. 2000 Joined the Company
(April 29, 1952) (General Manager of Gel Jet Leader of the Alpha taskforce
Business Group) Apr. 2004 Executive Vice President of the
Company (Current)
Apr. 2004 General Manger of the Gel Jet
Business Group (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Kenji Hatanaka Executive Vice President Apr. 1969 Joined the Company
(July 1, 1946) (General Manager of Tokyo Branch) June 2000 Senior Vice President of the Company
(General Manager of Kanto Branch) June 2003 General Manager of Tokyo Branch
(Current)
June 2003 General Manager of Kanto Branch
(Current)
June 2004 Executive Vice President of the
Company (Current)
-67-
Current Position
Name (Function/Business area) Date Business Experience
---------------------- ------------------------------------ --------- -------------------------------------
Hideko Kunii Executive Vice President May 1982 Joined the Company
(December 13, 1947) (General Manager of Software Oct. 1999 General Manager of Software Research
Research and Development) Center
(Chairman of Ricoh Software June 2000 Senior Vice President of the Company
Research Center (Beijing) Co., Oct. 2000 Deputy General Manager of P&S Products
Ltd.) Division
June 2002 Chairman of Ricoh Software Technology
(Shanghai) Co., Ltd.
Oct. 2002 General Manager of Software Research
and Development (Current)
Feb. 2004 Chairman of Ricoh Software Research
Center (Beijing) Co., Ltd. (Current)
June 2004 Executive Vice President of the Company
(Current)
---------------------- ------------------------------------ --------- -------------------------------------
Hiroshi Kobayashi Executive Vice President Apr. 1974 Joined the Company
(July 2, 1948) (General Manager of Corporate Apr. 2002 General Manager of Corporate Planning
Planning Division) Division (Current)
June 2002 Senior Vice President of the Company
(Current)
Apr. 2003 General Manager of Corporate
Communication Center
June 2004 Executive Vice President of the Company
(Current)
---------------------- ------------------------------------ --------- -------------------------------------
Susumu Ichioka Executive Vice President Apr. 1971 Joined the Company
(April 23, 1948) (Chairman of Ricoh Corporation) Oct. 2003 Group Senior Vice President of the
Company
June 2004 Executive Vice President of the
Company (Current)
June 2004 Chairman of Ricoh Corporation
(Current)
---------------------- ------------------------------------ --------- -------------------------------------
Masami Yoneyama Senior Vice President Mar. 1961 Joined the Company
(March 25, 1942) June 2000 Senior Vice President of the Company
(China and Direct Sales Business) Oct. 2000 Group Senior Vice President
Oct. 2000 Chairman of Ricoh Hong Kong Ltd.
Oct. 2000 Chairman of Ricoh Electronic
Technology Ltd. (China)
Jan. 2003 Vice Chairman and President of Ricoh
China Co., Ltd.
June 2004 Senior Vice President (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Kunio Taniguchi Senior Vice President Apr. 1972 Joined the Company
(December 18, 1948) (General Manager of Osaka Branch) June 2000 Senior Vice President of the Company
(Current)
(President of Ricoh Kansai Co., June 2003 General Manager of Osaka Branch
Ltd) (Current)
June 2003 President of Ricoh Kansai Co., Ltd.
(Current)
-68-
Current Position
Name (Function/Business area) Date Business Experience
---------------------- ------------------------------------ --------- -------------------------------------
Hiroshi Tsuruga Senior Vice President Apr. 1971 Joined the Company
(November 18, 1948) (General Manger of Apr. 1999 General Manger of Information/
Information/Technology and Technology and Service Division
Service Division) (Current)
June 2002 Senior Vice President of the Company
(Current)
---------------------- ------------------------------------ --------- -------------------------------------
Kiyoto Nagasawa Senior Vice President Apr. 1973 Joined the Company
(August 16, 1948) (General Manger of C&F Business Apr. 2001 General Manger of C&F Business
Division 2) Division 2 (Current)
May 2002 Director of Ricoh Creative
Development Co., Ltd. (Current)
June 2002 Senior Vice President of the Company
(Current)
---------------------- ------------------------------------ --------- -------------------------------------
Yutaka Ebi Senior Vice President Apr. 1972 Joined the Company
(October 20, 1949) (General Manger of Imaging Apr. 2001 General Manger of Imaging Technology
Technology Division) Division (Current)
June 2002 Senior Vice President of the Company
(Current)
---------------------- ------------------------------------ --------- -------------------------------------
Hiroo Matsuda Senior Vice President Apr. 1972 Joined the Company
(April 19, 1948) (General Manger of Solution Apr. 2002 General Manger of Major Accounts
Partner Marketing Division) Marketing Division
June 2002 Senior Vice President of the
Company (Current)
Apr. 2004 General Manger of Solution Partner
Marketing Division (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Hiroshi Adachi Senior Vice President Apr. 1968 Joined the Company
(January 8, 1946) (President of Thermal Media Oct. 2000 President of Thermal Media Company
Company) (Current)
(Chairman of Ricoh Electronic Nov. 2001 Chairman of Ricoh Electronic
Technology (Beijing) Co., Ltd.) Technology (Beijing) Co., Ltd.
(Current)
(Chairman of Ricoh International June 2002 Senior Vice President of the Company
(Shanghai) Co., Ltd.) (Current)
June 2004 Chairman of Ricoh International
(Shanghai) Co., Ltd. (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Kouji Sawa Senior Vice President Apr. 1971 Joined the Company
(June 5, 1948) (General Manager of Production Apr. 1998 General Manger of Imaging System Component
Strategic Center) Production Division
(General Manager of Optical Apr. 2000 General Manager of Production Strategic
Component Development Division) Center (Current)
July 2001 General Manager of Optical Component
Development Division (Current)
June 2002 Senior Vice President of the Company
(Current)
-69-
Current Position
Name (Function/Business area) Date Business Experience
---------------------- ------------------------------------ --------- -------------------------------------
Yoshimasa Matsuura Senior Vice President Apr. 1971 Joined the Company
(June 23, 1947) May 1999 General Manger of Supply Chain
Management Planning Division
Apr. 2004 General Manger of Imaging Business
Strategy Center (Current)
June 2004 Senior Vice President of the Company
(Current)
---------------------- ------------------------------------ --------- -------------------------------------
Sadahiro Arikawa Senior Vice President Apr. 1971 Joined the Company
(March 31, 1949) (General Manger of Major Accounts Dec. 2001 President of Ricoh Kyusyu Co., Ltd.
Marketing Division) Apr. 2004 General Manger of Major Accounts
Marketing Division (Current)
June 2004 Senior Vice President of the Company
(Current)
---------------------- ------------------------------------ --------- -------------------------------------
Norio Tanaka Senior Vice President Feb. 1978 Joined the Company
(March 22, 1948) (Deputy General Manger of Apr. 2004 General Manger of Products Center
International Business Group) (Current)
(General Manger of Products Center) Apr. 2004 Deputy General Manager of Image
Business Strategy Center (Current)
(Deputy General Manager of Image June 2004 Senior Vice President of the Company
Business Strategy Center) (Current)
June 2004 Deputy General Manger of
International Business Group
(Current)
---------------------- ------------------------------------ --------- -------------------------------------
Takashi Nakamura Group Senior Vice President See above for his business experience and other
(President of Ricoh Elemex information.
Corporation)
---------------------- ------------------------------------ --------- -------------------------------------
Yuji Inoue Group Senior Vice President See above for his business experience and other
(President of Ricoh Leasing Co., information.
Ltd.)
---------------------- ------------------------------------ --------- -------------------------------------
Peter E. Hart Group Senior Vice President Mar. 1997 President of Ricoh Silicon Valley,
(February 27, 1941) (Chairman and President of Ricoh Inc. (now Ricoh Innovations, Inc.)
Innovations, Inc.)
Feb. 2000 Chairman and President of Ricoh
Silicon Valley, Inc. (now Ricoh
Innovations, Inc.) (Current)
June 2000 Group Senior Vice President of the
Company (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Bernard Decugis Group Senior Vice President Aug. 1993 President of Ricoh France S.A.
(October 23, 1942) (President of Ricoh France S.A.) (Current)
Apr. 2001 Group Senior Vice President of the
Company (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Yoichi Shirahata Group Senior Vice President Mar. 1962 Joined the Company
(December 20, 1943) (President of Tohoku Ricoh Co., June 2002 Group Senior Vice President of the
Ltd.) Company (Current)
June 2002 President of Tohoku Ricoh Co., Ltd.
(Current)
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Current Position
Name (Function/Business area) Date Business Experience
---------------------- ------------------------------------ --------- -------------------------------------
Norihisa Goto Group Senior Vice President Apr. 1972 Joined the Company
(March 8, 1949) (President of Lanier Worldwide, Oct. 1997 President of Ricoh Deutschland GmbH
Inc. )
Mar. 2001 Chairman of Lanier Worldwide, Inc.
Jan. 2003 President of Lanier Worldwide, Inc.
(Current)
June 2003 Group Senior Vice President of the
Company (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Syunsuke Nakanishi Group Senior Vice President Apr. 1972 Joined the Company
(October 12, 1948) (President of Ricoh Electronics May 1999 General Manger of Product Strategic
Inc.) Center
July 2001 President of Ricoh Electronics Inc.
(Current)
June 2004 Group Senior Vice President of the
Company (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Shiro Sasaki Group Senior Vice President Apr. 1972 Joined the Company
(December 23, 1949) (President of NRG Group PLC) Apr. 2000 President of Gestetner Holdings PLC
Apr. 2002 President of NRG Group PLC (Current)
June 2004 Group Senior Vice President of the
Company (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Mitsuhiko Ikuno Group Senior Vice President May 1975 Joined the Company
(March 26, 1953) (President of Shanghai Ricoh June 2000 President of Ricoh Asia Industry,
Facsimile Co., Ltd.) Ltd. (Current)
(President of Ricoh Asia Industry, June 2004 President of Shanghai Ricoh Facsimile
Ltd.) Co., Ltd. (Current)
Group Senior Vice President of the
Company (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Kenichi Kanemaru Group Senior Vice President Apr. 1973 Joined the Company
(November 19, 1952) (President of Ricoh UK Products Apr. 1998 General Manger of Product Strategic
Ltd.) Center
June 1999 President of Ricoh UK Products Ltd.
(Current)
June 2004 Group Senior Vice President of the
Company (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Yoshihiro Niimura Group Senior Vice President Apr. 1975 Joined the Company
(May 22, 1951) (President of Ricoh China Co., June 2004 President of Ricoh China Co., Ltd.
Ltd.) (Current)
(Chairman and President of Ricoh June 2004 Chairman and President of Ricoh
Electronic Technology Ltd. China) Electronic Technology Ltd. China
(Current)
June 2004 Group Senior Vice President of the
Company (Current)
---------------------- ------------------------------------ --------- -------------------------------------
Michel De Bosschere Group Senior Vice President 1990 Managing Director of Nashua/tec
(June 16, 1948) Benelux
(President of NRG Benelux B.V.) 2000 President of NRG Group Benelux
June 2004 Group Senior Vice President of the
Company (Current)
-71-
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, or an Executive Officer.
B. Compensation
The aggregate remuneration, including bonuses but excluding retirement
allowances, paid by the Company for the fiscal year ended March 31, 2004 to all
Directors, Corporate Auditors and Executive Officers of the Company who served
during the fiscal year ended March 31, 2004 was Yen 1,089 million.
In accordance with customary Japanese business practice, annual bonuses are
paid to the Directors and Corporate Auditors of the Company out of the profit of
the Company available for dividends, as such profit is determined in accordance
with the Japanese Commercial Code. 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 183 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 the fiscal
year 2004, as approved by the Company's shareholders at the General Meeting of
Shareholders held on June 26, 2003.
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.
C. Board practices
Under the Japanese Commercial Code, 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 closing of accounts within two years after their
assumption of office, 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 closing of accounts within four years after their assumption
of office. 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.
-72-
The Corporate Auditors of the Company are not required to be and are not
certified public accountants. However, at least one of the Corporate Auditors
must be a person who has not been a Director, general manager, or employee of
the Company or any of its subsidiaries during the five-year period immediately
prior to his assumption of office as a Corporate Auditor. The Corporate Auditors
may not at the same time be Directors, 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 "Law concerning Special Measures to the
Commercial Code with respect to Audit," 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 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.
D. Employees
The table below provides information about employees.
--------------------------------------------------------------------------------
As of March 31,
2002 2003 2004
------ --------------- ------
Categorized by Operating Segment
Office Equipment 65,359 66,422 65,878
Other 7,582 6,899 6,152
Headquarters 1,268 1,286 1,107
Total 74,209 74,607 73,137
Categorized by Geographic Location
Domestic 39,988 39,482 38,772
Overseas 34,221 35,125 34,365
Total 74,209 74,607 73,137
--------------------------------------------------------------------------------
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 2004 and Ricoh knows of no efforts to organize a
union. Ricoh generally believes its employee relations to be good.
-73-
E. Share ownership
The following table lists the number of Common Stock owned by each
Director, Corporate Auditors and Executive Officers of the Company as of June
25, 2004. 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 President, Chief Executive Officer 7,000
and Chief Operating Officer
Tatsuo Hirakawa Deputy President 16,379
Koichi Endo Executive Managing Director 12,747
Masayuki Matsumoto Executive Managing Director 4,000
Katsumi Yoshida Executive Managing Director 5,100
Makoto Hashimoto Managing Director 10,000
Kiyoshi Sakai Managing Director 4,000
Takashi Nakamura Managing Director 5,693
Shiroh Kondoh Managing Director 4,000
Kazuo Togashi Managing Director 3,000
Kazunori Azuma Managing Director 4,000
Yuji Inoue Managing Director 10,000
Zenji Miura Managing Director 2,000
Hisaaki Koga Corporate Auditor 5,253
Hideyuki Takamatsu Corporate Auditor 3,000
Kenji Matsuishi Corporate Auditor 2,000
Koji Tomizawa Corporate Auditor 1,000
Terumoto Nonaka Executive Vice President 7,050
Tadatoshi Sakamaki Executive Vice President 6,211
Etsuo Kobayashi Executive Vice President 7,000
Hiroshi Tategami Executive Vice President 5,000
Kenji Hatanaka Executive Vice President 3,000
Hideko Kunii Executive Vice President 5,000
Hiroshi Kobayashi Executive Vice President 1,000
Masami Yoneyama Senior Vice President 11,000
Hiroshi Tsuruga Senior Vice President 2,000
Kiyoto Nagasawa Senior Vice President 3,000
Yutaka Ebi Senior Vice President 2,000
Hiroshi Adachi Senior Vice President 7,000
Kouji Sawa Senior Vice President 3,000
Yoshimasa Matsuura Senior Vice President 3,000
Sadahiro Arikawa Senior Vice President 1,000
Norio Tanaka Senior Vice President 105
Yoichi Shirahata Group Senior Vice President 9,496
-------
Total 175,034
=======
-74-
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 25, 2004.
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, 2004 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. 85,575 11.58%
Common Stock Japan Trustee Services Bank, Ltd. 73,282 9.92%
The Mitsubishi Trust and Banking Corporation, the second largest
shareholder of Ricoh as of March 31, 2002, transferred its shares in Ricoh to
The Master Trust Bank of Japan, Ltd. during the fiscal year 2003. As a result,
The Master Trust Bank of Japan, Ltd. was Ricoh's second largest shareholder as
of March 31, 2003.
The Master Trust Bank of Japan, Ltd. is a joint venture managed by the
Mitsubishi Trust and Banking Corporation, Nippon Life Insurance Company, UFJ
Trust Bank Limited, Meiji Yasuda Life Insurance Company and Deutsche Bank.
The number of Ricoh shares held by The Master Trust Bank of Japan, Ltd. may
increase in the future. As of March 31, 2004, Nippon Life Insurance Company and
UFJ Trust Bank Limited have not transferred shares in Ricoh to The Master Trust
Bank of Japan, Ltd., and it is possible that these two entities will transfer
their shares in Ricoh to The Master Trust Bank of Japan, Ltd. in the future. In
addition, Meiji Yasuda Life Insurance Company and Deutsche Bank may transfer
their shares in Ricoh to the Master Trust Bank of Japan, Ltd. in the future.
With respect to significant changes in percentage ownership, the percentage
of ownership held by The Master Trust Bank of Japan, Ltd. increased from 8.78%
to 11.58% during fiscal year 2004, and the percentage of ownership held by Japan
Trustee Services Bank, Ltd. increased from 8.75% to 9.84% during fiscal year
2003. In addition, during the fiscal year 2002, the percentage ownership held by
The Mitsubishi Trust and Banking Corporation increased from 3.65% to 6.20% and
the percentage ownership held by Nippon Life Insurance Company decreased from
5.52% to 4.47%.
-75-
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 the
past three years except as described above.
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, 2004, 331,043 American Depositary Shares
were held of record by 3 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 6
to the Consolidated Financial Statements.
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-46.
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-
-76-
and long-term perspectives. See Item 10(b) "Dividends" for important information
on the Company's dividend payment procedure and restrictions.
B. Significant changes
No significant changes have occurred since the date of the Consolidated
Financial Statements included in this report.
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.
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 at Over-the-Counter Market.
-77-
Over-the-Counter Market Price
Tokyo Stock Exchange Price Per American Depositary Share
Per Share of Common Stock (5 shares of Common Stock)
(Japanese Yen) (U.S. Dollars)
-------------------------- -----------------------------
High Low High Low
----- ----- ------ -----
Annual highs and lows
---------------------
Fiscal Year 2000 2,525 1,078 111.79 44.28
Fiscal Year 2001 2,495 1,627 113.46 75.85
Fiscal Year 2002 2,735 1,563 108.00 77.50
Fiscal Year 2003 2,470 1,637 95.75 62.50
Fiscal Year 2004 2,365 1,607 104.50 68.55
Quarterly highs and lows
------------------------
Fiscal Year 2003
1st quarter 2,470 1,961 95.75 84.00
2nd quarter 2,265 1,904 91.67 81.50
3rd quarter 2,205 1,867 88.00 80.30
4th quarter 1,998 1,637 82.00 62.50
Fiscal Year 2004
1st quarter 2,035 1,607 83.75 68.55
2nd quarter 2,330 1,945 96.75 81.99
3rd quarter 2,160 1,805 99.25 83.47
4th quarter 2,365 1,885 104.50 90.50
Monthly highs and lows
----------------------
December 2003 2,155 1,805 99.25 83.47
January 2004 2,110 1,931 98.75 93.50
February 2004 2,230 1,885 98.00 90.50
March 2004 2,365 2,085 104.50 96.00
April 2004 2,345 2,045 107.50 97.50
May 2004 2,260 2,090 100.50 93.50
Notes: (1) Price per share of Common Stock are as reported by the TSE.
(2) Price per ADSs are based upon one ADS representing 5 shares of Common
Stock and are as reported by Over-the-Counter Market Bulletin
Board(R).
B. Plan of distribution
Not applicable.
-78-
C. Markets
See Item 9.A. for a list of the stock exchanges on which the securities are
listed.
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. 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.
-79-
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 the 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 Commercial Code, 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
Commercial Code, 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 Commercial Code 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 Commercial Code specifically requires the resolution of the Board
of Directors for a corporation to acquire or dispose of material assets; to
borrow substantial amount of money; to employ or discharge from employment
important employees, such as executive officers; and to establish, change or
abolish a material corporate organization such as a branch office. 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 Commercial Code of Japan relating to a joint stock company
(KABUSHIKI KAISHA) and certain related legislation.
GENERAL
The presently authorized capital stock of the Company is 993,000,000
shares. Under the Commercial Code shares 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
-80-
required to file their names, addresses and seals with The Chuo Mitsui Trust &
Banking Co., Ltd., the 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, a proposed allocation of profits for dividends and other purposes; this
proposal is submitted to the Corporate Auditors of the Company and to
independent certified public accountants and then submitted for approval to the
ordinary general meeting of shareholders, which is normally held in June of each
year. In addition to provisions for dividends, if any, and for the legal reserve
and other reserves, the allocation of profits customarily includes bonuses to
Directors and Corporate Auditors. In addition to a distribution of annual
dividends, the Board of Directors of the Company may by its resolution declare a
cash distribution pursuant to Article 293-5 of the Commercial Code (an "interim
dividend") 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 Commercial Code provides that, until the aggregate amount of the
Company's legal reserve and additional paid-in capital is at least one-quarter
of the Company's stated capital, the Company may not make any distribution of
profits by way of dividends in cash unless it has set aside in its legal 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 Commercial Code permits the Company to distribute profits
by way of dividends out of the excess of its net assets, on a non-consolidated
basis, over the aggregate of (i) its stated capital, (ii) its additional paid-in
capital, (iii) its accumulated legal reserve, (iv) the legal reserve to be set
aside in respect of the dividends concerned and any other proposed payment by
way of appropriation of retained earnings, (v) the excess, if any, of
unamortized expenses incurred in preparation for commencement of business and in
connection with research and development over the aggregate of the amounts
referred to in (ii), (iii) and (iv) above, and (vi) the increased amount of net
assets in its balance sheet due to the assignment of market value to certain
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assets when the aggregate market value so assigned exceeds the aggregate
acquisition value of such assets. In the case of interim dividends, the net
assets are calculated by reference to the balance sheet as at the end of the
last fiscal year of the Company, and adjustments are made to such net assets to
reflect (1) a subsequent decrease due to (a) a payment by way of an
appropriation of retained earnings and the related transfer to legal reserve,
(b) a transfer of retained earnings to stated capital, (c) the allocation of the
aggregate purchase price of shares determined by a resolution of the ordinary
general meeting of shareholders or by a resolution of the Board of Directors
authorizing the Company to acquire its shares, and (d) other amounts as provided
for by enforcement regulations of the Ministry of Justice ("Enforcement
Regulations"), and (2) a subsequent increase due to (a) a reduction of paid-in
capital or legal reserve, (b) a reduction of stated capital and (c) other
amounts as provided for by Enforcement Regulations. Interim dividends may not be
paid where there is a risk that at the end of the fiscal year net assets might
be less than the aggregate of the amounts referred to in (i), (ii), (iii), (iv),
(v) and (vi) above.
The Commercial Code, currently in effect, does not provide for "stock
dividends." However, under the Commercial Code, the shareholders may by
resolution transfer any amount which is distributable as dividends to stated
capital and the Board of Directors may by resolution issue additional shares by
way of a stock split, thus the same effect as a stock dividend can be achieved.
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.
TRANSFER OF CAPITAL SURPLUS AND LEGAL RESERVE TO STATED CAPITAL AND STOCK SPLITS
(FREE SHARE DISTRIBUTIONS)
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 Board of Directors may transfer the
whole or any part of capital surplus and legal reserve to stated capital and
grant to shareholders additional shares of Common Stock free of charge by way of
a stock split with reference to the whole or any part of the amount of capital
surplus and legal 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
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the date set for the meeting. Such notice may also be furnished to shareholders
by electronic means with such shareholders' consent.
Any shareholder 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 a Representative Director 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 Article 343 of
the Commercial Code shall be adopted by the vote of the shareholders not less
than two-thirds (2/3) of those present at a meeting whereby one-third (1/3) of
voting rights of all of the shareholders shall constitute a quorum. The
Commercial Code 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 Commercial Code 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 significantly 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 significantly 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").
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SUBSCRIPTION RIGHTS
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 as at a record date of which not less than two weeks' public notice
must be given. Each of the shareholders to whom such rights are given must also
be given notice of the expiry thereof at least two weeks prior to the date on
which such rights expire.
Rights to subscribe for new shares may be made generally transferable by
the Board of Directors. 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 foreign country or whose principal office is
located in a foreign country will be enforceable against the Company and third
parties 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.
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TRANSFER AGENT
The Chuo Mitsui Trust and Banking Co., Ltd. is the transfer agent for the
Company's Common Stock; as such transfer agent, it keeps the Company's register
of shareholders and register of the lost share certificates in its office at
7-1,Kyobashi 1-chome, Chuo-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 business day, the fourth business day prior thereto), for
the purpose of dividends or rights offerings.
REPURCHASE BY THE COMPANY OF ITS COMMON STOCK
The Company may repurchase 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 an ordinary resolution of an ordinary general meeting of
shareholders or 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. Repurchase of
shares pursuant to an authorization of the ordinary general meeting of
shareholders must satisfy certain requirements, including the requirement that
the total amount of the repurchase price may not exceed the amount of the
retained earnings available for annual dividend payments after taking into
account any reduction, if any, of the stated capital, additional paid-in capital
or legal reserve (if such reduction of the stated capital, additional paid-in
capital or legal reserve has been authorized pursuant to a resolution of the
relevant ordinary general meeting of shareholders), minus the amount to be paid
by way of appropriation of retained earnings for the relevant fiscal year and
the amount to be transferred to stated capital. Repurchase of shares pursuant to
an authorization of the Board of Directors must satisfy certain
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requirements, including the requirement that the total amount of the repurchase
price may not exceed the amount of the retained earnings available for interim
dividend payments minus the amount of interim dividends, if paid. If it is
anticipated that the net assets on the balance sheet as at the end of the
relevant fiscal year will be less than the aggregate amount of the stated
capital, additional paid-in capital and other items as described in (i) through
(vi) in "Dividends" above, the Company may not repurchase shares. The Company
may hold its own shares so repurchased without restriction. The Company may
cancel its own shares that it holds by a resolution of the Board of Directors.
The Company may otherwise dispose of its own shares by a resolution of the Board
of Directors.
"UNIT" SHARE SYSTEM (TANGENKABU SEIDO)
Pursuant to the Commercial Code 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.
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
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granted to shareholders, (iv) the right to participate in the distribution of
surplus assets in the event of the liquidation of the Company, (v) the right to
request to inspect certain corporate documents, including minutes of the Board
of Directors meeting, (vi) the right to file a derivative action on behalf of
the Company and (vii) the right to file an action seeking to invalidate certain
events, including issuance of new shares and corporate merger. 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 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.
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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
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.
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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;
. 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.
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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.
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 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
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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 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.
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SALES AND OTHER DISPOSITIONS
A U.S. holder will recognize 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, 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 capital gain or loss, and will be
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).
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
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thereto, may be inspected and copied at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of the materials may be
obtained from the SEC's Public Reference Room at 450 Fifth Street, N.W.,
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 is 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
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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 2004, and
there are no material quantitative changes in market risk exposure at March 31,
2004 when compared to March 31, 2003. 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.
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
below table 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.
-93-
Foreign Exchange Forward Contracts (Year ended March 31, 2004)
------------------------------------------------------------------------------
Year Ended March 31, 2004
--------------------------------------------------------------------
Contract amounts Estimated fair value
Average contractual rates (Millions of yen) (Millions of yen)
------------------------------------------------------------------------------
US$/Yen 110.35 8,662 367
EUR/Yen 131.46 45,959 1,044
------------------------------------------------------------------------------
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.
---------------------------------------------------------------------------------------------------------------------------
LONG-TERM INDEBTEDNESS Year ended march 31, 2004
---------------------------------------------------------------------------------------------------------------------------
Millions of yen
----------------------------------------------------------------------------
Expected maturity date
(Excluding Capital Lease ------------------------------------------------------------------
Obligations and SFAS No. 133 Average Fair
fair value adjustment) pay rate Total 2005 2006 2007 2008 2009 Thereafter Value
---------------------------------------------------------------------------------------------------------------------------
Bonds 1.39% 140,000 10,000 40,000 45,000 10,000 25,000 10,000 143,028
Medium-Term Notes 0.28 16,000 12,000 3,000 -- -- -- 1,000 15,981
Loans 1.42 201,771 59,017 87,004 25,508 19,753 1,041 9,448 201,721
---------------------------------------------------------------------------------------------------------------------------
Total 357,771 81,017 130,004 70,508 29,753 26,041 20,448 360,730
---------------------------------------------------------------------------------------------------------------------------
-94-
---------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS Year ended march 31, 2004
---------------------------------------------------------------------------------------------------------------------------
Millions of yen
-----------------------------------------------------------------------
Expected maturity date
--------------------------------------------------------------
Notional Average Average
amounts receive pay Fair
(Millions) Type of swap rate rate Total 2005 2006 2007 2008 2009 Thereafter Value
---------------------------------------------------------------------------------------------------------------------------
Receive floating
Yen 87,000 /Pay fixed 0.19% 0.30% 87,000 2,000 52,000 22,000 10,000 -- 1,000 2,190
Receive fixed
60,000 /Pay floating 2.20 0.11 60,000 17,000 18,000 1,000 4,000 2,000 18,000 (34)
---------------------------------------------------------------------------------------------------------------------------
Receive floating
US$ 20 /Pay floating 7.36% 1.89% 2,114 2,114 -- -- -- -- -- 110
---------------------------------------------------------------------------------------------------------------------------
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.
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, 2004.
Millions of Japanese Yen
For the Year ended March 31, 2004
---------------------------------
Cost Fair Value
------- ----------
Debt Securities
Due within one year 45,139 45,123
Due after one year through five years -- --
Equity Securities 5,053 13,100
Investment Trusts* 1,175 1,667
------ ------
Total 51,367 59,890
------ ------
*Investment trusts consist of investments in marketable debt and equity
securities.
-95-
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
-----------------------
Within the 90-day period prior to the filing of this report, Ricoh
performed an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures under the supervision and with the
participation of Ricoh's management, including the Chief Executive Officer and
the Deputy President (Corporate Planning, Investors Relations, Accounting and
Personnel) (I.E., the principal financial officer of the Company). Based on that
evaluation, Ricoh's management, including the Chief Executive Officer and Deputy
President (Corporate Planning, Investors Relations, Accounting and Personnel),
concluded that its disclosure controls and procedures were effective as of the
date of such evaluation.
No significant changes in Ricoh's internal controls or in other factors
have occurred that could significantly affect these controls subsequent to the
date the Chief Executive Officer and Deputy President (Corporate Planning,
Investors Relations, Accounting and Personnel) completed their evaluation.
Item 16. [RESERVED]
Item16.A. 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
-96-
Corporate Auditors will keep under active review the financial expert matter
during the 2005 fiscal year as part of their overall risk management and
compliance program.
Item16.B. 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.
Item16.C. Principal Accountant Fees and Services
--------------------------------------
The aggregate fees for professional services rendered to the Company by
KPMG for the years ended March 31, 2003 and 2004, were:
Millions of Yen
Year Ended March 31,
----------------------
Type of Fees 2003 2004
------------------ ---- ----
Audit Fees 610 689
Audit-related Fees 7 3
Tax Fees 36 33
All Other Fees 15 16
--- ---
TOTAL 668 741
Audit Fees consist of fees for the annual audit of the Company's
consolidated financial statements, and statutory and subsidiary audits,
assistance with the review of documents filed with the SEC, consents, comfort
letters and other assistance that are normally provided by our independent
accountants.
Audit-related Fees consist of fees for assurance and related services that
are reasonably related to the performance of the audit or review of the
Company's financial statements or that are traditionally performed by the
independent accountants and include employee benefit plan audits, due diligence
related to mergers and acquisitions, accounting consultations and audits in
connection with acquisitions, attest services that are not required by statute
or regulations, consultation concerning financial accounting and reporting
standards, internal control reviews and assistance with internal control
reporting requirements, review of the effectiveness of the internal audit
function.
Tax Fees consist of fees for tax compliance, tax advice and tax planning
services, including preparation of original and amended tax returns, claims for
refund and tax payment-planning services, assistance with tax audits and
appeals, tax advice related to mergers and acquisitions, transfer pricing
documentation, expatriates' tax assistance and compliance.
All Other Fees consists of fees for all other services not included in any
of the other categories noted above, including services rendered for financial
and non-financial information systems implementation and design services.
-97-
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 as the Company's Accounting
Auditors at the most recent Ordinary General Meeting of Shareholders held on
June 25, 2004.
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
service, 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 2004, none of the services provided to the Company by
KPMG 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.
-98-
Item16.D. Exemptions from the Listing Standards for Audit Committees
----------------------------------------------------------
Not applicable.
Item16.E. 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
-99-
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.
(Registrant)
By: /s/ Zenji Miura
-------------------------------
Zenji Miura
Managing Director,
Executive Vice President and
General Manager of the
Finance and Accounting Division
Date: June 28, 2004
--------------------------------------------------------------------------------
RICOH COMPANY, LTD.
Consolidated Financial Statements and Schedule
For the years ended March 31, 2002, 2003 and 2004
With Report of Independent Registered Public Accounting Firm Thereon
--------------------------------------------------------------------------------
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
--------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm .....................F-2
Consolidated Balance Sheets as of March 31, 2003 and 2004 ............F-3 to F-4
Consolidated Statements of Income for the years ended
March 31, 2002, 2003 and 2004 ............................................F-5
Consolidated Statements of Shareholders' Investment for the years ended
March 31, 2002, 2003 and 2004 ............................................F-6
Consolidated Statements of Cash Flows for the years ended
March 31, 2002, 2003 and 2004 ............................................F-7
Notes to Consolidated Financial Statements ..........................F-8 to F-45
Schedule:
II. Valuation and Qualifying Accounts and Reserves .....................F-46
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 Shareholders and the Board of Directors
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, 2003 and 2004, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 2004, in conformity with accounting principles generally
accepted in the United States of America. 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.
As discussed in Notes 2 and 5 to the consolidated financial statements, the
Company and its subsidiaries changed their accounting policy with respect to the
recognition of unrealized gains and losses as realized in the statements of
income on transfers of marketable equity securities to its employee retirement
benefit trust.
As discussed in Note 2 to the consolidated financial statements, the Company and
its subsidiaries adopted the provisions of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," effective April 1,
2002, and the provisions of Statement of Financial Accounting Standards No.133,
"Accounting for Derivative Instruments and Hedging Activities," effective April
1, 2001.
The accompanying consolidated financial statements as of and for the year ended
March 31, 2004 have been translated into United States dollars solely for the
convenience of the reader. We have recomputed 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.
Tokyo, Japan
April 28, 2004
F-2
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND 2004
Thousands of
Millions of Yen U.S. Dollars
--------------------- ------------
A S S E T S 2003 2004 2004
--------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 189,243 203,039 $ 1,952,298
Time deposits 11,087 962 9,250
Marketable securities 107 45,124 433,885
Trade receivables-
Notes 76,022 76,499 735,567
Accounts 359,769 362,784 3,488,308
Less- Allowance for doubtful receivables (17,849) (17,039) (163,837)
Inventories-
Finished goods 102,164 100,154 963,019
Work in process and raw materials 43,887 45,215 434,760
Deferred income taxes and other 58,083 55,079 529,606
--------------------------------------------------------------------------------------
Total current assets 822,513 871,817 8,382,856
--------------------------------------------------------------------------------------
Property, Plant and Equipment, at cost:
Land 42,990 43,423 417,529
Buildings 204,606 200,844 1,931,192
Machinery and equipment 660,458 653,467 6,283,337
Construction in progress 6,540 10,629 102,202
--------------------------------------------------------------------------------------
914,594 908,363 8,734,260
Less- Accumulated depreciation (665,842) (669,651) (6,438,953)
--------------------------------------------------------------------------------------
248,752 238,712 2,295,307
--------------------------------------------------------------------------------------
Investments and Other Assets:
Finance receivables 476,293 514,047 4,942,760
Investment securities 71,973 21,871 210,298
Investments in and advances to affiliates 45,791 46,967 451,606
Goodwill 28,109 25,298 243,250
Other intangible assets 40,020 43,233 415,702
Lease deposits and other 151,471 90,848 873,538
--------------------------------------------------------------------------------------
813,657 742,264 7,137,154
--------------------------------------------------------------------------------------
1,884,922 1,852,793 $17,815,317
======================================================================================
F-3
Thousands of
Millions of Yen U.S. Dollars
--------------------- ------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT 2003 2004 2004
--------------------------------------------------------------------------------------
Current Liabilities:
Short-term borrowings 84,478 68,952 $ 663,000
Current maturities of long-term
indebtedness 54,235 82,210 790,481
Trade payables-
Notes 32,943 29,937 287,856
Accounts 247,855 267,735 2,574,375
Accrued income taxes 42,393 25,050 240,865
Accrued expenses and other 126,679 133,544 1,284,077
--------------------------------------------------------------------------------------
Total current liabilities 588,583 607,428 5,840,654
--------------------------------------------------------------------------------------
Long-term Liabilities:
Long-term indebtedness 345,902 281,570 2,707,404
Accrued pension and severance costs 209,011 83,492 802,808
Deferred income taxes 30,653 36,295 348,990
--------------------------------------------------------------------------------------
585,566 401,357 3,859,202
--------------------------------------------------------------------------------------
Minority Interests 53,259 48,877 469,971
--------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
(Note 16)
Shareholders' Investment:
Common stock;
Authorized - 993,000,000 shares in 2003
and 2004
Issued and outstanding - 744,912,078
shares and 742,608,635 shares in 2003
and 744,912,078 shares and 738,894,891
shares in 2004 135,364 135,364 1,301,577
Additional paid-in capital 186,521 186,599 1,794,221
Retained earnings 434,748 515,372 4,955,500
Accumulated other comprehensive income
(loss) (94,733) (30,272) (291,077)
Treasury stock at cost; 2,303,443 shares in
2003 and 6,017,187 shares in 2004 (4,386) (11,932) (114,731)
--------------------------------------------------------------------------------------
Total shareholders' investment 657,514 795,131 7,645,490
--------------------------------------------------------------------------------------
1,884,922 1,852,793 $17,815,317
======================================================================================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE BALANCE SHEETS.
F-4
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 2002, 2003 AND 2004
Thousands of
Millions of Yen U.S. Dollars
--------------------------------- ------------
2002 2003 2004 2004
-----------------------------------------------------------------------------------------------------------------------
Net Sales 1,672,340 1,738,358 1,780,245 $17,117,740
Cost of Sales 972,394 993,009 1,014,619 9,755,952
-----------------------------------------------------------------------------------------------------------------------
Gross profit 699,946 745,349 765,626 7,361,788
Selling, General and Administrative Expenses 570,251 611,695 623,935 5,999,375
Transfer to the government of the substitutional portion of
Employees' Pension Fund:
Settlement loss -- -- 48,657 467,856
Subsidy from government -- -- (56,972) (547,808)
-----------------------------------------------------------------------------------------------------------------------
Operating income 129,695 133,654 150,006 1,442,365
-----------------------------------------------------------------------------------------------------------------------
Other (Income) Expenses:
Interest and dividend income (4,753) (3,772) (1,925) (18,510)
Interest expense 8,233 6,853 5,290 50,865
Foreign currency exchange (gain) loss, net 5,732 566 6,136 59,000
Other, net 6,533 6,537 (2,558) (24,596)
-----------------------------------------------------------------------------------------------------------------------
Total 15,745 10,184 6,943 66,759
-----------------------------------------------------------------------------------------------------------------------
Income before Income Taxes, Minority Interests, Equity in
Earnings of Affiliates and Cumulative Effect of Accounting Change 113,950 123,470 143,063 1,375,606
Provision for Income Taxes:
Current 52,365 63,183 53,303 512,529
Deferred (1,218) (11,199) 3,338 32,096
-----------------------------------------------------------------------------------------------------------------------
Total 51,147 51,984 56,641 544,625
-----------------------------------------------------------------------------------------------------------------------
Income before Minority Interests, Equity in Earnings of Affiliates
and Cumulative Effect of Accounting Change 62,803 71,486 86,422 830,981
Minority Interests 3,080 1,376 4,094 39,365
Equity in Earnings of Affiliates 1,891 2,403 2,065 19,855
-----------------------------------------------------------------------------------------------------------------------
Income before Cumulative Effect of Accounting Change 61,614 72,513 84,393 811,471
Cumulative Effect of Accounting Change, net of tax -- -- 7,373 70,894
-----------------------------------------------------------------------------------------------------------------------
Net Income 61,614 72,513 91,766 $ 882,365
=======================================================================================================================
Yen U.S. Dollars
------------------------ ------------
Per Share of Common Stock:
----------------------------------------------------------------------------------------------------
Basic:
Income before cumulative effect of accounting change 88.27 99.79 113.69 $1.09
Cumulative effect of accounting change -- -- 9.94 0.10
Net income 88.27 99.79 123.63 1.19
Diluted:
Income before cumulative effect of accounting change 82.46 96.81 113.69 1.09
Cumulative effect of accounting change -- -- 9.94 0.10
Net income 82.46 96.81 123.63 1.19
====================================================================================================
Cash dividends per share 12.00 14.00 15.00 $0.14
====================================================================================================
Per American Depositary Share, each representing 5 shares
of common stock:
----------------------------------------------------------------------------------------------------
Basic:
Income before cumulative effect of accounting change 441.35 498.95 568.45 $5.46
Cumulative effect of accounting change -- -- 49.70 0.48
Net income 441.35 498.95 618.15 5.94
Diluted:
Income before cumulative effect of accounting change 412.30 484.05 568.45 5.46
Cumulative effect of accounting change -- -- 49.70 0.48
Net income 412.30 484.05 618.15 5.94
====================================================================================================
Cash dividends per share 60.00 70.00 75.00 $0.72
====================================================================================================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
F-5
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED MARCH 31, 2002, 2003 AND 2004
Thousands of
Millions of Yen U.S. Dollars
--------------------------- ------------
2002 2003 2004 2004
----------------------------------------------------------------------------------------------------------
Common Stock:
Beginning balance 103,434 120,461 135,364 $1,301,577
Conversion of convertible bonds; 34,522,672 shares in 2002
and 24,633,822 shares in 2003 17,027 14,903 -- --
----------------------------------------------------------------------------------------------------------
Ending balance 120,461 135,364 135,364 $1,301,577
==========================================================================================================
Additional Paid-in Capital:
Beginning balance 154,635 171,628 186,521 $1,793,471
Conversion of convertible bonds 16,993 14,893 -- --
Issuance of treasury stock in exchange for subsidiary's
stock -- -- 78 750
----------------------------------------------------------------------------------------------------------
Ending balance 171,628 186,521 186,599 $1,794,221
==========================================================================================================
Retained Earnings:
Beginning balance 332,447 385,741 434,748 $4,180,269
Net income for the year 61,614 72,513 91,766 882,365
Dividends declared and approved (8,320) (10,178) (11,142) (107,134)
Retirement of treasury stock; 7,000,000 shares in 2003 -- (13,328) -- --
----------------------------------------------------------------------------------------------------------
Ending balance 385,741 434,748 515,372 $4,955,500
==========================================================================================================
Accumulated other comprehensive income (loss):
Beginning balance (33,788) (44,376) (94,733) $ (910,894)
Foreign currency translation adjustments 6,516 1,007 (5,393) (51,856)
Unrealized gains (losses) on securities, net of
reclassification adjustment (766) (1,984) (4,556) (43,808)
Unrealized gains (losses) on derivatives, net of
reclassification adjustment (207) 29 154 1,481
Minimum pension liability adjustments (16,131) (49,409) 74,256 714,000
----------------------------------------------------------------------------------------------------------
Ending balance (44,376) (94,733) (30,272) $ (291,077)
==========================================================================================================
Treasury stock:
Beginning balance -- (434) (4,386) $ (42,173)
Purchase of treasury stock; 446,928 shares in 2002,
9,111,925 shares in 2003 and 5,731,150 shares in 2004 (1,083) (17,280) (11,411) (109,721)
Sales of treasury stock; 269,000 shares in 2002 and 6,873
shares in 2004 649 -- 13 125
Retirement of treasury stock; 7,000,000 shares in 2003 -- 13,328 -- --
Issuance of treasury stock in exchange for subsidiary's
stock; 2,010,533 shares in 2004 -- -- 3,852 37,038
----------------------------------------------------------------------------------------------------------
Ending balance (434) (4,386) (11,932) $ (114,731)
==========================================================================================================
Comprehensive income:
Net income for the year 61,614 72,513 91,766 $ 882,365
Other comprehensive income (loss) for the year,
net of tax (10,588) (50,357) 64,461 619,817
----------------------------------------------------------------------------------------------------------
Total comprehensive income for the year 51,026 22,156 156,227 $1,502,182
==========================================================================================================
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 CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2002, 2003 AND 2004
Thousands of
Millions of Yen U.S. Dollars
--------------------------- ------------
2002 2003 2004 2004
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 61,614 72,513 91,766 $ 882,365
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation and amortization 73,782 76,551 76,968 740,077
Equity in earnings of affiliates, net of dividends received (1,260) (1,167) (1,001) (9,625)
Deferred income taxes (1,218) (9,289) 3,338 32,096
Losses on disposals and sales of property, plant and equipment 1,665 1,975 2,035 19,567
Cumulative effect of accounting change, net of tax -- -- (7,373) (70,894)
Changes in assets and liabilities, net of effects from acquisition-
(Increase) decrease in trade receivables (20,006) 22,176 (11,367) (109,298)
(Increase) decrease in inventories 21,194 14,983 (4,317) (41,509)
Increase in finance receivables (13,620) (33,109) (32,650) (313,942)
(Decrease) increase in trade payables (19,535) 5,632 21,316 204,962
(Decrease) increase in accrued income taxes and accrued expenses
and other (13,592) 11,173 (5,913) (56,856)
(Decrease) increase in accrued pension and severance costs 8,374 7,806 (609) (5,856)
Other, net 7,740 16,498 22,718 218,442
----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 105,138 185,742 154,911 1,489,529
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment 756 245 190 1,827
Expenditures for property, plant and equipment (75,231) (71,984) (75,432) (725,308)
Payments for purchases of available-for-sale securities (10,025) (52,219) (35,518) (341,519)
Proceeds from sales of available-for-sale securities 24,568 24,513 45,464 437,154
(Increase) decrease in time deposits (477) 944 9,915 95,336
Other, net (21,012) 302 (8,002) (76,942)
----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (81,421) (98,199) (63,383) (609,452)
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term loans 71,075 58,194 13,349 128,356
Repayment of long-term loans (79,640) (23,133) (31,509) (302,971)
Decrease in short-term borrowings, net (39,414) (73,393) (10,728) (103,154)
Proceeds from issuance of long-term debt securities 103,500 11,000 1,000 9,615
Repayment of long-term debt securities (10,000) (11,723) (23,910) (229,904)
Dividend payments (8,322) (10,176) (11,136) (107,077)
Payment for purchase of treasury stock (1,054) (17,281) (11,411) (109,721)
Other, net 90 (631) (490) (4,711)
----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 36,235 (67,143) (74,835) (719,567)
----------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 2,474 (1,329) (2,897) (27,856)
----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 62,426 19,071 13,796 132,654
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 107,746 170,172 189,243 1,819,644
----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 170,172 189,243 203,039 $1,952,298
======================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR-
Interest 9,418 7,300 6,479 $ 62,298
Income taxes 53,129 52,154 66,914 643,404
======================================================================================================================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
F-7
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 accounting principles generally accepted in the United States
of America. Significant accounting and reporting policies are summarized below:
(A) BASIS OF PRESENTATION
The accompanying consolidated financial statements for the three years ended
March 31, 2004 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, 2004 is included solely for the
convenience of readers outside Japan and has been made using the exchange rate
of Yen 104 to US$1, the approximate rate of exchange prevailing at the Federal
Reserve Bank of New York on March 31, 2004.
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
accounting principles generally accepted in the United States of America.
(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 percent ownership) are accounted for on an equity basis. All
significant intercompany balances and transactions have been eliminated in
consolidation.
F-8
The accounts of certain consolidated subsidiaries have been included on the
basis of fiscal periods ended within three months prior to March 31.
(C) 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 and trade-in allowances. 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 are
cancelable at any time by the customer upon a short notice period.
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 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) 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. EITF
00-21 was effective for revenue arrangements entered into after June 30, 2003.
EITF 00-21 did not have a material effect on Ricoh's financial position or
results of operations.
(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 expense in the period incurred.
F-9
(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 15, 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. On April 1, 2001 Ricoh
adopted Statement of Financial Accounting Standards ("SFAS") No.133 "Accounting
for Derivative Instruments and Hedging Activities", and SFAS No.138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities" which require
that all derivative instruments be recorded on the balance sheet at their
respective fair values. In accordance with the transition provisions of SFAS
133, Ricoh recorded a cumulative effect adjustment, net of tax, resulting in a
decrease in net income of Yen 66 million and a decrease in other comprehensive
income (loss) of Yen 1,864 million at April 1, 2001.
In accordance with SFAS 133, Ricoh, when it enters into a derivative contract,
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 sheet 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.
In accordance with the transitional provisions of SFAS 133, gains and losses on
qualifying hedges of existing assets or liabilities at April 1, 2001, were
included in the carrying amounts of those assets or liabilities and were
ultimately recognized in income as part of those carrying amounts. Gains and
losses related to qualifying hedges of firm commitments and anticipated
transactions were deferred and recognized in income, or as adjustments of
carrying amounts, when the hedged transaction occurred.
F-10
(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
of 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 conforms with 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, 2003 and 2004, 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
their then fair value for any declines in market value determined to be other
than temporary. These impairment losses are charged against earnings at the time
that a decline has been determined to be other than temporary based primarily on
the financial condition of the issuer and the extent and length of time of the
decline. Investments whose market values have declined below cost that extends
for nine months are automatically written-down to their then fair value in all
cases.
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.
As discussed further in Note 5, Ricoh changed its accounting policy with respect
to the recognition of unrealized gains and losses as realized in the statements
of income on transfers of marketable equity securities. In relation to this
change, Ricoh has recognized in its fiscal 2004 consolidated statement of income
a cumulative effect of accounting change, net of tax, of Yen 7,373 million
($70,894 thousand).
(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
F-11
for approximately 41% 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, 2002, 2003 and
2004 are summarized below:
2002 2003 2004
--------------------------------------------------------------------------------
Buildings 8.3% 8.1% 8.1%
Machinery and equipment 40.6 41.0 42.9
================================================================================
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, 2003 and 2004 were as follows:
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------
2003 2004 2004
--------------------------------------------------------------------------------
Aggregate cost 7,339 7,151 $68,760
Accumulated depreciation 4,036 4,504 43,308
================================================================================
The related future minimum lease payments and the present value of the net
minimum lease payments as of March 31, 2004 were Yen 3,456 million ($33,231
thousand) and Yen 3,141 million ($30,202 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) GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No.141, "Business Combinations", and SFAS No.142, "Goodwill and Other Intangible
Assets". SFAS 141 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 142 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 in
accordance with SFAS 144. Any acquired intangible asset determined to have an
indefinite useful life is not amortized, but instead is tested for impairment
based on its fair value until its life would be determined to no longer be
indefinite.
Ricoh adopted the provisions of SFAS 141 and SFAS 142 as of April 1, 2002.
Goodwill acquired in business combinations completed before July 1, 2001, was
amortized until March 31, 2002. In connection with the transitional impairment
evaluation, SFAS 142 required Ricoh to perform an assessment of whether there
was an indication that goodwill was impaired as of April 1, 2002. To accomplish
this, Ricoh (1) identified its reporting units, (2) determined the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units, and (3)
determined the fair value of each reporting unit. Ricoh completed the
transitional assessment by September 30, 2002, and determined there was no
indication that goodwill had been impaired as of April 1, 2002.
F-12
Ricoh also completed the annual assessment for the years ended March 31, 2003
and 2004 and determined that no goodwill impairment charge was necessary.
Prior to the adoption of SFAS 142, Ricoh classified the cost in excess of fair
value of the net assets of companies acquired in purchase transactions as
goodwill, and the goodwill was being amortized on a straight-line method over
the estimated periods benefited, not to exceed 20 years.
(L) PENSION AND RETIREMENT ALLOWANCES PLANS
The measurement of pension costs and liabilities is determined in accordance
with SFAS No.87, "Employers' Accounting for Pensions." Under SFAS 87, changes in
the amount of either the projected benefit obligation or plan assets resulting
from actual results different from that assumed and from changes in assumptions
can result in gains and losses not yet recognized in the consolidated financial
statements. Amortization of an unrecognized net gain or loss is included as a
component of the net periodic benefit plan cost for a year if, as of the
beginning of the year, that unrecognized net gain or loss exceeds 10 percent of
the greater of (1) the projected benefit obligation or (2) the fair value of
that plan's assets. In such case, the amount of amortization recognized is the
resulting excess divided by the average remaining service period of active
employees expected to receive benefits under the plan. 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.
In December 2003, the FASB issued SFAS No.132 (revised), "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS 132 (revised) prescribes
employers' disclosures about pension plans and other postretirement benefit
plans; it does not change the measurement or recognition of those plans. The
Statement retains and revises the disclosure requirements contained in the
original SFAS 132. It also requires additional disclosures about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other postretirement benefit plans. The Statement generally is
effective for fiscal years ending after December 15, 2003. Ricoh's disclosures
in Note 11 incorporate the requirements of SFAS 132 (revised).
(M) 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.
(N) RESEARCH AND DEVELOPMENT EXPENSES AND ADVERTISING COSTS
Research and development expenses and advertising costs are expensed as
incurred.
(O) 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.
F-13
(P) IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
In August 2001, the FASB issued SFAS No.144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS 144 develops a single accounting model,
based on the framework established in SFAS No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" for
long-lived assets to be disposed of by sale, and broadens the scope of what
constitutes a business to be disposed of that should be reported as a
discontinued operation. The new standard was adopted on April 1, 2002, and did
not have a material effect on Ricoh's consolidated financial position or results
of operations.
SFAS 144 requires that 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.
Prior to the adoption of SFAS 144, Ricoh accounted for long-lived assets in
accordance with SFAS 121.
(Q) EARNINGS PER SHARE
Basic net income per common share is calculated by dividing net income by the
weighted-average number of shares outstanding during the period. The calculation
of diluted net income per common share 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.
Ricoh has no dilutive securities outstanding at March 31, 2004 and therefore
there is no difference between basic and diluted net income per share.
(R) 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
----------------------- ------------
2002 2003 2004 2004
--------------------------------------------------------------------------------
Conversion of convertible bonds 35,620 32,905 -- $ --
Capital lease obligations incurred 445 1,697 75 721
Retirement of treasury stock -- 13,328 -- --
Issuance of treasury stock in exchange
for subsidiary's stock -- -- 3,930 37,788
Transfer of marketable equity
securities to employee retirement
benefit trust -- -- 3,648 35,077
================================================================================
F-14
(S) USE OF ESTIMATES
Management of the Company 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 generally accepted accounting
principles. Actual results could differ from those estimates.
The Company has identified four 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 on
long-lived assets and goodwill, realizability of deferred tax assets and pension
accounting.
3. ACQUISITION
In December 2002, Ricoh acquired the remaining outstanding shares of Shanghai
Ricoh Facsimile Co., Ltd. ("Shanghai Ricoh") for Yen 1,745 million. The
acquisition of the remaining 45% interest in Shanghai Ricoh was accounted for
using the purchase method of accounting and resulted in goodwill of Yen 778
million.
In April 2003, the Company acquired all of the minority interests of its
existing consolidated subsidiary, Tohoku Ricoh Co., Ltd. ("Tohoku Ricoh")
through the issuance of 2,010,533 shares of treasury stock in exchange for all
the outstanding shares of Tohoku Ricoh's common stock not then owned by Ricoh.
The cost of acquired minority interests was Yen 5,579 million ($53,644 thousand)
determined based on the fair value of the treasury shares issued. The Company
has used the purchase method of accounting to record the transactions in
conformity with SFAS 141 and accordingly, has allocated the purchase price based
on estimated fair values of acquired net assets.
4. FINANCE RECEIVABLES
Finance receivables as of March 31, 2003 and 2004 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
qualified and 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, 2003 and
2004 is as follows:
Thousands of
Millions of Yen U.S. Dollars
----------------- ------------
2003 2004 2004
--------------------------------------------------------------------------------
Minimum lease payments receivable 486,165 522,056 $5,019,769
Estimated non-guaranteed residual
value 2,209 2,432 23,385
Unearned income (49,039) (47,492) (456,654)
Allowance for doubtful receivables (13,573) (14,404) (138,500)
--------------------------------------------------------------------------------
Net lease receivables 425,762 462,592 $4,448,000
================================================================================
F-15
As of March 31, 2004, 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
--------------------------------------------------------------------------------
2005 168,931 $1,624,337
2006 139,060 1,337,115
2007 110,989 1,067,202
2008 69,129 664,702
2009 27,135 260,913
2010 and thereafter 6,812 65,500
--------------------------------------------------------------------------------
Total 522,056 $5,019,769
================================================================================
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
individuals 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, 2003
and 2004 was Yen 50,531 million and Yen 51,455 million ($494,760 thousand),
respectively. Loan activity for the years ended March 31, 2002, 2003 and 2004 is
as follow:
Thousands of
Millions of Yen U.S. Dollars
----------------------- ------------
2002 2003 2004 2004
--------------------------------------------------------------------------------
Extension of new loans 8,638 11,559 13,686 $131,596
Repayment of outstanding loans 7,554 9,993 12,706 122,173
================================================================================
Ricoh sold finance lease receivables with a pretax gain of Yen 225 million in
the year ended March 31, 2002 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 other assets for failure of debtors to pay. Ricoh
recognizes gains or losses attributable to the change in the fair value of the
retained interests, which are recorded at estimated fair value and accounted for
as "trading" securities. 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.
F-16
Key economic assumptions used in measuring the fair value of retained interests
related to securitization transactions completed during the years ended March
31, 2003 and 2004 were as follows:
2003 2004
--------------------------------------------------------------------------------
Expected credit losses 0.75% - 1.35% 0.75% - 1.35%
Discount rate 0.89% - 3.00% 0.90% - 3.00%
================================================================================
The impacts of 10% and 20% adverse changes to the key economic assumptions on
the fair value of retained interests as of March 31, 2004 are presented below.
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------
2004 2004
--------------------------------------------------------------------------------
Carrying value of retained interests (included
in lease deposits and 7,226 $69,481
other in the consolidated balance sheet)
Expected credit losses:
+10% 51 490
+20% 102 981
Discount rate:
+10% 16 154
+20% 32 308
================================================================================
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, 2002, 2003 and 2004:
Thousands of
Millions of Yen U.S. Dollars
---------------------- ------------
2002 2003 2004 2004
--------------------------------------------------------------------------------
Proceeds from new securitization 25,000 -- -- $ --
Servicing fees received 39 37 25 240
Repurchases of delinquent or ineligible
assets 5,138 5,750 4,643 44,644
================================================================================
F-17
Amounts of delinquencies, net credit losses, and components of all receivables
managed and securitized as of March 31, 2003 and 2004, and for the years then
ended, are as follows:
Millions of Yen
-------------------------------------------------------------------------------------------
2003 2004
-------------------------------------------- --------------------------------------------
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 504,252 1,175 3,893 524,981 1,025 3,284
Less: Receivables securitized (64,917) (47,985)
------- -------
Receivables held in portfolio 439,335 476,996
==============================================================================================================================
Thousands of U.S. dollars
--------------------------------------------
2004
--------------------------------------------
Principal
amount of
Total principal receivables
amount of 4 months or Net credit
receivables more past due losses
--------------------------------------------------------------------------------
Principal amount outstanding $5,047,894 $9,856 $31,577
Less: receivables securitized (461,394)
----------
Receivables held in portfolio $4,586,500
================================================================================
5. SECURITIES
Marketable securities and investment securities as of March 31, 2003 and 2004
consist of the following:
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------
2003 2004 2004
--------------------------------------------------------------------------------
Marketable securities:
Available-for-sale securities 107 45,124 $433,885
--------------------------------------------------------------------------------
Investment securities:
Available-for-sale securities 64,602 14,766 $141,981
Non-marketable equity securities 7,371 7,105 68,317
--------------------------------------------------------------------------------
71,973 21,871 $210,298
================================================================================
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, 2003 and 2004 are as follows:
F-18
Millions of Yen
-------------------------------------------------------------------------------------
2003 2004
----------------------------------------- -----------------------------------------
Gross Gross Gross Gross
unrealized unrealized unrealized unrealized
holding holding Fair holding holding Fair
Cost gains losses value Cost gains losses value
------------------------------------------------------------------------------------------------------------
Current:
Corporate debt
securities 107 -- -- 107 45,139 6 22 45,123
Other -- -- -- -- 1 -- -- 1
------------------------------------------------------------------------------------------------------------
107 -- -- 107 45,140 6 22 45,124
------------------------------------------------------------------------------------------------------------
Non-current:
Equity securities 6,328 5,148 519 10,957 5,053 8,080 33 13,100
Corporate debt
securities 45,020 5 195 44,830 -- -- -- --
Other 9,459 10 654 8,815 1,174 492 -- 1,666
------------------------------------------------------------------------------------------------------------
60,807 5,163 1,368 64,602 6,227 8,572 33 14,766
============================================================================================================
Thousands of U.S. Dollars
---------------------------------------------
2004
---------------------------------------------
Gross Gross
unrealized unrealized
holding holding Fair
Cost gains losses value
--------------------------------------------------------------------
Current:
Corporate debt
securities $434,029 $ 58 $212 $433,875
Other 10 -- -- 10
--------------------------------------------------------------------
$434,039 $ 58 $212 $433,885
--------------------------------------------------------------------
Non-current:
Equity securities $ 48,587 $77,692 $317 $125,962
Corporate debt
securities -- -- -- --
Other 11,288 4,731 -- 16,019
--------------------------------------------------------------------
$ 59,875 $82,423 $317 $141,981
====================================================================
Other non-current securities mainly include investment trusts consisting of
investment in marketable debt and equity securities.
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, 2004 were as follows:
Millions of Yen
-------------------------------------------------
Less than 12 months 12 months or longer
----------------------- -----------------------
Gross Gross
unrealized unrealized
holding holding
Fair value losses Fair value losses
--------------------------------------------------------------------------------------
2004:
Current:
Available-for-sale:
Corporate debt securities 45,123 22 -- --
--------------------------------------------------------------------------------------
45,123 22 -- --
--------------------------------------------------------------------------------------
Noncurrent:
Available-for-sale:
Equity securities 13,100 33 -- --
--------------------------------------------------------------------------------------
13,100 33 -- --
======================================================================================
Thousands of U.S. Dollars
-------------------------------------------------
Less than 12 months 12 months or longer
----------------------- -----------------------
Gross Gross
unrealized unrealized
holding holding
Fair value losses Fair value losses
--------------------------------------------------------------------------------------
2004:
Current:
Available-for-sale:
Corporate debt securities $433,875 $212 -- --
--------------------------------------------------------------------------------------
$433,875 $212 -- --
--------------------------------------------------------------------------------------
Noncurrent:
Available-for-sale:
Equity securities $125,962 $317 -- --
--------------------------------------------------------------------------------------
$125,962 $317 -- --
======================================================================================
F-19
The contractual maturities of debt securities classified as available-for-sale
as of March 31, 2004, regardless of their balance sheet classification, are as
follows:
Millions of Yen Thousands of U.S. Dollars
------------------- -------------------------
Cost Fair value Cost Fair value
--------------------------------------------------------------------------------
Due within one year 45,139 45,123 $434,029 $433,875
================================================================================
Proceeds from the sales of available-for-sale securities were Yen 24,568
million, Yen 24,513 million and Yen 45,464 million ($437,154 thousand) for the
years ended March 31, 2002, 2003 and 2004, respectively.
There were no significant realized gains or losses of available-for-sale
securities for the three years ended March 31, 2004 except for the following
contributed marketable equity securities to the Company's employee benefit
trust. The loss on securities of Yen 2,260 million for the year ended March 31,
2003 was charged to other expense for declines in market value of
available-for-sale securities where the decline was determined to be other than
temporary.
In March 2000, the Company contributed certain marketable equity securities, not
including those of its subsidiaries and affiliated companies, to its employee
retirement benefit trust (the "Trust") fully administered and controlled by an
independent bank trustee, with no cash proceeds thereon (the "2000 Transfer").
The 2000 Transfer of the available-for-sale securities was accounted for as a
sale in accordance with SFAS No.125, "Accounting for Transfer and Servicing of
Financial Assets and Extinguishments of Liabilities" and accordingly the
recorded pension liability was reduced by the fair market value amount of the
transferred securities. The fair value of these securities at the time of
transfer was Yen 20,760 million. The net unrealized gains on these
available-for-sale securities amounting to Yen 13,095 million were initially
included in "Accumulated other comprehensive income (loss)" on the consolidated
balance sheets with the expectation of being reflected in realized gains in the
statements of income upon the future sale of the transferred securities by the
trustee.
In March 2004, the Company contributed certain additional marketable equity
securities, not including those of its subsidiaries and affiliated companies to
the Trust, with no cash proceeds thereon (the "2004 Transfer"). The fair value
and net unrealized gains on these available-for-sale securities at the time of
transfer was Yen 3,648 million ($35,077 thousand) and Yen 2,658 million ($25,558
thousand), respectively.
In connection with the 2004 Transfer, Ricoh has changed its accounting policy
with respect to the recognition of unrealized gains and losses as realized in
the statements of income on transfers of such marketable equity securities.
Ricoh has concluded that it is preferable to recognize in the statements of
income unrealized gains or losses associated with marketable equity securities
transferred to the Trust when Ricoh has effectively given up the economic
rewards of ownership, that is, when the assets are no longer considered
corporate assets and when the Trust has the irrevocable and unrestricted right
to realize those benefits as and when it chooses. This generally occurs at the
time the assets are transferred to the Trust and not upon future sale of the
assets by the trustee.
Accordingly, Ricoh has recognized realized gains in the consolidated statement
of income on the transfer of marketable equity securities to the Trust for
fiscal 2004 of Yen 2,658 million ($25,558 thousand). In addition, Ricoh has
recognized in its fiscal 2004 consolidated statement of income a cumulative
effect of accounting change, net of tax, of Yen 7,373 million ($70,894 thousand)
associated with the 2000 Transfer.
F-20
6. 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 COCA-COLA WEST JAPAN COMPANY,
LIMITED, a 21.8% 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 36,728 million ($353,154 thousand) as
of March 31, 2004. The quoted market value of Ricoh's investment in this company
was Yen 45,900 million ($441,346 thousand) as of March 31, 2004.
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.
Summarized financial information for all affiliates as of March 31, 2003 and
2004 and for the years ended March 31, 2002, 2003 and 2004 is as follows:
Thousands of
Millions of Yen U.S. Dollars
----------------- ------------
FINANCIAL POSITION 2003 2004 2004
--------------------------------------------------------------------------------
Assets-
Current assets 124,156 104,916 $1,008,808
Other assets 139,357 155,081 1,491,163
--------------------------------------------------------------------------------
263,513 259,997 $2,499,971
--------------------------------------------------------------------------------
Liabilities and shareholders' investment-
Current liabilities 40,954 37,954 $ 364,942
Other liabilities 13,176 12,170 117,019
Shareholders' investment 209,383 209,873 2,018,010
--------------------------------------------------------------------------------
263,513 259,997 $2,499,971
================================================================================
Thousands of
Millions of Yen U.S. Dollars
--------------------------- ------------
OPERATIONS 2002 2003 2004 2004
--------------------------------------------------------------------------------
Sales 288,992 338,035 317,512 $3,053,000
Costs and expenses 277,950 327,139 307,665 2,958,317
--------------------------------------------------------------------------------
Net income 11,042 10,896 9,847 $ 94,683
================================================================================
The significant transactions of Ricoh with these affiliates for the years ended
March 31, 2002, 2003 and 2004, and the related account balances at March 31,
2003 and 2004 are summarized as follows:
Thousands of
Millions of Yen U.S. Dollars
-------------------------- ------------
2002 2003 2004 2004
--------------------------------------------------------------------------------
Transactions-
Sales 25,413 26,510 19,534 $187,827
Purchases 15,584 19,808 18,714 179,942
Dividend income 1,133 1,236 1,064 10,231
================================================================================
F-21
Unrealized profits regarding the above transactions were eliminated in the
consolidated financial statements.
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------
2003 2004 2004
--------------------------------------------------------------------------------
Account balances-
Receivables 6,434 3,530 $33,942
Payables 1,604 2,217 21,317
================================================================================
As of March 31, 2004, consolidated retained earnings included undistributed
earnings of 20% to 50% owned companies accounted for by the equity method in the
amount of Yen 41,070 million ($394,904 thousand).
7. GOODWILL AND OTHER INTANGIBLE ASSETS
The information for intangible assets subject to amortization and for intangible
assets not subject to amortization is as follow:
Millions of Yen
-------------------------------------------------------------------------------------------
2003 2004
-------------------------------------------------------------------------------------------
Gross carrying Accumulated Net carrying Gross carrying Accumulated Net carrying
amount amortization amount amount amortization amount
---------------------------------------------------------------------------------------------------------------------------
Other intangible assets
subject to amortization:
Software 31,764 (12,763) 19,001 44,844 (20,286) 24,558
Trade name and
customer base 13,463 (3,217) 10,246 12,699 (4,382) 8,317
Other 13,633 (4,192) 9,441 13,733 (4,802) 8,931
-------------------------------------------- --------------------------------------------
Total 58,860 (20,172) 38,688 71,276 (29,470) 41,806
Other intangible assets not
subject to amortization 1,332 1,427
------ ------
Total other intangible assets 40,020 43,233
===========================================================================================================================
Thousands of U.S. Dollars
--------------------------------------------
2004
--------------------------------------------
Gross carrying Accumulated Net carrying
amount amortization amount
--------------------------------------------------------------------------------
Other intangible assets
subject to amortization:
Software $431,192 $(195,057) $236,135
Trade name and
customer base 122,106 (42,135) 79,971
Other 132,048 (46,173) 85,875
--------------------------------------------
Total 685,346 (283,365) 401,981
Other intangible assets not
subject to amortization 13,721
----------
Total other intangible assets $415,702
================================================================================
Gross carrying amount of software was increased for the year ended March 31,
2004 mainly due to back-office information systems development.
F-22
The aggregate amortization expense of other intangible assets subject to
amortization for the year ended March 31, 2003 and 2004 were Yen 6,993 million
and Yen 9,284 million ($89,269 thousand). The future amortization expense for
each of the five years relating to intangible assets currently recorded in the
consolidated balance sheets is estimated to be the following at March 31, 2004:
Thousands of
Years ending March 31 Millions of Yen U.S. Dollars
--------------------------------------------------------------------------------
2005 11,369 $109,317
2006 8,556 82,269
2007 5,919 56,913
2008 4,174 40,135
2009 2,632 25,308
================================================================================
The changes in the carrying amounts of goodwill for the year ended March 31,
2003 and 2004, were as follows:
Thousands of
Millions of Yen U.S. Dollars
----------------- ------------
2003 2004 2004
--------------------------------------------------------------------------------
Balance at beginning of year 29,687 28,109 $270,279
Goodwill acquired during the year 1,176 383 3,683
Foreign exchange impact (2,754) (3,194) (30,712)
--------------------------------------------------------------------------------
Balance at end of year 28,109 25,298 $243,250
================================================================================
As of March 31, 2004, all carrying value of goodwill was allocated to office
equipment segment.
The following table reconciles previously reported net income and net income per
share for the year ended March 31, 2002, as if the provisions of SFAS 142 had
been in effect.
Millions of Yen
---------------
2002
--------------------------------------------------------------------------------
Net income:
Reported net income 61,614
Goodwill amortization 2,514
--------------------------------------------------------------------------------
Adjusted net income 64,128
================================================================================
Yen
---------------
Net income per share:
Reported net income per share - basic 88.27
Goodwill amortization 3.60
--------------------------------------------------------------------------------
Adjusted net income per share - basic 91.87
--------------------------------------------------------------------------------
Reported net income per share - diluted 82.46
Goodwill amortization 3.34
--------------------------------------------------------------------------------
Adjusted net income per share - diluted 85.80
================================================================================
F-23
8. INCOME TAXES
Income before income taxes, minority interests, equity in earnings of affiliates
and cumulative effect of accounting change and provision for income taxes for
the years ended March 31, 2002, 2003 and 2004 are as follows:
Thousands of
Millions of Yen U.S. Dollars
--------------------------- ------------
2002 2003 2004 2004
-----------------------------------------------------------------------------------------------
Income before income taxes, minority interests,
equity in earnings of affiliates and cumulative
effect of accounting change
Domestic 95,723 84,946 98,162 $ 943,865
Foreign 18,227 38,524 44,901 431,741
-----------------------------------------------------------------------------------------------
113,950 123,470 143,063 $1,375,606
===============================================================================================
Provision for income taxes- Current:
Domestic 43,564 50,103 38,908 $374,115
Foreign 8,801 13,080 14,395 138,414
-----------------------------------------------------------------------------------------------
52,365 63,183 53,303 512,529
-----------------------------------------------------------------------------------------------
Deferred:
Domestic (3,524) (9,043) 1,951 18,760
Foreign 2,306 (2,156) 1,387 13,336
-----------------------------------------------------------------------------------------------
(1,218) (11,199) 3,338 32,096
-----------------------------------------------------------------------------------------------
Consolidated provision for income taxes 51,147 51,984 56,641 $ 544,625
===============================================================================================
Total income taxes are allocated as follows:
Thousands of
Millions of Yen U.S. Dollars
--------------------------- ------------
2002 2003 2004 2004
-----------------------------------------------------------------------------------------------
Provision for income taxes 51,147 51,984 56,641 $ 544,625
Shareholders' investment:
Foreign currency translation adjustments 2,062 (826) (1,334) (12,827)
Unrealized gains (losses) on securities (582) (1,130) (3,617) (34,779)
Unrealized losses on derivatives (146) (9) 109 1,048
Minimum pension liability adjustment (11,760) (30,811) 49,733 478,202
Cumulative effect of accounting change -- -- 5,722 55,019
-----------------------------------------------------------------------------------------------
40,721 19,208 107,254 $1,031,288
===============================================================================================
F-24
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 10%, which in the aggregate resulted in the normal statutory
tax rate of approximately 42%. The normal statutory tax rate differs from the
effective tax rate for the years ended March 31, 2002, 2003 and 2004 as a result
of the following:
2002 2003 2004
--------------------------------------------------------------------------------
Normal statutory tax rate 42% 42% 42%
Nondeductible expenses 1 1 1
Tax benefits not recognized on operating losses of certain
consolidated subsidiaries 3 3 2
Utilization of net operating loss carryforward not
previously recognized (0) (4) (1)
Tax credit for increased research and development expense (0) (1) (3)
Effect of change in enacted tax rate -- 2 1
Other, net (1) (1) (2)
--------------------------------------------------------------------------------
Effective tax rate 45% 42% 40%
================================================================================
Nondeductible expenses include directors' bonuses and entertainment expenses.
Based on an enacted change in the Japanese tax laws in March, 2003, the normal
statutory tax rate was reduced to approximately 40% effective April 1, 2004, and
such rate has been used in calculating the future expected tax effects of
temporary differences and carryforwards expected to be settled or realized on or
after April 1,2004.
The tax effects of temporary differences and carryforwards giving rise to the
consolidated deferred income tax assets and liabilities as of March 31, 2003 and
2004 are as follows:
Thousands of
Millions of Yen U.S. Dollars
----------------- ------------
2003 2004 2004
----------------------------------------------------------------------------------------
Assets:
Accrued expenses 26,184 22,165 $ 213,125
Property, plant and equipment 4,014 3,316 31,884
Accrued pension and severance costs 84,230 31,372 301,654
Net operating loss carryforwards 13,839 10,778 103,635
Other 31,460 29,655 285,144
----------------------------------------------------------------------------------------
159,727 97,286 935,442
Less- Valuation allowance (9,193) (9,010) (86,634)
----------------------------------------------------------------------------------------
150,534 88,276 $ 848,808
========================================================================================
Liabilities:
Sales-type leases (7,112) (6,853) $ (65,894)
Undistributed earnings of foreign subsidiaries and
affiliates (12,801) (15,602) (150,019)
Net unrealized holding gains on available-for-sale
securities (8,957) (4,390) (42,212)
Other (11,361) (9,969) (95,856)
----------------------------------------------------------------------------------------
(40,231) (36,814) $(353,981)
========================================================================================
Net deferred tax assets 110,303 51,462 $ 494,827
========================================================================================
F-25
Net deferred tax assets as of March 31, 2003 and 2004 are included in the
consolidated balance sheets as follows:
Thousands of
Millions of Yen U.S. Dollars
----------------- ------------
2003 2004 2004
-----------------------------------------------------------------------------------
Deferred income taxes and other (Current Assets) 41,993 41,213 $ 396,279
Lease deposits and other (Non-current Assets) 99,204 47,122 453,096
Accrued expenses and other (Current Liabilities) (241) (578) (5,558)
Deferred income taxes (Long-Term Liabilities) (30,653) (36,295) (348,990)
-----------------------------------------------------------------------------------
110,303 51,462 $ 494,827
===================================================================================
The net changes in the total valuation allowance for the years ended March 31,
2002, 2003 and 2004 was an increase of Yen 2,897 million, decreases of Yen 2,107
million and Yen 183 million ($1,760 thousand), respectively. The valuation
allowance primarily relates to valuation allowance for deferred tax assets
associated with net operating loss carryforwards incurred by certain
subsidiaries. Ricoh has performed an analysis for each of these subsidiaries to
assess their ability to realize such deferred tax assets, taking into
consideration projections for future taxable income, historical performance, tax
planning strategies market conditions and other factors, as appropriate.
Considering these factors, management believes it is more likely than not that
these subsidiaries will realize their respective deferred tax assets
(principally net operating loss carry forwards) net of existing valuation
allowance.
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. 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, 2004, certain subsidiaries had net operating losses carried
forward for income tax purposes of approximately Yen 28,155 million ($270,721
thousand) which were available to reduce future income taxes, if any.
Approximately Yen 19,417 million ($186,702 thousand) of the operating losses
expire within a five-year period while the remainder principally have an
indefinite carryforward period.
F-26
9. SHORT-TERM BORROWINGS
Short-term borrowings as of March 31, 2003 and 2004 consist of the following:
Weighted average Thousands of
interest rate Millions of Yen U.S. Dollars
---------------- --------------- ------------
2003 2004 2003 2004 2004
--------------------------------------------------------------------------------------
Borrowings, principally from banks 1.8% 1.7% 28,258 19,359 $186,144
Commercial paper 0.9 0.8 56,220 49,593 476,856
--------------------------------------------------------------------------------------
84,478 68,952 $663,000
======================================================================================
The Company and certain of its subsidiaries enter into the contracts with
financial institutions regarding lines of credit and overdrawing. Those same
financial institution hold the issuing programs of commercial paper and
medium-term notes. Unused lines of credit amounted to Yen 613,884 million and
Yen 634,273 million ($6,098,779 thousand) as of March 31, 2003 and 2004,
respectively, of which Yen 234,704 million and Yen 182,764 million ($1,757,346
thousand) related to commercial paper and Yen 144,280 million and Yen 131,966
million ($1,268,904 thousand) related to medium-term notes programs at
prevailing interest rates.
F-27
10. LONG-TERM INDEBTEDNESS
Long-term indebtedness as of March 31, 2003 and 2004 consists of the followings:
Thousands of
Millions of Yen U.S. Dollars
----------------- ------------
2003 2004 2004
-------------------------------------------------------------------------------------------------------------
Bonds-
2.075%, straight bonds, payable in yen, due April 2005 40,000 40,000 $ 384,615
0.87%, straight bonds, payable in yen, due March 2007 35,000 35,000 336,538
1.34%, straight bonds, payable in yen, due March 2009 25,000 25,000 240,385
0.9%, straight bonds, payable in yen, due June 2003 issued by a
consolidated subsidiary 5,000 -- --
1.1%, straight bonds, payable in yen, due February 2004 issued by a
consolidated subsidiary 9,910 -- --
1.17%, straight bonds, payable in yen, due June 2004 issued by a
consolidated subsidiary 10,000 10,000 96,154
0.73%, straight bonds, payable in yen, due June 2006 issued by a
consolidated subsidiary 10,000 10,000 96,154
0.7%, straight bonds, payable in yen, due June 2007 issued by a
consolidated subsidiary 10,000 10,000 96,154
2.1%, straight bonds, payable in yen, due October 2009 issued by a
consolidated subsidiary 10,000 10,000 96,154
Medium-term notes, 0.28% weighted average, due through 2015 issued by a
consolidated subsidiary 24,000 16,000 153,846
-------------------------------------------------------------------------------------------------------------
Total bonds 178,910 156,000 1,500,000
-------------------------------------------------------------------------------------------------------------
Unsecured loans-
Banks and insurance companies,
1.42% weighted average, due through 2011 210,042 200,361 1,926,548
-------------------------------------------------------------------------------------------------------------
Secured loans-
Banks, insurance companies and other financial institution, 1.25%
weighted average, due through 2013 2,553 1,410 13,558
-------------------------------------------------------------------------------------------------------------
Capital lease obligations (see Note 2(j)) 4,237 3,141 30,202
-------------------------------------------------------------------------------------------------------------
Total 395,742 360,912 3,470,308
SFAS 133 fair value adjustment 4,395 2,868 27,577
Less- Current maturities included in current liabilities (54,235) (82,210) (790,481)
-------------------------------------------------------------------------------------------------------------
345,902 281,570 $2,707,404
=============================================================================================================
F-28
Secured loans are collateralized by land, buildings and lease receivables with a
book value of Yen 3,468 million ($33,346 thousand) as of March 31, 2004.
All bonds outstanding as of March 31, 2004 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, 2004.
Certain loan agreements provide, among other things, that the lender may request
the Company to submit proposals for appropriations of earnings (including
payment of dividends) to the lender for its review and approval prior to
presentation to the shareholders. The Company has never been requested to submit
such proposals for approval. In addition, 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 deposited as
security for all present and future indebtedness. The Company has never been
requested to submit such additional security.
The aggregate annual maturities of long-term indebtedness subsequent to March
31, 2004 are as follows:
Thousands of
Years ending March 31 Millions of Yen U.S. Dollars
--------------------------------------------------------------------------------
2005 81,943 $ 787,914
2006 130,745 1,257,164
2007 71,036 683,038
2008 29,887 287,375
2009 26,169 251,625
2010 and thereafter 21,132 203,192
--------------------------------------------------------------------------------
Total 360,912 $3,470,308
================================================================================
F-29
11. PENSION AND RETIREMENT ALLOWANCE PLANS
The Company and certain of its subsidiaries have various trusted contributory
and noncontributory employees' pension fund plans 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. Under the terms
of the domestic employee's pension fund ("EPF") plan, the government mandated
welfare pension insurance benefit was included and commingled with the primary
corporate benefit provided by Ricoh. These contributory and non contributory
plans are funded in conformity with governmental regulations which basically
require an employer to contribute the unfunded benefit over 20 years.
As noted above, the domestic EPF plan was composed of (1) a corporate defined
benefit portion established by Ricoh and (2) a substitutional portion based on
benefits prescribed by the government (similar to social security benefits in
the United States). Ricoh had been exempted from contributing to the Japanese
Pension Insurance ("JPI") program that would otherwise have been required if it
had not elected to fund the government substitutional portion of the benefit
through an EPF arrangement. The plan assets of the EPF were invested and managed
as a single portfolio for the entire EPF and were not separately attributed to
the substitutional and corporate portions. In June 2001, Contributed Benefit
Pension Plan Law was newly enacted and permits an employer to elect to transfer
the entire substitutional portion benefit obligation from the EPF to the
government together with a specified amount of plan assets pursuant to a
government formula. After such transfer, the employer would be required to make
periodic contributions to JPI, and the Japanese government would be responsible
for all benefit payments. The corporate portion of the EPF would continue to
exist exclusively as a corporate defined benefit pension plan.
Pursuant to the new law, Ricoh received an approval of exemption from the
Minister of Health, Labor and Welfare, effective January 1, 2003, from the
obligation for benefits related to future employee service with respect to the
substitutional portion of its EPF. Ricoh received government approval of
exemption from the obligation for benefits related to past employee service in
January 2004 with respect to the substitutional portion of its domestic
contributory plan. The transfer to the government was completed on March 16,
2004.
Ricoh accounted for the transfer in accordance with EITF Issue No. 03-2
"Accounting for the Transfer to the Japanese Government of the Substitutional
Portion of Employee Pension Fund Liabilities" ("EITF 03-2"). As specified in
EITF 03-2, the entire separation process is to be accounted for at the time of
completion of the transfer to the government of the substitutional portion of
the benefit obligation and related plan assets as a settlement in accordance
with SFAS No. 88 "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits". As a result of the
transfer, Ricoh recognized as a subsidy from the Japanese government equal to
the difference between the fair value of the obligation deemed "settled" with
the Japanese government and the assets required to be transferred to the
government. The subsidy that Ricoh recognized amounted to Yen 56,972 million
($547,808 thousand). In addition, Ricoh recognized as a settlement loss equal to
the amount calculated as the ratio of the obligation settled to the total EPF
obligation immediately prior to settlement, both of which exclude the effect of
future salary progression relating to the substitutional portion, times the net
unrecognized gain/loss immediately prior to settlement, which amounted to Yen
48,657 million ($467,856 thousand). These gain and loss were included in
operating income.
In addition to EPF plan, the Company had maintained a defined benefit plan for
certain qualified employees. Effective January 1, 2004, the Company liquidated
this plan and recorded a settlement loss of Yen 5,958 million ($57,288 thousand)
which was included in selling, general and administrative expenses in the
consolidated statement of income.
F-30
The changes in the benefit obligation and plan assets of the pension plans for
the years ended March 31, 2003 and 2004 are as follows:
Thousands of
Millions of Yen U.S. Dollars
------------------- ------------
2003 2004 2004
----------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year 452,562 522,275 $ 5,021,875
Service cost 16,943 15,694 150,904
Interest cost 14,292 12,719 122,298
Plan participants' contributions 1,105 171 1,644
Amendments (10,924) (53,563) (515,029)
Actuarial loss (benefit) 64,852 (7,420) (71,346)
Settlement (2,009) (164,522) (1,581,943)
Benefits paid (13,197) (15,378) (147,865)
Foreign exchange impact (1,349) (1,972) (18,961)
----------------------------------------------------------------------------------------------
Benefit obligation at end of year 522,275 308,004 $ 2,961,577
==============================================================================================
Change in plan assets:
Fair value of plan assets at beginning of year 268,377 235,346 $ 2,262,942
Actual return on plan assets (36,838) 43,980 422,885
Employer contribution 14,281 16,472 158,385
Plan participants' contributions 1,105 171 1,644
Settlement (1,636) (72,812) (700,115)
Benefits paid (9,246) (10,960) (105,385)
Foreign exchange impact (697) (1,221) (11,741)
----------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 235,346 210,976 $ 2,028,615
==============================================================================================
Funded status (286,929) (97,028) $ (932,962)
Unrecognized net actuarial loss 245,632 111,528 1,072,385
Unrecognized prior service cost (10,081) (61,599) (592,298)
Unrecognized net asset at transition, net of amortization (2,414) (1,435) (13,798)
----------------------------------------------------------------------------------------------
Net amount recognized (53,792) (48,534) $ (466,673)
==============================================================================================
Amounts recognized in the balance sheets consist of:
Prepaid benefit cost 61 -- $ --
Accrued benefit liability (207,948) (78,851) (758,183)
Intangible assets 199 92 885
Accumulated other comprehensive income, gross of tax 153,896 30,225 290,625
----------------------------------------------------------------------------------------------
Net amount recognized (53,792) (48,534) $ (466,673)
==============================================================================================
Accumulated benefit obligations 444,477 283,548 $ 2,726,423
==============================================================================================
F-31
Weighted-average assumptions used to determine benefit obligations at March 31,
2003 and 2004 were as follows:
2003 2004
--------------------------------------------------------------------------------
Discount rate 2.6% 2.9%
Rate of compensation increase 3.4% 3.4%
================================================================================
Weighted-average assumptions used to determine the net periodic benefit cost for
the years ended March 31, 2002, 2003 and 2004 were as follows:
2002 2003 2004
--------------------------------------------------------------------------------
Discount rate 2.9% 3.3% 2.6%
Rate of compensation increase 3.2% 3.4% 3.4%
Expected long-term return on plan assets 4.8% 3.6% 2.5%
================================================================================
The net periodic benefit costs of the pension plans for the three years ended
March 31, 2004 consisted of the following components:
Thousands of
Millions of Yen U.S. Dollars
------------------------- ------------
2002 2003 2004 2004
--------------------------------------------------------------------------------
Service cost 15,636 16,943 15,694 $150,904
Interest cost 13,693 14,292 12,719 122,298
Expected return on plan assets (13,031) (9,763) (5,872) (56,462)
Net amortization 4,707 5,081 10,805 103,894
Settlement loss (benefit) 183 (35) (2,537) (24,394)
--------------------------------------------------------------------------------
Total net periodic pension cost 21,188 26,518 30,809 $296,240
================================================================================
In accordance with the provisions of SFAS 87, Ricoh has recorded an adjustment
for minimum pension liability at March 31, 2003 and 2004. This liability
represents the excess of the accumulated benefit obligations over the fair value
of plan assets and severance costs already recognized before recording the
minimum pension liability. This excess is primarily attributable to a
substantial reduction in the discount rate used in pension calculation and loss
on plan assets. A corresponding amount was recognized as an intangible asset to
the extent of the unrecognized prior service cost, and the balance was recorded
as a component of accumulated other comprehensive income (loss), net of tax.
The projected benefit obligations, accumulated benefit obligations, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were Yen 453,956 million, Yen 387,481 million and
Yen 218,058 million, respectively, as of March 31, 2003 and Yen 240,470 million
($2,312,212 thousand), Yen 229,387 million ($2,205,644 thousand) and Yen 194,654
million ($1,871,673 thousand), respectively, as of March 31, 2004.
F-32
Ricoh's domestic benefit plan asset allocation at March 31, 2003 and 2004 are as
follows:
2003 2004
--------------------------------------------------------------------------------
Equity securities 55.6% 52.8%
Debt securities 24.5% 2.4%
Life insurance company general accounts 17.9% 20.0%
Other 2.0% 24.8%
--------------------------------------------------------------------------------
Total 100.0% 100.0%
================================================================================
The total fair value of plan assets for domestic plan as of March 31, 2004 was
Yen 159,989 million ($1,538,356 thousand).
Common stock and bonds of the Company and certain of its domestic subsidiaries
included in plan asset were immaterial at March 31, 2003 and 2004.
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.
As discussed in Note 5, Ricoh contributed certain marketable equity securities
to an employee retirement benefit trust. The securities held in this trust are
qualified as plan assets under SFAS 87.
Ricoh uses a December 31 measurement date for the domestic pension plan.
Ricoh expects to contribute Yen 8,240 million ($79,231 thousand) to the domestic
pension plan in 2004.
Employees of certain domestic subsidiaries not covered by the EPF plan and
directors of the Company are primarily covered by unfunded retirement allowances
plans. The payments to directors are subject to shareholders' approval.
F-33
12. SHAREHOLDERS' INVESTMENT
The Japanese Commercial Code provides that an amount equal to at least 10% of
cash dividends and other distributions from retained earnings paid by the
Company and its domestic subsidiaries be appropriated as a legal reserve. No
further appropriation is required when the total amount of the legal reserve and
additional paid-in capital equals 25% of common stock. Legal reserves included
in retained earnings as of March 31, 2003 and 2004 were Yen 16,903 million and
Yen 16,894 million ($162,442 thousand), respectively, and are restricted from
being used as dividends.
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 general
meeting to be held on June 25, 2004, the shareholders will be asked to approve
the declaration of a cash dividend (Yen 10 per share) on the common stock
totaling Yen 7,389 million ($71,048 thousand), which will be paid to
shareholders of record as of March 31, 2004. The declaration of this dividend
has not been reflected in the consolidated financial statements as of March 31,
2004.
The Japanese Commercial Code provides that at least one-half of the proceeds
from shares issued is included in common stock. In conformity therewith, the
Company has divided the principal amount of bonds converted into common stock
between common stock and additional paid-in capital.
The amount of retained earnings legally available for dividend distribution is
that recorded in the Company's non-consolidated books and amounted to Yen
308,412 million ($2,965,500 thousand) as of March 31, 2004.
The Japanese Commercial Code allows the Company to purchase treasury stock for
any reason at any time by the resolution of the Board of Directors. On June 27,
2002, the shareholders of the Company approved to purchase treasury stock up to
8 million shares for a maximum total cost of Yen 20,000 million during the
period up to the resolution of next Ordinary General Shareholders' Meeting which
was held on June 26, 2003. In accordance with this approval, the Company
repurchased 8 million shares and retired 7 million shares during the year ended
March 31, 2003. The retirement of common stock reduced retained earnings during
the year ended March 31, 2003 by Yen 13,328 million.
F-34
13. 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
---------------------------------------------------------------------------------------------------
2002:
Foreign currency translation adjustments 8,578 (2,062) 6,516
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the year (4,212) 1,781 (2,431)
Less- Reclassification adjustment for (gains) losses
realized in net income 2,864 (1,199) 1,665
Net unrealized gains (losses) (1,348) 582 (766)
Unrealized losses on derivatives:
Cumulative effect of accounting change (3,206) 1,342 (1,864)
Unrealized holding gains (losses) arising during the year 2,061 (871) 1,190
Less- Reclassification adjustment for (gains) losses
realized in net income 792 (325) 467
Net unrealized gains (losses) (353) 146 (207)
Minimum pension liability adjustment (27,891) 11,760 (16,131)
---------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (21,014) 10,426 (10,588)
===================================================================================================
2003:
Foreign currency translation adjustments 181 826 1,007
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the year (5,348) 2,065 (3,283)
Less- Reclassification adjustment for (gains) losses
realized in net income 2,234 (935) 1,299
Net unrealized gains (losses) (3,114) 1,130 (1,984)
Unrealized losses on derivatives:
Unrealized holding gains (losses) arising during the year (634) 277 (357)
Less- Reclassification adjustment for (gains) losses
realized in net income 654 (268) 386
Net unrealized gains (losses) 20 9 29
Minimum pension liability adjustment (80,220) 30,811 (49,409)
---------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (83,133) 32,776 (50,357)
===================================================================================================
F-35
Millions of Yen
---------------------------------
Before-tax Tax Net-of-tax
amount expense amount
---------------------------------------------------------------------------------------------------
2004:
Foreign currency translation adjustments (6,727) 1,334 (5,393)
Unrealized gains (losses) on securities:
Cumulative effect of accounting change (13,095) 5,722 (7,373)
Unrealized holding gains (losses) arising during the year 7,688 (3,227) 4,461
Less- Reclassification adjustment for (gains) losses
realized in net income (2,766) 1,122 (1,644)
Net unrealized gains (losses) (8,173) 3,617 (4,556)
Unrealized losses on derivatives:
Unrealized holding gains (losses) arising during the year (105) 42 (63)
Less- Reclassification adjustment for (gains) losses
realized in net income 368 (151) 217
Net unrealized gains (losses) 263 (109) 154
Minimum pension liability adjustment 123,989 (49,733) 74,256
---------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 109,352 (44,891) 64,461
===================================================================================================
Thousands of U.S. Dollars
---------------------------------
2004:
Foreign currency translation adjustments $ (64,683) $ 12,827 $(51,856)
Unrealized gains (losses) on securities:
Cumulative effect of accounting change (125,913) 55,019 (70,894)
Unrealized holding gains (losses) arising during the year 73,923 (31,029) 42,894
Less- Reclassification adjustment for (gains) losses realized in net
income (26,596) 10,788 (15,808)
Net unrealized gains (losses) (78,587) 34,779 (43,808)
Unrealized losses on derivatives:
Unrealized holding gains (losses) arising during the year (1,010) 404 (606)
Less- Reclassification adjustment for (gains) losses realized in net
income 3,539 (1,452) 2,087
Net unrealized gains (losses) 2,529 (1,048) 1,481
Minimum pension liability adjustment 1,192,202 (478,202) 714,000
---------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) $1,051,461 $(431,644) $619,817
===============================================================================================================
F-36
Changes in accumulated other comprehensive income (loss) are as follows:
Millions of Yen
--------------------------------------------------------------------------
Total
Foreign Accumulated
currency Unrealized Unrealized Minimum other
translation gains on losses on pension liability comprehensive
adjustments securities derivatives adjustment income (loss)
------------------------------------------------------------------------------------------------------
2002:
Beginning balance (21,541) 11,332 -- (23,579) (33,788)
Cumulative effect of
accounting change -- -- (1,864) -- (1,864)
Change during the year 6,516 (766) 1,657 (16,131) (8,724)
------------------------------------------------------------------------------------------------------
Ending balance (15,025) 10,566 (207) (39,710) (44,376)
======================================================================================================
2003:
Beginning balance (15,025) 10,566 (207) (39,710) (44,376)
Change during the year 1,007 (1,984) 29 (49,409) (50,357)
------------------------------------------------------------------------------------------------------
Ending balance (14,018) 8,582 (178) (89,119) (94,733)
======================================================================================================
2004:
Beginning balance (14,018) 8,582 (178) (89,119) (94,733)
Cumulative effect of
accounting change -- (7,373) -- -- (7,373)
Change during the year (5,393) 2,817 154 74,256 71,834
------------------------------------------------------------------------------------------------------
Ending balance (19,411) 4,026 (24) (14,863) (30,272)
======================================================================================================
Thousands of U.S. Dollars
--------------------------------------------------------------------------
2004:
Beginning balance $(134,788) $ 82,519 $(1,712) $(856,913) $(910,894)
Cumulative effect of
accounting change -- (70,894) -- -- (70,894)
Change during the year (51,856) 27,086 1,481 714,000 690,711
------------------------------------------------------------------------------------------------------
Ending balance $(186,644) $ 38,711 $ (231) $(142,913) $(291,077)
======================================================================================================
F-37
14.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
---------------------------
2002 2003 2004
-------------------------------------------------------------------------
Weighted average common shares outstanding 698,025 726,660 742,293
Effect of dilutive securities:
Convertible bonds-
1.8%, payable in yen, due March 2002 997 -- --
1.5%, payable in yen, due March 2002 28,195 -- --
0.35%, payable in yen, due March 2003 24,699 23,250 --
-------------------------------------------------------------------------
Diluted common shares outstanding 751,916 749,910 742,293
=========================================================================
Thousands of
Millions of Yen U.S. Dollars
------------------------ ------------
2002 2003 2004 2004
---------------------------------------------------------------------------------------
Income before cumulative effect of accounting
change applicable to common shareholders 61,614 72,513 84,393 $811,471
Effect of dilutive securities:
Convertible bonds-
1.8%, payable in yen, due March 2002 10 -- -- --
1.5%, payable in yen, due March 2002 258 -- -- --
0.35%, payable in yen, due March 2003 119 86 -- --
---------------------------------------------------------------------------------------
Diluted income before cumulative effect of
accounting change 62,001 72,599 84,393 $811,471
=======================================================================================
Cumulative effect of accounting change, net
of tax -- -- 7,373 $ 70,894
=======================================================================================
Net income applicable to common shareholders 61,614 72,513 91,766 $882,365
Effect of dilutive securities:
Convertible bonds-
1.8%, payable in yen, due March 2002 10 -- -- --
1.5%, payable in yen, due March 2002 258 -- -- --
0.35%, payable in yen, due March 2003 119 86 -- --
---------------------------------------------------------------------------------------
Diluted net income 62,001 72,599 91,766 $882,365
=======================================================================================
Yen U.S. Dollars
---------------------- ------------
2002 2003 2004 2004
--------------------------------------------------------------------------------
Earnings per share:
Basic
Income before cumulative effect of
accounting change 88.27 99.79 113.69 $1.09
Cumulative effect of accounting
change, net of tax -- -- 9.94 0.10
Net income 88.27 99.79 123.63 1.19
Diluted:
Income before cumulative effect of
accounting change 82.46 96.81 113.69 1.09
Cumulative effect of accounting
change, net of tax -- -- 9.94 0.10
Net income 82.46 96.81 123.63 1.19
================================================================================
F-38
15. 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 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 these 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, 2002, 2003 and 2004 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, 2002, 2003 and 2004 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 (income) expenses during the
next 12 months approximately Yen 12 million ($115 thousand) of the balance of
accumulated other comprehensive loss as of March 31, 2004.
F-39
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
statement of income.
16. COMMITMENTS AND CONTINGENT LIABILITIES
As of March 31, 2004, Ricoh had outstanding contractual commitments for
acquisition or construction of plant, equipment and other assets aggregating
Yen 895 million ($8,606 thousand).
As of March 31, 2004, Ricoh was also contingently liable as guarantor for
employees' housing loans of Yen 283 million ($2,721 thousand), all of which were
issued before January 1, 2003.
Ricoh made rental payments totaling Yen 46,426 million, Yen 50,218 million and
Yen 51,723 million ($497,337 thousand) for the years ended March 31, 2002, 2003
and 2004, respectively, under operating lease agreements for office space and
machinery and equipment, which are primarily cancelable and renewable.
As of March 31, 2004, 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.
17. 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.
F-40
(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.
The estimated fair value of the financial instruments as of March 31, 2003 and
2004 is summarized as follows:
Millions of Yen Thousands of U.S. Dollars
---------------------------------------------- -------------------------
2003 2004 2004
--------------------- ---------------------- -------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value Amount Fair Value
-----------------------------------------------------------------------------------------------------------------
Marketable securities and Investment 72,080 72,080 66,995 66,995 $ 644,183 $ 644,183
securities
Installment loans 50,531 50,783 51,455 51,626 494,760 496,404
Long-term indebtedness (345,902) (351,305) (281,570) (284,528) (2,707,404) (2,735,846)
Interest rate swap agreements, net 3,985 3,985 2,266 2,266 21,788 21,788
Foreign currency contracts, net (594) (594) 1,876 1,876 18,038 18,038
Foreign currency options, net (466) (466) (145) (145) (1,394) (1,394)
=================================================================================================================
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.
18. 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 equipment, including copiers
and related supplies, communications and information systems, and others,
including optical equipment and electronic devices.
The following tables present certain information regarding Ricoh's operating
segments and operations by geographic areas for the years ended March 31, 2002,
2003 and 2004.
F-41
(A) OPERATING SEGMENT INFORMATION
Thousands of
Millions of Yen U.S. Dollars
--------------------------------- ------------
2002 2003 2004 2004
-----------------------------------------------------------------------------------------------------
Sales-
Office equipment 1,485,389 1,520,574 1,557,633 $14,977,240
Other 190,815 220,539 225,074 2,164,173
Intersegment transaction (3,864) (2,755) (2,462) (23,673)
-----------------------------------------------------------------------------------------------------
Consolidated 1,672,340 1,738,358 1,780,245 $17,117,740
=====================================================================================================
Operating Expenses-
Office equipment 1,304,079 1,329,776 1,353,304 $13,012,538
Other 187,424 222,772 220,391 2,119,144
Intersegment transaction (3,893) (2,726) (2,494) (23,980)
Unallocated expense 55,035 54,882 59,038 567,673
-----------------------------------------------------------------------------------------------------
Consolidated 1,542,645 1,604,704 1,630,239 $15,675,375
=====================================================================================================
Operating Income-
Office equipment 181,310 190,798 204,329 $ 1,964,702
Other 3,391 (2,233) 4,683 45,029
Elimination (55,006) (54,911) (59,006) (567,366)
-----------------------------------------------------------------------------------------------------
Consolidated 129,695 133,654 150,006 $ 1,442,365
=====================================================================================================
Other Expenses (15,745) (10,184) (6,943) $ (66,759)
=====================================================================================================
Income before Income Taxes, Minority Interests,
Equity in Earnings of Affiliates and Cumulative
Effect of Accounting Change 113,950 123,470 143,063 $ 1,375,606
=====================================================================================================
Thousands of
Millions of Yen U.S. Dollars
--------------------------------- ------------
2002 2003 2004 2004
----------------------------------------------------------------------------------
Total Assets-
Office equipment 1,219,723 1,198,706 1,220,747 $11,737,952
Other 185,158 176,296 182,532 1,755,115
Elimination (6,991) (6,908) (8,047) (77,375)
Corporate assets 435,038 516,828 457,561 4,399,625
----------------------------------------------------------------------------------
Consolidated 1,832,928 1,884,922 1,852,793 $17,815,317
==================================================================================
Expenditure for segment assets-
Office equipment 68,513 65,720 65,366 $ 628,519
Other 5,633 7,213 8,712 83,769
Corporate assets 1,530 1,023 1,429 13,741
----------------------------------------------------------------------------------
Consolidated 75,676 73,956 75,507 $ 726,029
==================================================================================
Depreciation-
Office equipment 64,426 60,687 57,956 $ 557,269
Other 7,448 6,917 7,774 74,750
Corporate assets 1,908 1,954 1,954 18,789
----------------------------------------------------------------------------------
Consolidated 73,782 69,558 67,684 $ 650,808
==================================================================================
F-42
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 for the years ended March 31, 2002, 2003 and 2004 are as
follows:
Thousands of
Millions of Yen U.S. Dollars
--------------------------------- ------------
2002 2003 2004 2004
--------------------------------------------------------------------------------
Sales-
Japan 902,655 896,022 914,060 $ 8,789,038
The Americas 341,747 343,940 326,380 3,138,269
Europe 311,312 354,477 402,392 3,869,154
Other 116,626 143,919 137,413 1,321,279
--------------------------------------------------------------------------------
Consolidated 1,672,340 1,738,358 1,780,245 $17,117,740
================================================================================
Long-Lived Assets-
Japan 257,752 251,214 248,277 $ 2,387,279
The Americas 77,269 71,850 62,617 602,086
Europe 38,320 34,062 31,000 298,077
Other 12,897 11,742 10,093 97,048
--------------------------------------------------------------------------------
Consolidated 386,238 368,868 351,987 $ 3,384,490
================================================================================
Ricoh's long-lived assets consist property, plant and equipment, goodwill, other
intangible assets and lease deposits and other.
(C) ADDITIONAL INFORMATION
The following information shows net sales and operating income recognized by
geographic origin for the years ended March 31, 2002, 2003 and 2004. 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-43
Thousands of
Millions of Yen U.S. Dollars
--------------------------------- ------------
2002 2003 2004 2004
-----------------------------------------------------------------------------------------------------
Sales-
Japan
External customers 938,946 954,310 962,127 $ 9,251,221
Intersegment 309,745 320,596 351,070 3,375,673
-----------------------------------------------------------------------------------------------------
Total 1,248,691 1,274,906 1,313,197 12,626,894
-----------------------------------------------------------------------------------------------------
The Americas
External customers 338,016 333,935 315,504 3,033,692
Intersegment 8,937 5,620 5,249 50,471
-----------------------------------------------------------------------------------------------------
Total 346,953 339,555 320,753 3,084,163
-----------------------------------------------------------------------------------------------------
Europe
External customers 309,086 352,943 400,646 3,852,365
Intersegment 4,265 3,019 3,770 36,250
-----------------------------------------------------------------------------------------------------
Total 313,351 355,962 404,416 3,888,615
-----------------------------------------------------------------------------------------------------
Other
External customers 86,292 97,170 101,968 980,461
Intersegment 60,655 72,664 91,373 878,587
-----------------------------------------------------------------------------------------------------
Total 146,947 169,834 193,341 1,859,048
-----------------------------------------------------------------------------------------------------
Elimination of intersegment sales (383,602) (401,899) (451,462) (4,340,980)
-----------------------------------------------------------------------------------------------------
Consolidated 1,672,340 1,738,358 1,780,245 $17,117,740
=====================================================================================================
Operating Expenses-
Japan 1,142,522 1,188,760 1,215,875 $11,691,106
The Americas 335,521 325,228 305,284 2,935,423
Europe 301,152 337,693 382,383 3,676,759
Other 139,874 159,864 182,870 1,758,365
-----------------------------------------------------------------------------------------------------
Elimination of intersegment sales (376,424) (406,841) (456,173) (4,386,278)
-----------------------------------------------------------------------------------------------------
Consolidated 1,542,645 1,604,704 1,630,239 $15,675,375
=====================================================================================================
Operating Income-
Japan 106,169 86,146 97,322 $ 935,788
The Americas 11,432 14,327 15,469 148,740
Europe 12,199 18,269 22,033 211,856
Other 7,073 9,970 10,471 100,683
-----------------------------------------------------------------------------------------------------
Elimination of intersegment profit (7,178) 4,942 4,711 45,298
-----------------------------------------------------------------------------------------------------
Consolidated 129,695 133,654 150,006 $ 1,442,365
-----------------------------------------------------------------------------------------------------
Other Expenses (15,745) (10,184) (6,943) $ (66,759)
-----------------------------------------------------------------------------------------------------
Income before Income Taxes, Minority Interests,
Equity in Earnings of Affiliates and Cumulative
Effect of Accounting Change 113,950 123,470 143,063 $ 1,375,606
=====================================================================================================
Total Assets-
Japan 1,084,387 1,064,857 1,071,297 $10,300,933
The Americas 228,743 201,359 188,644 1,813,885
Europe 172,408 174,541 188,184 1,809,461
Other 61,549 70,458 63,701 612,509
Elimination (149,197) (143,121) (116,594) (1,121,096)
Corporate assets 435,038 516,828 457,561 4,399,625
-----------------------------------------------------------------------------------------------------
Consolidated 1,832,928 1,884,922 1,852,793 $17,815,317
=====================================================================================================
F-44
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.
No single customer accounted for 10% or more of the total revenues for the
periods ended as of March 31, 2002, 2003 and 2004.
19. SUPPLEMENTARY INFORMATION TO THE STATEMENT OF INCOME
The following amounts were charged to selling, general and administrative
expenses for the years ended March 31, 2002, 2003 and 2004:
Thousands of
Millions of Yen U.S. Dollars
------------------------ ------------
2002 2003 2004 2004
--------------------------------------------------------------------------------
Research and development costs 80,799 83,551 92,515 $889,567
Advertising costs 16,868 16,958 17,950 172,596
Shipping and handling costs 13,332 12,582 12,352 118,769
================================================================================
F-45
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II. - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED MARCH 31, 2004
(Millions of Yen)
Additions
-----------------------
Balance at Charged to Charged to Deduction Balance at end
beginning of costs and other from Translation of
Description period expenses accounts reserves(2)(3) adjustment period
----------------------------------------------------------------------------------------------------------------------------------
For the year ended March 31, 2002:
Allowance for doubtful receivables(1)-
Trade receivables 17,043 2,706 28 1,793 959 18,943
Finance receivables 12,604 4,223 -- 3,325 69 13,571
Deferred tax asset valuation allowance 8,403 2,369 1,154 1,444 818 11,300
For the year ended March 31, 2003:
Allowance for doubtful receivables(1)-
Trade receivables 18,943 1,000 -- 1,674 (420) 17,849
Finance receivables 13,571 4,147 -- 3,412 (78) 14,228
Deferred tax asset valuation allowance 11,300 3,312 -- 4,920 (499) 9,193
For the year ended March 31, 2004:
Allowance for doubtful receivables(1)-
Trade receivables 17,849 1,933 9 2,179 (573) 17,039
Finance receivables 14,228 3,920 -- 2,823 (86) 15,239
Deferred tax asset valuation allowance 9,193 2,280 -- 2,133 (330) 9,010
----------------------------------------------------------------------------------------------------------------------------------
Notes:
(1) See Note 2(g) to Consolidated Financial Statements.
(2) Receivables - Write-offs.
(3) Deferred tax - Realization of tax benefits
F-46