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, 2006
--------------
Commission file number 2 - 68279
---------
KABUSHIKI KAISHA RICOH
----------------------
(Exact name of registrant as specified in its charter)
RICOH COMPANY, LTD.
-------------------
(Translation of registrant's name into English)
Japan
-----
(Jurisdiction of incorporation or organization)
13-1, Ginza 8-chome, Chuo-ku, Tokyo 104-8222, Japan
---------------------------------------------------
(Address of principal executive offices)
Securities registered or to be registered pursuant to
Section 12(b) of the Act.
Name of each exchange on
Title of each class which registered
None None
---- ----
Securities registered or to be registered pursuant to
Section 12(g) of the Act.
None
----
(Title of Class)
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act.
Common Stock*
-------------
(Title of Class)
*1,367,524 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, 2006: 729,552,274 shares (excluding
15,359,804 shares of Treasury Stock)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes [X] No [_].
If this report is an annual or transition report, indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
Yes [_] No [X].
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_].
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer [X] Accelerated filer [_] Non-accelerated
filer [_].
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item17 [_] Item18 [X].
If this is an annual report, indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [_] No [X].
Defined Terms, Conventions and Presentation of Financial Information
--------------------------------------------------------------------
On June 28, 2006, 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 116.42 = 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 2006"
refers to Ricoh's fiscal year ended March 31, 2006, and other fiscal years of
Ricoh are referred to in a corresponding manner.
As used in this annual report, "U.S. GAAP" means U.S. generally accepted
accounting principles.
Cautionary Statement With Respect to Forward-Looking Statements
---------------------------------------------------------------
Statements made in this annual report with respect to Ricoh's current plans,
estimates, strategies and beliefs and other statements that are not historical
facts are or may be deemed to be forward-looking statements, within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, about the future performance of Ricoh. These
forward-looking statements are made in reliance upon the protections provided
by such acts for forward-looking statements. Forward-looking statements include
but are not limited to those using words such as "believe," "expect," "plans,"
"strategy," "prospects," "forecast," "estimate," "project," "anticipate," "may"
or "might" and words of similar meaning in connection with a discussion of
future operations or financial performance. From time to time, oral or written
forward-looking statements may also be included in other materials released to
the public. These statements are based on management's assumptions and beliefs
in light of the information currently available to it. Ricoh cautions you that
a number of important risks and uncertainties could cause actual results to
differ materially from those discussed in the forward-looking statements, and
therefore you should not place undue reliance on them. You also should not rely
on any obligation of Ricoh to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. Ricoh
disclaims any such obligation. Risks and uncertainties that might affect Ricoh
include, but are not limited to (i) general economic conditions in Ricoh's
markets, particularly levels of consumer spending; (ii) exchange rates,
particularly between the Japanese Yen and the U.S. Dollar, the Euro, and other
currencies in which Ricoh makes significant sales or in which Ricoh's assets
and liabilities are denominated; (iii) Ricoh's ability to continue to design
and develop products and services, and win acceptance of its products and
services which are offered in highly competitive markets characterized by
continual introduction of new products, rapid development in new technology,
and consumer preferences that are subjective and likely to change; (iv) Ricoh's
ability to successfully implement strategies for its office equipment business,
such as further globalization of its operations to increase account sales to
corporate clients, reinforcement of the color printer line-up to meet growing
demand for color products among its office users, implementation of optimal
printing solutions for customers' digitally networked offices and enhancement of
printing capabilities centered on multi-functional printers ("MFPs"), and
implementation of optimal localization of manufacturing operations so that such
operations are closer to the customer; (v) Ricoh's ability to continuously
devote sufficient resources to research and development, and capital
expenditures for digital and networking equipment, such as digital plain paper
copiers ("PPCs"), MFPs 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 4A. Unresolved Staff Comments 26
Item 5. Operating and Financial Review and Prospects 26
Item 6. Directors, Senior Management and Employees 70
Item 7. Major Shareholders and Related Party Transactions 88
Item 8. Financial Information 89
Item 9. The Offer and Listing 89
Item 10. Additional Information 92
Item 11. Quantitative and Qualitative Disclosures About Market Risk 106
Item 12. Description of Securities Other Than Equity Securities 109
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies 109
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds 109
Item 15. Controls and Procedures 109
Item 16 [RESERVED] 110
Item 16A. Audit Committee Financial Expert 110
Item 16B. Code of Ethics 110
Item 16C. Principal Accountant Fees and Services 110
Item 16D. Exemptions from the Listing Standards for Audit Committees 113
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers 113
PART III
Item 17. Financial Statements 113
Item 18. Financial Statements 113
Item 19. Exhibits 113
Item 1. Identity of Directors, Senior Management and Advisers
-----------------------------------------------------
Not applicable.
Item 2. Offer Statistics and Expected Timetable
---------------------------------------
Not applicable.
Item 3. Key Information
---------------
A. Selected Financial Data.
The following selected consolidated financial data have been derived from
the audited consolidated financial statements of Ricoh prepared in accordance
with U.S. generally accepted accounting principles as of each of the dates and
for each of the periods indicated below. This information should be read in
conjunction with Ricoh's audited consolidated balance sheets as of March 31,
2005 and 2006, the related consolidated statements of income, shareholders'
investment and cash flows for the three years ended March 31, 2004, 2005 and
2006 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,
------------------------------------------------------------------------------
2002 2003 2004 2005 2006
-------------- -------------- -------------- -------------- --------------
INCOME STATEMENT DATA:
Net sales: 1,672,340 1,738,358 1,780,245 1,814,108 1,915,090
Operating income 129,695 133,654 150,006 135,506 152,014
Net income 61,614 72,513 91,766 83,143 97,057
PER AMERICAN DEPOSITARY
SHARE:
Net income (Basic) 441.35 498.95 618.15 563.20 661.65
Net income (Diluted) 412.30 484.05 618.15 563.20 661.65
BALANCE SHEET DATA:
Total Assets 1,832,928 1,884,922 1,852,793 1,953,669 2,041,183
Shareholders' investment 633,020 657,514 795,131 862,998 960,245
Common Stock 120,461 135,364 135,364 135,364 135,364
Weighted Average Number of
shares outstanding 698,025,167 726,659,698 742,292,806 738,160,042 733,434,414
Cash dividends declared
Per American Depositary Share:
Interim 30.00 35.00 40.00 50.00 60.00
($0.24) ($0.28) ($0.36) ($0.49) ($0.50)
Year-end 35.00 35.00 50.00 50.00 60.00
($0.29) ($0.29) ($0.46) ($0.45) ($0.52)
-1-
Millions of Yen except per share amounts and number of shares
Year ended March 31,
-------------------------------------------------------------
2002 2003 2004 2005 2006
------------ ------------ ----------- ----------- -----------
At year-end:
Cash and cash equivalents 170,172 189,243 203,039 186,857 187,055
Capital investments 75,676 73,956 75,507 84,701 102,054
Long-term indebtedness, excluding current installment 332,995 345,902 281,570 226,567 195,626
Notes:
1. Each American Depositary Share represents five shares of Ricoh Common
Stock.
2. Long-term indebtedness includes convertible bonds and debentures in
fiscal year 2002.
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 28, 2006, 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 116.42 = 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
2005 2006 2006 2006 2006 2006
-------- ------- -------- ------ ------ ------
High 115.78 113.96 115.82 115.89 113.79 110.07
Low 120.93 117.55 118.95 119.07 118.66 113.46
Year ended March 31,
----------------------------------
2002 2003 2004 2005 2006
------ ------ ------ ------ ------
Year-end 132.70 118.07 104.18 107.22 117.48
Average* 125.64 121.10 112.75 107.28 104.64
High 115.89 115.71 104.18 102.26 104.41
Low 134.77 133.40 120.55 114.30 120.93
* The average Japanese Yen exchange rates represent average noon buying rate on
the last business day of each month during the respective period.
-2-
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;
-3-
. 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
------------------
Among the various technologies used in the document imaging and management
industry, Ricoh believes the successful development of digital technology is
one of the most essential factors in attaining a competitive advantage. Ricoh
currently is a leader in digital technology and believes that the importance of
digital technology used in office equipment, including copiers, printers,
facsimiles and scanners, will continue to grow in the future. While most of
Ricoh's PPCs sold in Japan and overseas are already digital, Ricoh believes
that the digital technology used in connection with digital copiers and other
digital products will continue to develop and that competition with respect to
digital products will intensify. There is no assurance that Ricoh will continue
to be in the forefront of digital technology despite its commitment to invest
in research and development activities in this area. Failure of Ricoh to
adequately develop digital technology may adversely affect Ricoh's financial
results and condition.
Multi-Functional Equipment
--------------------------
Ricoh believes that the document imaging and management industry is moving
towards a multi-functional office environment where various office equipment
(including copiers, facsimile machines, printers, scanners and personal
computers) become more interdependent on each other due to the increasing use
of digital technology and initiatives taken by many offices to eventually
become a "paperless office." As a result, certain existing office equipment may
either be consolidated into multi-functional equipment or may be linked
together electronically to perform various office functions. Although Ricoh
already manufactures certain multi-functional equipment, as a result of this
trend towards multi-functional equipment, some of Ricoh's products may become
obsolete while other products may require substantial product enhancements,
requiring technologies currently unavailable within Ricoh. No assurances can be
made that Ricoh will be able to successfully adjust to such changes.
RICOH MUST SUCCESSFULLY OPERATE IN HIGHLY COMPETITIVE MARKETS
The document imaging and management industry, including the copier industry,
is intensely competitive. Ricoh expects to face increased competition in the
various markets in which it operates. Currently, Ricoh's competitors include
other large
-4-
manufacturers and distributors of office equipment. In addition, as digital and
other new technology develops and as new office equipment products using these
newly developed technologies gain increased market acceptance, Ricoh may find
itself competing with new competitors that develop such new technologies,
including computer software and hardware manufacturers and distributors.
Accordingly, it is possible that new competitors or alliances among existing
and new competitors may emerge and rapidly acquire significant market share.
While Ricoh believes it is a leading manufacturer and distributor in the
document imaging and management industry and it intends to maintain its
position, no assurances can be made that it will continue to compete
effectively in the future. Pricing pressures or loss of potential customers
resulting from Ricoh's failure to compete effectively may adversely affect
Ricoh's financial results and condition.
RICOH IS SUBJECT TO THE RISKS OF INTERNATIONAL OPERATIONS AND THE RISKS OF
OVERSEAS EXPANSION
A substantial portion of Ricoh's manufacturing and marketing activity is
conducted outside of Japan, including in the United States, Europe, and in
developing and emerging markets such as China. There are a number of risks
inherent in doing business in such overseas markets, including the following:
. unfavorable political or economical factors;
. fluctuations in foreign currency exchange rates;
. potentially adverse tax consequences;
. unexpected legal or regulatory changes;
. lack of sufficient protection for intellectual property rights;
. difficulties in recruiting and retaining personnel, and managing
international operations; and
. less developed infrastructure.
Ricoh's inability to manage successfully the risks inherent in its
international activities could adversely affect its business, financial
condition and operating results. In addition, while Ricoh plans to continue to
expand its business worldwide and increase overseas sales, because of the risks
associated with conducting an international operation (including the risks
listed above), there can be no assurances that Ricoh's overseas expansion will
be successful or have a positive effect on Ricoh's financial results and
condition.
ECONOMIC TRENDS IN RICOH'S MAJOR MARKETS MAY ADVERSELY AFFECT RICOH'S SALES
Demand for Ricoh's products is affected by cyclical changes in the economies
of Ricoh's major markets, including Japan, the United States and Europe.
Economic downturns and declines in consumption in Ricoh's major markets may
adversely affect Ricoh's financial results and condition.
-5-
FOREIGN EXCHANGE FLUCTUATIONS AFFECT RICOH'S RESULTS
Local currency-denominated financial results in each of the Company's
subsidiaries around the world are translated into Japanese Yen by applying the
average market rate during each financial period and recorded on Ricoh's
consolidated statements of income. Local currency-denominated assets and
liabilities are translated into Japanese Yen by applying the market rate at the
end of each financial period and recorded on 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 the Japanese Yen because the high volume of
Ricoh's production and sales activities in the Americas, Europe and Other, such
as China, results in a large proportion of revenues and costs denominated in
local currencies. Although Ricoh engages in hedging transactions such as
forward contracts with several financial institutions having credit ratings
satisfactory to Ricoh to minimize the negative effects of short-term
fluctuations in foreign exchange rates among major currencies such as the
U.S. Dollar, Euro and Japanese Yen, mid-to-long-term volatile changes in the
exchange rate levels make it difficult for Ricoh to execute planned
procurement, production, logistics, and sales activities and may adversely
affect Ricoh's financial results and condition.
CRUDE OIL PRICE FLUCTUATIONS AFFECT RICOH'S RESULTS
Many of the parts or materials used in manufacturing Ricoh's products are
made from oil. If the price of crude oil rises, the purchase price of such
product parts or materials may increase as well. Furthermore, a rise in the
price of crude oil may lead to an increase in shipping and handling costs due
in part to a rise in the cost of fuel and the cost of utilities. Ricoh may not
be able to pass these incremental costs onto the sales price of its products.
Such fluctuations in crude oil prices may therefore adversely affect Ricoh's
financial position and results of operations.
RICOH IS SUBJECT TO GOVERNMENT REGULATION THAT CAN LIMIT ITS ACTIVITIES OR
INCREASE ITS COST OF OPERATIONS
Ricoh is subject to various governmental regulations and approval procedures
in the countries in which it operates. For example, Ricoh may be required to
obtain approvals for its business and investment plans, be subject to export
regulations and tariffs, as well as rules and regulations relating to commerce,
antitrust, patent, consumer and business taxation, exchange control, and
environmental and recycling laws. Ricoh has established a Corporate Social
Responsibility Office to heighten awareness of the importance of corporate
social responsibility. Through this office, Ricoh involves its employees in
various activities designed to ensure compliance with applicable regulations as
part of its overall risk management and compliance program. However, if Ricoh
is unable to comply with any of these regulations or fails to obtain the
requisite approvals, Ricoh's activities in such countries may be restricted. In
addition, even if Ricoh is able to comply with these regulations, compliance
can result in increased costs. In either event, Ricoh's financial results and
condition may be adversely affected.
-6-
RICOH IS SUBJECT TO INTERNAL CONTROL EVALUATIONS AND ATTESTATION OVER FINANCIAL
REPORTING UNDER SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002
The United States Securities and Exchange Commission (the "SEC"), as
required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules
requiring every company that files reports with the SEC to include a management
report on such company's internal controls over financial reporting in its
annual report. In addition, the company's independent registered public
accounting firm must publicly attest to the adequacy of management's assessment
and the effectiveness of the company's internal control over financial
reporting. Ongoing compliance with these requirements is complex, costly and
time-consuming. If Ricoh fails to maintain effective internal control over
financial reporting, Ricoh's management does not timely assess the adequacy of
such internal control, or Ricoh's independent registered public accounting firm
does not timely attest to the evaluation or issues a qualified opinion, Ricoh
could be subject to regulatory sanctions or could face adverse reactions in the
financial markets due to a loss of investor confidence.
RICOH'S BUSINESS DEPENDS ON PROTECTING ITS INTELLECTUAL PROPERTY RIGHTS
Ricoh owns or licenses a number of intellectual property rights in the field
of office equipment automation and, when Ricoh believes it is necessary or
desirable, obtains additional licenses for the use of other parties'
intellectual property rights. If Ricoh fails to protect, maintain or obtain
such rights, its performance and ability to compete may be adversely affected.
Ricoh has a program in place under which company employees are compensated for
any valuable intellectual property rights arising out of any inventions
developed by them during the course of their employment with Ricoh. While
unlikely, management believes that there could arise instances in the future
where Ricoh may become the subject of legal actions or proceedings where claims
alleging inadequate compensation are asserted by company employees.
RICOH IS DEPENDENT ON SECURING AND RETAINING SPECIALLY SKILLED PERSONNEL
Ricoh believes that it can continue to remain competitive by securing and
retaining additional personnel who are highly skilled in the fields of
management and information technology. However, the number of skilled personnel
is limited and the competition for attracting and retaining such personnel is
intense, particularly in the information technology industry. Securing and
retaining skilled personnel in the information technology industry is
especially important for Ricoh to compete effectively with its competitors as
expectations and market standards for office equipment become more
technologically advanced. Ricoh cannot assure that it will be able to
successfully secure and retain additional skilled personnel.
RICOH MAY BE ADVERSELY AFFECTED BY ITS EMPLOYEE BENEFIT OBLIGATIONS
With respect to its employee benefit obligations and plan assets, Ricoh
accrues the cost of such benefits based on applicable accounting policies and
funds such benefits in accordance with governmental regulations. Currently,
there is no immediate and
-7-
significant funding requirement; however, if returns from investment assets
decrease due to market conditions, such as the fluctuations in the stock or
bond markets, additional funding and accruals may be required. Such additional
funding and accruals may adversely affect Ricoh's financial position and
results of operations.
RICOH'S OPERATIONS ARE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS
Ricoh's operations are subject to many environmental laws and regulations
governing, among other things, air emissions, wastewater discharges, the use
and handling of hazardous substances, waste disposal, product recycling, and
soil and ground-water contamination. Ricoh faces risks of environmental
liability in our current and historical manufacturing activities. Costs
associated with future additional environmental compliance or remediation
obligations could adversely affect Ricoh's business, operating results, and
financial condition.
RISKS ASSOCIATED WITH RICOH'S EQUIPMENT FINANCING BUSINESS MAY ADVERSELY AFFECT
RICOH'S FINANCIAL CONDITION
Ricoh provides financing to some of its customers in connection with its
equipment sales and leases. Ricoh evaluates the creditworthiness and the amount
of credit extended to a customer prior to the financing arrangement and during
the financing term on a regular basis. Depending on such evaluations, Ricoh
makes adjustments to such extensions of credit as it deems necessary to
minimize any potential risks of concentrating credit risk or non-payment of
credit. Despite the application of these monitoring procedures, no assurances
can be made that Ricoh will be able to fully collect on such extensions of
credit due to unforeseeable defaults by its customers.
In addition, these financing arrangements that Ricoh enters into with its
customers result in long-term receivables bearing a fixed rate of interest.
However, Ricoh finances these financing arrangements primarily with short-term
borrowings subject to a variable interest rate. Although Ricoh engages in
hedging activities, Ricoh is not able to fully hedge this interest rate
mismatch.
If Ricoh is unable to successfully manage these risks associated with its
equipment financing business, Ricoh's financial results and condition may be
adversely affected.
RICOH MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD SIGNIFICANTLY
AFFECT ITS FINANCIAL CONDITION
Ricoh may be held responsible for any defects that occur with respect to its
products and services. Based on the defect, Ricoh may be liable for significant
damages, which may adversely affect its financial results and condition.
Furthermore, as Ricoh increasingly provides products and services utilizing
sophisticated and complex technologies, such defects may occur more frequently.
Such potential increase in defects, which could result in an increase in
Ricoh's liability, may adversely affect its financial results and condition.
-8-
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 PERFORMANCE CAN BE AFFECTED BY ALLIANCES WITH OTHER ENTITIES
Ricoh engages in alliances with other entities to create various products
and services to fulfill customer demands. Ricoh believes that an alliance is an
effective method for timely development of new technology and products using
management resources of both parties. However, if Ricoh's interest differs from
other parties' interests due to financial or other reasons, Ricoh may be unable
to maintain the alliance. Failure to maintain an on-going alliance and failure
to establish a necessary alliance in the future may adversely affect Ricoh's
financial position and results of operations.
RICOH MAY SUFFER LOSS AS A RESULT OF CATASTROPHIC DISASTER, INFORMATION
TECHNOLOGY PROBLEMS OR INFECTIOUS DISEASES
Several of Ricoh's manufacturing facilities in Japan could be subject to a
catastrophic loss caused by earthquakes as such facilities are located in areas
with above average seismic activity. If any of these facilities were to
experience a catastrophic loss, Ricoh could experience disruptions in its
operations and delays in its production and shipments. If such occurred, Ricoh
would likely record a decrease in revenue, and require large expenditures to
repair or replace the damaged facility, which would be highly likely to affect
Ricoh's financial results and condition.
As Ricoh becomes increasingly dependent on information technology, software
and hardware defects, computer viruses, as well as internal database problems (
E.G., leaks and falsifications or disappearance of information relating to our
customers) pose a greater risk to its operations. Although Ricoh has taken
various precautionary measures, such as installing firewalls and anti-virus
software to detect and eliminate computer viruses, Ricoh may not be able to
completely prevent or mitigate the effects of such problems, which may affect
Ricoh's performance.
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,
-9-
MFPs, printers, optical discs, personal computers and servers, network related
software and other equipment, including semiconductors, measuring equipment and
cameras.
Historical highlights
---------------------
February 1936 Riken Kankoshi Co., Ltd. is formed in Kita-kyushu to
manufacture and market sensitized paper.
March 1938 The Company's name is changed to Riken Optical Co., Ltd., and
starts manufacturing and selling optical devices and equipment.
May 1949 The Company lists its securities on the Tokyo and Osaka Stock
Exchanges.
April 1954 The Company establishes an optical device and equipment plant
in Ohmori, Ohta-ku, Tokyo (now known as the Ohmori plant).
May 1955 The Company begins manufacturing and selling desktop copiers.
May 1961 The Company establishes a sensitized paper plant in Ikeda,
Osaka (now known as the Ikeda plant).
October 1961 The Company lists its securities on the First Sections of the
Tokyo and Osaka Stock Exchanges.
June 1962 The Company starts operations of a paper plant in Numazu,
Shizuoka, which featured a fully-integrated sensitized paper
production system (now known as the Numazu plant).
December 1962 The Company establishes Ricoh of America, Inc. (a subsidiary,
now known as Ricoh Corporation).
April 1963 The Company changes its corporate name to Ricoh Company, Ltd.
July 1967 The Company establishes Tohoku Ricoh Co., Ltd. (a subsidiary)
in Shibata-gun, Miyagi.
May 1971 The Company completes its manufacturing facility in Atsugi,
Kanagawa (now known as the Atsugi plant), to which it transfers
some of its office equipment production from the Ohmori plant.
June 1971 The Company establishes Ricoh Nederland B.V. (a subsidiary, now
known as Ricoh Europe B.V.) in Netherlands.
January 1973 The Company establishes Ricoh Electronics, Inc. (a subsidiary)
in the United States.
September 1973 The Company lists its securities on the Amsterdam Stock
Exchange.
December 1976 The Company forms Ricoh Credit Co., Ltd. (a subsidiary, now
known as Ricoh Leasing Co., Ltd.).
March 1977 The Company relocates its headquarters to Minato-ku, Tokyo.
July 1978 The Company lists its securities on the Frankfurt Stock
Exchange.
December 1978 The Company establishes Ricoh Business Machines, Ltd. (a
subsidiary, now known as Ricoh Hong Kong Ltd.).
-10-
March 1981 The Company builds the Ricoh Electronics Development Center at
the Ikeda plant to develop and manufacture electronic devices.
October 1981 The Company lists its securities on the Paris Stock Exchange.
May 1982 The Company establishes a sensitized paper production
facilities in Fukui (now known as the Fukui plant), which takes
over some of the sensitized paper production from the Osaka
plant.
July 1982 The Company launches its information technology equipment
facility in Hatano, Kanagawa (now known as the Hatano plant).
December 1983 The Company establishes Ricoh UK Products Ltd. (a subsidiary).
October 1985 The Company builds a copier manufacturing plant in Gotemba,
Shizuoka (now known as the Gotemba plant).
April 1986 The Company opens a research and development facility in
Yokohama, Kanagawa (now known as the Ricoh Research and
Development Center) in commemoration of Ricoh's 50th
anniversary, to which it transfers some of its 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).
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.
-11-
October 2002 The Company establishes Ricoh China Co., Ltd. (a subsidiary).
April 2003 Tohoku Ricoh Co., Ltd. becomes a wholly-owned subsidiary of the
Company.
October 2004 The Company acquires Hitachi Printing Solutions, Ltd. (now
known as Ricoh Printing Systems, Ltd.) in Japan.
August 2005 The Company opens Ricoh Technology Center in Ebina, Kanagawa to
integrate its domestic R&D facilities and offices.
November 2005 The Company relocates its headquarters to Chuo-ku, Tokyo.
Our registered office and head office are as follows:
Address Telephone number
--------------------------------------- ----------------
Registered Head office 3-6 Naka Magome 1-chome, Ohta-ku, Tokyo
143-8555, Japan +81-3-3777-8111
Executive office 13-1, Ginza 8-chome, Chuo-ku, Tokyo
104-8222, Japan +81-3-6278-2111
Principal Capital Investments
-----------------------------
Ricoh's capital expenditures for the fiscal years 2004, 2005 and 2006 were
Yen 75.5 billion, Yen 84.7 billion and Yen 102.0 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 its competitiveness in the industry. In
fiscal year 2006, Ricoh also incurred capital expenditures to consolidate some
of its operations at the headquarters and its domestic research and development
facilities and offices at the Ricoh Technology Center, and to establish a color
toner factory in Japan. Ricoh projects that for the fiscal year ending
March 31, 2007, its capital expenditures will amount to approximately Yen 90.0
billion, principally for the following purposes: investment in facilities for
the manufacturing of digital and networking equipment with a new engine having
higher cost efficiency, quality, security and connectivity, a new polymerized
toner factory, and new accounting, and sales force automation and marketing
support systems.
B. Business Overview
Ricoh is a leading manufacturer of office automation equipment. Ricoh's
products include copiers, printers, facsimile machines, and related supplies
and services. Ricoh is also a prominent manufacturer of digital and advanced
electronic devices. In recent years, Ricoh has been rapidly building a solid
presence globally as a comprehensive document solutions provider that helps its
customers streamline their businesses and decrease operating costs.
-12-
PRODUCTS
--------
As part of the 15th Medium-Term Management Plan, which covers the period
from fiscal year 2006 through fiscal year 2008, 2006, Ricoh reclassified its
business segments into the "Office Solutions", "Industrial Products" and
"Other" segments. Presentation of business segments for prior periods has been
restated to conform to current presentation. Its previous segments consisted of
the "Office Equipment" and "Other Businesses" segments, effective as of and
from April 1 2005. This segment change realigns Ricoh's operating segments in a
manner that is consistent with the way in which Ricoh's management currently
analyzes its business operations. For additional discussion regarding the 15th
Medium-Term Management Plan, see Item 5. Operating and Financial Review and
Prospects - OVERVIEW.
The financial statements and the accompanying disclosure from previous years
included in this Form 20-F have been restated in accordance with this new
classification system described above.
SALES BY PRODUCT
----------------------------------------------------------------------------------------
Millions of Yen (except for percentages)
For the Year Ended March 31,
----------------------------------------------------------------------------------------
2004 2005 2006
-----------------------------------------------------------
OFFICE SOLUTIONS
Imaging Solutions 1,271,882 71.4% 1,332,299 73.4% 1,446,635 75.5%
Network System Solutions 188,514 10.6 199,129 11.0 190,593 10.0
INDUSTRIAL PRODUCTS 111,392 6.3 119,408 6.6 120,636 6.3
OTHER 208,457 11.7 163,272 9.0 157,226 8.2
----------------------------------------------------------------------------------------
Total 1,780,245 100.0% 1,814,108 100.0% 1,915,090 100.0%
OFFICE SOLUTIONS
----------------
This segment consists of products that are widely used in the office
environment, and is categorized as follows:
(1) Imaging Solutions
In fiscal year 2006, the Imaging Solutions product category accounted for
75.5% of Ricoh's net sales.
The primary functions of products in this category are (i) to produce copies
and (ii) to print or produce images using a network. Stand-alone copiers are
representative of products in the first group, and MFPs and laser printers are
representative of products in the second group.
-13-
The principal products in the Imaging Solutions product category include
monochrome and color digital copiers, MFPs, laser printers, digital
duplicators, facsimile machines, analog PPCs, and diazo copiers.
Ricoh continues to be a global leader in PPCs and MFPs and has been a
pioneer in the development of digital machines. Ricoh manufactures a wide range
of PPCs and MFPs with a variety of copying speeds and functions such as
double-sided printing, sorting, reducing and enlarging, and zoom adjustment of
copy sizes. PPCs and MFPs use a drum or other medium coated with a photo
conductive material on which an image of the original document is projected
optically and developed by applying a dry powder form toner.
In recent years, Ricoh has strengthened its digital PPC and MFP product
line-up with new product offerings that range from low-end models to high-end
models. Furthermore, in order to meet its customers' needs in the office
environment, Ricoh continues to strengthen its capabilities in color laser
printers, mid- and high-volume or high-speed printers that can be connected to
a network. In fiscal year 2006, Ricoh had strong sales growth in printers as it
greatly broadened its product line-up, reinforced its sales and distribution
channels and expanded its marketing activities. Sales of MFPs and laser
printers, designed to provide information technology support for all types of
office environments 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, performed particularly well as such features satisfied the
demands of customers. For example, in the MFP product line, Ricoh released its
imagio MP C3000/C2500 Series in Japan. Further enhancements were made to the MP
C3000/C2500 Series to enable users to easily connect to various document
distribution and storage systems and to provide protective measures to ensure
the security of the content of the documents being produced. Sales of laser
printers also increased with the IPSiO CX9800 and IPSiO CX8800 laser printers
performing favorably in the domestic market as these products also met the
needs of customers.
In fiscal year 2005, Ricoh acquired a printing company in Japan, which is
now known as Ricoh Printing Systems, Ltd. With this acquisition, Ricoh's
printer product line-up expanded to include printers that have super high-speed
printing capabilities, a product line in which Ricoh previously did not have
any market share. In addition to such specialized super high-speed printers,
Ricoh Printing Systems, Ltd. manufactures and markets low- and high-speed
printers for the office environment.
Ricoh offers a comprehensive line of copiers that can be attached to a
network. These machines sold well in both the domestic and overseas markets in
fiscal year 2006, mainly because the features of these copiers reflected the
recent trends in customer needs. Customer demand has shifted toward increased
printing speed, networking capabilities, colorization, lower costs of
ownership, and enhanced office productivity. In the overseas markets, the
release of a number of copier models under the Aficio brand has led to Ricoh's
rapid achievement of a dominant position in the digital copier market.
-14-
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 towards small and
home offices seeking low-cost models as 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.
In response to these trends in the facsimile market, Ricoh has focused its
efforts on offering MFPs with facsimile capability.
(2) Network System Solutions
The primary function of products in this category is to assist in
establishing a network environment for customers. The principal products in
this category include personal computers and servers, network systems,
application software, and related services and support.
For fiscal year 2006, this product category accounted for 10.0% of Ricoh's
net sales. As in fiscal year 2005, Ricoh continues to enjoy steady growth in
the sale of its document solutions software and support services, which allow
customers to seamlessly manage electronic and paper-based information. Although
sales in personal computers and servers decreased in fiscal year 2006 as
compared to fiscal year 2005, customers continued to rely upon Ricoh's support
and services to optimize their total printing costs. Through such support
services Ricoh has been able to lower total printing costs for its customers by
furnishing facility management assistance to its customers in Japan (where
physical space is costly) and increasing the efficiency of the printing process.
INDUSTRIAL PRODUCTS
-------------------
This segment consists of products that are used in the industrial sector.
For fiscal year 2006, this segment accounted for 6.3% of Ricoh's net sales.
Principal products in this category include thermal media, optical equipment,
semiconductor devices, electronic components, and measuring equipment.
Through technological enhancements in its thermal media business Ricoh was
able to expand its business from the production of thermal paper for use in
facsimiles to a variety of business areas, including the production of POS
sheets, logistics management sheets, reward cards, identification cards,
medical films, and other uses.
Ricoh's optical equipment business utilizes technology originally developed
by Ricoh for its copiers and cameras. This business supplies optical equipment
and optical supply parts, such as lens units, to third parties.
-15-
Ricoh offers a various types of semiconductor devices. Such devices include
application-specific integrated circuits (ASICs) and application specific
standard products (ASSPs) that are often used in digital copiers, printers,
personal computers and mobile and cellular phones.
The electronic components business supplies parts to manufacturing plants of
Ricoh in connection with the production of its own products, such as copiers
and printers, as well as to third parties. Net sales to third parties have
increased in response to increased demand for such electronic components.
Ricoh is one of the leading companies in the measuring equipment business in
Japan. Ricoh offers a wide range of measuring equipment such as water meters,
gas meters, and gas leak detectors. Sales in the measuring equipment category
are greatly affected by fluctuations in market demand.
OTHER
-----
This segment, which accounted for 8.2% of Ricoh's net sales in fiscal year
2006, includes digital cameras, optical discs, financing and logistics services.
Ricoh is one of the pioneers in commercializing digital cameras, which have
tremendous potential as "image capturing devices." As digital cameras may be
used in a variety of ways to input images, Ricoh expects that the sales of
digital cameras will continue to grow in the future.
With respect to optical discs, in fiscal year 2005, Ricoh decided to focus
on its media business and withdrew from the self-developed drive business,
which used proprietary technology developed by Ricoh, and the key-module/parts
unit business. Ricoh's optical disc product line-up includes compact discs
(CDs), CD-R/RW and DVD+RW/+R discs.
Ricoh provides certain financing services through Ricoh Leasing Co., Ltd.
Ricoh Leasing Co., Ltd. leases industrial equipment and medical equipment as
well as office equipments, and offers loans, such as support loans, to small
businesses and independent doctors.
Ricoh Logistics System Co. Ltd. offers logistics services in the delivery,
distribution and storage of products such as electronic products, office
equipment, and electronic and machinery parts.
SALES AND DISTRIBUTION
----------------------
-16-
Ricoh utilizes three channels in the distribution of its products to
end-user customers in Japan: (1) direct sales by Ricoh to the end-user customer
through approximately 40 domestic subsidiaries and affiliates; (2) sales
through independent dealers of office machinery; and (3) sales through
independent stationery wholesalers and retailers. Ricoh estimates that over
one-half of its domestic unit sales of copiers are conducted through its direct
sales channel to the end-user customer, with the remaining balance of unit
sales being divided between sales through independent dealers of office
machinery and independent stationery wholesalers and retailers. These sales
channels are coordinated by Ricoh's seven regional sales subsidiaries located
in the Hokkaido, Tohoku, Kanto, Chubu, Kansai, Chugoku and Kyushu areas.
One of Ricoh's strategies in expanding its overseas marketing and sales
channels has been to acquire office equipment sales companies in various
locations around the world through which it can sell its products. Accordingly,
in addition to selling Ricoh brand name products through its overseas sales
subsidiaries, affiliates and independent dealers, similar to Japan, Ricoh also
sells its products through the following two marketing and sales channels in
the overseas market: (1) sales of products under brand names which Ricoh
purchased through acquisitions (i.e., the "Savin" brand, the "Gestetner" brand
and the "Lanier" brand) and (2) sales of Ricoh's products as the original
equipment manufacturer ("OEM") of copiers and printers of other companies.
Savin, Gestetner and Lanier were originally Ricoh's OEM distributors prior to
their acquisition. Ricoh has organized sales and distribution channels to
accommodate its four operating regions outside of Japan: (1) the Americas;
(2) Europe, Africa, and the Middle East; (3) Asia and Oceania; and (4) China.
Ricoh recognizes revenue for sales upon the delivery and installation of
equipment to its end-user customers. Approximately 15% of Ricoh's total sales
revenues is comprised of revenues from sales of equipment generated under
sales-type leases. Important information regarding the methods by which Ricoh
recognizes revenue is also set forth in Item 5. Critical Accounting Policies
and Note 2 to the Consolidated Financial Statements which are a part of this
annual report.
AFTER-SALES SERVICE
-------------------
Ricoh provides repair and maintenance services for its products to Ricoh's
end-user customers under the belief that periodic and timely maintenance
services are essential in preserving Ricoh's market share in the relevant
products. These maintenance services are provided to customers pursuant to
maintenance service contracts customarily entered into at the time the
equipment is sold.
In Japan, repair and maintenance services are generally provided by Ricoh's
service specialists. Ricoh's service network in Japan includes service centers
operated by Ricoh and its affiliates and service outlets operated by other
companies. Recently, Ricoh began building nationwide capabilities for its
Customer Support System in order to enhance customer satisfaction and service
efficiency. This system allows Ricoh to remotely monitor copiers that are in
operation and provide immediate service to such copiers. The total number of
Ricoh's sales and service personnel in Japan is
-17-
approximately 22,500. Similar to Japan, Ricoh employees and contracted
maintenance providers provide repair and maintenance services to end-user
customers in the overseas market who purchased Ricoh products. The total number
of Ricoh's sales and service personnel overseas is approximately 20,700.
Additional information regarding how Ricoh accounts for its after-sales
services is set forth in Item 5. Critical Accounting Policies and Note 2 to the
Consolidated Financial Statements which are a part of this annual report.
PRINCIPAL MARKETS
-----------------
Ricoh distributes its products and competes in the following four geographic
areas: Japan, the Americas, Europe and Other. In the aggregate, Ricoh's sales
expanded in fiscal year 2006. As noted below, for the fiscal year 2006, sales
in Japan, the Americas, Europe and Other as a percentage of total sales were
50.8%, 20.2%, 22.7% and 6.3%, respectively. The table below 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,
--------------------------------------------------------------------------
2004 2005 2006
----------------------------------------------------------
JAPAN 914,060 51.3% 972,975 53.6% 972,076 50.8%
THE AMERICAS 326,380 18.3 325,597 17.9 387,412 20.2
EUROPE 402,392 22.6 408,906 22.5 434,800 22.7
OTHER 137,413 7.8 106,630 6.0 120,802 6.3
--------------------------------------------------------------------------
Total 1,780,245 100.0% 1,814,108 100.0% 1,915,090 100.0%
---------------------------------------------------------------------------
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
In Japan, the stock market, capital expenditures and corporate performance
showed recovery; however the Japanese economy was affected by the escalating
prices of raw materials and crude oil, and overall demand in the domestic
market was below our expectations. Moreover, market competition in the types of
products that Ricoh manufactures and markets has increased in recent years. In
order to succeed in this environment, Ricoh has been working to gradually shift
its product line-up in Japan from analog stand-alone equipment and monochrome
products to digital networkable equipment and color products to respond to
trends in customer preferences. Ricoh also offers business solutions with
networking systems and equipment whose functions are optimized for the
customer's business environment in order to help customers manage their Total
Document Volume ("TDV") more effectively and increase efficiency in the
-18-
office. The acquisition of Ricoh Printing Systems, Ltd. in fiscal year 2005
further enhanced Ricoh's printer business. As discussed under the heading
"PRODUCTS", Ricoh Printing Systems, Ltd. manufactures and markets low- and
high-speed printers for the office environment, and the acquisition of this
company has reinforced Ricoh's office color printer and print-on-demand product
lines. As a result of these strategies, the sale of certain products, such as
MFPs, color PPCs and color laser printers, increased despite intense
competition in the domestic market.
(2) The Americas
In fiscal year 2006, Ricoh continued to broaden and reinforce its sales
network, especially in North America, where the economy remained strong. Ricoh
further enhanced its sales and marketing efforts in new printing systems to
replace analog equipment in response to customer demands for networkable
digital products, color copiers and printers. Ricoh also engaged in various
marketing initiatives in an effort to expand its sales to major corporate
accounts by taking advantage of its global production and distribution network,
and high-quality products. As a result of these efforts, net sales in local
currency increased by 13.0%. Net sales denominated in Japanese Yen increased by
19.0% due to the depreciation of the Japanese Yen against the U.S. Dollar.
(3) Europe
Economic conditions in Europe remained relatively stable in fiscal year 2006
and sales of MFPs and laser printers increased as Ricoh continued to exert its
efforts to introduce new products in such product lines. The continuous
enhancement and introduction of products in the Office Solutions segment
enabled Ricoh to further improve its sales in Europe as customers were able to
fulfill more of their office equipment needs through Ricoh. Ricoh was able to
increase its sales in both monochrome and color MFPs and laser printers, since
the features of these products satisfy the demands of customers and allow Ricoh
to maximize its profits. These efforts allowed Ricoh to maintain its top market
share position in Europe for copiers and MFPs in fiscal year 2006.
(4) Other
In fiscal year 2006, customer demand continued to shift from analog models
to digital networkable and color models of business equipment in China and the
other markets in Asia and Oceania. This led to an increase in sales of MFPs and
laser printers in these markets, while sales in the optical discs business
decreased. Because the Chinese market is expected to continue to expand, Ricoh
continued to place significant importance on the Chinese market not only as a
production site but also as a potential market to expand sales of its products
in the future. In fiscal year 2006, Ricoh enhanced its Chinese production,
sales and services and further reinforced its emphasis on the needs of its
customers in order to strengthen its revenues and earnings. This emphasis on
emerging markets, including China, is one of the means by which Ricoh plans to
achieve growth under the 15/th/ Medium-Term Management Plan, which is discussed
in more detail in Item 5. Operating and Financial Review and Prospects -
OVERVIEW.
-19-
COMPETITION
-----------
The office equipment industry in which Ricoh primarily competes remains
highly competitive and Ricoh continues to encounter intense competition in its
Office Solutions segment. Furthermore, competition in each of the product
categories in the Office Solutions segment is expected to increase in the
future as Ricoh's competitors enhance and expand their product and service
offerings. This increase in competition may result in price reductions and
decreases in profitability as well as market share in these products. Ricoh
cannot provide assurances that it will be able to compete successfully against
existing or future competitors. Moreover, Ricoh may face competition from some
of its current customers and companies with which Ricoh has strategic business
relationships.
The size and number of our competitors vary across our product categories,
as do the resources allocated by our competitors to the markets Ricoh targets.
Ricoh's competitors may have greater financial, personnel, and other resources
than Ricoh has in a particular market or overall. These competitors may have
greater resources available to them to respond quickly to new technologies and
may be able to undertake more extensive marketing campaigns than Ricoh.
Competitors may also adopt more aggressive pricing policies for their products
and make more attractive offers to potential customers, employees, and
strategic partners. These competitors may also make strategic acquisitions or
establish cooperative relationships among themselves or with third parties to
increase their ability to gain market share.
Despite this intense competition in the office equipment industry, Ricoh's
management believes that Ricoh will be able to maintain and enhance its
position in the global market because of its experience, expertise and
technical capabilities as a leading provider of office equipment, and
dedication to meet customers' needs.
SEASONALITY
-----------
Sales in the Office Solutions segment generally increase in March of each
year, which is the end of the fiscal year for most Japanese companies. This is
due to the increase in demand for these products as many Japanese companies and
government entities try to expend their allotted capital expenditure budget for
the fiscal year. Sales generated during the month of March each year due to
this seasonality accounts for approximately 11% of Ricoh's domestic sales in
Japan. However, the effect of this seasonality on a consolidated basis is
minimal, as approximately 4% of Ricoh's total consolidated sales are generated
during the month of March from domestic sales in Japan.
SOURCES OF SUPPLY
-----------------
The raw materials, parts, and components used in the production of Ricoh's
products are procured on a global basis. Generally, Ricoh maintains multiple
suppliers for the most significant categories of raw materials, parts and
components. Because very few of the raw materials required by Ricoh in
manufacturing its products can be procured in Japan, most of the raw materials
used by Ricoh come from outside of Japan. Ricoh
-20-
monitors the availability of raw materials on a regular basis to ensure that it
will not encounter any shortages. Ricoh has not experienced any significant
difficulty in obtaining the raw materials, parts and components necessary for
it to manufacture its products and believes that it will be able to continue to
obtain comparable raw materials, parts and components in sufficient quantities
to meet its manufacturing needs in the future. The rise in crude oil prices may
lead to an increase in the overall cost of procuring raw materials, parts and
components. This is due to the fact that the cost of oil-based parts and
components, the processing costs of raw materials and fuel costs of shipping
and distributing such raw materials, parts and components may increase as a
result of higher crude oil prices. However, Ricoh believes that the effect of
price volatility with respect to obtaining raw materials, parts and components
necessary in manufacturing its products can be managed.
INTELLECTUAL PROPERTY
---------------------
Ricoh holds a large number of patents and trademark rights. While Ricoh
considers such intellectual property rights to be valuable assets and important
for its operations, it believes that its business is not dependent to any
material extent upon any single patent or trademark right, or any related group
of such rights it holds.
Ricoh also has many licenses and technical assistance agreements covering a
wide variety of products. Such agreements grant Ricoh the right to use certain
Japanese and foreign patents or the right to receive certain technical
information. However, Ricoh is not materially dependent on any single such
license or agreement.
In addition, Ricoh has granted licenses and technical assistance to various
companies located in and outside of Japan. In certain instances, Ricoh has
entered into cross-licensing agreements with other major international
electronics and electrical equipment manufacturers. None of these agreements
are likely to materially affect Ricoh's business or profitability. See
Item 5.C. Patents and Licenses.
GOVERNMENT REGULATIONS
----------------------
Ricoh's business activities are subject to various government regulations in
the various countries in which it operates, including regulations relating to
business and investment approvals, export regulations, tariffs, antitrust,
intellectual property, consumer and business taxation, exchange controls, and
environmental and recycling requirements. Ricoh is also subject to
environmental regulations in the jurisdictions in which it operates,
particularly those jurisdictions in which it has manufacturing, research, or
similar operations.
Two recent environmental regulations which affect Ricoh's business are the
European Union Directive on Waste Electrical and Electronic Equipment (WEEE
Directive) and the European Union Directive on the Restriction on the Use of
Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS
Directive). Beginning in August 2005, the WEEE Directive, as enacted by
individual European
-21-
Union countries, makes manufacturers or distributors of electrical and
electronic equipment in the European Union financially responsible for the
collection, recycling, treatment, recovery and disposal of recovered electrical
and electronic equipments. The RoHS Directive prohibits the use of various
heavy metals, such as lead, mercury, cadmium, hexavalent chromium and
brominated flame retardants (polybrominated biphenyls or polybrominated
diphenyl ethers) in electrical and electronic equipment to be sold in the
European Union market from July 2006. A variety of similar environmental
regulations have been or are expected to be enacted in other jurisdictions
where Ricoh operates. Ricoh is endeavoring to establish appropriate measures to
comply with these new regulations.
Ricoh currently operates, and hopes to continue operating, its business
without significant difficulty in complying with applicable government
regulations.
C. Organizational Structure
As of March 31, 2006, the Ricoh Group includes the Company and 298
subsidiaries and 20 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 Japan 100.0 Manufacturing optical
Co., Ltd. equipment
------------------------------------------------------------------------------
Tohoku Ricoh Co., Ltd. Japan 100.0 Manufacturing office
equipment
------------------------------------------------------------------------------
Ricoh Unitechno Co., Ltd. Japan 100.0 Manufacturing parts for
office equipment
------------------------------------------------------------------------------
Ricoh Elemex Corporation Japan 55.9 Manufacturing and sales of
office equipment and
minuteness equipment
------------------------------------------------------------------------------
Ricoh Microelectronics Japan 100.0 Manufacturing parts for
Co., Ltd. office equipment
------------------------------------------------------------------------------
Ricoh Keiki Co., Ltd. Japan 100.0 Manufacturing parts for
office equipment
------------------------------------------------------------------------------
Ricoh Printing Systems, Japan 100.0 Manufacturing and sale of
Ltd. office equipment
------------------------------------------------------------------------------
Ricoh Tohoku Co., Ltd. Japan 100.0 Sale of office equipment
------------------------------------------------------------------------------
Ricoh Chubu Co., Ltd. Japan 100.0 Sale of office equipment
------------------------------------------------------------------------------
-22-
------------------------------------------------------------------------------
Proportion
Country of of ownership
Company Name Formation interest Main businesses
------------------------------------------------------------------------------
Ricoh Kansai Co., Ltd. Japan 100.0 Sale of office equipment
------------------------------------------------------------------------------
Ricoh Chugoku Co., Ltd. Japan 100.0 Sale of office equipment
------------------------------------------------------------------------------
Ricoh Kyushu Co., Ltd. Japan 100.0 Sale of office equipment
------------------------------------------------------------------------------
Hokkaido Ricoh Co., Ltd. Japan 97.8 Sale of office equipment
------------------------------------------------------------------------------
Ricoh Sales Co., Ltd. Japan 100.0 Sale of office equipment
------------------------------------------------------------------------------
Ricoh Technosystems Co., Japan 100.0 Maintenance, service and
Ltd. sale of office equipment
------------------------------------------------------------------------------
Ricoh Logistics System Japan 100.0 Logistics services and
Co., Ltd. custom clearances
------------------------------------------------------------------------------
Ricoh Leasing Co., Ltd. Japan 51.5 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 France 100.0 Manufacturing office
S.A.S. equipment and related
supplies
------------------------------------------------------------------------------
Ricoh Asia Industry China 91.0 Manufacturing office
(Shenzhen) Ltd. (100.0) equipment and related
supplies
------------------------------------------------------------------------------
Shanghai Ricoh Facsimile China 94.5 Manufacturing and sale of
Co., Ltd. office equipment
------------------------------------------------------------------------------
Ricoh Corporation U.S.A. 100.0 Sale of office equipment
------------------------------------------------------------------------------
Lanier Worldwide, Inc. U.S.A. 100.0 Sale of office equipment
------------------------------------------------------------------------------
Ricoh Europe B.V. Netherlands 100.0 Sale of office equipment
------------------------------------------------------------------------------
NRG Group PLC U.K. 100.0 Sale of office equipment
------------------------------------------------------------------------------
Ricoh Asia Industry Ltd. Hong Kong, 90.0 Sale of office equipment
China
------------------------------------------------------------------------------
Ricoh Asia Pacific Pte, Singapore 100.0 Sale of office equipment
Ltd.
------------------------------------------------------------------------------
Ricoh China Co., Ltd. China 100.0 Sale of office equipment
------------------------------------------------------------------------------
Ricoh Finance Nederland Netherlands 100.0 Corporate finance
B.V.
------------------------------------------------------------------------------
And 268 other subsidiaries
------------------------------------------------------------------------------
(AFFILIATES)
------------------------------------------------------------------------------
Coca-Cola West Japan Co., Japan 22.2 Manufacturing and sale of
Ltd. (22.4) soft drink
------------------------------------------------------------------------------
Sindo Ricoh Co., Ltd. Korea 20.0 Manufacturing and sale of
office equipment
------------------------------------------------------------------------------
And 18 other affiliates
------------------------------------------------------------------------------
Notes:
1. Proportion of ownership interest includes indirect ownership.
2. Figures in parentheses indicate portion of voting power if different from
portion of ownership interest.
3. Ricoh Leasing Co., Ltd. is the only subsidiary of Ricoh that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X.
-23-
D. Property, Plant and Equipment
Ricoh manufactures its products primarily in fifteen plants in Japan and six
plants overseas. Ricoh owns all of the buildings and the land on which its
plants are located, with the exception of certain leases of land and floor
space of certain of its subsidiaries. None of these leased land and floor
spaces have major encumbrances on them. The following table gives certain
information as of March 31, 2006 regarding the Company's and its subsidiaries'
principal production and other facilities. With the exception of GR Advanced
Materials Ltd., the production and other facilities listed below have floor
space exceeding 10,000 square meters.
------------------------------------------------------------------------------
Principal activities and
Name (Location) Floor space products manufactured
------------------------------ ----------------- -----------------------------
(in thousands
of square meters)
Japan:
Ricoh Company, Ltd.
Ohmori Plant (Tokyo) 52 Parts relating to copiers
Atsugi Plant (Kanagawa) 72 Office equipment and other
products
Numazu Plant (Shizuoka) 80 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 Office equipment
Yashiro Plant (Hyogo) 36 Electronic devices
Ricoh Technology Center 69 Research and development
(Kanagawa) ("R&D")
Head Office (Tokyo) 21 Head office and marketing of
office equipment
Research & Development 17 Research and development
Center (Kanagawa) ("R&D")
System Center (Tokyo) 10 Information system center,
marketing of office equipment
and other business
Ginza Office (Tokyo) 11 Marketing of office equipment
and other business
Shin-Yokohama office 40 Marketing of office
(Kanagawa) equipment, other business and
related services
Subsidiaries:
Ricoh Optical Industries 18 Photographic equipment
Co., Ltd. (Iwate)
Tohoku Ricoh Co., Ltd. 55 Office equipment, parts
(Miyagi) relating to copiers and
duplicators
-24-
------------------------------------------------------------------------------
Principal activities and
Name (Location) Floor space products manufactured
------------------------------ ----------------- -----------------------------
(in thousands
of square meters)
Hasama Ricoh , Inc. 14 Parts relating to copiers and
(Miyagi) data processing equipment
Ricoh Unitechno Co., Ltd. 18 Office equipment
(Saitama)
Ricoh Elemex Corporation. 47 Office equipment and
(Aichi) measuring equipment
Ricoh Microelectronics 11 Printed circuit boards and
Co., Ltd. (Tottori) electronic components
Ricoh Keiki Co., Ltd. 10 Printed circuit boards and
(Saga) parts relating to copiers
Overseas:
Ricoh Electronics, Inc. 100 Copiers, parts relating to
(Irvine, Santa Ana and copiers, toner and thermal
Tustin, California and paper
Lawrenceville, Georgia,
U.S.A.)
Ricoh UK Products Ltd. 41 Copiers, parts relating to
(Telford, United Kingdom) copiers and toner
Ricoh Industries France 42 Copiers, parts relating to
S.A.S. copiers and thermal paper
(Colmar, France)
Ricoh Asia Industry 42 Copiers, parts relating to
(Shenzhen) Ltd. copiers, and toner
(Shenzhen, China)
Shanghai Ricoh Facsimile 17 Copiers, facsimile equipment
Co., Ltd. and parts relating to copiers
(Shanghai, China)
GR Advanced Materials Ltd. 7 Supplies relating to
(Scotland, United Kingdom) duplicators
------------------------------------------------------------------------------
Ricoh considers its manufacturing facilities to be well maintained and
believes its plant capacity is adequate for its current needs, though
successive investment in manufacturing facilities is being made for its
long-term success.
-25-
Item 4A. Unresolved Staff Comments
-------------------------
Not applicable.
Item 5. Operating and Financial Review and Prospects
--------------------------------------------
OVERVIEW
Ricoh is engaged primarily in the development, manufacturing, sales and
servicing of office automation equipment, as well as digital cameras,
semiconductor devices and 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-sales services to assist customers in fully utilizing the Ricoh products
that they purchase. Ricoh's support services include assisting customers in
setting up their information technology environment or network administration.
Ricoh also offers various supplies and peripheral products to be used with its
products and systems.
As part of the 15th Medium-Term Management Plan, which covers the periods
from fiscal year 2006 through fiscal year 2008, Ricoh reclassified its business
segments into the following three segments beginning in fiscal year 2006:
(i) Office Solutions, which includes Imaging Solutions and Network System
Solutions, (ii) Industrial Products, which includes thermal media, optical
equipments, semiconductor devices, electronic components and measuring
equipments, and (iii) Other, which includes digital cameras, optical discs,
financing and logistics services. Ricoh's business segments previously
consisted of Office Equipment and Other Businesses. Presentation of business
segments for prior periods has been restated to conform to current presentation.
Ricoh's management believes that this reclassification realigns Ricoh's
operating segments in a manner that is consistent with the way in which its
management currently manages business operations. The products that are
included within the Industrial Products segment have over time become an
important source of revenue for Ricoh in terms of both sales and
diversification. What these products have in common is that the products within
this segment utilize various technologies developed internally by Ricoh for its
Office Solutions business and products in this group present a potential niche
market for Ricoh in the future. By manufacturing and selling products that
utilize these technologies, Ricoh hopes to expand and diversify its revenue
base.
Ricoh distributes its products and competes in the following four geographic
areas: (i) Japan, (ii) the Americas, (iii) Europe and (iv) Other, which
includes China, Asia (exclusive of Japan) 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 Japanese economy displayed
some upward momentum and the United States economy maintained its strength in
fiscal year 2006, the business climate in
-26-
which Ricoh operates remains unpredictable as a result of the continuing
depreciation of the Japanese Yen against the U.S. Dollar and the economic
uncertainties of the emerging markets, such as Brazil, Russia, India and China
(commonly known as "BRICs").
Furthermore, competition in the businesses we operate has increased
significantly and is likely to continue increasing in the future. The two most
significant trends in the office equipment market continues to be the movement
towards digital networking systems from stand-alone models and the shift in
customers' demands toward color products from monochrome products. In response
to these accelerating trends, other companies are introducing color products
and digital networking systems, increasing the level of competition in these
products. Ricoh seeks to prevail over this intense competition in the office
equipment market by continually providing customers with equipment that
optimizes the total cost of ownership of such equipment and enhancing office
productivity and efficiency.
Historically, Ricoh's revenues have been derived mainly from the
manufacturing and sale of equipment (such as copiers and printers). In the
current competitive environment, the key factor to achieving revenue growth
continues to be the expansion of available product-lines and areas of services
to address the increase in customer demand for digitization, coloring and high
print volume, which became possible upon the introduction of printers with
high-speed printing capabilities. To achieve sustained growth in the current
environment, Ricoh's goal is to broaden its revenue and earnings base by
increasing the total copying or printing volume of its customers (which Ricoh
refers to as "Building Total Document Volume") and the amount of revenue per
copy or printed page. To attain this goal, Ricoh's strategies continue to
include (1) replacing monochrome products with color models at prices
comparable to those of monochrome models, (2) expanding sales of high-speed
models, and (3) deploying printing solutions so that customers can optimize the
total output costs of their copiers and printers. In fiscal year 2006, net
sales of MFPs as a whole increased by 18.4% as compared to fiscal year 2005. A
23.6% increase in net sales of MFPs with color capabilities in fiscal year 2006
significantly contributed to this 18.4% increase in net sales of MFPs in fiscal
year 2006.
Despite this challenging environment, Ricoh recorded revenue growth for the
12th consecutive year in fiscal year 2006. Ricoh strove to remain competitive
and achieve sustained growth by placing a high priority on creating products
that added value for customers in new ways (for example, by increasing printing
speeds or allowing easier network connectivity) and managing its operations in
a highly efficient manner. To this end, Ricoh continues to reinforce its
technological strengths by making capital expenditures and investments in
research and development to create products and services that can provide new
value for its customers. At the same time, Ricoh continues to achieve steady
progress in increasing its operating efficiency through cost-cutting measures
across its business units, which include the reduction of production costs and
the streamlining of its business structure, as well as supply chain management.
As part of its strict cost management policy, Ricoh now analyzes the cost
structure of its products at the design phase in order to minimize the costs of
production. Through such policy, Ricoh seeks to maximize profits. Ricoh also
continues to pursue increased efficiency in
-27-
the use of financial resources by decreasing its interest-bearing debt by
effectively managing and utilizing the funds available to it on a group-wide
basis.
Ricoh's consolidated net sales increased by 5.6% to Yen 1,915.0 billion for
the fiscal year ended March 31, 2006, from Yen 1,814.1 billion for the fiscal
year ended March 31, 2005, due primarily to the increase in net sales of
higher-margin, value-added products such as MFPs and laser printers, and the
positive effect in fiscal year 2006 of the appreciation of the U.S. Dollar and
the Euro relative to the Japanese Yen, which was offset in part by a decline in
sales of personal computers, servers and optical discs. Ricoh's operating
income increased by 12.2%, while operating income as a percentage of net sales
increased from 7.5% to 7.9%. As discussed above, sales in highly profitable
product-lines contributed to the increase in operating income in fiscal year
2006.
Fiscal year 2006 was the first year of the 15th Medium-Term Management Plan.
The plan aims to increase corporate growth through an efficient and
cost-effective management of Ricoh's business. Under this plan, Ricoh will
allocate its business resources in an efficient manner to areas with growth
potential and reduce its costs and expenses in order to maximize profits. Ricoh
has identified the following business areas as the three key areas with future
growth potential: (i) printing, (ii) emerging markets and (iii) the industrial
sector. Ricoh plans to enhance its sales and profits by strengthening its
position in business in which it currently operates and by expanding into new
businesses in the above areas.
In fiscal year 2006, Ricoh laid the groundwork to attain the goals of the
15th Medium-Term Management Plan. Having identified printing to be an area that
presented opportunities for growth, Ricoh has taken steps to increase its
offerings of MFPs, laser printers and color printers in fiscal year 2006 to
further enhance its comprehensive offering of printers. Ricoh reallocated some
of its resources to concentrate on the printing area in order to reinforce
sales of its printing solutions, such as BC (black-color) conversion and TCO
(total cost of ownership) reduction solution in the office environment. In
addition, Ricoh will expand its business scope and size by entering into the
high-end production printing market, focusing on low-end color laser printers
and improving its sales of printers using Gel Jet technology. Furthermore,
Ricoh enhanced its sales structure and solutions platform for document
solutions that allow customers to comprehensively reduce work flow in order to
promote the sales of such products to major companies, especially corporate
customers with global operations.
Ricoh also worked to promote the effective allocation of management
resources to its business in the emerging markets, such as BRICs, as well as to
its industrial sector business in fiscal year 2006. Ricoh has focused on the
expansion of both its Office Solutions and Industrial Products segment
businesses in the emerging markets. For example, Ricoh has established a
thermal paper production and sales company in China in response to high market
demand for thermal media products in that country. Ricoh considers the
establishment of such company in China to be a strategic investment in a
country with large growth potential. Ricoh has also focused on the potential
niche market for products catering to the needs of the industrial sector, as
opposed to individual retail customers.
-28-
Furthermore, in fiscal year 2006, Ricoh continued to emphasize capital
expenditures in order to sustain its growth and improve its revenue base. As
part of its investment strategy in the areas of sales and services, Ricoh
consolidated the product maintenance and service functions of its domestic
sales companies in Ricoh Technosystems Co., Ltd., a maintenance and service
company. This consolidation allowed Ricoh to unify and enhance its client
database system so that it could obtain a better understanding of its
customers' needs and improve its ability to identify and offer various
maintenance and service solutions tailored to such customers' needs. In
addition, with respect to research and development activities, Ricoh
consolidated all of its research and development facilities and offices
relating to cutting-edge technology that it has developed for its Office
Solutions products and established the Ricoh Technology Center, located in
Ebina, Kanagawa. Through the integration of leading research and development,
Ricoh expects that it will improve the efficiency of its research and
development activities in its Office Solutions products.
KEY PERFORMANCE INDICATORS
The following table shows changes for the last three fiscal years in the key
performance indicators that Ricoh's management uses in assessing its
performance.
--------------------------------------------------------------------------------
For the year ended March 31,
-----------------------------
2004 2005 2006
-------- -------- ---------
Net Sales (in billions of Yen) 1,780.2 1,814.1 1,915.0
Operating income to net sales ratio 8.4% 7.5% 7.9%
Return on assets 7.7% 7.1% 7.8%
Inventory turnover within months 1.72 1.90 1.82
Interest-bearing debt (in billions of Yen) 432.7 410.0 381.2
--------------------------------------------------------------------------------
Note:Operating income to net sales ratio; Operating income divided by net sales.
Return on Assets; Net income divided by average total assets for the
fiscal year.
Inventory turnover within months; Inventory divided by cost of sales,
multiplied by 12.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of Ricoh are prepared in conformity
with U.S. generally accepted accounting principles. The preparation of these
financial statements requires the use of estimates, judgments and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the periods presented. On an ongoing basis, Ricoh evaluates its estimates which
are based on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. The results of these
evaluations form the basis for making judgments about the carrying
-29-
values of assets and liabilities and the reported amounts of expenses that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions. Ricoh considers an accounting policy to
be critical if it is important to its financial condition and results, and
requires significant judgments and estimates on the part of management in its
application. Ricoh believes that the following represent the critical
accounting policies of the Company. For a summary of the significant accounting
policies, including the critical accounting policies discussed below, 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. 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
-30-
arrangement includes the right of return. The price charged when the element is
sold separately generally determines fair value. Otherwise, revenue is deferred
until the undelivered elements are fulfilled as a single unit of accounting.
Allowance for Doubtful Receivables
----------------------------------
Ricoh performs ongoing credit evaluations of its customers and adjusts
credit limits based upon payment history and the customer's current
creditworthiness, as determined by Ricoh's review of the customers' credit
information. Ricoh continuously monitors collections and payments from its
customers and maintains a provision for estimated credit losses based upon its
historical experience and any specific customer collection issues that Ricoh
has identified. While such credit losses have historically been within Ricoh's
expectations and the provisions established, Ricoh cannot guarantee that it
will continue to experience the same credit loss rates that it has in the past.
Changes in the underlying financial condition of our customers could result in
a material impact on Ricoh's consolidated results of operation and financial
position.
Pension Accounting
------------------
The total costs for employees' severance payments and pension plans
represented approximately 2.0%, 0.8% and 1.1% of Ricoh's total costs and
expenses for the fiscal years ended March 31, 2004, 2005 and 2006,
respectively. The amounts recognized in the consolidated financial statements
relating to employees' severance payments and pension plans are determined on
an actuarial basis utilizing certain assumptions in the calculation of such
amounts. The assumptions used in determining net periodic costs and liabilities
for employees' severance payments and pension plans include expected long-term
rate of return on plan assets, discount rate, rate of increase in compensation
levels, average remaining years of service, and other factors. Among these
assumptions, the expected long-term rate of return on assets and the discount
rate are two critical assumptions. Assumptions are evaluated at least annually,
and events may occur or circumstances may change that may have a significant
effect on the critical assumptions. In accordance with accounting principles
generally accepted in the United States of America, actual results that differ
from the assumptions are accumulated and amortized over future periods, thereby
reducing the year-to-year volatility in pension expenses. As of March 31, 2006,
Ricoh's total amount of unrecognized net actuarial loss was Yen 64.7 billion.
The entire amount of unrecognized net actuarial loss will be amortized over the
average remaining years of employee service which is approximately 16 years, if
such amount exceeds 10% of the greater of (1) the projected benefit obligation
or (2) the fair value of the plan's assets. Such amortization will increase
future pension costs.
For the fiscal years ended March 31, 2004, 2005 and 2006, Ricoh used
expected long-term rates of return on pension plan assets of 2.5%, 2.9% and
3.2%, respectively. In determining the expected long-term rate of return on
pension plan assets, Ricoh considers the current and projected asset
allocations, as well as expected long-term investment returns and risks for
each category of the plan
-31-
assets based on Ricoh's analysis of historical results. The projected
allocation of the plan assets is developed in consideration of the expected
long-term investment returns for each category of the plan assets. To moderate
the level of volatility in pension plan asset returns and to reduce risks,
approximately 50%, 20%, 20% and 10% of the plan assets will be allocated to
equity securities, debt securities, life insurance company general accounts and
other financial instruments, respectively. As of March 31, 2006, the actual
allocation of assets was generally consistent with the projected allocation
stated above. The actual returns for fiscal years 2004, 2005 and 2006 were
approximately 18.7% (gain), 4.1% (gain) and 20.9%(gain), respectively. The
actual returns on pension plan assets may vary in future periods, depending on
market conditions. The market-related value of plan assets is measured using
fair values on the plan measurement date.
With respect to the discount rate used in the annual actuarial valuation of
the pension benefit obligations, the other critical assumptions, Ricoh's
weighted average discount rates for the fiscal years ended March 31, 2004, 2005
and 2006 were 2.9%, 3.0% and 2.8%, respectively. In determining the appropriate
discount rate, Ricoh considers available information about the current yield on
high-quality fixed-income investments that are currently available and are
expected to be available during the period corresponding to the expected
duration of the pension benefit obligations.
The following table illustrates the sensitivity to changes in the discount
rate and the expected return on pension plan assets, while holding all other
assumptions constant, for Ricoh's pension plans as of March 31, 2006.
----------------------------------------------------------------------------------------------
CHANGE IN CHANGE IN PRE-
PENSION BENEFIT TAX PENSION
CHANGE IN ASSUMPTION OBLIGATIONS EXPENSES
-------------------- ----------- --------
(Billions of Yen)
50 basis point increase / decrease in discount rate - /+ Yen 22 - /+ Yen 0
50 basis point increase / decrease in expected return on assets - - /+ Yen 1
----------------------------------------------------------------------------------------------
Impairment of Long-Lived Assets and Goodwill
--------------------------------------------
As of March 31, 2006, the aggregate of Ricoh's property, goodwill and
intangible assets was Yen 399.3 billion, which accounted for 19.6% of the total
assets. Ricoh believes that impairment of long-lived assets and goodwill are
critical to Ricoh's financial statements because the recoverability of the
amounts or lack thereof, could significantly affect its results of operations.
Ricoh periodically reviews the carrying value of its goodwill for continued
appropriateness. This review is based upon Ricoh's projections of anticipated
future cashflows and estimated fair value of the reporting units for which
goodwill is assigned. Ricoh reviews long-lived assets and acquired intangible
assets with a definite life for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset or group of assets
may not be recoverable. The recoverability of assets to be held and used is
assessed by comparing the carrying amount of an asset or asset group to the
expected future undiscounted net cashflows of the asset or group of assets. If
an asset or group of assets is considered to be impaired, the impairment charge
to be recognized is measured as the amount by which the carrying amount of the
asset or
-32-
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.
While Ricoh believes that its estimates of future cashflows are reasonable,
different assumptions regarding such cashflows could materially affect Ricoh's
evaluations.
Impairment of Securities
------------------------
Individual securities classified as available-for-sale securities are
reduced to their fair market value by a charge to income for declines in value
that are not temporary. Factors considered in assessing whether an impairment
other than a temporary impairment exists include: (i) the length of time and
extent of decline, (ii) the financial condition and near term prospects of the
issuer and (iii) the intent and ability of Ricoh to retain such investment for
a period of time sufficient to allow for any anticipated recovery in market
value. Ricoh believes that impairment of securities is critical for its
financial statements because it holds significant amounts of securities, the
recoverability of which or lack thereof, could significantly affect its results
of operations.
Realizability of Deferred Tax Assets
------------------------------------
Ricoh records deferred tax assets and liabilities using the effective tax
rate taking into consideration the effect of temporary differences between the
book and tax bases of assets and liabilities. If the effective tax rate were to
change, Ricoh would adjust its deferred tax assets and liabilities, through the
provision for income taxes in the period of change, to reflect the effective
tax rate expected to be in effect when the deferred tax items reverse.
Ricoh records a valuation allowance to reduce Ricoh's deferred tax assets to
an amount that is more likely than not to be recoverable. Ricoh considers
future market conditions, forecasted earnings, future taxable income, the mix
of earnings in the jurisdictions in which Ricoh operates, and prudent and
feasible tax planning strategies in determining the need for a valuation
allowance. In the event Ricoh were to determine that Ricoh would not be able to
recover any portion of Ricoh's net deferred tax assets in the future, the
unrecoverable portion of the deferred tax assets would be charged to earnings
during the period in which such determination is made. Likewise, if Ricoh were
to later determine that it is more likely than not that the net deferred tax
assets would be recoverable, the previously recovered valuation allowance would
be reversed. In order to recover its deferred tax assets, Ricoh must be able to
generate sufficient taxable income in the tax jurisdictions in which the
deferred tax assets are located.
-33-
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 of % Change
------------------------------------------------------------ U.S. Dollars (1) -----------
2004 2005 2006 2006 2005 2006
----------------------------------------------------------------------------------------------------------------------------
Net Sales
Products 1,074,893 1,067,736 1,108,746 $ 9,476,462 (0.7) 3.8
Post sales and rentals 597,989 627,991 693,138 5,924,256 5.0 10.4
Other revenue 107,363 118,381 113,206 967,573 10.3 (4.4)
----------------------------------------------------------------------------------------------------------------------------
Total 1,780,245 100.0% 1,814,108 100.0% 1,915,090 100.0% 16,368,291 1.9 5.6
----------------------------------------------------------------------------------------------------------------------------
Cost of Sales
Products 693,087 713,057 738,962 6,315,915 2.9 3.6
Post sales and rentals 245,512 259,591 293,559 2,509,051 5.7 13.1
Other revenue 76,020 86,883 82,958 709,043 14.3 (4.5)
----------------------------------------------------------------------------------------------------------------------------
Total 1,014,619 57.0% 1,059,531 58.4% 1,115,479 58.2% 9,534,009 4.4 5.3
----------------------------------------------------------------------------------------------------------------------------
Gross Profit 765,626 43.0% 754,577 41.6% 799,611 41.8% 6,834,282 (1.4) 6.0
Selling, General and
Administrative Expenses 623,935 35.0% 619,071 34.1% 647,597 33.9% 5,535,017 (0.8) 4.6
Transfer of the substitutional
portion of the Employee's
Pension Fund:
Settlement loss 48,657 -- -- --
Subsidy from
government (56,972) -- -- --
----------------------------------------------------------------------------------------------------------------------------
Operating income 150,006 8.4% 135,506 7.5% 152,014 7.9% 1,299,265 (9.7) 12.2
----------------------------------------------------------------------------------------------------------------------------
Other (Income) Expenses:
Interest and dividend
income (1,925) (2,240) (2,896) (24,752)
Interest expense 5,290 4,684 5,242 44,803
Foreign currency exchange
(gain) loss, net 6,136 (1,547) (3,748) (32,034)
Other, net (2,558) (774) (2,783) (23,786)
----------------------------------------------------------------------------------------------------------------------------
Total 6,943 0.4% 123 0.0% (4,185) (0.3%) (35,769) (98.2) --
----------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes,
Minority Interests and Equity
in earnings of Affiliates and
Cumulative Effect of
Accounting Change 143,063 8.0% 135,383 7.5% 156,199 8.2% 1,335,034 (5.4) 15.4
----------------------------------------------------------------------------------------------------------------------------
Provision for Income Taxes: 56,641 3.2% 50,634 2.8% 57,563 3.0% 491,991 (10.6) 13.7
----------------------------------------------------------------------------------------------------------------------------
Income before Minority
Interests and Equity in
Earnings of Affiliates and
Cumulative Effect of
Accounting Change 86,422 84,749 98,636 843,043
Minority Interests 4,094 4,726 4,185 35,769
Equity in Earnings of
Affiliates 2,065 3,120 2,606 22,273
----------------------------------------------------------------------------------------------------------------------------
Income Before Cumulative
Effect of Accounting
Change 84,393 4.7% 83,143 4.6% 97,057 5.1% 829,547 (1.5) 16.7
----------------------------------------------------------------------------------------------------------------------------
Cumulative Effect of
Accounting Change, Net of
tax 7,373 0.5% -- -- --
----------------------------------------------------------------------------------------------------------------------------
Net Income 91,766 5.2% 83,143 4.6% 97,057 5.1% 829,547 (9.4) 16.7
----------------------------------------------------------------------------------------------------------------------------
-34-
-----------------------------------------------------------------------------------------------------------------------------------
Yen Change
-------------------------------------------------------- -----------------
2004 2005 2006 2005 2006
-----------------------------------------------------------------------------------------------------------------------------------
Reference: Exchange Rates*
US$ 1 113.09 107.58 113.26 (5.51) 5.68
EURO 1 132.65 135.25 137.86 2.60 2.61
* These rates are the annual average exchange rate of the daily average TTM
rates published by The Bank of Tokyo-Mitsubishi UFJ, Ltd. These rates are
used when consolidating the financial results of Ricoh's overseas
subsidiaries with those of the Company.
-----------------------------------------------------------------------------------------------------------------------------------
(1)The above consolidated financial data set forth under the heading "Thousands
of U.S. Dollars 2006" which has been translated from Japanese Yen into
U.S. Dollar equivalents for the year ended March 31, 2006 is included solely
for the convenience of readers outside Japan and has been made using the
exchange rate of Yen 117 to US$1, the approximate rate of exchange prevailing
at the Federal Reserve Bank of New York on March 31, 2006.
-35-
SALES BY PRODUCT
----------------------------------------------------------------------------------------------------------
Millions of Yen (except for percentages) Thousands of % Change
---------------------------------------------------------- U.S. Dollars (1) -----------
2004 2005 2006 2006 2005 2006
----------------------------------------------------------------------------------------------------------
OFFICE SOLUTIONS
Imaging
Solutions 1,271,882 71.4% 1,332,299 73.4% 1,446,635 75.5% $12,364,402 4.8 8.6
Network System
Solutions 188,514 10.6 199,129 11.0 190,593 10.0 1,629,000 5.6 (4.3)
INDUSTRIAL
PRODUCTS 111,392 6.3 119,408 6.6 120,636 6.3 1,031,077 7.2 1.0
OTHER 208,457 11.7 163,272 9.0 157,226 8.2 1,343,812 (21.7) (3.7)
----------------------------------------------------------------------------------------------------------
Total 1,780,245 100.0% 1,814,108 100.0% 1,915,090 100.0% $16,368,291 1.9 5.6
----------------------------------------------------------------------------------------------------------
(1)The above consolidated financial data set forth under the heading "Thousands
of U.S. Dollars 2006" which has been translated from Japanese Yen into
U.S. Dollar equivalents for the year ended March 31, 2006 is included solely
for the convenience of readers outside Japan and has been made using the
exchange rate of Yen 117 to US$1, the approximate rate of exchange prevailing
at the Federal Reserve Bank of New York on March 31, 2006.
FISCAL YEAR 2006 COMPARED TO FISCAL YEAR 2005
NET SALES. Consolidated net sales of Ricoh for the fiscal year ended
March 31, 2006 increased by 5.6% (or Yen 100.9 billion) to Yen 1,915.0 billion
from Yen 1,814.1 billion for the fiscal year ended March 31, 2005. The increase
in net sales was primarily due to the increase in net sales in the Office
Solutions segment.
Net sales from the Office Solutions segment accounted for 85.5% of
consolidated net sales for fiscal year 2006. A significant portion of such net
sales was derived from net sales from the Imaging Solutions category, which
accounted for 75.5% of consolidated total net sales, up 2.1 percentage points
from fiscal year 2005. The increase in net sales from the Imaging Solutions
category was due primarily to the increase in net sales of MFPs and laser
printers as a result of Ricoh's introduction of new products in response to the
continuing shift in customer preference from stand-alone equipment to
multi-functional equipment, which can improve the customer's operations by
expanding the digital color networking capacity of their office environment. In
particular, sales of MFPs continued to grow in double-digit percentage figures
in the overseas markets. Compared to fiscal year 2005, net sales of MFPs
increased by 7.4% in Japan and 25.6% overseas. The market in Japan for MFPs is
more mature than the overseas markets, as domestic customers have preferred to
use multifunctional products that provide network printing and document
solution capabilities required to meet the needs of a Japanese office
environment in which space and operations are costly. We see more opportunities
in the overseas market for MFPs, as the overseas markets have not yet matured
as compared to the domestic market, and Ricoh improved its marketing structure
in order to develop momentum in sales in the overseas market. Similar to fiscal
year 2005, sales of laser printers continued to grow in double-digit percentage
figures in both the domestic and overseas markets. Compared to fiscal year
2005, net sales of laser printers increased by 18.9% in Japan and 18.5%
overseas. Such increases were due primarily to the continuous release of new
products that adequately addressed customer needs in terms of printing quality
and speed in both the domestic and overseas markets. Ricoh's subsidiary, Ricoh
Printing Systems, Ltd., also contributed to the growth in sales of the Imaging
Solutions category as its high-speed printers performed favorably through OEM
distributors. In response to customer demands, we offer management and workflow
efficiency solutions that are fine-tailored to our customers' printing needs
from the
-36-
operational administration of office network printers and mission-critical
business printers to the creation of a high-speed, on-demand printing
environment. We also offer professional services such as environment analysis,
solutions, custom software design, and more in order to help improve our
customers' printing process.
The increase in net sales in the Imaging Solutions category was partially
offset by the decrease in net sales in the Network System Solutions category.
The decrease in net sales in the Network System Solutions category was mainly
due to lower sales in personal computers and servers in Japan although the
support and other services that optimize customers' total printing costs
continued to be well-received by customers. Net sales in the Network System
Solutions category decreased by 4.3% in fiscal year 2006 as compared to fiscal
year 2005.
In the Industrial Products segment, net sales increased by 1.0% in fiscal
year 2006 as compared to fiscal year 2005. The sales of thermal media and
electronic components increased due to stable market demand and the demand for
semiconductor devices showed signs of recovery as a result of the sales of
integrated circuits used in electronic devices such as mobile and cellular
phones increased; however, such increase in sales was partially offset by the
decrease in sales of optical equipments due to a sluggish demand.
In the Other segment, net sales decreased by 3.7% mainly due to the decrease
in sales of optical discs in the overseas markets as Ricoh completed its
withdrawal from the self-developed drive business which used proprietary
technology developed by Ricoh, and its key-module/parts unit. While net sales
of digital cameras continued to perform favorably in fiscal year 2006, the
increase in net sales from digital cameras was not enough to offset the
decrease in net sales of the optical discs business.
The appreciation of both the U.S. Dollar and the Euro in relation to the
Japanese Yen contributed to an increase in consolidated net sales in fiscal
year 2006 as compared to fiscal year 2005 in Japanese Yen. Had the foreign
currency exchange rates remained the same as in fiscal year 2005, Ricoh's
consolidated net sales would have increased by 3.8%.
Ricoh has expanded the presentation of net sales and cost of sales in the
consolidated statements of income to present separate line-items for
(i) revenue derived from its products, (ii) revenue derived from post sale
services and rentals of its equipment, including revenue derived from sale of
suppliers for its products, and (iii) revenue derived from other sources.
Products. An increase in net sales derived from products was mainly due to
the increase in net sales of MFPs and laser printers as a result of Ricoh's
introduction of new products in response to the continuing shift in customers'
preference from stand-alone equipments to multi-functional equipments, which
can improve the customers' operations by expanding the digital color networking
capacity of their office environment. The increase in net sales of MFPs and
laser printers completely offset the decrease in net sales of the personal
computers and servers in Japan, the optical equipments and the optical
-37-
discs. In addition, Ricoh's new subsidiary, Ricoh Printing Systems, Ltd.,
contributed to the growth in the sales of this category. An increase in cost of
sales of this category was mainly due to the increase in net sales of MFPs and
laser printers.
Post sales and rentals. An increase in net sales derived from post sales
services and rentals of equipment was mainly due to an increase in revenue from
post sale services such as maintenance services as well as increase in sales of
supplies for MFPs and laser printers. Ricoh continued to direct its marketing
and promotional efforts of its equipment rental services towards major
corporate clients in Japan and overseas.
Other revenue. A decrease in net sales derived from other sources was mainly
due to the decrease in revenue from financing services.
COST OF SALES. Consolidated cost of sales for the fiscal year ended
March 31, 2006 increased by 5.3% (or Yen 55.9 billion) to Yen 1,115.4 billion
from Yen 1,059.5 billion for the fiscal year ended March 31, 2005. This increase
was due primarily to the increase in net sales of MFPs and laser printers,
while cost of sales as a percentage of net sales decreased from 58.4% to 58.2%.
GROSS PROFIT. Consolidated gross profit for the fiscal year ended March 31,
2006 increased by 6.0% to Yen 799.6 billion from Yen 754.5 billion for the
fiscal year ended March 31, 2005. Gross profit as a percentage of net sales
increased by 0.2 percentage point from 41.6% for the fiscal year ended March
31, 2005 to 41.8% for the fiscal year ended March 31, 2006. This increase in
gross profit primarily reflects Ricoh's introduction of new products, and an
increase in sales of value-added high-margin products such as MFPs and laser
printers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses for the fiscal year ended March 31, 2006 increased
by 4.6% (or Yen 28.5 billion) to Yen 647.5 billion from Yen 619.0 billion for
the fiscal year ended March 31, 2005. Ricoh invested Yen 110.3 billion in
research and development activity during fiscal year 2006 for the purposes of
developing more advanced MFPs and laser printers with new capabilities to
maintain Ricoh's large market share position in these products in the current
competitive marketplace. Furthermore Ricoh incurred certain expenses relating to
(1) the consolidation of some of its domestic operations at its headquarters in
Tokyo, (2) the integration of its domestic R&D facilities and offices at the
Ricoh Technology Center, (3) the enhancement of its overseas sales and marketing
organization structure and (4) investments in information technologies in
connection with the development of its core operating systems in its domestic
and overseas. In addition, the appreciation of both the U.S. Dollar and the
Euro in relation to the Japanese Yen resulted in an increase in selling,
general and administrative expenses of approximately Yen 8.7 billion.
OPERATING INCOME. Consolidated operating income for the fiscal year ended
March 31, 2006 increased by 12.2% (or Yen 16.5 billion) to Yen 152.0 billion
from Yen 135.5 billion for the fiscal year ended March 31, 2005. Operating
Income as a percentage of net sales increased by 0.4 percentage point from 7.5%
for the fiscal year ended March 31, 2005 to 7.9% for the fiscal year ended March
31, 2006.
-38-
INTEREST AND DIVIDEND INCOME. Consolidated interest and dividend income for
the fiscal year ended March 31, 2006 increased by Yen 0.6 billion to Yen 2.8
billion from Yen 2.2 billion for the fiscal year ended March 31, 2005. The
increase in interest and dividend income reflected the favorable financial
market conditions and the positive change in economic conditions in Japan as
dividend income from Japanese companies increased.
INTEREST EXPENSE. Consolidated interest expense for the fiscal year ended
March 31, 2006 increased by Yen 0.5 billion to Yen 5.2 billion from Yen 4.6
billion for the fiscal year ended March 31, 2005. This was due to the increase
in short-term borrowings and a rise in interest rates.
FOREIGN CURRENCY EXCHANGE (GAIN) LOSS, NET. Consolidated foreign currency
exchange gain, net included in other (income) expenses for the fiscal year
ended March 31, 2006 increased by Yen 2.2 billion to a gain of Yen 3.7 billion
from a gain of Yen 1.5 billion for the fiscal year ended March 31, 2005. For
additional information on Ricoh's foreign exchange hedging activities, see
Item 11.
OTHER, NET. Consolidated other, net included in other (income) expenses
increased by Yen 2.0 billion to an income of Yen 2.7 billion for the fiscal year
ended March 31, 2006 from an income of Yen 0.7 billion for the fiscal year ended
March 31, 2005. This increase in income of the other, net in fiscal year 2006
was due to an increase in income derived from the sale of marketable securities
and the a gain from nonmonetary exchange of marketable securities as compared
to fiscal year 2005.
PROVISION FOR INCOME TAXES. Total consolidated provision for income taxes
for the fiscal year ended March 31, 2006 increased by 13.7% (or Yen 6.9 billion)
to Yen 57.5 billion from Yen 50.6 billion for fiscal year ended March 31, 2005.
The effective tax rate decreased by 0.5 percentage point to 36.9% for the
fiscal year ended March 31, 2006 from 37.4% for the previous fiscal year. This
0.5 percentage point decrease in the effective tax rate was attributable to a
Japanese tax credit resulting from (1) the increase in research and development
expenses and (2) the investments made by Ricoh in information technologies
hardware and software used by the Company. As a result of these tax credits,
the effective tax rate was lower than the Japanese statutory tax rate. See Note
8 to the Consolidated Financial Statements for additional information.
MINORITY INTERESTS. Consolidated minority interests for the fiscal year
ended March 31, 2006 decreased by Yen 0.5 billion to Yen 4.1 billion from Yen
4.7 billion for the fiscal year ended March 31, 2005. This decrease was due
primarily to provisioning necessitated by quality problems in its measuring
equipment business.
EQUITY IN EARNINGS OF AFFILIATES. Consolidated equity in earnings of
affiliates for the fiscal year ended March 31, 2006 decreased by Yen 0.5 billion
to Yen 2.6 billion from Yen 3.1 billion for the fiscal year ended March 31,
2005. This decrease was due primarily to deterioration in the business
performance of Ricoh's affiliates.
-39-
OPERATING SEGMENTS
-----------------------------------------------------------------------------------------------
Millions of Yen (except for percentages) Thousands of
------------------------------------------ U.S. Dollars (1) % Change
2005 2006 2006
-----------------------------------------------------------------------------------------------
OFFICE SOLUTIONS
Net sales 1,531,428 100.0% 1,637,228 100.0% $13,993,402 6.9
Operating expenses 1,335,059 87.2 1,434,279 87.6 12,258,795 7.4
Operating income 196,369 12.8% 202,949 12.4% $ 1,734,607 3.4
-----------------------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS
Net sales 121,914 100.0% 123,200 100.0% $ 1,052,991 1.1
Operating expenses 121,872 100.0 124,108 100.7 1,060,752 1.8
Operating income 42 0.0% (908) (0.7)% $ (7,761) --
-----------------------------------------------------------------------------------------------
OTHER
Net sales 163,272 100.0% 157,226 100.0% $ 1,343,812 (3.7)
Operating expenses 167,431 102.5 151,114 96.1 1,291,573 (9.7)
Operating income (4,159) (2.5)% 6,112 3.9% $ 52,239 --
-----------------------------------------------------------------------------------------------
CORPORATE AND ELIMINATION
Net sales (2,506) (2,564) $ (21,914)
Operating expenses 54,240 53,575 457,906
Operating income (56,746) (56,139) $ (479,820)
-----------------------------------------------------------------------------------------------
CONSOLIDATED
Net sales 1,814,108 100.0% 1,915,090 100.0% $16,368,291 5.6
Operating expenses 1,678,602 92.5 1,763,076 92.1 15,069,026 5.0
Operating income 135,506 7.5% 152,014 7.9% $ 1,299,265 12.2
-----------------------------------------------------------------------------------------------
(1)The above consolidated financial data set forth under the heading "Thousands
of U.S. Dollars 2006" which has been translated from Japanese Yen into
U.S. Dollar equivalents for the year ended March 31, 2006 is included solely
for the convenience of readers outside Japan and has been made using the
exchange rate of Yen 117 to US$1, the approximate rate of exchange prevailing
at the Federal Reserve Bank of New York on March 31, 2006.
Office Solutions
Net sales in the Office Solutions segment for the fiscal year ended
March 31, 2006 increased by 6.9% (or Yen 105.8 billion) to Yen 1,637.2 billion
from Yen 1,531.4 billion for the fiscal year ended March 31, 2005. This increase
was due primarily to the increase in sales of color PPCs, MFPs and laser
printers in the Imaging Solutions category in both the domestic and overseas
markets. Such products are equipped with advanced digital and networking
technologies and were well-received by customers as such products addressed
customers' needs for conducting business operations effectively and efficiently
by digitalizing and colorizing documents and being capable of handling large
volumes of information. Furthermore, Ricoh continued to offer solutions to
optimize the total printing costs of its customers in fiscal year 2006 to
assist customers manage their Total Document Volume ("TDV") more effectively
and efficiently. The increase in net sales of the Imaging Solutions category
was partially offset by the decrease in net sales of the Network System
Solutions category, which decrease was due primarily to the decrease in net
sales of personal computers and servers.
More specifically, sales in the Imaging Solutions category for the fiscal
year ended March 31, 2006 increased by 8.6% (or Yen 114.3 billion) to Yen
1,446.6 billion from Yen 1,332.2 billion for the fiscal year ended March 31,
2005. This increase was primarily due to the increase in net sales of MFPs and
laser printers in both the domestic and overseas markets. Overseas sales of
digital PPCs continued to perform well although the domestic sales of digital
PPCs decreased primarily due to a shift in customer demand
-40-
from stand-alone equipment to multifunctional products, and from monochrome
products to products with color capabilities at the same time. Sales of color
PPCs increased in both Japan and overseas as Ricoh made significant strides to
introduce new products to the global markets. Ricoh enjoyed a sales growth in
the double-digit percentage figures overseas in fiscal year 2006. The
double-digit percentage figures were due primarily to the strong sales of both
MFPs and laser printers as well as digital and color PPCs as discussed above.
With regards to MFPs, Ricoh introduced various new products that offer
high-speed performance, networking capabilities and color printing such as
"imagio Neo C600Pro (sold overseas as Aficio Color 5560)". This is a new
generation of multifunctional color printers with a high-speed printing
capability of 55 pages per minute. Moreover, other products arising from the
new generation of color MFPs enable the printing of high-quality images by
utilizing the Color PxP toner, which uses proprietary technology developed by
Ricoh and have high security functions, such as protection to prevent
unauthorized copying, etc. The acquisition of the printing company, Ricoh
Printing Systems, Ltd., which manufactures and markets both low and high speed
printers for the office environment, in fiscal year 2005 has reinforced Ricoh's
office color printer and print-on-demand product lines in Japan and overseas.
Sales in the Network System Solutions category for the fiscal year ended
March 31, 2006 decreased by 4.3% (or Yen 8.5 billion) to Yen 190.5 billion from
Yen 199.1 billion for the fiscal year ended March 31, 2005. Sales in the
solutions business, such as support and services relating to Ricoh's imaging
solutions products, continued to increase both in Japan and overseas in fiscal
year 2006 due to successful promotional efforts to assist customers in
optimizing their total printing costs. In connection with promoting Ricoh's
printing solutions, Ricoh provided software and related services to aid in
connecting Ricoh's digital MFPs to customers' host system in their office
environment, provided the necessary support at customer sites, and strengthened
its own sales infrastructure for such network system solutions products. While
Ricoh's solutions business performed favorably during fiscal year 2006 as a
result of these efforts, the increase in sales resulting from such business did
not sufficiently offset the decrease in sales of personal computers and servers
in Japan.
On the whole, the increase in sales in the Imaging Solutions category
exceeded the decrease in sales in the Network System Solutions category and net
sales in the Office Solutions segment increased by 6.9% for the year ended
March 31, 2006 as compared to the fiscal year ended March 31, 2005. Excluding
the foreign currency exchange rate fluctuations, sales in the Office Solutions
segment would have increased by 4.9% (or Yen 75.0 billion) for the fiscal year
ended March 31, 2006 as compared to the fiscal year ended March 31, 2005.
During fiscal year 2006, Ricoh incurred expenses relating to the following
items: (i) research and development investments in its core products (i.e.,
MFPs and laser printers in the Image Solutions category), (ii) investments in
operating systems relating to accounting and sales force automation and
marketing support, (iii) realignment of headquarters functions through the
consolidation of several domestic operations at Ricoh's headquarters and the
integration of several key R&D facilities and offices in Japan, and
(iv) enhancement of overseas sales organization structure. Ricoh integrated
-41-
the European Lanier operations into its other subsidiaries in Europe during
fiscal year 2006. On the other hand, Ricoh continued to implement strict cost
management controls at the product development stage and continued to improve
the efficiency of its distribution and production systems based on supply chain
management. Despite such cost reduction activities, operating expenses in the
Office Solutions segment for the fiscal year ended March 31, 2006 increased by
7.4% (or Yen 99.2 billion) to Yen 1,434.2 billion from Yen 1,335.0 billion for
the fiscal year ended March 31, 2005 as Ricoh's expenses exceeded the cost
reductions. Notwithstanding the greater increase in operating expenses as
compared to operating income, operating income for the Office Solutions segment
for the fiscal year ended March 31, 2006 increased by 3.4% (or Yen 6.5 billion)
to Yen 202.9 billion from Yen 196.3 billion for the fiscal year ended March 31,
2005. Operating income as a percentage of net sales for the fiscal year ended
March 31, 2006 decreased by 0.4 percentage points to 12.4% from 12.8% as
compared to the fiscal year ended March 31, 2005.
Industrial Products
Net sales in the Industrial Products segment for the fiscal year ended
March 31, 2006 increased by 1.1% (or Yen 1.2 billion) to Yen 123.2 billion from
Yen 121.9 billion for the fiscal year ended March 31, 2005. This increase was
due primarily to the increase in sales in the thermal media products both in
Japan and overseas and the increase in sales in the electronic component
products overseas. In addition, the semiconductor business showed signs of
recovery in the fourth quarter of fiscal year 2006 as compared to fiscal year
2005, due to the recovery in demand for integrated circuits used in electronic
products, such as mobile and cellular phones. While sales in the optical
equipment business decreased from the previous corresponding period due
primarily to sluggish demand, such decrease in sales of the optical equipment
business was sufficiently offset by the increase in sales resulting from
thermal media, electric component and semiconductor businesses as discussed
above.
With respect to expenses during fiscal year 2006, Ricoh recorded additional
expenses that were required to address the quality problems in its measuring
equipment business in Japan. As a result of such expenses, operating expenses
in the Industrial Products segment for the fiscal year ended March 31, 2006
increased by 1.8% (or Yen 2.2 billion) to Yen 124.1 billion from Yen 121.8
billion for the fiscal year ended March 31, 2005. As a result of the above
factors, operating income for the Industrial Products segment for the fiscal
year ended March 31, 2006 decreased by Yen 0.9 billion to Yen (0.9) billion as
compared to the fiscal year ended March 31, 2005. Operating income as a
percentage of net sales for the fiscal year ended March 31, 2006 decreased by
0.7 percentage point to (0.7)% from 0.0% as compared to the fiscal year ended
March 31, 2005.
Other
Net sales in the Other segment for the fiscal year ended March 31, 2006
decreased by 3.7% (or Yen 6.0 billion) to Yen 157.2 billion from Yen 163.2
billion for the fiscal year ended March 31, 2005. In fiscal year 2006, sales of
digital cameras increased primarily due to
-42-
the increase in demand for new digital camera products, such as the GR DIGITAL
and the Caplio R4, that were well-received in the global market. Despite the
fact that the digital camera business continued to perform well in fiscal year
2006, the increase in sales from such business was not sufficient to offset the
decrease in sales of the optical discs business in the overseas market as Ricoh
withdrew from the self-developed drive business, which used proprietary
technology developed by Ricoh, and its key-module/parts unit business from the
second half of fiscal year 2005.
With respect to expenses, Ricoh's withdrawal from the key-module/parts unit
business in fiscal year 2005 was attributable to the decrease in costs and
expenses of the Other segment in the fiscal year 2006. As a result of such
factors, operating income for the Other segment for the fiscal year ended
March 31, 2006 increased by Yen 10.2 billion to Yen 6.1 billion as compared to
the fiscal year ended March 31, 2005. Operating income as a percentage of net
sales for the fiscal year ended March 31, 2006 increased by 6.4 percentage
points to 3.9% from (2.5) % as compared to the fiscal year ended March 31, 2005.
GEOGRAPHIC SEGMENTS BY GEOGRAPHIC ORIGIN
-------------------------------------------------------------------------------------------
Millions of Yen (except for percentages) Thousands of
----------------------------------------- U.S. Dollars (1) %
2005 2006 2006 Change
-------------------------------------------------------------------------------------------
JAPAN
Net sales 1,386,715 100.0% 1,411,884 100.0% $12,067,385 1.8
Operating expenses 1,298,640 93.6 1,312,655 93.0 11,219,274 1.1
Operating income 88,075 6.4% 99,229 7.0% $ 848,111 12.7
-------------------------------------------------------------------------------------------
THE AMERICAS
Net sales 330,461 100.0% 393,376 100.0% $ 3,362,188 19.0
Operating expenses 316,651 95.8 378,108 96.1 3,231,692 19.4
Operating income 13,810 4.2% 15,268 3.9% $ 130,496 10.6
-------------------------------------------------------------------------------------------
EUROPE
Net sales 415,643 100.0% 438,753 100.0% $ 3,750,026 5.6
Operating expenses 391,271 94.1 417,341 95.1 3,567,017 6.7
Operating income 24,372 5.9% 21,412 4.9% $ 183,009 (12.1)
-------------------------------------------------------------------------------------------
OTHER
Net sales 173,948 100.0% 200,288 100.0% $ 1,711,863 15.1
Operating expenses 162,042 93.2 185,283 92.5 1,583,615 14.3
Operating income 11,906 6.8% 15,005 7.5% $ 128,248 26.0
-------------------------------------------------------------------------------------------
CORPORATE AND ELIMINATION
Net sales (492,659) (529,211) $(4,523,171)
Operating expenses (490,002) (530,311) (4,532,572)
Operating income (2,657) 1,100 $ 9,401
-------------------------------------------------------------------------------------------
CONSOLIDATED
Net sales 1,814,108 100.0% 1,915,090 100.0% $16,368,291 5.6
Operating expenses 1,678,602 92.5 1,763,076 92.1 15,069,026 5.0
Operating income 135,506 7.5% 152,014 7.9% $ 1,299,265 12.2
-------------------------------------------------------------------------------------------
(1) The above consolidated financial data set forth under the heading
"Thousands of U.S. Dollars 2006" which has been translated from Japanese Yen
into U.S. Dollar equivalents for the year ended March 31, 2006 is included
solely for the convenience of readers outside Japan and has been made using the
exchange rate of Yen 117 to US$1, the approximate rate of exchange prevailing at
the Federal Reserve Bank of New York on March 31, 2006.
-43-
Japan
Sales in Japan for the fiscal year ended March 31, 2006 increased by 1.8%
(or Yen 25.1 billion) to Yen 1,411.8 billion from Yen 1,386.7 billion for the
fiscal year ended March 31, 2005. In the Office Solutions segment, sales of
products in the Imaging Solutions category, including color PPCs, MFPs and
laser printers, increased due to Ricoh's strategic sales promotion activities
and marketing strategies designed to meet its customers' changing demand from
stand-alone monochrome products to networkable color high-speed products.
Moreover, the performance of super high-speed printers produced by Ricoh
Printing Systems, Ltd., which was acquired in fiscal year 2005, contributed
favorably to increased sales in Japan. In addition, sales of solution products
such as support services, document management applications and other software
increased due to Ricoh's successful promotion of such solutions to optimize the
customers' total printing costs. Meanwhile, sales in analog type equipment
decreased as such equipment was replaced by MFPs and color equipment, and sales
of personal computers and servers also decreased during fiscal year 2006 in
Japan. In the Industrial Products segment, sales of optical equipment decreased
in Japan due to the sluggish market demand for such equipment compared to
fiscal year 2005.
Operating expenses in Japan for the fiscal year ended March 31, 2006
increased by 1.1% (or Yen 14.0 billion) to Yen 1,312.6 billion from Yen 1,298.6
billion for the fiscal year ended March 31, 2005. The increase in operating
expenses was primarily due to the increase in sales volume, especially in
exports to foreign countries. While net sales in this segment increased by 1.8%
as compared to fiscal year 2005, operating expenses increased by only 1.1% as
compared to fiscal year 2005 because of the increase in sales of value-added,
high-margin products such as MFPs and laser printers. Although Ricoh was able
to decrease its operating expenses as it performed various cost-cutting
measures to streamline some of its businesses, the total operating expenses in
Japan increased in fiscal year 2006, which is reflected in the 1.1% figure, as
Ricoh incurred certain expenses relating to (1) research and development geared
towards the development of core products having color printing capabilities,
(2) the consolidation of certain operations at Ricoh's headquarters in Tokyo,
(3) the integration of domestic research and development facilities and offices
at the Ricoh Technology Center, and (4) investment in information technology
for the development of Ricoh's core operating system.
As the increase in net sales was greater than the increase in operating
expenses, operating income in Japan for the fiscal year ended March 31, 2006
increased by 12.7% (or Yen 11.1 billion) to Yen 99.2 billion from Yen 88.0
billion for the fiscal year ended March 31, 2005.
The Americas
Net sales in the Americas for the fiscal year ended March 31, 2006 increased
by 19.0% (or Yen 62.9 billion) to Yen 393.3 billion from Yen 330.4 billion for
the fiscal year ended March 31, 2005. Ricoh continues to focus on increasing
sales of MFPs, digital PPCs, color PPCs and laser printers which meet the
customers' demand for networking capabilities, coloration, and high-speed
products through our efforts to enhance and
-44-
expand its existing sales channels. In addition, Ricoh continued to focus its
marketing and promotional efforts towards major corporate clients for the
fiscal year ended March 31, 2006.
Operating expenses in this geographic segment for the fiscal year ended
March 31, 2006 increased by 19.4% (or Yen 61.4 billion) to Yen 378.1 billion
from Yen 316.6 billion for the fiscal year ended March 31, 2005. The increase in
operating expenses was due to the increase in sales volume and the depreciation
of the Japanese Yen relative to the U.S. Dollar. The percentage change of
operating expenses as compared to the previous fiscal year in the Americas was
greater than the percentage change of net sales as compared to the previous
fiscal year in the Americas as (1) Ricoh incurred marketing expenses to expand
its market share in the increasingly competitive business environment in the
Americas and (2) Ricoh made various investments in information technology to
develop and enhance its core operating system.
Europe
Sales in Europe for the fiscal year ended March 31, 2006 increased by 5.6%
(or Yen 23.1 billion) to Yen 438.7 billion from Yen 415.6 billion for the fiscal
year ended March 31, 2005, due primarily to an increase in sales in the Imaging
Solutions category for such products as MFPs and laser printers, reflecting
Ricoh's continuing efforts to strengthen its sales networks and reinforce the
strength of its brand in the European geographic segment. Sales of products
with color capabilities increased in fiscal year 2006 as compared to the
previous fiscal year due to the launch of new models and the BC (black-color)
conversion strategy. Continuing from previous fiscal years, Ricoh maintained
its dominance in the copiers and MFP product market in this geographic segment
and was ranked number one in terms of market share in the sales of copiers and
MFPs in Europe.
Operating expenses in this geographic segment for the fiscal year ended
March 31, 2006 increased by a higher percentage as compared to the percentage
increase in net sales, due primarily to the nonrecurring expenses for
integration of Lanier operations into its other subsidiaries in Europe.
Other
Net sales in the Other geographic segment, comprised of China, Asia and
Oceania, for the fiscal year ended March 31, 2006, increased by 15.1% (or
Yen 26.3 billion) to Yen 200.2 billion from Yen 173.9 billion for the fiscal
year ended March 31, 2005. Sales in the Imaging Solutions category increased
in this geographic segment due to active demand for digital, networkable and
color products from stand-alone, analog and monochrome equipment. In addition,
sales in the semiconductor business in the Industrial Products segment increased
due to the recovery in demand for products utilizing semiconductor devices, such
as mobile and cellular phones.
An increase in demand for digital PPCs and MFPs led to an increase in global
exports of products manufactured by Ricoh's manufacturing subsidiaries in
China, which mainly manufacture low-end digital PPCs and MFPs. Such
subsidiaries maintained a
-45-
high production level in China for the fiscal year ended March 31, 2006, and
continued to contribute to the increase in net sales in this geographic segment.
FISCAL YEAR 2005 COMPARED TO FISCAL YEAR 2004
NET SALES. Consolidated net sales of Ricoh for the fiscal year ended
March 31, 2005 increased by 1.9% (or Yen 33.8 billion) to Yen 1,814.1 billion
from Yen 1,780.2 billion for the fiscal year ended March 31, 2004. The increase
in net sales was primarily due to the increase in net sales in the Office
Solutions segment.
More specifically, net sales from the Office Solutions segment accounted for
84.4% of the consolidated net sales for fiscal year 2005. A significant portion
of such net sales was derived from net sales from the Imaging Solutions
category, which accounted for 73.4% of consolidated total net sales, up 1.7
percentage points from fiscal year 2004. The increase in net sales from the
Imaging Solutions category is because of the increase in net sales of MFPs and
laser printers due to the acceleration of the change in customer preference
from standalone equipment to multi-functional equipment, which can improve the
customer's operations by expanding their digital color networking capacity. In
particular, sales of MFPs continued to grow in double-digit percentage figures
in both the domestic and overseas market places. Compared to fiscal year 2004,
net sales of MFPs increased by 26.3% in Japan and 31.4% overseas. Similar to
the increase in net sales of MFPs, sales of laser printers continued to grow in
double-digit percentage figures in both the domestic and overseas market
places. Compared to fiscal year 2004, net sales of laser printers increased by
35.1% in Japan and 11.9% overseas due primarily to the continuous release of
new products responding to its customer needs. In addition, Ricoh's new
subsidiary, Ricoh Printing Systems, Ltd., also contributed to the sales growth
of the Imaging Solutions.
In the Network System Solutions category, net sales of personal computers
and servers recovered as compared to fiscal year 2004, as information
technology investments by companies increased in Japan. Support and services
relating to such products, such as document solutions software, application
software and related services and support, were continuously well-received by
customers throughout fiscal year 2005, as the increase in net sales of personal
computers and servers generated sales in these products and such products
assisted Ricoh's customers in optimizing their total printing costs.
In the Industrial Products segment, net sales increased by 12.0% in fiscal
year 2005 as compared to fiscal year 2004. Net sales of the optical equipment
business, such as the parts unit, continued to perform favorably in fiscal year
2005, but the increase in net sales from these items was offset by the decrease
in net sales of the measuring equipment business and semiconductor business.
In the Other segment, net sales decreased by 21.7% mainly due to the lower
sales in the optical discs business in Japan and overseas as Ricoh withdrew
from the self-developed drive business, which used proprietary technology
developed by Ricoh, and its key-module/parts unit business. In turn, Ricoh
decided to place more focus on its media
-46-
business. In addition, Ricoh's divestiture of its subsidiaries in the
optical-related analog business, such as Hanimex Australasia Pty Ltd. and its
subsidiaries located in Australia and New Zealand, also contributed to the
decrease in net sales of this segment.
The depreciation of the U.S. Dollar in relation to the Japanese Yen also
resulted in the lower Japanese Yen equivalent of U.S. Dollar denominated
overseas net sales of office solution products for fiscal year 2005. While the
increase in Euro-denominated net sales due to the appreciation of the Euro in
relation to the Japanese Yen partially offset this decrease, the depreciation
of the U.S. Dollar resulted in the lower increase of consolidated net sales as
compared to fiscal year 2004. Had the foreign currency exchange rates remained
the same as fiscal year 2004, Ricoh's consolidated net sales would have
increased by 2.4%.
Ricoh has expanded the presentation of net sales and cost of sales in the
consolidated statements of income to present separate line-items for
(i) revenue derived from its products, (ii) revenue derived from post sale
services and rentals of its equipment, including revenue derived from sale of
suppliers for its products, and (iii) revenue derived from other sources.
Products. Net sales in MFPs and laser printers increased due to the
acceleration of the change in customers' preference from standalone equipments
to multi-functional equipments, which can improve the customers' operations by
expanding their digital color networking capacity.
On the other hand, the lower sales in the optical discs business in Japan
and overseas and the divestiture of Ricoh's subsidiaries, such as Hanimex
Australasia Pty Ltd. and its subsidiaries, in the optical-related analog
business offset the increase of net sales of MFPs and laser printers.
Despite a decrease in net sales derived from products, the cost of sales
increased due primarily to sales promotion activities and Ricoh's partial
withdrawal from the optical discs business. Ricoh's strategy to provide a
significant discount on price of certain color products resulted in lower net
sales as compared to its cost of sales. This strategy was one of the core
strategies Ricoh used to promote BC (black-color) conversion and to increase
its market share in color products so as to establish the basis for future
growth in the color products business. Ricoh withdrew from the self-developed
drive business, which used proprietary technology developed by Ricoh and its
key-module/parts unit business, in order for more focus on its media business.
Post sales and rentals. An increase in net sales derived from post sales
services and rentals of equipment was mainly due to an increase in service
revenue and an increase in net sales of related supplies for MFPs and laser
printers, reflecting its increase in its market share.
Other revenue. An increase in net sales from other sources was mainly
derived from an increase in net sales from financing services.
-47-
COST OF SALES. Consolidated cost of sales for the fiscal year ended
March 31, 2005 increased by 4.4% (or Yen 44.9 billion) to Yen 1,059.5 billion
from Yen 1,014.6 billion for the fiscal year ended March 31, 2004. This increase
was due primarily to the increase in net sales, which was partially offset by
Ricoh's continuous cost-cutting activities similar to fiscal year 2004, which
resulted in a reduction in net cost of sales of approximately Yen 12.0 billion.
GROSS PROFIT. Consolidated gross profit for the fiscal year ended March 31,
2005 decreased by 1.4% to Yen 754.5 billion from Yen 765.6 billion for the
fiscal year ended March 31, 2004. Gross profit as a percentage of net sales
decreased by 1.4 percentage points from 43.0% for the fiscal year ended March
31, 2004 to 41.6% for the fiscal year ended March 31, 2005.
In fiscal year 2005, Ricoh's strategy of significant discounting of certain
color products resulted in lower net sales as compared to cost of sales. As a
result, gross profit as a percentage of net sales decreased despite an increase
in net sales. This strategy was one of the core strategies used by Ricoh to
facilitate the replacement of monochrome products with color models at prices
comparable to those of monochrome models and to increase its market share in
color products as noted in "OVERVIEW" under Item 5. Ricoh also used this
strategy to increase its market share in color products so as to establish the
basis for future growth in the color products business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses for the fiscal year ended March 31, 2005 decreased
by 0.8% (or Yen 4.8 billion) to Yen 619.0 billion from Yen 623.9 billion for the
fiscal year ended March 31, 2004. Ricoh increased its research and development
investments during fiscal year 2005 by 19.4% (or Yen 17.9 billion) to Yen 110.4
billion from Yen 92.5 billion for the fiscal year ended March 31, 2004 for
purposes of developing more advanced products with new capabilities to maintain
its high market share position in the competitive marketplace. Despite this
increase in research and development investments during fiscal year 2005, such
increase was completely offset by (i) the depreciation of the U.S. dollar in
relation to the Japanese Yen which resulted in a decrease in selling, general
and administrative expenses of approximately Yen 2.6 billion, (ii) the
divestiture of its subsidiaries in the optical-related analog business, and
(iii) the decrease in pension costs due to pension systems restructuring, such
as the transfer to the Japanese government of the substitutional portion of the
domestic employees' pension fund ("EPF"). 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. Ricoh recognized a one-time gain of Yen 56.9 billion
from a Japanese government subsidy and a one-time settlement loss of Yen 48.6
billion for the transfer of such substitutional portion of the EPF during
fiscal year 2004.
-48-
OPERATING INCOME. Consolidated operating income for the fiscal year ended
March 31, 2005 decreased by 9.7% (or Yen 14.5 billion) to Yen 135.5 billion from
Yen 150.0 billion for the fiscal year ended March 31, 2004. The decrease in
operating income as compared to fiscal year 2004 was due primarily to the
decrease in gross profit. In addition, the decrease in operating income was
also due to the fact that Ricoh did not recognize during fiscal year 2005 the
one-time gain that it recognized during fiscal year 2004 in connection with the
transfer to the Japanese government of the substitutional portion of the EPF,
and such non-recognition of one-time gain was not offset by the decrease in
consolidated selling, general and administrative expenses in fiscal year 2005
as compared to fiscal year 2004 as described above.
INTEREST AND DIVIDEND INCOME. Consolidated interest and dividend income for
the fiscal year ended March 31, 2005 increased by Yen 0.3 billion to Yen 2.2
billion from Yen 1.9 billion for the fiscal year ended March 31, 2004. The
increase in interest and dividend income reflected the favorable financial
market conditions and the positive change in economic conditions in Japan as
dividend income from Japanese companies increased.
INTEREST EXPENSE. Consolidated interest expense for the fiscal year ended
March 31, 2005 decreased by Yen 0.6 billion to Yen 4.6 billion from Yen 5.2
billion for the fiscal year ended March 31, 2004. 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, 2005 as
compared to the fiscal year ended March 31, 2004. Ricoh's interest-bearing debt
as of March 31, 2005 decreased by Yen 22.6 billion to Yen 410.0 billion from
Yen 432.7 billion as of March 31, 2004. Since the implementation of its group
cash management system a few years ago, which provided Ricoh with an
alternative to borrowing funds externally, Ricoh has been able to continuously
decrease its interest-bearing debt each fiscal year.
FOREIGN CURRENCY EXCHANGE (GAIN) LOSS, NET. Consolidated foreign currency
exchange gain, net included in other (income) expenses for the fiscal year
ended March 31, 2005 increased by Yen 7.6 billion to a gain of Yen 1.5 billion
from a loss of Yen 6.1 billion for the fiscal year ended March 31, 2004. For
additional information on Ricoh's foreign exchange hedging activities, see Item
11.
OTHER, NET. Consolidated other, net included in other (income) expenses
decreased by Yen 1.7 billion to an income of Yen 2.5 billion for the fiscal year
ended March 31, 2004 from an income of Yen 0.7 billion for the fiscal year ended
March 31, 2005. This decrease in income of the other, net in fiscal year 2005
was due to a decrease in income derived from the sale of marketable securities
as compared to the previous corresponding period.
PROVISION FOR INCOME TAXES. Total consolidated provision for income taxes
for the fiscal year ended March 31, 2005 decreased by 10.6% (or Yen 6.0 billion)
to Yen 50.6 billion from Yen 56.6 billion for fiscal year ended March 31, 2004.
This decrease in provisions for income taxes as compared to the provisions in
income before income taxes, minority interests, equity in earnings of
affiliates and cumulative effect of accounting changes was primarily due to a
decrease in the effective tax rate.
-49-
The effective tax rate decreased by 2.2 percentage points to 37.4% for the
fiscal year ended March 31, 2005 from 39.6% for the previous fiscal year. This
2.6 percentage point decrease in the effective tax rate was attributable to a
tax credit being applied in Japan to (1) the increase in research and
development expenses and (2) the investments made by Ricoh in information
technologies hardware and software used by the Company. As a result of these
tax credits, the effective tax rate was lower than the Japanese statutory tax
rate. See Note 8 to the Consolidated Financial Statements for additional
information.
MINORITY INTERESTS. Consolidated minority interests for the fiscal year ended
March 31, 2005 increased by Yen 0.6 billion to Yen 4.7 billion from Yen 4.0
billion for the fiscal year ended March 31, 2004. This increase primarily
resulted from an improvement in the business performance of both Ricoh Leasing
Co., Ltd. and Ricoh Elemex Corporation.
EQUITY IN EARNINGS OF AFFILIATES. Consolidated equity in earnings of
affiliates for the fiscal year ended March 31, 2005 increased by Yen 1.0 billion
to Yen 3.1 billion from Yen 2.0 billion for the fiscal year ended March 31,
2004. This increase was due primarily to an improvement in the business
performance of its affiliates.
OPERATING SEGMENTS
----------------------------------------------------------------------------------------------
Millions of Yen (except for percentages) Thousands of
------------------------------------------ U.S. Dollars (1)
2004 2005 2005 % Change
----------------------------------------------------------------------------------------------
OFFICE SOLUTIONS
Net sales 1,460,395 100.0% 1,531,428 100.0% $ 14,312,411 4.9
Operating expenses 1,261,444 86.4 1,335,059 87.2 12,477,187 5.8
Operating income 198,951 13.6% 196,369 12.8% $ 1,835,224 (1.3)
----------------------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS
Net sales 113,854 100.0% 121,914 100.0% $ 1,139,383 7.1
Operating expenses 110,743 97.3 121,872 100.0 1,138,991 10.0
Operating income 3,111 2.7% 42 0.0% $ 392 (98.6)
----------------------------------------------------------------------------------------------
OTHER
Net sales 208,458 100.0% 163,272 100.0% $ 1,525,907 (21.7)
Operating expenses 201,508 96.7 167,431 102.5 1,564,776 (16.9)
Operating income 6,950 3.3% (4,159) (2.5)% $ (38,869) --
----------------------------------------------------------------------------------------------
CORPORATE AND ELIMINATION
Net sales (2,462) (2,506) $ (23,421)
Operating expenses 56,544 54,240 506,915
Operating income (59,006) (56,746) $ (530,336)
----------------------------------------------------------------------------------------------
CONSOLIDATED
Net sales 1,780,245 100.0% 1,814,108 100.0% $ 16,954,280 1.9
Operating expenses 1,630,239 91.6 1,678,602 92.5 15,687,869 3.0
Operating income 150,006 8.4% 135,506 7.5% $ 1,266,411 (9.7)
----------------------------------------------------------------------------------------------
(1) The above consolidated financial data set forth under the heading
"Thousands of U.S. Dollars 2006" which has been translated from Japanese Yen
into U.S. Dollar equivalents for the year ended March 31, 2005 is included
solely for the convenience of readers outside Japan and has been made using the
exchange rate of Yen 107 to US$1, the approximate rate of exchange prevailing at
the Federal Reserve Bank of New York on March 31, 2005.
Office Solutions
-50-
Net sales in the Office Solutions segment for the fiscal year ended
March 31, 2005 increased by 4.9% (or Yen 71.0 billion) to Yen 1,531.4 billion
from Yen 1,460.3 billion for the fiscal year ended March 31, 2004. This increase
was primarily due to the continuing increase in sales of high-margin
value-added digital-based products in the Imaging Solutions category 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. With further
advancements being made in digital networking, the increase in the volume of
information that is processed electronically and improvements being made in
color products, Ricoh believes that its customers strongly desire methods
through which they can effectively and efficiently conduct their operations. In
an effort to help customers manage their Total Document Volume ("TDV") more
effectively and efficiently, Ricoh continued to offer solutions to optimize the
total printing costs of its customers in fiscal year 2005. As a result of such
efforts, in fiscal year 2005, domestic and overseas sales of color PPCs, MFPs
and laser printers, particularly color laser printer models, increased. In
addition, net sales continued to increase for support services, software, and
other solutions aimed at satisfying the diverse needs of customers. These net
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.
More specifically, sales in the Imaging Solutions category for the fiscal
year ended March 31, 2005 increased by 4.8% (or Yen 60.4 billion) to Yen 1,332.2
billion from Yen 1,271.8 billion for the fiscal year ended March 31, 2004. Ricoh
strengthened its product lineup from standard models to high-speed digital
models in addition to introducing new color PPC products. In addition, sales of
Imaging Solutions category increased in fiscal year 2005 as compared to fiscal
year 2004 due to the shift in customer preference from standalone equipment to
multi-functional equipment. The Imaging Solutions category was Ricoh's core
business and generated approximately 75% of Ricoh's net sales, the MFP and
laser printer product lines have seen an increase in sales volume in both Japan
and overseas. This shift reflects the current trend towards products that are
networkable and is especially noticeable from the increase in sales of color
MFPs and color laser printers for the fiscal year ended March 31, 2005. Taking
this trend into consideration, Ricoh introduced new MFP products, such as
imagio Neo 752/602, imagio C245 and imagio Neo C385 in Japan, and Aficio
2035/2045 and Aficio 2232C/2238C overseas. Ricoh also introduced new laser
printer models, IPSiO CX2500, IPSiO CX6100D and IPSiO CX400 in Japan, and
AP410/410N and CL400DN overseas. All of these new products performed well in
each of the markets in which they were introduced. While the acquisition of
Ricoh Printing Systems, Ltd. has increased net sales, cost of sales, and
selling, general and administrative expenses, this acquisition has not
significantly affected operating income for the year ended March 31, 2005.
During the fiscal year ended March 31, 2005, Ricoh continued its efforts to
strengthen the sales of its solutions business in the Network System Solutions
category relating to its office equipment products so as to assist its
customers in optimizing their total printing costs. The Network System
Solutions category includes sales generated from support services, document
management applications and related software. Ricoh's continuing efforts to
strengthen its Network System Solutions category has led to an
-51-
increase in domestic and overseas sales of its solutions products over the last
few years. In particular, fiscal year 2005 was a year in which new systems
solutions were in great demand as customers were in a transition period for
replacing their personal computers or servers following Year 2000. As a result
of this increase in demand for system solutions, net sales of Ricoh's Network
System Solutions category picked up some momentum and increased by 5.6% for the
fiscal year ended March 31, 2005 as compared to the fiscal year ended March 31,
2004.
As a result, net sales in the Office Solutions segment increased by 4.5% for
the year ended March 31, 2005 as compared to the fiscal year ended March 31,
2004. Excluding the foreign currency exchange rate fluctuations U.S. Dollar
and the Euro to the Japanese Yen, sales in the Office Solutions segment would
have increased by 5.4% (or Yen 78.8 billion) for the fiscal year ended March
31, 2005 as compared to the fiscal year ended March 31, 2004.
With respect to expenses, Ricoh continued to lower operating expenses in the
Office Solutions segment in fiscal year 2005 by engaging in the various
cost-cutting activities it employed in fiscal year 2004, such as streamlining
its supply chain management. On the other hand, Ricoh also made strategic
research and development investments during fiscal year 2005 so as to produce
new products in the upcoming fiscal year. As a result of such research and
development investments, which exceeded the decrease in expenses that resulted
from such cost-cutting activities, operating expenses in the Office Solutions
segment for the fiscal year ended March 31, 2005 increased by 5.8% (or Yen 73.6
billion) to Yen 1,335.0 billion from Yen 1,261.4 billion for the fiscal year
ended March 31, 2004.
As a result of the above factors, operating income for the Office Solutions
segment for the fiscal year ended March 31, 2005 decreased by 1.3% (or Yen 2.5
billion) to Yen 196.3 billion from Yen 198.9 billion for the fiscal year ended
March 31, 2004. Operating income as a percentage of net sales for the fiscal
year ended March 31, 2005 decreased by 0.8 percentage point to 12.8% from 13.6%
as compared to the fiscal year ended March 31, 2004, due primarily to the
appreciation of the Japanese Yen relative to the U.S. dollar, the increase in
research and development investments, and the various sales promotions (e.g.,
discounting, customer specific modifications, etc.) that Ricoh provided to its
customers to increase its sales volume and its market share of color products,
which was partially offset by the increase in sales of higher-margin
value-added products such as color products and MFPs.
Industrial Products
Net sales in the Industrial Products segment for the fiscal year ended
March 31, 2005 increased by 7.1% (or Yen 8.0 billion) to Yen 121.9 billion from
Yen 113.8 billion for the fiscal year ended March 31, 2004. The sales increase
was due primarily to the thermal media business and the optical equipment
business that continued to perform favorably during fiscal year 2005. In
particular, sales of the optical equipment business continued to grow in
double-digit percentage figures in domestic market place.
-52-
As a result of sales in the semiconductor business that were not sufficient
to cover the fixed costs relating to its production costs and organization
maintenance costs, operating expenses for the fiscal year ended March 31, 2005
increased by 10.0% (or Yen 11.1 billion) to Yen 121.8 billion from Yen 110.7
billion for the fiscal year ended March 31, 2004.
Operating income for the fiscal year ended March 31, 2005 decreased by 98.6%
(or Yen 3.0 billion) to Yen 0.0 billion from Yen 3.1 billion for the fiscal year
ended March 31, 2004. The decrease in operating income under the Industrial
Products segment was due primarily to the shortfall relating to its
semiconductor business as discussed above.
Other
Net sales in the Other segment for the fiscal year ended March 31, 2005
decreased by 21.7% (or Yen 45.1 billion) to Yen 163.2 billion from Yen 208.4
billion for the fiscal year ended March 31, 2004. Ricoh withdrew its optical
discs business to reorganize from the self-developed drive business, which used
proprietary technology developed by Ricoh, and its key-module/parts unit
business. In April 2004, Ricoh sold Hanimex Australasia Pty Ltd. and its
subsidiaries that engaged in the optical-related analog business, such as
cameras, film sales and film development services, in Australia and New
Zealand. While the digital camera business performed favorably under the Other
segment, the increase in operating income of such business did not completely
offset the decrease in operating income of the self-developed drive business.
As a result of the factors above, operating income for the fiscal year ended
March 31, 2005 decreased by Yen 11.1 billion to Yen (4.1) billion from Yen 6.9
billion for the fiscal year ended March 31, 2004.
-53-
GEOGRAPHIC SEGMENTS BY GEOGRAPHIC ORIGIN
---------------------------------------------------------------------------------------------
Millions of Yen (except for percentages) Thousands of
----------------------------------------- U.S. Dollars (1)
2004 2005 2005 % Change
---------------------------------------------------------------------------------------------
JAPAN
Net sales 1,313,197 100.0% 1,386,715 100.0% $12,959,953 5.6
Operating expenses 1,215,875 92.6 1,298,640 93.6 12,136,822 6.8
Operating income 97,322 7.4% 88,075 6.4% $ 823,131 (9.5)
---------------------------------------------------------------------------------------------
THE AMERICAS
Net sales 320,753 100.0% 330,461 100.0% $ 3,088,421 3.0
Operating expenses 305,284 95.2 316,651 95.8 2,959,356 3.7
Operating income 15,469 4.8% 13,810 4.2% $ 129,065 (10.7)
---------------------------------------------------------------------------------------------
EUROPE
Net sales 404,416 100.0% 415,643 100.0% $ 3,884,514 2.8
Operating expenses 382,383 94.6 391,271 94.1 3,656,738 2.3
Operating income 22,033 5.4% 24,372 5.9% $ 227,776 10.6
---------------------------------------------------------------------------------------------
OTHER
Net sales 193,341 100.0% 173,948 100.0% $ 1,625,682 (10.0)
Operating expenses 182,870 94.6 162,042 93.2 1,514,411 (11.4)
Operating income 10,471 5.4% 11,906 6.8% $ 111,271 13.7
---------------------------------------------------------------------------------------------
CORPORATE AND ELIMINATION
Net sales (451,462) (492,659) $(4,604,290)
Operating expenses (456,173) (490,002) (4,579,458)
Operating income 4,711 (2,657) $ (24,832)
---------------------------------------------------------------------------------------------
CONSOLIDATED
Net sales 1,780,245 100.0% 1,814,108 100.0% $16,954,280 1.9
Operating expenses 1,630,239 91.6 1,678,602 92.5 15,687,869 3.0
Operating income 150,006 8.4% 135,506 7.5% $ 1,266,411 (9.7)
---------------------------------------------------------------------------------------------
(1) The above consolidated financial data set forth under the heading
"Thousands of U.S. Dollars 2005" which has been translated from Japanese Yen
into U.S. Dollar equivalents for the year ended March 31, 2005 is included
solely for the convenience of readers outside Japan and has been made using the
exchange rate of Yen 107 to US$1, the approximate rate of exchange prevailing at
the Federal Reserve Bank of New York on March 31, 2005.
Japan
Sales in Japan for the fiscal year ended March 31, 2005 increased by 5.6%
(or Yen 73.5 billion) to Yen 1,386.7 billion from Yen 1,313.1 billion for the
fiscal year ended March 31, 2004. In terms of sales to external customers,
Ricoh recorded an increase in sales of MFPs and laser printers, in this
geographic segment. This increase reflects the results of Ricoh's strategic
sales promotion activities (e.g., discounting, customer specific modifications,
etc.) and marketing strategy in the Office Solutions segment, which focused on
responding to the change in customer demands from stand-alone monochrome
products to networkable color products. Moreover, sales from the newly
consolidated subsidiary, Ricoh Printing Systems, Ltd., favorably contributed to
the sales in Japan. In addition, sales of personal computers and servers
increased during fiscal year 2005 in Japan as a result of a recovery in
corporate spending on information technology equipment. This increase in net
sales of computer hardware also generated sales of Ricoh's solution business
products, such as support services, document management applications and other
software. Meanwhile, sales in analog-typed equipment decreased as such
equipment was replaced with MFPs and color equipments. In the Industrial
Products segment, sales for measuring equipment and semiconductor devices
decreased
-54-
in Japan due to the sluggish market for such products, although optical
equipment continued to perform favorably compared to the previous fiscal year.
Operating expenses in this geographic segment for the fiscal year ended
March 31, 2005 increased by 6.8% (or Yen 82.7 billion) to Yen 1,298.6 billion
from Yen 1,215.8 billion for the fiscal year ended March 31, 2004. The increase
in operating expenses was primarily due to the increase in sales volume
especially exports to foreign countries. Even though net sales in this segment
only increased by 5.6% as compared to the previous fiscal year, operating
expenses increased by 6.8% as compared to the previous fiscal year. During
fiscal year 2005, Ricoh was able to decrease its operating expenses as it
performed various cost-cutting measures to streamline some of its business
lines and its pension costs decreased due to the pension systems restructuring
(such as the transfer to the Japanese government of the substitutional portion
of the EPF). Despite these factors, during fiscal year 2005 operating expenses
in Japan increased to a greater extent than the increase in net sales due to
Ricoh's strategy of providing discounts for certain color products, which
resulted in lower net sales as compared to cost of sales, and Ricoh's strategy
of making greater research and development investments geared for the
development of color products. The above strategies which resulted in
increasing operating expenses were performed to further promote Ricoh's shift
in focus from black-and-white monochrome products to color products in order to
lay the foundation of the 15th Medium-term Management Plan that starts from
fiscal year 2006.
Despite sales of value-added high-margin products increased, the increase in
operating expenses was greater than the increase in net sales and operating
income in Japan for the fiscal year ended March 31, 2005 decreased by 9.5% (or
Yen 9.2 billion) to Yen 88.0 billion from Yen 97.3 billion for the fiscal year
ended March 31, 2004. Excluding net gains recognized from the transfer to the
Japanese government of the substitutional portion of the EPF, operating income
in Japan would have decreased by 1.0%.
The Americas
Net sales in the Americas for the fiscal year ended March 31, 2005 increased
by 3.0% (or Yen 9.7 billion) to Yen 330.4 billion from Yen 320.7 billion for the
fiscal year ended March 31, 2004, despite the appreciation of the Japanese Yen
against the U.S. Dollar. This increase in net sales was due primarily to
Ricoh's continuing efforts to enhance and expand its existing sales channels
and increase the retail sales of MFPs, color PPCs and laser printers, as these
products are responsive to the customers' changing needs for networking,
coloration, and high speed products. In addition, Ricoh continued to focus its
marketing and promotional efforts towards major corporate clients for the
fiscal year ended March 31, 2005. In contrast to the increase in net sales of
MFPs, color PPCs and laser printers, sales in the optical discs business
decreased in the Americas due to the reorganization of this business. Excluding
foreign currency exchange fluctuations, net sales in the Americas would have
increased by 8.3%.
The percentage change of operating expenses as compared to the previous
fiscal year in the Americas was greater than the percentage change of net sales
as compared to the previous fiscal year in the Americas as (1) the increasingly
competitive business
-55-
environment in the Americas which required Ricoh to increase its marketing
efforts to maintain its market share, (2) Ricoh made various investments to
develop and enhance its core operating systems, and (3) the appreciation of the
Japanese Yen relative to the U.S. Dollar.
Europe
Sales in Europe for the fiscal year ended March 31, 2005 increased by 2.8%
(or Yen 11.2 billion) to Yen 415.6 billion from Yen 404.4 billion for the fiscal
year ended March 31, 2004, 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, which reflected Ricoh's continuing efforts to strengthen
its sales networks and reinforce its brand power in this geographic segment.
Sales of products with color capability increased in fiscal year 2005 as
compared to the previous fiscal year. Continuing from previous fiscal years,
Ricoh maintained its dominance in the copiers and MFP product lines in this
geographic segment and was again ranked number one in terms of market share in
the sales of copiers and MFPs in Europe.
Operating expenses in this geographic segment for the fiscal year ended
March 31, 2005 increased by a lower percentage as compared to the percentage
increase in net sales, due primarily 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's 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
Net sales in the Other geographic segment, such as China, Asia and Oceania,
for the fiscal year ended March 31, 2005 decreased by 10.0% (or Yen 19.3
billion) to Yen 173.9 billion from Yen 193.3 billion for the fiscal year ended
March 31, 2004. While sales of printing systems increased in this geographic
segment reflecting a full-fledged shift to digital, networkable and color
products from stand-alone, analog and monochrome equipment such increase was
not sufficient to offset the decrease in sales of the optical-related analog
business as Ricoh sold its subsidiaries in this business line in this
geographic segment (Hanimex Autralasia Pty Ltd. and its subsidiaries) during
fiscal year 2005.
The sales operation in China has recovered its performance. Manufacturing
subsidiaries in China, which mainly manufacture low-end digital PPCs and MFPs,
continued to contribute to the increase in net sales in this geographic
segment. The products manufactured by such subsidiaries have been exported to
sales subsidiaries in Japan, the U.S. and Europe. Ricoh maintained a high
production level in China for the fiscal year ended March 31, 2005 to respond
to an increase in demand for digital PPCs and MFPs in the various markets
around the world.
-56-
PENSION INFORMATION
Ricoh, like many large corporations in Japan, had an Employee Pension Fund
("EPF"), which was a defined benefit pension fund established under the
Japanese Welfare Pension Insurance Law ("JWPIL"). This fund was 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 were 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 U.S.
generally accepted accounting principles, 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
-57-
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, 2004, 2005 and 2006, as reported in our Consolidated Statements
of Cashflows in the accompanying Consolidated Financial Statements.
-----------------------------------------------------------------------------
(Billions of Yen)
For the year ended March 31,
----------------------------
2004 2005 2006
--------- --------- --------
Net cash provided by operating activities 154.9 132.7 176.8
Net cash used in investing activities (63.3) (96.1) (120.0)
Net cash used in financing activities (74.8) (56.4) (59.9)
Increase (Decrease) in cash and cash equivalents 13.7 (18.6) 0.1
Cash and cash equivalents at beginning of year 189.2 203.0 186.8
Adjustment for Change in Fiscal Year-end of
Consolidated Subsidiaries -- 2.4 --
Cash and cash equivalents at end of year 203.0 186.8 187.0
-----------------------------------------------------------------------------
Operating Cashflows
For fiscal year 2006, net cash provided by operating activities consisted
primarily of net income of Yen 97.0 billion and depreciation and amortization of
Yen 84.4 billion and a decrease in trade receivables of Yen 13.4 billion, a
decrease in inventories of Yen 3.7 billion, and an increase in accrued income
taxes and accrued expenses and other of Yen 2.4 billion, which was partially
offset by an increase in finance receivables of Yen 30.0 billion, and a decrease
in trade payables of Yen 4.4 billion. As compared to fiscal year 2005, net cash
provided by operating activities in fiscal year 2006 increased mainly because
(1) the decrease in net sales in Japan during the fourth quarter as compared to
such period during fiscal year 2005 resulted in a decrease in Ricoh's trade
receivables for fiscal year 2006
-58-
and (2) the increase in capital expenditures also resulted in an increase in
depreciation costs as compared to fiscal year 2005.
For fiscal year 2005, net cash provided by operating activities consisted
primarily of net income of Yen 83.1 billion and depreciation and amortization of
Yen 78.2 billion and an increase in trade payables of Yen 27.2 billion, which
was partially offset by an increase in finance receivables of Yen 30.2 billion,
an increase in trade receivables of Yen 26.4 billion, an increase in inventories
of Yen 12.8 billion, and a decrease in accrued income taxes and accrued expenses
and other of Yen 13.7 billion. As compared to fiscal year 2004, net cash
provided by operating activities in fiscal year 2005 decreased mainly because
(1) the increase in net sales in Japan from Ricoh's sales promotions resulted
in an increase in trade receivables for fiscal year 2005 and (2) the increase
in net sales also resulted in an increase in inventories as compared to fiscal
year 2004.
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 in fiscal year 2004 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.
Investing Cashflows
For fiscal year 2006, net cash used in investing activities consisted mainly
of Yen 101.7 billion of expenditures for property, plant and equipment, and
Yen 138.6 billion in payments for purchases of available-for-sale securities, as
well as Yen 24.4 billion of other, net. Ricoh realized Yen 141.6 billion from
the sale of available-for-sale securities that were held by the Company and
certain subsidiaries. As compared to fiscal year 2005, net cash used in
investing activities increased in fiscal year 2006 as Ricoh incurred capital
expenditures for the consolidation of some of its operations at its headquarter
in Tokyo, the consolidation of its domestic research and development facilities
and offices, and the establishment of a new color toner factory in Japan.
For fiscal year 2005, net cash used in investing activities consisted mainly
of Yen 84.0 billion of expenditures for property, plant and equipment, Yen 79.4
billion in payments for purchases of available-for-sale securities and Yen 43.2
billion for acquisitions of new subsidiaries, net of cash acquired. Ricoh
realized Yen 118.1 billion from the sale of available-for-sale securities that
were held by the Company and certain subsidiaries. In fiscal year 2005, Ricoh
reinforced its production lines to manufacture new products, which resulted in
an increase in expenditure on property, plant and equipment. As compared to
fiscal year 2004, net cash used in investing activities increased in fiscal
year 2005 as the Company used cash to acquire Ricoh Printing Systems, Ltd.
-59-
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 the 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
in 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.
Financing Cashflows
For fiscal year 2006, net cash used in financing activities consisted
primarily of Yen 93.7 billion spent for the repayment of long-term indebtedness,
Yen 52.0 billion used to repay long-term debt securities, Yen 16.1 billion used
for dividend payments and Yen 10.6 billion used for the purchase of treasury
stock. Ricoh received Yen 39.6 billion from increase in short-term borrowings.
In total, Ricoh reduced its interest-bearing indebtedness provided by external
parties by Yen 32.3 billion as it continued to use its group cash management
system for its efficient cash management. As compared to fiscal year 2005, net
cash used in financing activities increased in fiscal year 2006 as Ricoh
continued to reduce its external borrowings.
For fiscal year 2005, net cash used in financing activities consisted
primarily of Yen 60.6 billion spent for the repayment of long-term indebtedness,
Yen 38.0 billion used to reduce short-term borrowings, Yen 22.0 billion used to
repay long-term debt securities, Yen 14.7 billion used for dividend payments and
Yen 10.6 billion used for the purchase of treasury stock. Ricoh encouraged group
companies to use the group cash management system to satisfy their cash needs
rather than borrowing from external sources. As compared to fiscal year 2004,
net cash used in financing activities decreased in fiscal year 2005 as proceeds
received by Ricoh from its long-term indebtedness exceeded its repayments of
long-term indebtedness.
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, Yen 11.4 billion used for the
purchase of treasury stock and Yen 11.1 billion used for dividend payment. 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 in fiscal year 2004 as Ricoh
continued to reduce its external borrowings.
Cash and Asset-Liability Management
Ricoh has in recent years tried to achieve greater efficiencies in the
utilization of cash balances held by its subsidiaries pursuant to its policy of
ensuring adequate financing and liquidity for its operations and growth, and
maintaining the strength of its
-60-
balance sheet. One of the methods that Ricoh has implemented to achieve greater
efficiency is building up its cash management system in Japan, the United
States, and the Netherlands. This cash management system functions as an
arrangement whereby Ricoh's funds are pooled together and cash resources are
lent and borrowed from one group company to another company, with finance
companies located within each of the above countries coordinating this
arrangement. This pooling-of-funds arrangement has reduced the occurrence of
excess accumulation of cash in one group company while another group company
engages in unnecessary borrowing from third party institutions to meet its cash
requirements. As such, the pooling-of-funds arrangement has reduced interest
expense and related costs which were previously paid to third parties. For the
fiscal years ended March 31, 2005 and 2006, Ricoh managed to reduce
interest-bearing debt by Yen 22.6 billion and Yen 28.8 billion, respectively, on
a consolidated basis.
Ricoh also enters into various derivative financial instrument contracts in
the normal course of its business and in connection with the management of its
assets and liabilities. In order to hedge against the potentially adverse
impacts of foreign currency fluctuations on its assets and liabilities
denominated in foreign currencies, Ricoh enters into foreign exchange contracts
and foreign currency options. Another form of derivative financial contracts
that Ricoh enters into is interest rate swap agreements to hedge against the
potentially adverse impacts of fair value or cashflow fluctuations on its
outstanding debt interests. Ricoh uses derivative instruments to reduce its
risk and to protect the market value of its assets and liabilities in
conformity with Ricoh's policy. Ricoh does not use derivative financial
instruments for trading or speculative purposes, nor is it a party to leveraged
derivatives. Detailed discussion of these derivative contracts is provided in
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
Ricoh also engages in securitization activities through its domestic leasing
affiliate, Ricoh Leasing Co., Ltd. For a discussion of such activities, 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.
-61-
As of March 31, 2006, lines of credit and short-term and medium-term
borrowings were as follows:
(Billions of Yen)
------------------------------------------------------------------------------
Average
Interest Rate (%) Amount Available
----------------- ----------------
Bank loans 3.8 296.6
Commercial paper 3.1 252.8
Medium-term notes 0.2 154.4
------------------------------------------------------------------------------
As of March 31, 2006, Ricoh had Yen 187.0 billion in cash and cash
equivalents and Yen 801.6 billion in aggregate borrowing facilities. Of the
Yen 801.6 billion in aggregate borrowing facilities, Yen 703.9 billion was
available to be borrowed by Ricoh as of the fiscal year ended March 31, 2006.
Ricoh Leasing Co., Ltd. has a Yen 57.0 billion committed credit line with
several banks having credit ratings satisfactory to Ricoh. This Yen 57.0 billion
committed credit line amount is included in the Yen 801.6 billion figure for
aggregate borrowing facilities. Almost all such borrowings from financial
institutions and outstanding securities are unsecured.
The Company, Ricoh Leasing Co., Ltd. and certain overseas subsidiaries raise
capital by issuing commercial paper and medium-term notes. Ricoh Leasing Co.,
Ltd. and certain foreign subsidiaries of the Company issue commercial paper to
meet their short-term funding requirements. Of the Yen 703.9 billion available
under the borrowing facilities as of March 31, 2006, capacity available under
commercial paper programs and medium-term note programs consisted of Yen 252.8
billion and Yen 154.4 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 0.08% to 4.83% and 0.14% to 0.31%,
respectively, during fiscal year 2006. As discussed in "Cash and
Asset-Liability Management," Ricoh has decreased its outstanding
interest-bearing debt in recent years by using its cash management systems in
Japan, the United States and the Netherlands.
The Company obtains ratings from the following major rating agencies:
Standard & Poor's Rating Services, a division of McGraw-Hill Companies, Inc.
("S&P"), Moody's Investors Services ("Moody's"), and another local rating
agency in Japan. As of March 31, 2006, the long-term and short-term credit
ratings for the Company were A+ and A-1, respectively, by S&P, and A1 and P-1,
respectively by Moody's.
As is customary in Japan, substantially all of the bank loans are subject to
general agreements with each lending bank which provide, among other things,
that the bank may request additional security for loans if there is reasonable
and probable cause for the necessity of such additional security and the bank
may treat any security furnished, as well as any cash deposited in such bank,
as security for all present and future indebtedness. The Company has never been
requested to furnish such additional security.
-62-
In some cases, the Company's long-term debt securities contain customary
covenants, including a "limitation on liens" covenant. The Company was in
compliance with the covenants in its bank agreements and securities as of March
31, 2006. 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 2007. 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 anticipated
operations. In addition, Ricoh believes that it is able to secure adequate
resources to fund ongoing operating requirements and investments related to the
expansion of existing businesses and the development of new projects through
its access to the financial and capital markets. Interest rates for long-term
debt are expected to rise as the Japanese and U.S. economies begin to exhibit
some upswing momentum and it is possible that such rise in interest rates may
affect Ricoh's ability to maintain liquidity. However, Ricoh believes that the
effect of such increase will not significantly affect Ricoh's liquidity, mainly
due to the fact that Ricoh has sufficient amounts of cash and cash equivalents
on hand, as well as a continuous cashflow generated from its operating
activities.
Ricoh expects that its capital expenditures for fiscal year 2007 will amount
to approximately Yen 90.0 billion, principally for the following categories:
research and development of digital and networking equipment and the
implementation of new accounting and sales force automation and marketing
support systems. In addition, Ricoh is obligated to repay long-term debt in the
aggregate principal amount of Yen 103.1 billion during fiscal year 2007, and in
the aggregate principal amount of Yen 185.1 billion during fiscal years 2008
through 2010.
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 73.8 billion, as of March 31, 2006. The unfunded
amount of Yen 94.7 billion was recorded as a liability on the consolidated
balance sheet of Ricoh, as of March 31, 2006. The amounts contributed for
pension plans for the fiscal years ended March 31, 2006, 2005 and 2004 were
Yen 13.8 billion, Yen 12.3 billion and Yen 16.4 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.
-63-
C. Research and Development, Patents and Licenses
Research and Development
------------------------
Since its formation, Ricoh's basic management philosophy has been to
contribute to society by developing and providing innovative and effective
products with an emphasis on the relationship between people and information.
In order to develop new technologies, products and systems based upon this
management philosophy, Ricoh undertakes a variety of research and development
("R&D") activities. The Research and Development Group and the Software R&D
Group function as the headquarters of Ricoh's R&D activities which are
conducted at its R&D facilities throughout Japan and certain satellite R&D
facilities overseas. Ricoh conducts a wide range of R&D activities, including
technological research, research in elemental technologies, research on product
applications and research in manufacturing technologies, including
environmental technologies.
The R&D groups conduct research and development in connection with optics,
new materials, devices, information technologies and environmental
technologies. The R&D groups also conduct basic and application research in
connection with the development of software technologies as well as elemental
development for new products. In addition to the R&D facilities in Japan,
Ricoh has established satellite R&D facilities in the United States and China.
Ricoh seeks to realize image communications through the development of Imaging
Solutions products that can adapt to changes in the working environment in the
broadband era and the development of new technologies for multimedia. Ricoh also
engages in R&D activities for environmental protection in a variety of fields.
In fiscal year 2006, Ricoh spent Yen 110.3 billion in R&D activities on a
consolidated basis.
In fiscal year 2006, Ricoh spent Yen 82.6 billion in R&D activities related
to the Office Solutions segment. Ricoh's R&D activities in the Office Solutions
segment include R&D for the following: optical design for copiers and printers;
imaging data processing technology; electrophotographic technology; technology
for elements of image engines; development of leading software technology; and
development of applications for the advancement of system solutions. Some of
the specific significant R&D achievements for the Office Solutions segment for
fiscal year 2006 include the following: the development and production of the
"imagio MP C3000/C2500" series, a line of digital color MFPs with greatly
enhanced basic capabilities and superior cost performance, which was the first
in the industry to become eligible to use the Color Universal Design
certification mark after being certified by the Color Universal Design
Organization*; and the development and production of the "imagio MP 1350"
series, a high-end, high-speed, mono digital MFP with a full-color scanner
function and a printing capacity of 135 pages (A4-size horizontal line) per
minute. With respect to printers that use the "GEL JET" technology, Ricoh
produced the "imagio MP C1500" series, a low-end model which is designed to be
used in the office environment. In connection with the imagio MP C1500 printer
series, Ricoh also developed three document management systems with enhanced
security features and an input/output equipment management software.
Furthermore, Ricoh developed a technique to produce a toner ground to 5
-64-
microns, which produces high quality images on par with polymeric toner at low
cost, in order to produce images with better quality and to reduce overall
costs. In fiscal year 2006, Ricoh incurred capital expenditures to consolidate
its domestic research and development facilities and offices at the Ricoh
Technology Center in Japan.
*Note: Products or facilities that are designed with consideration to color
universal design so as to be easily viewable to as many people as possible,
regardless of individual differences in color vision, are certified by the
Color Universal Design Organization, an NPO in Japan, and once a product or
facilities is certified, such product or facilities may use the Color Universal
Design certification mark.
In fiscal year 2006, Ricoh spent Yen 10.2 billion on R&D activities relating
to the Industrial Products segment. In the Industrial Products segment, Ricoh's
R&D activities continued to include designing ASIC (Application Specific
Integrated Circuit) and ASSP (Application Specific Standard Product) for
purposes of imaging, audio and communication; developing methods to utilize EDA
(Electronic Design Automation); developing optical technologies and methods of
new recording; and research and development for supply parts. Through the
adoption of a new miniaturization process for electronic devices, Ricoh
developed the "RP150/RP151" series of voltage regulator ICs, which features
high output voltage accuracy, low supply current, low dropout, and high ripple
rejection. These voltage regulator ICs are able to lower power consumption,
stabilize performance and decrease the size of a variety of information
technology devices, including cellular phones.
In fiscal year 2006, Ricoh spent Yen 2.0 billion on R&D activities relating
to the Other segment. In this segment, Ricoh continued to develop its ICD
(Image Capturing Device) technology for digital cameras and its related
application technology, and conducted R&D activities for optical discs. In the
digital camera business, Ricoh developed and produced the 6.04 mega pixel
"Caplio R4" series which features a 7.1x optical zoom lens that can enlarge
images to a size that would be produced if a 28-200mm telephoto lens was to be
placed on a regular 35mm camera, as well as an image stabilizing function using
the CCD shift method. In the optical discs business, Ricoh developed storage
media, such as the "Blu-ray Disc" and "HD DVD", which are expected to be the
next generation of DVDs. Ricoh commenced shipping samples of these DVDs to
hardware manufacturers for their evaluation in fiscal year 2006.
In addition, Ricoh also continues to engage in the development of its
fundamental research fields, which focus on R&D activities that can be applied
to various products. For fiscal year 2006, Ricoh spent Yen 15.4 billion on R&D
activities in its fundamental research fields. Such R&D activities include R&D
in nanotechnology; micro-machining; general technologies in measuring, analysis
and simulation; materials and devices; production techniques; system software
modules; photonics technology for high speed and high quality imaging
solutions; the next generation office systems and office solutions; the
technology to create the next generation of office systems and office
solutions; and environmental technologies.
Ricoh's total research and development expenses for fiscal years 2004, 2005
and 2006 were Yen 92.5 billion, Yen 110.4 billion and Yen 110.3 billion,
respectively. For a summary
-65-
of Ricoh's research and development expenditures during each of the last three
fiscal years, see Note 18 to the Consolidated Financial Statements.
Patents and Licenses
--------------------
Ricoh owns approximately 22,500 patents on a worldwide basis, and has a
large number of licenses under various agreements with Japanese and foreign
companies. Although patents and licenses are important to Ricoh, it does not
believe that the expiration of any single patent or group of related patents or
of any license agreements will materially affect its business.
The following table lists some of the important patent and licensing
agreements which the Company is currently a party to:
------------------------------------------------------------------------------
Counterparty Country Summary of the Contract Contract Term
------------------------------------------------------------------------------
International USA Comprehensive cross April 1, 2004 to
Business Machines license patent agreement expiration date of the
Corporation relating to the patent subject to the
information processing agreement
technology area
(reciprocal agreement)
------------------------------------------------------------------------------
Lemelson Medical, USA Patent licensing March 31, 1993 to
Education & agreement relating to expiration date of the
Research computer image analysis patent subject to the
Foundation Limited and other products (the agreement
Partnership Company as the licensee)
------------------------------------------------------------------------------
Texas Instruments USA Comprehensive cross October 11, 1996 to
Incorporated license agreement October 10, 2006
relating to copiers,
etc. (reciprocal
agreement)
------------------------------------------------------------------------------
Sharp Corporation Japan Patent licensing April 1, 1997 to March
agreement relating to 31, 2002 with automatic
facsimile machines (the renewal every 5 years
Company as licensor) thereafter
------------------------------------------------------------------------------
Canon Inc. Japan Patent licensing October 1, 1998 to
agreement relating to expiration date of the
office equipment patent subject to the
(reciprocal agreement) agreement
------------------------------------------------------------------------------
Brother Japan Patent licensing October 1, 2004 to
Industries, Ltd. agreement relating to September 30, 2009
digital photography
(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, has a certain procedure to sell lease
receivables through securitization, however, no lease receivables were sold for
the last three fiscal years.
-66-
Securitization involves the creation of SPEs (Special Purpose Entities) 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 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, 2006, Ricoh had one such SPE that held assets it had
sold in a securitization totaling Yen 44.5 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
holds 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. Tabular Disclosure of Contractual Obligations
The following table sets forth Ricoh's contractual obligations as of
March 31, 2006.
Millions of Yen
CONTRACTUAL OBLIGATIONS Payments due by period
-------------------------------------------------------------------------------------------------------
Less than 1 More than 5
Total year 1-3 years 3-5 years years
-------------------------------------------------------------------------------------------------------
Long-term Debt Obligations 294,751 101,930 136,889 54,650 1,282
Interest Expense Associated with Long-term Debt
Obligations 6,174 3,087 2,647 432 8
Capital (Finance) Lease Obligations 3,453 1,195 1,428 407 423
Operating Lease Obligations 57,916 14,693 22,904 10,464 9,855
Purchase Obligations 2,774 2,774 - - -
-------------------------------------------------------------------------------------------------------
TOTAL 365,068 123,679 163,868 65,953 11,568
-------------------------------------------------------------------------------------------------------
Ricoh expects to contribute Yen13,080 million to its pension plan in the
fiscal year ending March 31, 2007 and is currently unable to predict funding
requirements for periods beyond fiscal year 2006 due to the uncertainty related
to changes in actuarial assumptions, return on plan assets, and changes to plan
membership.
Ricoh had operating lease commitments with rental payments totaling
Yen 42.0 billion for the fiscal year ended March 31, 2006. In addition to the
above, Ricoh acts as a guarantor for some of its employees' housing loans. As
of March 31, 2006, the total amount of such guarantees was Yen 175 million.
G. New Accounting Standards
In November 2004, the FASB issued SFAS No.151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4" to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). Among
-67-
other provisions, the new rule requires that items such as idle facility
expense, excessive spoilage, double freight, and rehandling cost be recognized
as current period charges regardless of whether they meet the criterion of "so
abnormal" as stated in ARB No. 43.
In addition, SFAS 151 requires that the allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the
production facilities. SFAS 151 is effective for the fiscal years beginning
after June 15, 2005 and is required to be adopted by Ricoh in the fiscal year
beginning April 1, 2006. The adoption of SFAS 151 is not expected to have a
material effect on the Company's consolidated results of operations and
financial position.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153 eliminates
the exception from fair value measurement for non-monetary exchanges of similar
productive assets in paragraph 21(b) of APB Opinion No. 29, "accounting for
Nonmonetary Transactions", and replaces it with an exception for exchanges that
do not have commercial substance. SFAS 153 specifies that a non-monetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS 153 is
effective for the fiscal years beginning after June 15, 2005 and is required to
be adopted by Ricoh in the fiscal year beginning April 1, 2006. The adoption of
SFAS 153 is not expected to have a material effect on the Company's
consolidated results of operations and financial position.
In May 2005, the FASB issued No. 154, "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and SFAS No.3". SFAS 154
replaces APB 20, "Accounting Changes" and SFAS 3, "Reporting Accounting Changes
in Interim Financial Statements", and requires retrospective applications to
prior periods' financial statements of a voluntary change in accounting
principle unless it is impracticable. SFAS 154 is effective for the fiscal
years beginning after December 15, 2005 and is required to be adopted by Ricoh
in the fiscal year beginning April 1, 2006. The adoption of SFAS 154 is not
expected to have a material effect on the Company's consolidated results of
operations and financial position.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments - an amendment of SFAS No. 133 and 140". SFAS 155
amends SFAS 133, "Accounting for Derivative Instruments and Hedging Activities"
and SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". SFAS 155 permits fair value re-measurement for
any hybrid financial instrument that contains an embedded derivative, and
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative. SFAS 155 is
effective for the fiscal years beginning after September 15, 2006 and is
required to be adopted by Ricoh in the fiscal year beginning April 1, 2007. The
Company is currently evaluating the effect that the adoption of SFAS 155 will
have on its consolidated results of operations and financial condition but does
not expect it to have a material impact.
-68-
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No. 140". SFAS 156 amends
SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" to clarify the accounting for servicing assets
and
servicing liabilities. Among other provisions, the new accounting standard
requires all separately recognized servicing assets and servicing liabilities
to be initially measured at fair value, if practicable. SFAS 156 is effective
for the fiscal years beginning after September 15, 2006 and is required to be
adopted by Ricoh in the fiscal year beginning April 1, 2007. The Company is
currently evaluating the effect that the adoption of SFAS 156 will have on its
consolidated results of operations and financial condition but does not expect
it to have a material impact.
-69-
Item 6. Directors, Senior Management and Employees
------------------------------------------
A. Directors and Senior Management
Directors and Corporate Auditors of the Company as of June 28, 2006 were as
follows:
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
----------------- ------------------------- ---------- ---------------------
Masamitsu Sakurai Chairman of the Board Apr. 1966 Joined the Company
(January 8, 1942) and Representative
Director
May 1984 President of Ricoh UK
Products Ltd.
June 1992 Director
Apr. 1993 President of Ricoh
Europe B.V.
June 1994 Managing Director
Apr. 1996 President and
Representative
Director (Current)
Mar. 2005 Chairman of Coca-Cola
West Japan Co.,
Ltd. (Current)
June 2005 Representative
Director (Current)
June 2005 President (Current)
June 2005 Chairman of the Board
(Current)
June 2005 CEO (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.
Chairman of Coca-Cola West Japan Co., Ltd.
----------------- ------------------------- --------- ---------------------
Koichi Endo Director Apr. 1966 Joined the Company
(February 16, Apr. 1987 President of Ricoh
1944) Electronics, Inc.
June 1992 Director
June 1997 Managing Director
June 2000 Executive Managing
Director
June 2000 Executive Vice
President
Apr. 2004 General Manager of
Fact Base
Management
Innovation Office
(Current)
June 2005 Director (Current)
June 2005 Corporate Executive
Vice President
(Current)
June 2005 CINO (Chief
Innovation Officer)
(Current)
Apr. 2006 CSO (Chief Strategy
Officer) (Current)
Principal business activities and other principal
directorships performed outside Ricoh:
Director of Sindo Ricoh Co., Ltd.
Director of San-Ai Plant Construction Co., Ltd.
Corporate Auditor of TOYO KANETSU K.K.
-70-
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
------------------ ------------------------ --------- ------------------------
Masayuki Matsumoto Director Apr. 1970 Joined the Company
(December 10, July 1993 Manager of Tokyo Branch
1944) of Imaging Equipment
Marketing Division of
Marketing Group
June 1994 Director
Jan. 1996 Deputy General Manager
of Marketing Division
Oct. 1998 Managing Director
Oct. 1998 General Manager of
Marketing Group
June 2000 Executive Vice President
June 2002 Executive Managing
Director
Apr. 2005 General Manager of
Corporate Social
Responsibility
Division (Current)
June 2005 Director (Current)
June 2005 Corporate Executive
Vice President
(Current)
June 2005 CMO (Chief Marketing
Officer) (Japan)
(Current)
------------------ ------------------------ --------- ------------------------
Katsumi Yoshida Director Apr. 1967 Joined the Company
(August 20, 1944) Oct. 1990 President of Ricoh
Electronics, Inc.
Feb. 1996 Vice chairman of Ricoh
Corporation
Apr. 2000 President of Ricoh
Corporation
Apr. 2001 Executive Vice President
June 2002 Managing Director
Oct. 2003 General Manager of
International
Marketing Group
Oct. 2003 Chairman of Ricoh China
Co., Ltd. (Current)
June 2005 Director (Current)
June 2005 Corporate Executive
Vice President and
CMO (Chief Marketing
Officer) (Overseas)
(Current)
Apr. 2006 In charge of Office
Business Strategic
Planning (Current)
------------------ ------------------------ --------- ------------------------
Takashi Nakamura Director Apr. 1972 Joined the Company
(September 2, Apr. 1990 President of Ricoh UK
1946) Products Ltd.
Jan. 1995 President of Ricoh
Europe B.V.
June 1998 Director
June 2000 Senior Vice President
June 2002 President of Ricoh
Elemex Corporation
June 2004 Managing Director
June 2005 Director (Current)
June 2005 In charge of Legal
Affairs and
Intellectual Property
(Current)
June 2006 Corporate Executive
Vice President
(Current)
Jan. 2006 CHO (Chief Human
Resource Officer)
(Current)
Jan. 2006 CPO (Chief Production
Officer) (Current)
-71-
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
----------------- ------------------------ --------- ------------------------
Shiroh Kondoh Director Apr. 1973 Joined the Company
(October 7, 1949) July 1999 Deputy General Manager
of Imaging System
Business Group
June 2000 Senior Vice President
Oct. 2000 General Manager of
Imaging System
Business Group
June 2002 Executive Vice President
June 2003 Managing Director
Oct. 2004 In charge of Imaging
Engine Solution
Development (Current)
Oct. 2004 General Manager of MFP
Business Group
(Current)
June 2005 Director (Current)
June 2005 Corporate Executive
Vice President
(Current)
Principal business activity and other principal
directorship performed outside Ricoh:
Director of Sindo Ricoh Co., Ltd.
----------------- ------------------------ --------- ------------------------
Kazunori Azuma Director Apr. 1971 Joined the Company
(February 11, Oct. 2000 President of Ricoh
1949) Technosystems Co.,
Ltd.
June 2003 Managing Director
June 2003 Executive Vice President
June 2003 In charge of Domestic
Sales Planning
Oct. 2003 Chairman of Ricoh
Technosystems Co.,
Ltd.
Nov. 2003 General Manager of
Marketing Group
(Current)
June 2005 Director (Current)
June 2005 Corporate Executive
Vice President
(Current)
----------------- ------------------------ --------- ------------------------
Zenji Miura Director Apr. 1976 Joined the Company
(January 5, 1950) Jan. 1993 President of Ricoh
France S.A.
Oct. 2000 Senior Vice President
Oct. 2000 General Manager of
Finance and
Accounting Division
June 2003 Executive Vice President
June 2004 Managing Director
June 2005 Director (Current )
June 2005 Corporate Executive
Vice President
(Current)
June 2005 CFO (Chief Financial
Officer) (Current)
June 2005 In charge of IR
(Current)
Apr. 2006 CIO (Chief Information
Officer) (Current)
Apr. 2006 In charge of Corporate
Communication and
Management of Group
Companies (Current)
Apr. 2006 General Manager of
Corporate Planning
Division (Current)
-72-
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
----------------- ------------------------ --------- ------------------------
Kiyoshi Sakai Director Apr. 1970 Joined the Company
(December 25, Apr. 1994 General Manager of IPS
1945) Business Division of
Imaging System
Business Group
Jan. 1996 General Manager of
Corporate Planning
Division
June 1996 Director
Apr. 1999 General Manager of
Research and
Development Group
June 2000 Senior Vice President
June 2002 Managing Director
June 2002 Executive Vice President
June 2005 Corporate Senior Vice
President
Apr. 2006 In charge of Corporate
Environment (Current)
June 2006 Director (Current)
June 2006 Corporate Executive
Vice President
(Current)
June 2006 Chief Technology
Officer (Current)
----------------- ------------------------ --------- ------------------------
Takaaki Wakasugi Director June 1985 Professor, Faculty of
(March 11, 1943) Economics, the
University of Tokyo
Sep. 1990 Co-director of Mitsui
Life Financial
Research Center,
University of
Michigan Ross School
of Business (Current)
Apr. 2003 Director and General
Manager of Japan
Corporate Governance
Research Institute,
Inc. (Current)
Apr. 2004 Professor, Faculty of
Business
Administration, Tokyo
Keizai University
(Current)
June 2004 Professor Emeritus, the
University of Tokyo
June 2005 Director (Current)
----------------- ------------------------ --------- ------------------------
Takuya Goto Director Apr. 1964 Joined Kao Soap Company
(August 19, 1940) (renamed Kao
Corporation in 1985)
May 1987 General Manager of
Tochigi Plant of Kao
Corporation
May 1990 General Manager of
Chemical Business
Division of Kao
Corporation
June 1990 Director of Kao
Corporation
July 1991 Managing Director of
Kao Corporation
June 1996 Executive Managing
Director of Kao
Corporation
June 1997 President of Kao
Corporation
June 2004 Chairman of Kao
Corporation (Current)
June 2006 Director (Current)
-73-
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
------------------ ------------------------ --------- ------------------------
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
(Current)
------------------ ------------------------ --------- ------------------------
Shigekazu Iijima Corporate Auditor Apr. 1972 Joined the Company
(July 7, 1948) Oct. 1990 General Manager of
Accounting Department
of Finance and
Accounting Division
Apr. 1993 General Manager of
Administration
Department of
Electronic Device
Division
June 1996 Leader of Management
Planning Group of
Corporate Planning
Division
June 1999 Director of Ricoh
Elemex Corporation
Apr. 2004 General Manager of
Business Planning
Department of
International
Business Group
July 2005 General Manager of
Business Strategy &
Planning Center of
International
Business Group
June 2006 Corporate Auditor
(Current)
------------------ ------------------------ --------- ------------------------
Kenji Matsuishi Corporate Auditor Apr. 1965 Graduated from the
(July 24, 1937) National Legal
Training and Research
Institute.
Apr. 1965 Legal registration as a
Japanese attorney
Apr. 1965 Joined Takano & Higuchi
Legal Services
Feb. 1972 General Manager of
Matsuishi Legal
Services (Current)
June 1994 Corporate Auditor
(Current)
------------------ ------------------------ --------- ------------------------
Takehiko Wada Corporate Auditor Apr. 1958 Joined San-Ai Oil Co.,
(October 24, 1935) Ltd.
June 1985 Director of said company
June 1990 Managing Director of
said company
July 1994 Executive Managing
Director of said
company
July 1999 President of said
company (Current)
June 2001 Corporate Auditor
(Current)
-74-
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
----------------- ------------------------ --------- -----------------------
Satoshi Itoh Substitute Corporate Jan. 1967 Joined Japan Office,
(July 25, 1942) Auditor Arthur Anderson
Mar. 1967 Finished Master's
Course, Graduate
School of Commerce,
Chuo University
Dec. 1970 Registered as Certified
Public Accountant
Aug. 1975 Served at London
Office, Arthur
Anderson
Sep. 1978 Partner of Arthur
Anderson
Sep. 1993 Representative Partner
of Asahi & Co.
Aug. 2001 Retired from Arthur
Anderson and Asahi &
Co.
Apr. 2002 Professor of Graduate
School of
International
Accounting, Specialty
Graduate School
(presently
Professional Graduate
School), Chuo
University (Current)
Directors and Corporate Auditors are elected at a general meeting of
shareholders for two and four years terms, respectively, and may serve any
number of consecutive terms. The Board of Directors appoints from among its
members a Chairman and one or more Representative Directors in accordance with
Corporation Law of Japan.
The Company maintains an executive officer system and under such system
there are 44 such officers each with one of the following roles:
. Executive officers: Oversee operations under the authority granted from
the president and report to the president.
. Group executive officers: Assist the president with the management of
Ricoh Group.
Executive Officers of the Company as of June 28, 2006 were as follows:
Current Position
Name (Function/Business area) Date Business Experience
--------------- ------------------------ --------- -------------------------
Masamitsu President and Chief See above for his business experience
Sakurai Executive Officer and other information.
--------------- ------------------------ --------- -------------------------
Koichi Endo Corporate Executive Vice See above for his business experience
President and other information.
(Chief Strategy Officer)
(Chief Innovation
Officer)
(General Manager of Fact
Base Management
Innovation Office)
-75-
Current Position Business
Name (Function/Business area) Date Experience
---------------- ------------------------ ------------ ----------------------
Masayuki Corporate Executive See above for his business experience
Matsumoto Vice President and other information.
(Chief Marketing
Officer for Japan)
(General Manager of
Corporate Social
Responsibility
Division)
---------------- ------------------------ ------------ ----------------------
Katsumi Yoshida Corporate Executive See above for his business experience
Vice President and other information.
(Chief Marketing
Officer for Overseas)
(Office Business
Strategic Planning)
(Chairman of Ricoh
China Co., Ltd.)
---------------- ------------------------ ------------ ----------------------
Takashi Nakamura Corporate Executive See above for his business experience
Vice President and other information.
(Chief Human Resource
Officer)
(Chief Production
Officer)
(Legal & Intellectual
Property)
---------------- ------------------------ ------------ ----------------------
Shiroh Kondoh Corporate Executive See above for his business experience
Vice President and other information.
(Imaging Engine
Solution Development)
(General Manager of MFP
Business Group)
---------------- ------------------------ ------------ ----------------------
Kazunori Azuma Corporate Executive See above for his business experience
Vice President and other information.
(General Manager of
Marketing Group)
---------------- ------------------------ ------------ ----------------------
Zenji Miura Corporate Executive See above for his business experience
Vice President and other information.
(Chief Financial
Officer)
(Chief Information
Officer) (Investor
Relation)
(Corporate
Communication and
Management of Group
Companies
(General Manager of
Corporate Planning
Division)
---------------- ------------------------ ------------ ----------------------
Kiyoshi Sakai Corporate Executive See above for his business experience
Vice President and other information.
(Chief Technology
Officer)
(Corporate Environment)
-76-
Current Position
Name (Function/Business area) Date Business Experience
------------------ ------------------------ --------- ------------------------
Kazuo Togashi Corporate Senior Vice Apr. 1972 Joined the Company
(November 28, President Apr. 1998 President of Ricoh
1949) (General Manager of Europe B.V.
International Business June 2000 Senior Vice President
Group) Apr. 2002 Chairman of said company
(General Manager of Apr. 2002 Chairman of NRG Group
Regional Business PLC
Support Center) June 2002 Executive Vice President
June 2003 Managing Director
June 2005 Corporate Senior Vice
President (Current)
Apr. 2006 General Manager of
International
Business Group
(Current)
Apr. 2006 General Manager of
Regional Business
Support Center
(Current)
------------------ ------------------------ --------- ------------------------
Terumoto Nonaka Corporate Senior Vice Jan. 1988 Joined the Company
(October 28, 1947) President Jan. 1990 Deputy General Manager
(President of Electronic of Electronic Devices
Devices Company) Division
June 2000 Senior Vice President
Oct. 2000 President of Electronic
Devices Company
(Current)
June 2002 Executive Vice President
June 2005 Corporate Senior Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Etsuo Kobayashi Corporate Senior Vice Apr. 1970 Joined the Company
(July 4, 1947) President Apr. 1998 General Manager of
(General Manager of Personnel Division
Personnel Division) (Current)
June 2000 Senior Vice President
June 2003 Executive Vice President
June 2005 Corporate Senior Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Haruo Nakamura Corporate Senior Vice Aug. 2000 Joined the Company
(April 29, 1952) President Nov. 2000 Leader of alpha Task
(General Manager of GJ Force
(GEL JET) Business Apr. 2004 Executive Vice President
Division) Apr. 2004 General Manager of GJ
(GEL JET) Business
Division (Current)
June 2005 Corporate Senior Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Kenji Hatanaka Corporate Senior Vice Apr. 1969 Joined the Company
(July 1, 1946) President June 2000 Senior Vice President
(General Manager of June 2003 General Manager of
Tokyo Branch) Tokyo Branch (Current)
(General Manager of June 2003 General Manager of
Kanto Branch) Kanto Branch (Current)
(President of Ricoh June 2004 Executive Vice President
Sales Co., Ltd.) Jan. 2005 President of Ricoh
Sales Co., Ltd.
(Current)
June 2005 Corporate Senior Vice
President (Current)
-77-
Current Position
Name (Function/Business area) Date Business Experience
------------------ ------------------------ --------- ------------------------
Hideko Kunii Corporate Senior Vice May 1982 Joined the Company
(December 13, President Oct. 1999 General Manager of
1947) (General Manager of Software Research
Software R&D Group) Center
(Chairman of Ricoh June 2000 Senior Vice President
Software Research Oct. 2000 Deputy General Manager
Center (Beijing) Co., of P&S Products
Ltd.) Division
June 2002 Chairman of Ricoh
Software Technology
(Shanghai) Co., Ltd.
Oct. 2002 General Manager of
Software R&D Group
(Current)
Feb. 2004 Chairman of Ricoh
Software Research
Center (Beijing) Co.,
Ltd. (Current)
June 2004 Executive Vice President
June 2005 Corporate Senior Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Hiroshi Kobayashi Corporate Senior Vice Apr. 1974 Joined the Company
(July 2, 1948) President Apr. 2002 General Manager of
(General Manager of LP Corporate Planning
Business Group) Division
June 2002 Senior Vice President
Apr. 2003 General Manager of
Corporate
Communication Center
June 2004 Executive Vice President
Oct. 2004 General Manager of LP
Business Group
(Current)
June 2005 Corporate Senior Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Susumu Ichioka Corporate Senior Vice Apr. 1971 Joined the Company
(April 23, 1948) President Oct. 2003 Senior Vice President
(Chairman of Ricoh Oct. 2003 President of Ricoh
Corporation) Finance Corporation
(Current)
June 2004 Executive Vice President
June 2004 Chairman of Ricoh
Corporation (Current)
June 2005 Corporate Senior Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Kiyoto Nagasawa Corporate Vice President Apr. 1973 Joined the Company
(August 16, 1948) (General Manager of Apr. 2001 General Manager of C&F
Quality of Management Business Division 2
Division) June 2002 Senior Vice President
June 2005 General Manager of
Quality of Management
Division (Current)
June 2005 Corporate Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Yutaka Ebi Corporate Vice President Apr. 1972 Joined the Company
(October 20, 1949) (General Manager of Apr. 2001 General Manager of
Legal & Intellectual Imaging Technology
Property Division) Division
June 2002 Senior Vice President
Oct. 2004 General Manager of
Legal & Intellectual
Property Division
(Current)
June 2005 Corporate Vice
President (Current)
-78-
Current Position
Name (Function/Business area) Date Business Experience
------------------ ------------------------ --------- -----------------------
Hiroo Matsuda Corporate Vice President Apr. 1972 Joined the Company
(April 19, 1948) (General Manager of Apr. 2002 General Manager of
Printing Solution Major Accounts
Division of Marketing Marketing Division
Group) June 2002 Senior Vice President
Apr. 2004 General Manager of
Solution Partner
Sales Division of
Marketing Group
Oct. 2004 General Manager of
Solution Partner
Sales Center of LP
Business Group
June 2005 Corporate Vice
President (Current)
Apr. 2006 General Manager of
Printing Solution
Division of Marketing
Group (Current)
------------------ ------------------------ --------- -----------------------
Hiroshi Adachi Corporate Vice President Apr. 1968 Joined the Company
(January 8, 1946) (President of Thermal Oct. 2000 President of Thermal
Media Company) Media Company
(Chairman of Ricoh (Current)
Electronic Technology Nov. 2001 Chairman of Ricoh
(Beijing) Co., Ltd.) Electronic Technology
(Chairman of Ricoh (Beijing) Co., Ltd.
International (Current)
(Shanghai) Co., Ltd.) June 2002 Senior Vice President
(Chairman of Ricoh June 2004 Chairman of Ricoh
Thermal Media (Wuxi) International
Co., Ltd.) (Shanghai) Co., Ltd.
(Current)
June 2005 Corporate Vice
President (Current)
Dec. 2005 Chairman of Ricoh
Thermal Media (Wuxi)
Co., Ltd.(Current)
------------------ ------------------------ --------- -----------------------
Kohji Sawa Corporate Vice President Apr. 1971 Joined the Company
(June 5, 1948) (General Manager of Apr. 1998 General Manager of
Information Technology Imaging System
and Solution Division) Component Production
Division
Apr. 2000 General Manager of
Procurement Control
Center
July 2001 General Manager of
Optical Component
Development Center
June 2002 Senior Vice President
June 2005 General Manager of
Information
Technology and
Solution Division
(Current)
June 2005 Corporate Vice
President (Current)
------------------ ------------------------ --------- -----------------------
Yoshimasa Matsuura Corporate Vice President Apr. 1971 Joined the Company
(June 23, 1947) (General Manager of May 1999 General Manager of
Office Business Supply Chain
Planning Center) Management Planning
(Deputy General Manager Division
of MFP Business Group) Apr. 2004 General Manager of
(General Manager of Imaging System
Business Strategy Business Strategy
Center of MFP Business Center
Group) June 2004 Senior Vice President
Oct. 2004 General Manager of
Office Business
Planning Center
(Current)
June 2005 Deputy General Manager
of MFP Business Group
(Current)
June 2005 General Manager of
Business Strategy
Center of MFP
Business Group
(Current)
June 2005 Corporate Vice
President (Current)
-79-
Current Position
Name (Function/Business area) Date Business Experience
----------------- ------------------------ --------- -----------------------
Sadahiro Arikawa Corporate Vice President Apr. 1971 Joined the Company
(March 31, 1949) (General Manager of Dec. 2001 President of Ricoh
Major Accounts Kyusyu Co., Ltd.
Marketing Division) Apr. 2004 General Manager of
Major Accounts
Marketing Division
(Current)
June 2004 Senior Vice President
June 2005 Corporate Vice
President (Current)
----------------- ------------------------ --------- -----------------------
Norio Tanaka Corporate Vice President Feb. 1978 Joined the Company
(March 22, 1948) (Deputy General Manager Apr. 2004 Deputy General Manager
of MFP Business Group) of Imaging System
(General Manager of Business Strategy
Products Management & Center
Planning Center of MFP Apr. 2004 General Manager of
Business Group) Imaging Products
(General Manager of Business Center of
Marketing Center of International
MFP Business Group) Business Center
June 2004 Senior Vice President
June 2004 Deputy General Manager
of International
Business Group
Oct. 2004 Deputy General Manager
of MFP Business Group
(Current)
Oct. 2004 General Manager of
Products Management &
Planning Center of
MFP Business Group
(Current)
Oct. 2004 General Manager of
Marketing Center of
MFP Business Group
(Current)
June 2005 Corporate Vice
President (Current)
----------------- ------------------------ --------- -----------------------
Kenichi Kanemaru Corporate Vice President Apr. 1973 Joined the Company
(November 19, (General Manager of Apr. 1998 General Manager of
1952) Imaging System Production Strategic
Production Business Center
Group) June 1999 President of Ricoh UK
(General Manager of Products Ltd.
Procurement Control June 2004 Senior Vice President
Center) June 2005 Deputy General Manager
of Imaging System
Production Business
Group
June 2005 General Manager of
Procurement Control
Center (Current)
June 2005 Corporate Vice
President (Current)
Apr. 2006 General Manager of
Imaging System
Production Business
Group (Current)
----------------- ------------------------ --------- -----------------------
Daisuke Segawa Corporate Vice President Mar. 1980 Joined the Company
(July 21, 1954) (General Manager of Dec. 1998 General Manager of
Finance and Accounting Treasury Department
Division) Oct. 2004 General Manager of
Corporate Planning
Division
June 2005 Corporate Vice
President (Current)
Apr. 2006 General Manager of
Finance and
Accounting Division
(Current)
-80-
Current Position
Name (Function/Business area) Date Business Experience
------------------ ------------------------ --------- -----------------------
Hisashi Takata Corporate Vice President Apr. 1974 Joined the Company
(May 20, 1951) (Deputy General Manager Apr. 1999 General Manager of
of GJ (GEL JET) Business Strategy
Business Division) Division of
(General Manager of International
Marketing Center of GJ Marketing Group
(GEL JET) Business Oct. 2004 Deputy General Manager
Division) of GJ (GEL JET)
(General Manager of GJ Business Division
Marketing Division of (Current)
Marketing Group) Oct. 2004 General Manager of
Marketing Center of
GJ (GEL JET) Business
Division (Current)
June 2005 Corporate Vice
President (Current)
Oct. 2005 General Manager of GJ
Marketing Division of
Marketing Group
(Current)
------------------ ------------------------ --------- -----------------------
Kenichi Corporate Vice President Apr. 1971 Joined the Company
Matsubayashi (General Manager of RS Apr. 1995 Manager of RS Business
(June 5, 1948) Products Division) Planning Department
Oct. 2003 General Manager of RS
Products Division
(Current)
June 2005 Corporate Vice
President (Current)
------------------ ------------------------ --------- -----------------------
Kunihiko Satoh Corporate Vice President Mar. 1979 Joined the Company
(October 21, 1956) (General Manager of Apr. 2002 President of Hokkaido
Business Strategic Ricoh Co., Ltd.
Planning Office of Apr. 2004 General Manager of
Marketing Group) Solution Marketing
(General Manager of Center
Business Partner June 2004 General Manager of
Division of Marketing Customer Contact
Group) Center
(General Manager of Net June 2005 Corporate Vice
RICOH Marketing President (Current)
Division of Marketing Apr. 2006 General Manager of
Group) Business Strategic
Planning Office of
Marketing Group
(Current)
Apr. 2006 General Manager of
Business Partner
Division of Marketing
Group (Current)
Apr. 2006 General Manager of Net
RICOH Marketing
Division of Marketing
Group (Current)
------------------ ------------------------ --------- -----------------------
Sohichi Nagamatsu Corporate Vice President July 2004 Joined the Company
(March 25, 1951) (General Manager of July 2004 Vice General Manager of
Research and Research and
Development Group) Development Group
(General Manager of Apr 2006 Corporate Vice
Corporate Technology President (Current)
Planning Division) Apr 2006 General Manager of
Research and
Development Group
(Current)
Apr 2006 General Manager of
Corporate Technology
Planning Division
(Current)
-81-
Current Position
Name (Function/Business area) Date Business Experience
------------------ ------------------------ --------- ------------------------
Group Executive Officers of the Company as of June 28, 2006 were as follows:
------------------ ------------------------ --------- ------------------------
Makoto Hashimoto Corporate Executive Vice Nov. 1972 Joined the Company
(August 26, 1945) President Apr. 1993 General Manager of PPC
(President and CEO of Division of Imaging
Ricoh Elemex System Business Group
Corporation)
June 1994 Director
Apr. 1998 General Manager of
Imaging System
Business Group
June 1998 Managing Director
June 2000 Executive Vice President
Oct. 2000 President of Personal
MultiMedia Products
Company
June 2003 General Manager of CSM
(Customer
Satisfaction
Management) Division
June 2005 Corporate Executive
Vice President
(Current)
Jan. 2006 President and CEO of
Ricoh Elemex
Corporation (Current)
------------------ ------------------------ --------- ------------------------
Yuji Inoue Corporate Senior Vice Apr. 1971 Joined the Company
(April 4, 1948) President Apr. 1998 General Manager of
(President of Ricoh Finance and
Leasing Co., Ltd.) Accounting Division
Apr. 2000 President of Ricoh
Leasing Co., Ltd.
(Current)
June 2000 Senior Vice President
June 2004 Managing Director
June 2005 Corporate Senior Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Shiroh Sasaki Corporate Senior Vice Apr. 1972 Joined the Company
(December 23, President Apr. 2000 President of Gestetner
1949) (Chairman of Ricoh Holdings PLC
Europe B.V.) Apr. 2002 President of NRG Group
(Chairman of NRG Group PLC
PLC) June 2004 Senior Vice President
June 2005 Corporate Vice
President (Current)
Apr. 2006 Chairman of Ricoh
Europe B.V.(Current)
Apr. 2006 Chairman of NRG Group
PLC (Current)
------------------ ------------------------ --------- ------------------------
Peter E. Hart Corporate Vice President Mar. 1997 President of Ricoh
(February 27, (Chairman and Silicon Valley, Inc.
1941) President of Ricoh (now Ricoh
Innovations, Inc.) Innovations, Inc.)
Feb. 2000 Chairman and President
of Ricoh Silicon
Valley, Inc. (now
Ricoh Innovations,
Inc.) (Current)
June 2000 Senior Vice President
June 2005 Corporate Vice
President (Current)
------------------ ------------------------ --------- ------------------------
Bernard Decugis Corporate Vice President Aug. 1993 President of Ricoh
(October 23, 1942) (President of Ricoh France S.A. (Current)
France S.A.) Apr. 2001 Senior Vice President
June 2005 Corporate Vice
President (Current)
-82-
Current Position
Name (Function/Business area) Date Business Experience
------------------ ------------------------- --------- ------------------------
Hiroshi Tsuruga Corporate Vice President Apr. 1971 Joined the Company
(November 18, (President of Tohoku Apr. 1999 General Manager of
1948) Ricoh Co., Ltd.) Information
Technology and
Solution Division
June 2002 Senior Vice President
June 2005 Deputy President of
Tohoku Ricoh Co., Ltd.
June 2005 Corporate Vice
President (Current)
Apr. 2006 President of Tohoku
Ricoh Co., Ltd.
(Current)
------------------ ------------------------- --------- ------------------------
Norihisa Goto Corporate Vice President Apr. 1972 Joined the Company
(March 8, 1949) (Vice Chairman of Ricoh Oct. 1997 President of Ricoh
Corporation) Deutschland GmbH
(President of Lanier Mar. 2001 Chairman of Lanier
Worldwide, Inc.) Worldwide, Inc.
Jan. 2003 President of Lanier
Worldwide, Inc.
(Current)
June 2003 Senior Vice President
June 2005 Corporate Vice
President (Current)
June 2006 Vice Chairman of Ricoh
Corporation (Current)
------------------ ------------------------- --------- ------------------------
Shunsuke Nakanishi Corporate Vice President Apr. 1972 Joined the Company
(October 12, 1948) (President of Ricoh May 1999 General Manager of
Electronics Inc.) Production Strategic
Center
July 2001 President of Ricoh
Electronics Inc.
(Current)
June 2004 Senior Vice President
June 2005 Corporate Vice
President (Current)
------------------ ------------------------- --------- ------------------------
Mitsuhiko Ikuno Corporate Vice President May 1975 Joined the Company
(March 26, 1953) (President of Shanghai June 2000 President of Ricoh Asia
Ricoh Facsimile Co., Industry Ltd.
Ltd.)
June 2004 President of Shanghai
Ricoh Facsimile Co.,
Ltd. (Current)
June 2004 Senior Vice President
June 2005 Corporate Vice
President (Current)
------------------ ------------------------- --------- ------------------------
Yoshihiro Niimura Corporate Vice President Apr. 1975 Joined the Company
(May 22, 1951) (President of Ricoh June 2004 President of Ricoh
China Co., Ltd.) China Co., Ltd.
(Chairman and President (Current)
of Ricoh Electronic June 2004 Chairman and President
Technology (China) of Ricoh Electronic
Co., Ltd.) Technology (China)
June 2004 Co., Ltd. (Current)
Senior Vice President
June 2005 Corporate Vice
President (Current)
------------------ ------------------------- --------- ------------------------
Michel De Corporate Vice President June 1993 Managing Director of
Bosschere (President of NRG Nashua/ tec Benelux
(June 16, 1948) Benelux B.V.) Jan. 2000 President of NRG
Benelux B.V. (Current)
June 2004 Senior Vice President
June 2005 Corporate Vice
President (Current)
------------------ ------------------------- --------- ------------------------
Toshiaki Katayama Corporate Vice President Oct. 2004 President of Ricoh
(November 28, (President of Ricoh Printing Systems,
1947) Printing Systems, Ltd.) Ltd. (Current)
June 2005 Corporate Vice
President (Current)
-83-
Current Position
Name (Function/Business area) Date Business Experience
----------------- ------------------------ --------- -----------------------
Thomas Salierno Corporate Vice President Apr. 2003 President of Ricoh U.S.
(June 29, 1954) (COO of Ricoh U.S. - Division - Ricoh
Ricoh Corporation) Corporation
Apr. 2006 Corporate Vice
President (Current)
June 2006 COO of Ricoh U.S. -
Ricoh Corporation
(Current)
There are no family relationships between any Director, Corporate Auditor or
Executive Officer and any other Director, Corporate Auditor or Executive
Officer of the Company. There are no arrangements or understandings with major
shareholders, customers, suppliers or others pursuant to which any person named
above was selected as a Director, Corporate Auditor, Executive Officer, or a
Group Executive Officer.
B. Compensation
The aggregate remuneration, including bonuses but excluding retirement
allowances, paid by the Company for the fiscal year ended March 31, 2006 to all
Directors, Corporate Auditors, Executive Officers and Group Executive Officers
of the Company who served during the fiscal year ended March 31, 2006 was
Yen 1,093 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 Corporation Law of Japan. Such bonuses are approved at the
annual shareholders meeting customarily held in June of each year. Bonuses so
paid are not deductible by the Company for tax purposes. Included in the figure
for aggregate remuneration set forth above is a total of Yen 155 million in
bonuses paid to Directors and Corporate Auditors as a group in their capacity
as such (excluding bonuses for their services as employees) in respect of
fiscal year 2005, as approved by the Company's shareholders at the General
Meeting of Shareholders held on June 28, 2005.
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 Corporation Law of Japan, all Directors and Corporate Auditors
shall be elected at the General Meeting of Shareholders. In general, under the
Articles of Incorporation of the Company, the terms of office of Directors
shall expire at the conclusion of the Ordinary General Meeting of Shareholders
held with respect to the last fiscal year ending within two years after their
election, and the terms of office of Corporate Auditors shall expire at the
conclusion of the Ordinary General Meeting of
-84-
Shareholders held with respect to the last fiscal year ending within four years
after their election. However, both the Directors and Corporate Auditors may
serve any number of consecutive terms.
From among the Directors, the Board of Directors shall elect one or more
Representative Directors. Each of the Representative Directors has the
statutory authority to represent the Company in the conduct of its affairs.
The Corporate Auditors of the Company are not required to be and are not
certified public accountants. However, at least half of the Corporate
Auditors must be a person who has not been a Director, executive officer,
manager, or employee of the Company or any of its subsidiaries prior to his or
her election as a Corporate Auditor. The Corporate Auditors may not at the same
time be Directors, executive officers, managers, or employees of the Company or
any of its subsidiaries. Each Corporate Auditor has the statutory duty to
examine the financial statements and business reports to be submitted by the
Board of Directors at the General Meeting of Shareholders and also to supervise
the administration by the Directors of the Company's affairs. Corporate
Auditors are entitled and obligated to participate in meetings of the Board of
Directors but are not entitled to vote. Under the Corporation Law, the Board of
Corporate Auditors has a statutory duty to prepare and submit its audit report
to the Board of Directors each year. A Corporate Auditor may note his or her
opinion in the audit report if it is different from the opinion of the Board of
Corporate Auditors that is expressed in the audit report. The Board of
Corporate Auditors is empowered to establish audit principles, the method of
examination by the Corporate Auditors of the Company's affairs and financial
position, and other matters concerning the performance of the Corporate
Auditors' duties. The Company does not have an audit committee.
There are no Director's service contracts with Ricoh providing for benefits
upon termination of service. For additional information regarding director
compensation, see Item 6.B.
-85-
D. Employees
The table below provides information about employees.
As of March 31,
--------------------
2004 2005 2006
-------------------------------------------------------
Categorized by Operating Segment
Office Solutions 65,586 67,710 68,685
Industrial Products 3,046 3,054 3,045
Other 3,398 3,384 3,401
Headquarters 1,107 949 1,019
Total 73,137 75,097 76,150
Categorized by Geographic Location
Domestic 38,772 40,107 39,930
Overseas 34,365 34,990 36,220
Total 73,137 75,097 76,150
-------------------------------------------------------
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 2006 and Ricoh knows of no efforts to organize a
union. Ricoh generally believes its employee relations to be good.
-86-
E. Share Ownership
The following table lists the number of Common Stock owned by each Director,
Corporate Auditor and Executive Officer of the Company as of June 28, 2006.
None of the Company's Directors, Corporate Auditors or Executive Officers is a
beneficial owner of more than 1% of the Company's Common Stock. Collectively,
the Directors, Corporate Auditors and Executive Officers beneficially own
approximately 0.02% of the total Company Common Stock issued.
Name Position Number of Shares
------------------ ---------------------------------------- ----------------
Masamitsu Sakurai Chairman of the Board and Representative 9,000
Director
Koichi Endo Director 13,747
Masayuki Matsumoto Director 4,000
Katsumi Yoshida Director 5,100
Takashi Nakamura Director 6,693
Shiroh Kondoh Director 5,000
Kazunori Azuma Director 6,000
Zenji Miura Director 6,000
Kiyoshi Sakai Director 5,000
Takaaki Wakasugi Director 3,000
Koji Tomizawa Corporate Auditor 4,000
Kazuo Togashi Corporate Senior Vice President 6,000
Terumoto Nonaka Corporate Senior Vice President 7,050
Etsuo Kobayashi Corporate Senior Vice President 8,000
Kenji Hatanaka Corporate Senior Vice President 3,000
Hideko Kunii Corporate Senior Vice President 6,000
Hiroshi Kobayashi Corporate Senior Vice President 3,000
Susumu Ichioka Corporate Senior Vice President 3,000
Kiyoto Nagasawa Corporate Vice President 4,000
Yutaka Ebi Corporate Vice President 2,000
Hiroshi Adachi Corporate Vice President 8,000
Kohji Sawa Corporate Vice President 4,000
Yoshimasa Matsuura Corporate Vice President 4,000
Sadahiro Arikawa Corporate Vice President 2,000
Norio Tanaka Corporate Vice President 1,000
Kenichi Kanemaru Corporate Vice President 3,000
Hisashi Takata Corporate Vice President 1,000
Kunihiko Satoh Corporate Vice President 1,000
Makoto Hashimoto Corporate Vice President 11,000
Yuji Inoue Corporate Vice President 10,000
Shiroh Sasaki Corporate Vice President 1,000
Hiroshi Tsuruga Corporate Vice President 3,000
Norihisa Goto Corporate Vice President 3,000
Yoshihiro Niimura Corporate Vice President 1,000
----------------
Total 162,590
================
All shares of Common Stock of the Company carry the same voting rights.
-87-
No options to purchase securities from the Company or any of its
subsidiaries were outstanding on June 28, 2006.
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, 2006 are as follows:
Number of Percentage of
Shares Owned Outstanding
Title of Class Name (in thousands) Shares Owned
-------------- ------------------------------------ -------------- -------------
Common Stock The Master Trust Bank of Japan, Ltd. 66,722 9.14%
Common Stock Japan Trustee Services Bank, Ltd. 44,460 6.09%
The Master Trust Bank of Japan, Ltd. is a joint venture managed by
Mitsubishi UFJ Trust and Banking Corporation, Nippon Life Insurance Company,
Meiji Yasuda Life Insurance Company and the Norinchukin Trust and Banking Co.,
Ltd.
Japan Trustee Services Bank, Ltd. is a joint venture managed by Resona Bank,
Ltd., the Sumitomo Trust and Banking Co., Ltd. and Mitsui Trust Holdings, Inc.
As far as is known to the Company, there has not been any significant change
in the percentage ownership held by any major shareholders during fiscal year
2006. 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, 2006, 1,367,524 American Depositary Shares
were held of record by two institutional registered holders in the United
States of America.
As far as is known to the Company as of this date, it is not directly or
indirectly owned or controlled by any other corporation or by the Japanese or
any foreign government. As far as is known to the Company as of this date,
there is no arrangement, the operation of which may at a subsequent date result
in a change in control of the Company.
B. Related Party Transactions
Ricoh sells or purchases products, materials, supplies and services to or
from affiliated companies on normal commercial terms and conditions. See Note 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
-88-
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-42.
Legal or arbitration proceedings
--------------------------------
There are no material pending legal or arbitration proceedings to which
Ricoh is a party.
Dividend Policy
---------------
Ricoh endeavors to provide stable dividends to its shareholders by boosting
profitability. At the same time, Ricoh undertakes to increase retained earnings
to reinforce its corporate structure and to cultivate new businesses. Ricoh
uses such retained earnings to strengthen its core businesses and invest in new
fields with medium- and long-term perspectives. See Item 10 "Dividends" for
important information on the Company's dividend payment procedure and
restrictions.
B. Significant Changes
On May 31, 2006, San-Ai Co., Ltd., a subsidiary of the Company, completed
the sale of its content distribution business to Giga Networks Co., Ltd., a
subsidiary of Faith, Inc. The sale price was Yen 12.0 billion. The Company
expects to recognize a gain on this sale equal to Yen 5.0 billion.
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.
-89-
In the United States, the Company's American Depositary Shares are traded on
the Over-the-Counter Market in the form of ADRs and are issued and exchanged by
The Bank of New York, as depositary. The following table sets forth for the
periods indicated the reported high and low sales prices of the Company's
Common Stock on the TSE and the reported high and low sales prices per share of
the Company's ADSs on the Over-the-Counter Market.
-90-
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 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
Fiscal Year 2005 2,345 1,782 107.50 84.80
Fiscal Year 2006 2,360 1,646 110.00 73.00
Quarterly highs and lows
------------------------
Fiscal Year 2005
1st quarter 2,345 2,045 107.50 92.50
2nd quarter 2,325 1,970 105.45 89.85
3rd quarter 2,255 1,782 102.40 85.97
4th quarter 2,010 1,802 96.50 84.80
Fiscal Year 2006
1st quarter 1,897 1,646 87.30 78.70
2nd quarter 1,855 1,651 110.00 75.55
3rd quarter 2,205 1,780 91.25 73.00
4th quarter 2,360 1,917 101.00 83.75
Monthly highs and lows
----------------------
December 2005 2,205 1,981 91.25 73.00
January 2006 2,175 1,917 95.00 84.00
February 2006 2,210 1,988 94.50 83.75
March 2006 2,360 2,150 101.00 92.15
April 2006 2,335 2,100 100.50 92.25
May 2006 2,420 2,175 108.00 97.50
Notes: (1) Price per share of Common Stock is as reported by the TSE.
(2)Price per ADSs is based upon one ADS representing 5 shares of Common
Stock as reported by the Over-the-Counter Market Bulletin Board(R).
B. Plan of Distribution
Not applicable.
C. Markets
See Item 9.A. for a list of the stock exchanges on which the securities are
listed.
-91-
See Item 10.B. for certain information relating to the Common Stock of the
Company.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
----------------------
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
ORGANIZATION
Ricoh Company, Ltd. was incorporated in Japan under the Commercial Code of
Japan and is deemed to remain to exist under the Corporation Law (KAISHA-HO;
Law No. 86 of 2005) which took effect as of May 1, 2006. It is registered in
the Commercial Register (SHOGYO TOKIBO) maintained by the Tokyo Legal Affairs
Bureau of the Ministry of Justice.
OBJECTIVES AND PURPOSES
Article 3 of the Articles of Incorporation of the Company provides that its
purpose is to engage in the following business activities:
1. Manufacture, sale and installation work and electrical communication
work of optical, office, audio, electric and measuring equipment, other
general machinery and equipment and accessories and supplies therefor.
2. Manufacture and sale of photographic sensitive materials and duplicating
papers.
3. Manufacture and sale of various raw materials for photographic sensitive
materials, and various chemical materials for chemical industries.
4. Manufacture, processing and sale of papers, pulps, textiles, general
merchandise and by-products thereof.
5. Investment in, or sale of the products of, other companies.
-92-
6. Import and Export of the goods described in any of the foregoing items
and other goods of every kind and description.
7. Brokerage business for casualty insurance and insurance brokerage under
the Automobile Liability Security Law of Japan.
8. Direct marketing through the Internet, facsimile, telephone, etc.
9. Any and all business incidental or relating to any of the foregoing
items.
DIRECTORS
Under the Corporation Law, the Board of Directors has executive powers and
duties to manage the affairs of the Company and each Representative Director,
who is elected from among the Directors by the Board of Directors, has the
statutory authority to represent the Company in all respects. Under the
Corporation Law, the Directors must refrain from engaging in any business
competing with the Company unless approved by the Board of Directors and any
Director who has a material interest in the subject matter of a resolution to
be taken by the Board of Directors cannot vote in such resolution. The total
amount of remuneration to Directors and to Corporate Auditors is subject to
approval at the General Meeting of Shareholders. Within such authorized amounts
the Board of Directors and the Board of Corporate Auditors respectively
determine the compensation to each Director and Corporate Auditor.
Except as stated below, neither the Corporation Law nor the Company's
Articles of Incorporation make a special provision as to the Director's or
Corporate Auditor's power to vote in connection with their compensation,
borrowing powers exercisable by a Representative Director (or a Director who is
given power by a Representative Director to exercise such powers), their
retirement age or requirement to hold any shares of capital stock of the
Company. The Corporation Law specifically requires the resolution of the Board
of Directors for a corporation to acquire or dispose of material assets; to
borrow substantial amounts of money; to employ or discharge from employment
important employees, such as managers (SHIHAININ); to establish, change or
abolish a material corporate organization such as a branch office; to decide
certain important matters related to the offering as to subscription of bonds;
to establish a system necessary to ensure appropriateness of business
operations of a joint stock corporation (KABUSHIKI KAISHA), including
compliance with the laws and regulations and the Articles of Incorporation by
the Directors in performing their duties. The Regulations of the Board of
Directors of the Company require a resolution of the Board of Directors for the
Company's borrowing or lending of a significant amount of money or giving of a
guarantee in a large amount.
Set forth below is certain information relating to the Common Stock of the
Company, including brief summaries of certain provisions of the Company's
Articles of Incorporation and Share Handling Regulations, as currently in
effect, and of the Corporation Law of Japan relating to a joint stock company
(KABUSHIKI KAISHA) and certain related legislation.
-93-
GENERAL
The presently authorized capital stock of the Company is 1,500,000,000
shares. Under the Corporation Law, shares of the Company (which chose under
Article 7 of its Articles of Incorporation to issue share certificates) are
transferable by delivery of share certificates, but in order to assert
shareholders' rights against the Company, the transferee must generally have
his name registered in the Company's register of shareholders. Shareholders are
required to file their names, addresses and seals with The Chuo Mitsui Trust &
Banking Co., Ltd., the custodian of the shareholders' register (KABU-NUSHI
MEIBO KANRININ), transfer agent for the Company's Common Stock, and
shareholders not resident in Japan are required to file a mailing address in
Japan or appoint a resident proxy in Japan. These requirements do not apply to
the holders of ADRs.
The central clearing system of share certificates under the Law Concerning
Central Clearing of Share Certificates and Other Securities of Japan applies to
the shares of Common Stock of the Company. Pursuant to this system a holder of
shares of Common Stock is able to choose, at his discretion, to participate in
this system and all certificates of shares of Common Stock elected to be put
into this system are deposited with the central clearing system and all such
shares are registered in the name of the clearing house in the Company's
register of shareholders. Each participating shareholder is in turn registered
in the register of beneficial shareholders and treated the same way as
shareholders registered in the Company's register of shareholders.
DIVIDENDS
The Articles of Incorporation of the Company provide that the accounts shall
be closed on March 31 of each year and that dividends, if any, shall be paid to
the shareholders of record as of the end of such fiscal period. After the close
of the fiscal period, the Board of Directors prepares, among other things,
accounting documents (financial statements) and the attachments thereto for
dividends and other purposes; these documents are to be submitted to the
Corporate Auditors of the Company and to the Accounting Auditors and then
submitted for approval by an annual Ordinary General Meeting of Shareholders,
which is normally held in June of each year and the distribution of surplus
(JOYO-KIN) is to be decided upon by shareholders at such Meeting. In addition
to provisions for dividends, if any, and for the reserve, bonuses to Directors
and Corporate Auditors will also be decided upon at this Meeting. In addition
to a distribution of annual dividends, the Board of Directors of the Company
may by its resolution declare an interim dividend pursuant to Article 454,
paragraph 5 of the Corporation Law to shareholders who are registered in the
Company's register of shareholders at the end of each September 30, subject to
the limitations described below.
The Corporation Law provides that the Company may not make any distribution
of surplus by way of dividends in cash unless it has set aside in its reserve
an amount equal to at least one-tenth of any amount paid out as an
appropriation of retained earnings (including any payment by way of annual
dividend and bonuses to Directors and Corporate Auditors) or equal to one-tenth
of any interim dividend. The Corporation Law permits the Company to distribute
surplus by way of dividends. First, surplus is
-94-
calculated by adding (i), (ii), (iii) and (iv) described below and subtracting
(v), (vi) and (vii) described below from such aggregate of (i) through (iv):
(i) amount determined by subtracting the aggregate of (c), (d) and
(e) described below from the aggregate of (a) and (b) described below as of the
final date of the last fiscal year; (a) amount of assets, (b) the aggregate
amount of the book value of the treasury stock, (c) amount of liabilities,
(d) the aggregate amount of the stated capital and the reserve and (e) the
aggregate of each amount entered under respective accounting titles (KANJO
KAMOKU) set forth under the relevant Ordinance of the Ministry of Justice,
(ii) amount determined by subtracting the book value of the treasury stock from
the consideration for the treasury stock disposed of, if any, after the final
date of the last fiscal year, (iii) amount of reduction of the stated capital,
if any, after the final date of the last fiscal year, (iv) amount of reduction
of the reserve, if any, after the final date of the last fiscal year, (v) book
value of the treasury stock, if any, cancelled after the final date of the last
fiscal year, (vi) amount determined by adding (a) through (c) described below
in the event that surplus is distributed after the final date of the last
fiscal year: (a) the aggregate of the book value of assets for distribution set
forth under Article 454, paragraph 1, item 1 of the Corporation Law (regarding
distribution of surplus), (b) the aggregate of each sum of the money given to
the shareholders who exercised the right to monetary distribution set forth
under Article 454, paragraph 4, item 1 of the Corporation Law (regarding
distribution in kind) and (c) the aggregate of each sum of the money given to
each shareholder holding shares of which number is less than a certain number
to be set forth by the Company pursuant to Article 454, paragraph 4, item 2 of
the Corporation Law (regarding distribution in kind), (vii) the aggregate of
each amount entered under respective accounting titles set forth under the
relevant Ordinance of the Ministry of Justice. Second, the distributable amount
is calculated by subtracting the aggregate of (iii), (iv), (v) and
(vi) described below from the aggregate of (i) and (ii) described below:
(i) surplus; (ii) the aggregate of the following items (a) and (b) in the event
that extraordinary accounting documents are approved by the shareholders'
meeting or by the Board of Directors, as the case may be; (a) the aggregate of
each amount entered as profit under respective accounting titles set forth
under the relevant Ordinance of the Ministry of Justice during a period of time
in question, (b) consideration for the treasury stock disposed of, if any,
during such period; (iii) the book value of the treasury stock; (iv) the
consideration for treasury stock disposed of, if any, after the final date of
the last fiscal year; (v) the aggregate of each amount entered as loss under
respective accounting titles set forth under the relevant Ordinance of the
Ministry of Justice during the same period as stated in (ii) above; and
(vi) the aggregate of each amount entered under the respective accounting
titles set forth under the relevant Ordinance of Ministry of Justice. The
Company may distribute such distributable amount to shareholders.
The Corporation Law does not provide for stock dividends but provides for
"free share allotment" under Article 185. The Board of Directors may by
resolution issue and allot new shares to the shareholders on a prorated basis
without receiving any consideration/contribution as issue price. In addition,
under the Corporation Law, the Board of Directors may by resolution issue
additional shares by way of a stock split, while the General Meeting of
Shareholders by resolution transfers any amount which is distributable as
dividends to stated capital, and thus the same effect as a stock dividend can
be achieved.
-95-
In Japan, the "ex-dividend" date and the record date for dividends precede
the date of determination of the amount of the dividend to be paid.
In accordance with the Company's Articles of Incorporation, once a right to
any dividends is accrued and has become due and payable, such right to
dividends will lapse after three years from the due date.
TRANSFER OF RESERVE TO STATED CAPITAL AND STOCK SPLITS
When the Company issues new shares of Common Stock, the entire amount of the
issue price of such new shares is required to be accounted for as stated
capital, although the Company may account for an amount not exceeding one-half
of such issue price as capital surplus. The General Meeting of Shareholders may
by resolution transfer the whole or any part of reserve to stated capital. On
the other hand, the Board of Directors may by resolution issue to shareholders
additional shares of Common Stock without receiving any
consideration/contribution as issue price by way of free allotment of shares or
stock split without referring to the whole or any part of the amount of reserve
so transferred to stated capital.
GENERAL MEETING OF SHAREHOLDERS
The Ordinary General Meeting of Shareholders to settle accounts of the
Company for each fiscal period is normally held in June each year in Ota-ku,
Tokyo, Japan. In addition, the Company may hold an extraordinary General
Meeting of Shareholders whenever necessary by giving at least two weeks'
advance notice to shareholders.
Notice of a Shareholders' Meeting setting forth the place, time and purpose
thereof, must be mailed to each shareholder having voting rights (or, in the
case of a non-resident shareholder, to his resident proxy or mailing address in
Japan) at least two weeks prior to the date set for the meeting. Such notice
may also be furnished to shareholders by electronic means with such
shareholders' consent.
Any shareholders' holding at least 300 voting shares or 1% of the total
number of outstanding voting shares for six months or more may propose a matter
to be considered at a General Meeting of Shareholders by submitting a written
request to Directors at least eight weeks prior to the date set for such
Meeting. Such request may be submitted by electronic means with the Company's
consent.
VOTING RIGHTS
A shareholder is entitled to one vote per share subject to the limitations
on voting rights set forth in the following paragraph below and in the sections
entitled "'Unit share system" through "Voting rights of a holder of shares
representing less than one unit" below. Except as otherwise provided by law or
by the Company's Articles of Incorporation, a resolution can be adopted at a
General Meeting of Shareholders by a majority of the shares having voting
rights represented at the meeting. Special resolutions provided for in
paragraph 2, Article 309 of the Corporation Law shall be adopted by the vote of
the shareholders not less than two-thirds (2/3) of those present at a
-96-
meeting whereby one-third (1/3) of voting rights of all of the shareholders
shall constitute a quorum. The Corporation Law and the Company's Articles of
Incorporation provide, however, that the quorum for the election of Directors
and Corporate Auditors shall not be less than one-third of the total number of
outstanding shares having voting rights. The Company's shareholders are not
entitled to cumulative voting in the election of Directors. A corporate
shareholder, more than one-quarter of whose outstanding voting shares are
directly or indirectly owned by the Company, may not exercise its voting rights
in respect of the shares of the Company. The Company has no voting rights with
respect to its own Common Stock. Shareholders may exercise their voting rights
through proxies provided that the proxies are also shareholders holding voting
rights. The Company's shareholders also may cast their votes in writing.
The Corporation Law provides that in order to amend the Articles of
Incorporation and in certain other instances, including an increase in the
total number of shares authorized to be issued, a reduction of the stated
capital, the removal of a Director or Corporate Auditor, dissolution, merger
(with an exception of a merger with a company of very small business) or
consolidation of a corporation, the transfer of the whole or an important part
of the business, the taking over of the whole of the business of any other
corporation (with an exception of a merger with a company of very small
business), any offering of new shares at a "specially favorable" price (or any
offering of convertible bonds or debentures with "specially favorable"
conversion conditions or of bonds or debentures with warrants or rights to
subscribe for new shares with "specially favorable" conditions) to persons
other than shareholders, the quorum shall be one-third of the total number of
shares having voting rights outstanding and the approval of the holders of at
least two-thirds of the shares having voting rights represented at the Meeting
is required (the "special shareholders resolution").
SUBSCRIPTION RIGHTS (KABUSHIKI WARIATEWO UKERU KENRI)
Holders of the Company's Common Stock have no preemptive rights under its
Articles of Incorporation. Authorized but unissued shares may be issued at such
times and upon such terms as the Board of Directors determines, subject to the
limitations as to the offering of new shares at a "specially favorable" price
mentioned above. The Board of Directors may, however, determine that
shareholders shall be given subscription rights regarding a particular issue of
new shares, in which case such rights must be given on uniform terms to all
shareholders and a notice must be given to shareholders not less than two weeks
prior to the date when such rights are to be vested to shareholders. The
Corporation Law provides that if a shareholder to whom such rights are given
does not apply for subscription by a certain date of subscription, such
shareholder will lose such rights.
Rights to subscribe for new shares may be made generally transferable by the
Board of Directors. In such case, such transferable right is called "call
option of new shares (SHINKABU YOYAKUKEN). Whether the Company will make
subscription rights generally transferable in future rights offerings will
depend upon the circumstances at the time of such offerings. If subscription
rights are not made generally transferable, transfers by a non-resident of
Japan or a corporation organized under the laws of a
-97-
foreign country or whose principal office is located in a foreign country will
be enforceable against the Company and third parties only if the Company's
consent to each such transfer is obtained. When such consent is necessary in
the future for the transfer of subscription rights, the Company intends to
consent, on request, to all such transfers by such a non-resident or foreign
corporation.
DILUTION
In the future it is possible that market conditions and other factors might
make a rights offering to shareholders substantially below the market price of
shares of Common Stock desirable. If the number of shares offered in a rights
offering is substantial in relation to the number of shares outstanding and the
market price exceeds the subscription price at the time of the offering, a
shareholder who does not exercise and is unable otherwise to realize the full
value of his subscription rights would suffer economic dilution of his equity
interest in the Company.
LIQUIDATION RIGHTS
In the event of a liquidation of the Company, the assets remaining after
payment of all debts and liquidation expenses and taxes will be distributed
among the shareholders in proportion to the respective numbers of shares held.
LIABILITY TO FURTHER CALLS OR ASSESSMENTS
All the Company's presently outstanding shares of Common Stock including
shares represented by the American Depository Shares are fully paid and
non-assessable.
CUSTODIAN OF THE SHAREHOLDERS' REGISTER
The Chuo Mitsui Trust and Banking Co., Ltd. is the custodian of the
shareholders' register of the Company's Common Stock; as such custodian, it
keeps the Company's register of shareholders and register of the lost share
certificates in its office at 33-1, Shiba 3-chome, Minato-ku, Tokyo, Japan, and
makes transfer of record ownership upon presentation of the certificates
representing the transferred shares.
RECORD DATE
March 31 is the record date for the Company's year-end dividends. The
shareholders who are registered as the holders of 1,000 shares or more in the
Company's register of shareholders at the end of each March 31 are also
entitled to exercise shareholders' rights at the Ordinary General Meeting of
Shareholders with respect to the fiscal period ending on such March 31.
September 30 is the record date for interim dividends. In addition, the Company
may set a record date for determining the shareholders entitled to other rights
and for other purposes by giving at least two weeks' public notice.
The price of the shares generally goes ex-dividend or ex-rights on Japanese
stock exchanges on the third business day prior to a record date (or if the
record date is not a
-98-
business day, the fourth business day prior thereto), for the purpose of
dividends or rights offerings.
PURCHASE BY THE COMPANY OF ITS COMMON STOCK
The Company may purchase its own shares only in case of the events falling
under Article 155 of the Corporation Law. As a matter of manner of such
purchase, the Company may purchase of its own shares (i) through the Tokyo
Stock Exchange or other stock exchange on which the shares are listed or by way
of tender offer, if authorized by a resolution of the Board of Directors,
(ii) from a specific party, if authorized by a special resolution of an
Ordinary General Meeting of Shareholders, or (iii) from the Company's own
subsidiary, if authorized by a resolution of the Board of Directors.
When a repurchase is made by the Company from a specified party pursuant to
an authorization by a special resolution of an Ordinary General Meeting of
Shareholders as noted above, shareholders may make a demand to a Representative
Director, five days or more prior to the relevant Shareholders' Meeting, that
the Company also repurchase the shares held by that shareholder. Purchase of
shares falling under Article 461, paragraph 1 of the Corporation Law must
satisfy, among others, the requirement that the total amount of the repurchase
price (of book value) may not exceed the distributable amount as described in
"Dividends" above. The Company may hold its own shares as treasury stock so
purchased without restriction as to a period of time to hold. However, the
Company is not entitled to any voting rights or right to dividends as to such
treasury stock. The Company may cancel its treasury stock that it holds by a
resolution of the Board of Directors. The Company may otherwise dispose of its
treasury stock by a resolution of the Board of Directors.
"UNIT" SHARE SYSTEM (TANGENKABU SEIDO)
Pursuant to the Corporation Law the Company has adopted 1,000 shares as one
unit of shares.
TRANSFERABILITY OF SHARES REPRESENTING LESS THAN ONE UNIT
As adopted in the Company's Articles of Incorporation, the Company will not
issue certificates for shares representing less than one unit. Since the
transfer of shares normally requires delivery of the certificates therefor,
fractions of a unit for which no share certificates are issued are not
transferable. Shares representing less than one unit for which share
certificates have been issued continue to be transferable.
RIGHT OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT TO REQUIRE THE
COMPANY TO PURCHASE SUCH SHARES
A holder of shares representing less than one unit may at any time require
the Company to purchase such shares at their last reported sale price on the
Tokyo Stock Exchange on the day when such request is made less applicable
brokerage commission. The usual securities transfer tax is applicable to such
transactions.
-99-
RIGHT OF THE HOLDER OF SHARES TO DEMAND THE PURCHASE OF SHARES REPRESENTING
LESS THAN ONE UNIT
As adopted in the Company's Articles of Incorporation and set forth in the
Share Handling Regulations, a holder of shares of less-than-one-unit may
request the Company to sell additional shares so that their less-than-one-unit
can share constitute one unit of shares.
OTHER RIGHTS OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT
A holder of shares representing less than one unit has certain rights in
respect of such shares, including the following: (i) the right to receive
dividends (including interim dividends), (ii) the right to receive shares
and/or cash by way of a stock split or upon consolidation or subdivision of
shares or upon a capital decrease or merger of the Company, (iii) the right to
be allotted subscription rights with respect to new shares, convertible bonds
and bonds with warrants to subscribe for shares when such rights are granted to
shareholders and (iv) the right to participate in the distribution of surplus
assets in the event of the liquidation of the Company. Other rights, including
voting rights, cannot be exercised with respect to shares representing less
than one unit.
VOTING RIGHTS OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT
A holder of shares representing less than one unit cannot exercise any
voting rights with respect to such shares. A holder of shares representing one
or more whole units will have one vote for each such unit, except as stated in
"Voting rights" above.
C. Material Contracts
All contracts entered into by Ricoh or any member of the Ricoh Group during
the two years preceding this report were entered into in the ordinary course of
business.
D. Exchange Controls
The Foreign Exchange and Foreign Trade Law of Japan, as amended, and the
cabinet orders and ministerial ordinances thereunder (the "Exchange Law")
govern certain matters relating to the issuance of equity-related securities by
the Company and the acquisition and holding of shares of Common Stock or ADSs
representing such shares by "exchange non-residents" and by "foreign investors"
as hereinafter defined. The Exchange Law currently in effect does not affect
the right of an exchange non-resident to purchase or sell an ADS outside Japan.
"Exchange non-residents" are defined under the Exchange Law as individuals
who are not resident in Japan and corporations whose principal offices are
located outside Japan. Generally branches and other offices of Japanese
corporations located outside Japan are regarded as exchange non-residents, but
branches and other offices located within Japan of non-resident corporations
are regarded as residents of Japan. "Foreign investors" are defined to be
(i) individuals not resident in Japan, (ii) corporations which are organized
under the laws of foreign countries or whose principal offices are located
-100-
outside Japan, and (iii) corporations of which (a) 50% or more of the shares
are held by (i) and/or (ii) above, (b) a majority of officers consists of
non-resident individuals or (c) a majority of the officers having the power of
representation consists of non-resident individuals.
Dividends and Proceeds of Sales
Under the Exchange Law, dividends paid on, and the proceeds of sales in
Japan of, shares of Common Stock held by exchange non-residents in general may
be converted into any foreign currency and repatriated abroad. The acquisition
of shares of Common Stock by exchange non-resident shareholders by way of stock
splits is not subject to any requirements under the Exchange Law.
Acquisition of Shares
Under the Exchange Law, acquisition of shares of a Japanese company listed
on any Japanese stock exchange or traded on the over-the-counter market in
Japan ("listed shares") by an exchange non-resident from a resident of Japan is
generally not subject to a prior filing requirement. In case a foreign investor
acquires listed shares (whether from a resident of Japan or an exchange
non-resident, from another foreign investor or from or through a designated
securities company) and as a result of such acquisition the number of shares
held directly or indirectly by such foreign investor would become 10% or more
of the total outstanding shares of the company, the foreign investor is
required to make a subsequent report on such acquisition to the Minister of
Finance and other Ministers having jurisdiction over the business of the
subject company (the "Competent Ministers"). In certain exceptional cases, a
prior filing is required and the Competent Ministers may recommend the
modification or abandonment of the proposed acquisition and, if the foreign
investor does not accept the recommendation, order its modification or
prohibition. The deposit of shares of Common Stock by an exchange non-resident
of Japan, the issuance of ADRs in exchange therefor and the withdrawal of the
underlying shares of Common Stock by an exchange non-resident upon surrender of
ADRs are not subject to any requirements under the Exchange Law, except where
as a result of such deposit or withdrawal the aggregate number of shares of
Common Stock held by the Depositary (or its nominee) or the holder surrendering
ADRs, as the case may be, would be 10% or more of the total outstanding shares
of Common Stock, in which event a subsequent reporting may be required as
described above.
E. Taxation
JAPANESE TAXATION
Generally, a non-resident of Japan or a non-Japanese corporation is subject
to Japanese withholding tax on dividends paid by a Japanese corporation.
Generally, stock splits are not subject to Japanese income tax. According to
the Income Tax Law of Japan, the rate of Japanese national withholding tax
applicable to dividends paid on listed shares issued by the Company to
non-residents of Japan or non-Japanese corporations is (i) 7% for the period
from January 1, 2004 to March 31, 2008, and (ii) 15% thereafter, except for
-101-
dividends paid to any individual shareholder who holds 5% or more of the
outstanding total of the shares issued by the Company, for which the applicable
rate is 20%. Under the new income tax convention between the U.S. and Japan
(the "Convention") ratified in March 2004, the maximum rate of Japanese
withholding tax that may be imposed on dividends paid to a U.S. resident or
corporation not having a "permanent establishment" (as defined therein) in
Japan is generally 10%. This 10% withholding tax rate is applicable to
dividends declared on or after July 1, 2004. The 15% withholding tax rate under
the old income tax convention is still applicable to dividends declared before
July 1, 2004. If the tax rate under the domestic tax law is lower than that
under the Convention, the domestic tax rate is still applicable.
Gains derived by a non-resident of Japan or a non-Japanese corporation from
the sale of Common Stock or ADRs outside Japan, or from the sale of Common
Stock within Japan by a non-resident of Japan or by a non-Japanese corporation
not having a permanent establishment in Japan, are in general not subject to
Japanese income or corporation tax. Japanese inheritance or gift tax at
progressive rates may be payable by an individual who has acquired Common Stock
or ADRs as a legatee, heir or donee.
For purposes of the Convention and the U.S. Internal Revenue Code of 1986,
as amended (the "Code"), U.S. holders of ADRs will be treated as the owners of
the Common Stock underlying the American Depositary Shares evidenced by the
ADRs.
U.S. TAXATION
This summary describes the material U.S. federal income tax consequences for
a U.S. holder (as defined below) of owning and disposing of shares of Common
Stock or American Depositary Shares evidenced by the ADRs. This summary applies
to you only if you hold shares of Common Stock or American Depositary Shares as
capital assets for U.S. federal income tax purposes. This summary does not
apply to you if you are a member of a class of holders subject to special
rules, such as:
. a dealer in securities or currencies;
. a trader in securities that elects to use a mark-to-market method of
accounting for securities holdings;
. a bank;
. a life insurance company;
. a tax-exempt organization;
. a person that holds shares of Common Stock or American Depositary Shares
that are a hedge or that are hedged against interest rate or currency
risks;
. a person that is subject to the alternative minimum tax;
. a person that holds shares of Common Stock or American Depositary Shares
as part of a straddle or conversion transaction for tax purposes;
-102-
. a person whose functional currency for U.S. federal income tax purposes
is not the U.S. Dollar; or
. a person that actually or constructively owns or is deemed to own 10% or
more of any class of our stock.
This summary is based on laws, treaties, and regulatory interpretations in
effect on the date hereof, all of which are subject to change, possibly on a
retroactive basis. Moreover, this summary assumes that the Company will not be
treated as a passive foreign investment company (a "PFIC") for U.S. federal
income tax purposes. See the summary below under the heading "PFIC Rules."
Please consult your own tax advisers concerning the U.S. federal, state,
local, and other tax consequences of purchasing, owning, and disposing of
shares of Common Stock or American Depositary Shares in your particular
circumstances.
For purposes of this summary, you are a "U.S. holder" if you are a
beneficial owner of a share of Common Stock or an American Depositary Share
that is for U.S. federal income tax purposes: (i) a citizen or a resident of
the United States, (ii) a corporation or a partnership (including an entity
treated as a corporation or a partnership for U.S. federal income tax purposes)
created or organized in or under the laws of the United States, any state
thereof or the District of Columbia (unless, in the case of a partnership,
Treasury regulations are adopted that provide otherwise), (iii) an estate whose
income is subject to U.S. federal income tax regardless of its source, or
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
Certain trusts not described in clause (iv) above in existence on August 20,
1996 that elect to be treated as a United States person will also be a U.S.
holder for purposes of this discussion.
In general, if you hold ADRs evidencing American Depositary Shares, you will
be treated as the owner of the shares of Common Stock represented by those
American Depositary Shares for U.S. federal income tax purposes, and no gain or
loss will be recognized if you exchange an American Depositary Share for the
shares of Common Stock represented by that American Depositary Share.
DIVIDENDS
The gross amount of cash dividends paid out of the Company's current or
accumulated earnings and profits, as determined for U.S. federal income tax
purposes, that a U.S. holder receives (prior to deduction of Japanese taxes)
generally will be subject to U.S. federal income taxation as foreign source
ordinary dividend income. However, in certain circumstances, all or a portion
of the cash dividends paid by the Company may be treated as U.S. source
dividend income. You should consult your tax advisers regarding the U.S.
federal income tax consequences of all or a portion of the cash dividends paid
by the Company being treated as U.S. source dividend income.
-103-
Dividends paid in Japanese Yen will be included in your income in a
U.S. Dollar amount calculated by reference to the exchange rate in effect on
the date of your (or, in the case of American Depositary Shares, the
depositary's) receipt of the dividend, regardless of whether the payment is in
fact converted into U.S. Dollars. If such a dividend is converted into U.S.
Dollars on the date of receipt, you generally should not be required to
recognize a foreign currency gain or loss in respect of the dividend income.
You should consult your own tax adviser regarding the treatment of any foreign
currency gain or loss realized with respect to any Japanese Yen received by you
(or, in the case of American Depositary Shares, the depositary) that are
converted into U.S. Dollars on a date subsequent to receipt. Dividends paid by
the Company generally will not be eligible for the dividends-received deduction
allowed to corporations that are U.S. holders.
Notwithstanding the foregoing, pursuant to recently enacted legislation,
certain dividends received by individual U.S. holders that constitute
"qualified dividend income" will be subject to a reduced maximum marginal U.S.
federal income tax rate. Qualified dividend income generally includes, among
other dividends, dividends received during the taxable year from "qualified
foreign corporations." In general, the term "qualified foreign corporation"
includes a foreign corporation that is eligible for the benefits of a
comprehensive income tax treaty with the United States which the U.S. Treasury
Department determines to be satisfactory, and which includes an exchange of
information program. In addition, a foreign corporation is treated as a
qualified foreign corporation with respect to any dividend paid by the
corporation with respect to stock of the corporation that is readily tradable
on an established securities market in the United States. Notwithstanding this
previous rule, dividends received from a foreign corporation that was a foreign
investment company (as defined in section 1246(b) of the Code), a passive
foreign investment company (as defined in section 1297 of the Code), or a
foreign personal holding company (as defined in section 552 of the Code) in
either the taxable year of the corporation in which the dividend was paid or
the preceding taxable year will not constitute qualified dividend income. In
addition, the term qualified dividend income will not include, among other
dividends, any (i) dividends on any share of stock which is held by a taxpayer
for 60 days or less during the 121-day period beginning on the date which is 60
days before the date on which such share becomes ex-dividend with respect to
such dividends (as measured under section 246(c) of the Code) or (ii) dividends
to the extent that the taxpayer is under an obligation (whether pursuant to a
short sale or otherwise) to make related payments with respects to positions in
substantially similar or related property. Moreover, special rules apply in
determining a taxpayer's foreign tax credit limitation under section 904 of the
Code in the case of qualified dividend income. Individual U.S. holders should
consult their own tax advisors to determine whether or not amounts received as
dividends from the Company will constitute qualified dividend income subject to
a reduced maximum marginal U.S. federal income tax rate and, in such case, the
effect, if any, on the individual U.S. holder's foreign tax credit.
In addition to the foregoing, you should consult your own tax advisers to
determine whether any rules limit your ability to make effective use of foreign
tax credits, including the possible adverse impact of failing to take advantage
of benefits under the income tax treaty between the United States and Japan. If
no such rules apply, you
-104-
generally may claim a credit against your U.S. federal income tax liability for
Japanese taxes withheld from dividends on shares of Common Stock or American
Depositary Shares, so long as you have owned the shares of Common Stock or
American Depositary Shares (and not entered into specified kinds of hedging
transactions) for at least a 16-day period that includes the ex-dividend date.
Instead of claiming a credit, you may, at your election, deduct such Japanese
taxes in computing your taxable income, subject to generally applicable
limitations under U.S. federal income tax law. The calculation of foreign tax
credits and, in the case of a U.S. holder that elects to deduct foreign taxes,
the availability of deductions involve the application of complex rules that
depend, in part, on a U.S. holder's particular circumstances. You should
consult your own tax advisers regarding the creditability or deductibility of
such taxes.
SALES AND OTHER DISPOSITIONS
A U.S. holder will recognize a gain or loss on the sale or other disposition
of shares of Common Stock or American Depositary Shares evidenced by ADRs in an
amount equal to the difference between the U.S. Holder's adjusted tax basis in
such shares of Common Stock or American Depositary Shares (in U.S. Dollars) and
the amount realized on the disposition (in U.S. Dollars, generally determined
at the spot rate on the date of disposition if the amount realized is
denominated in a foreign currency). For U.S. federal income tax purposes, a
gain or loss realized by a U.S. holder on a sale or other disposition of shares
of Common Stock or American Depositary Shares will be a capital gain or loss,
and will be a long-term capital gain or loss if the shares of Common Stock or
American Depositary Shares were held for more than one year. Such gain or loss
generally will be treated as U.S. source gain or loss for U.S. foreign tax
credit purposes. Your ability to offset capital losses against ordinary income
is limited. Long-term capital gain recognized by an individual U.S. holder
generally is subject to taxation at a reduced maximum marginal U.S. federal
income tax rate.
PFIC RULES
The Company believes that it will not be treated as a PFIC for U.S. federal
income tax purposes. However, that is a factual determination made annually and
therefore may be subject to change. If the Company was treated as a PFIC, a
U.S. holder of shares of Common Stock or American Depositary Shares evidenced
by ADRs would be subject to certain adverse U.S. federal income tax
consequences.
U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING RULES
Payments in respect of the shares of Common Stock or American Depositary
Shares that are made within the United States or through certain U.S.-related
financial intermediaries are subject to information reporting and may be
subject to backup withholding unless the holder (i) is a corporation or other
exempt recipient or (ii) provides a taxpayer identification number and
certifies that no loss of exemption from backup withholding has occurred (and
certain other conditions are met).
-105-
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended. In accordance with these requirements,
the Company files reports and other information with the U.S. Securities and
Exchange Commission (the "SEC"). These materials, including this annual report
and exhibits thereto, may be inspected and copied at the SEC's Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of the materials may
be obtained from the SEC's Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549 at prescribed rates. The public may obtain information
on the operation of the Public Reference Room by calling the SEC in the U.S. at
1-800-SEC-0330. The documents filed via the Electronic Data Gathering,
Analysis, and Retrieval system are also available for inspection on the SEC's
website (http://www.sec.gov).
I. Subsidiary Information
Not Applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
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 2006, and
there are no material quantitative changes in market risk exposure at March 31,
2006 when compared to March 31, 2005. 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.
-106-
FOREIGN CURRENCY RISK
In the ordinary course of business, Ricoh uses foreign exchange forward
contracts to manage the effects of foreign currency exchange risk on monetary
assets and liabilities denominated in foreign currencies. The contracts with
respect to the operating activities generally have maturities of less than six
months, while the contracts with respect to the financing activities have the
same maturities as the underlying assets and liabilities.
The table below provides information about Ricoh's material derivative
financial instruments that are sensitive to foreign currency exchange rates.
The table below relating to foreign exchange forward contracts presents the
notional amounts, weighted average exchange rates and estimated fair value.
These notional amounts generally are used to calculate the contractual payments
to be exchanged under the contracts.
Foreign Exchange Forward Contracts
------------------------------------------------------------------------
Year Ended March 31, 2006
----------------------------------------------------------------
Average contractual rates Contract amounts Estimated fair value
(Millions of yen) (Millions of yen)
----------------------------------------------------------------
US$/Yen 118.37 592 6
EUR/Yen 140.40 2,359 (33)
------------------------------------------------------------------------
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.
-107-
LONG-TERM INDEBTEDNESS
------------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 2006
------------------------------------------------------------------------------------------------------------------------------
Millions of Yen
---------------------------------------------------------------------------------------------
(Excluding Capital Expected maturity date
Lease Obligations and --------------------------------------------------------------------------------
SFAS No. 133 fair Average Fair
value adjustment) pay rate Total 2007 2008 2009 2010 2011 Thereafter Value
------------------------------------------------------------------------------------------------------------------------------
Bonds 1.10% 100,000 45,000 10,000 25,000 20,000 -- -- 100,304
Medium-Term Notes 0.17 10,000 10,000 -- -- -- -- -- 10,000
Loans 1.43 184,751 46,930 68,186 33,703 26,638 8,012 1,282 184,553
------------------------------------------------------------------------------------------------------------------------------
TOTAL 294,751 101,930 78,186 58,703 46,638 8,012 1,282 294,857
------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS
------------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 2006
------------------------------------------------------------------------------------------------------------------------------
Millions of Yen
--------------------------------------------------------------------------------------
Expected maturity date
---------------------------------------------------------------------------
Notional Average Average
amounts receive pay Fair
(Millions) Type of swap rate rate Total 2007 2008 2009 2010 2011 Thereafter value
------------------------------------------------------------------------------------------------------------------------------
Receive
floating
37,000 /Pay
fixed 0.37% 0.10% 37,000 22,000 10,000 5,000 -- -- -- 553
Receive
fixed
25,000 /Pay
floating 1.90 0.10 25,000 1,000 6,000 10,000 8,000 -- -- 129
------------------------------------------------------------------------------------------------------------------------------
Receive
floating
US$ 190 /Pay
fixed 5.13% 4.64% 22,319 22,319 -- -- -- -- -- 493
------------------------------------------------------------------------------------------------------------------------------
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.
-108-
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, 2006.
(Millions of Yen)
---------------------------------------------------------------------------
Year ended March 31, 2006
---------------------------------
Cost Fair Value
--------------- ----------------
Debt Securities
Due within one year 161 161
Due after one year through five years 6,000 6,050
Equity Securities 8,034 23,713
Other 172 172
---------------------------------
TOTAL 14,367 30,096
---------------------------------
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
-----------------------
As of March 31, 2006, 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 Chief Financial Officer. Based on that
evaluation, Ricoh's management, including the Chief Executive Officer and the
Chief Financial Officer, 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 the Chief Financial Officer completed their
evaluation.
-109-
Item 16. [RESERVED]
Item16A. Audit Committee Financial Expert
--------------------------------
The Board of Directors of the Company has determined that it does not have
an "audit committee financial expert" as defined in Item 16A. of Form 20-F
serving on the Board of Corporate Auditors.
The Company is considering the issues related to and the ramifications of
such a designation. In Japan, there are limited numbers of qualified persons
who meet all of the criteria established by the SEC for financial experts to be
designated by issuers. Accordingly, it is taking some time for the Company to
identify such a qualified person. Although the Board of Directors is satisfied
that that members of the Board of Corporate Auditors possess the appropriate
skills and experience, as a group, to carry out their duties as members of the
Board of Corporate Auditors, the Company will continue to strive to identify
potential candidates that might qualify for this position. The Board of
Corporate Auditors will keep under active review the financial expert matter
during the fiscal year 2006 as part of their overall risk management and
compliance program.
Item16B. Code of Ethics
--------------
Ricoh has adopted a code of ethics that applies to its employees, including
the President, Chief Executive Officer, Chief Operating Officer, and the senior
management of accounting and finance. Such code of ethics of Ricoh is provided
hereto as Exhibit 11.
Item16C. Principal Accountant Fees and Services
--------------------------------------
The aggregate fees for professional services and other services rendered by
KPMG AZSA & Co. and the various member firms of KPMG International to Ricoh for
the years ended March 31, 2005 and 2006, were:
(Millions of Yen)
---------------------------------------
Year Ended March 31,
--------------------
Type of Fees 2005 2006
---------------------------------------
Audit Fees 697 697
Audit-related Fees 404 71
Tax Fees 53 84
All Other Fees 16 34
--------------------
TOTAL 1,170 886
--------------------
Audit Fees consist of fees for the annual audit of Ricoh's consolidated
financial statements, and audit services that are normally provided by our
independent accountants.
-110-
Audit-related Fees consist of fees for assurance and related services that
are reasonably related to due diligence related to mergers and acquisitions and
consultation concerning financial accounting and reporting standards.
Tax Fees consist of fees for tax compliance, tax advice and tax consulting
associated with international transfer prices.
All Other Fees consist of fees for all other services not included in any of
the categories noted above.
-111-
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
In accordance with Japanese law, the Company's independent accountants
(KAIKEI KANSANIN) ("Accounting Auditors") are appointed by the shareholders at
the Ordinary General Meeting of Shareholders with the consent of the Company's
Board of Corporate Auditors. In addition, the Board of Corporate Auditors may,
by its resolution, request the Company's Board of Directors to submit a
proposal as to the appointment of Accounting Auditors at the Ordinary General
Meeting of Shareholders. Subsequent to the appointment of the Accounting
Auditors, the Board of Corporate Auditors is responsible, among other matters,
for the oversight of the Accounting Auditors, subject to the requirements of
Japanese law. No proposal was submitted to discharge KPMG AZSA & Co. as the
Company's Accounting Auditors at the most recent Ordinary General Meeting of
Shareholders held on June 28, 2006.
The Board of Corporate Auditors has adopted policies and procedures to
pre-approve all audit and permissible non-audit services provided by the
Accounting Auditor ("Pre-approval Policies"). Under the Pre-approval Policies,
proposed services either (i) may be pre-approved by the Board of Corporate
Auditors without specific consideration on a case-by-case basis if such
services do not exceed pre-approved fee levels ("general pre-approval"), or
(ii) require the specific pre-approval of the Board of Corporate Auditors
("specific pre-approval"). The Board of Corporate Auditors may delegate its
specific pre-approval authority to one or more of its independent members who
shall be designated by the Board of Corporate Auditors. Under the Pre-approval
Policies, the Accounting Auditors are not allowed to perform any non-audit
services which may impair the auditors independence under the rules of the SEC.
The appendices to the Pre-approval Policies set out the audit, audit-related,
tax and other services, including those described above, that have received the
general pre-approval of the Board of Corporate Auditors.
The term of any general pre-approval is twelve months from the date of
pre-approval, unless the Board of Corporate Auditors specifically provides for
a different period and sets forth such different period in the relevant
appendix to the Pre-approval Policies. The Board of Corporate Auditors will
annually review the Pre-approval Policies and revise the list of services that
it has provided general pre-approval. Requests or applications to provide
services that require specific pre-approval by the Board of Corporate Auditors
will be submitted to the Board of Corporate Auditors by the Chief Officer of a
company or division to which services are provided, accompanied by a draft
engagement letter from the Accounting Auditor.
During fiscal year 2006, none of the services provided to the Company by
KPMG AZSA & Co. were approved by the Board of Corporate Auditors pursuant to
the de minimis exception to the pre-approval requirement provided by paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
-112-
Item16D. Exemptions from the Listing Standards for Audit Committees
----------------------------------------------------------
Not applicable.
Item16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
----------------------------------------------------------------------
Not applicable.
PART III
Item 17. Financial Statements
--------------------
Not applicable.
Item 18. Financial Statements
--------------------
See Consolidated Financial Statements and Schedule attached hereto.
Item 19. Exhibits
--------
Documents filed as exhibits to this annual report:
1.1 Articles of Incorporation, as amended (English translation)
1.2 Share Handling Regulations, as amended (English translation)
1.3 Regulations of the Board of Directors, as amended (English
translation)
1.4 Regulation of the Board of Corporate Auditors, as amended
(English translation)
8.1 List of Significant Subsidiaries (See "Organizational
structure" in Item 4.C. of this Form 20-F)
11 Code of Ethics (English translation)
12.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a)
12.2 Certification Pursuant to Rule 13a-14(a)/15d-14(a)
13.(a)(1) Certification Pursuant to Section 1350 of Chapter 63 of Title
18 of the United States Code
13.(a)(2) Certification Pursuant to Section 1350 of Chapter 63 of Title
18 of the United States Code
-113-
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
Director, Corporate Executive
Vice President and Chief
Financial Officer
Date: June 29, 2006
RICOH COMPANY, LTD.
Consolidated Financial Statements and Schedule
For the years ended March 31, 2004, 2005 and 2006
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, 2005 and 2006........ F-3 to F-4
Consolidated Statements of Income for the years ended March 31,
2004, 2005 and 2006............................................ F-5
Consolidated Statements of Shareholders' Investment for the
years ended March 31, 2004, 2005 and 2006...................... F-6
Consolidated Statements of Cash Flows for the years ended
March 31, 2004, 2005 and 2006.................................. F-7
Notes to Consolidated Financial Statements....................... F-8 to F-41
Schedule:
II. Valuation and Qualifying Accounts and Reserves............ F-42
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, 2005 and 2006, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 2006, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
The accompanying consolidated financial statements as of and for the year ended
March 31, 2006, have been translated into United States dollars solely for the
convenience of the reader. We have audited the translation and, in our opinion,
the consolidated financial statements, expressed in yen, have been translated
into dollars on the basis set forth in Note 2 to the consolidated financial
statements.
/s/ KPMG AZSA & Co.
Tokyo, Japan
April 26, 2006,
except for note 19 which is as of May 31, 2006
F-2
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2005 AND 2006
Thousands of
Millions of Yen U.S. Dollars
-------------------------- ------------
ASSETS 2005 2006 2006
--------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 186,857 187,055 $ 1,598,761
Time deposits 1,454 1,470 12,564
Marketable securities 138 162 1,385
Trade receivables-
Notes 75,233 75,678 646,821
Accounts 396,150 391,972 3,350,188
Less- Allowance for doubtful receivables (17,451) (16,031) (137,017)
Current maturities of long-term finance receivables, net 166,636 178,882 1,528,906
Inventories-
Finished goods 109,224 104,218 890,752
Work in process and raw materials 58,141 65,027 555,786
Deferred income taxes and other 53,365 55,110 471,026
--------------------------------------------------------------------------------------------------------------
Total current assets 1,029,747 1,043,543 8,919,172
--------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at cost:
Land 43,077 46,721 399,325
Buildings 203,537 217,302 1,857,282
Machinery and equipment 643,386 622,038 5,316,564
Construction in progress 18,720 11,541 98,641
--------------------------------------------------------------------------------------------------------------
908,720 897,602 7,671,812
Less- Accumulated depreciation (661,310) (629,359) (5,379,137)
--------------------------------------------------------------------------------------------------------------
247,410 268,243 2,292,675
--------------------------------------------------------------------------------------------------------------
Investments and Other Assets:
Long-term finance receivables, net 391,947 415,435 3,550,726
Investment securities 31,154 36,419 311,274
Investments in and advances to affiliates 49,316 52,028 444,684
Goodwill 47,502 51,934 443,880
Other intangible assets 69,414 79,175 676,709
Lease deposits and other 87,179 94,406 806,889
--------------------------------------------------------------------------------------------------------------
676,512 729,397 6,234,162
--------------------------------------------------------------------------------------------------------------
1,953,669 2,041,183 $ 17,446,009
--------------------------------------------------------------------------------------------------------------
F-3
Thousands of
Millions of Yen U.S. Dollars
-------------------------- ------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT 2005 2006 2006
--------------------------------------------------------------------------------------------------------------
Current Liabilities:
Short-term borrowings 38,710 82,520 $ 705,299
Current maturities of long-term indebtedness 144,808 103,131 881,462
Trade payables-
Notes 29,686 25,591 218,726
Accounts 306,813 313,561 2,680,009
Accrued income taxes 24,074 40,936 349,880
Accrued expenses and other 127,423 118,289 1,011,018
--------------------------------------------------------------------------------------------------------------
Total current liabilities 671,514 684,028 5,846,394
--------------------------------------------------------------------------------------------------------------
Long-term Liabilities:
Long-term indebtedness 226,567 195,626 1,672,017
Accrued pension and severance costs 92,672 97,020 829,231
Deferred income taxes 48,767 51,374 439,094
--------------------------------------------------------------------------------------------------------------
368,006 344,020 2,940,342
--------------------------------------------------------------------------------------------------------------
Minority Interests 51,151 52,890 452,051
--------------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Note 15)
Shareholders' Investment:
Common stock;
Authorized - 993,000,000 shares in 2005 and 1,500,000,000
shares in 2006
Issued and outstanding - 744,912,078 shares and
734,045,879 shares in 2005 and 744,912,078 shares and
729,522,274 shares in 2006 135,364 135,364 1,156,957
Additional paid-in capital 186,551 186,450 1,593,590
Retained earnings 584,515 665,394 5,687,128
Accumulated other comprehensive income (loss) (21,963) 4,099 35,034
Treasury stock at cost; 10,866,199 shares in 2005 and 15,359,804
shares in 2006 (21,469) (31,062) (265,487)
--------------------------------------------------------------------------------------------------------------
Total shareholders' investment 862,998 960,245 8,207,222
--------------------------------------------------------------------------------------------------------------
1,953,669 2,041,183 $ 17,446,009
--------------------------------------------------------------------------------------------------------------
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, 2004, 2005 AND 2006
Thousands of
Millions of Yen U.S. Dollars
---------------------------------------- ------------
2004 2005 2006 2006
----------------------------------------------------------------------------------------------------------------
Net Sales:
Products 1,074,893 1,067,736 1,108,746 $ 9,476,462
Post sales and rentals 597,989 627,991 693,138 5,924,256
Other revenue 107,363 118,381 113,206 967,573
----------------------------------------------------------------------------------------------------------------
Total 1,780,245 1,814,108 1,915,090 16,368,291
----------------------------------------------------------------------------------------------------------------
Cost of Sales:
Products 693,087 713,057 738,962 6,315,915
Post sales and rentals 245,512 259,591 293,559 2,509,051
Other revenue 76,020 86,883 82,958 709,043
----------------------------------------------------------------------------------------------------------------
Total 1,014,619 1,059,531 1,115,479 9,534,009
----------------------------------------------------------------------------------------------------------------
Gross profit 765,626 754,577 799,611 6,834,282
Selling, General and Administrative Expenses 623,935 619,071 647,597 5,535,017
Transfer to the government of the substitutional portion
of Employees' Pension Fund:
Settlement loss 48,657 - - -
Subsidy from government (56,972) - - -
----------------------------------------------------------------------------------------------------------------
Operating income 150,006 135,506 152,014 1,299,265
----------------------------------------------------------------------------------------------------------------
Other (Income) Expenses:
Interest and dividend income (1,925) (2,240) (2,896) (24,752)
Interest expense 5,290 4,684 5,242 44,803
Foreign currency exchange (gain) loss, net 6,136 (1,547) (3,748) (32,034)
Other, net (2,558) (774) (2,783) (23,786)
----------------------------------------------------------------------------------------------------------------
Total 6,943 123 (4,185) (35,769)
----------------------------------------------------------------------------------------------------------------
Income before Income Taxes, Minority Interests, Equity
in Earnings of Affiliates and Cumulative Effect of
Accounting Change 143,063 135,383 156,199 1,335,034
Provision for Income Taxes:
Current 53,303 39,281 60,857 520,145
Deferred 3,338 11,353 (3,294) (28,154)
----------------------------------------------------------------------------------------------------------------
Total 56,641 50,634 57,563 491,991
----------------------------------------------------------------------------------------------------------------
Income before Minority Interests, Equity in Earnings of
Affiliates and Cumulative Effect of Accounting
Change 86,422 84,749 98,636 843,043
Minority Interests 4,094 4,726 4,185 35,769
Equity in Earnings of Affiliates 2,065 3,120 2,606 22,273
----------------------------------------------------------------------------------------------------------------
Income before Cumulative Effect of Accounting Change 84,393 83,143 97,057 829,547
Cumulative Effect of Accounting Change, net of tax 7,373 - - -
----------------------------------------------------------------------------------------------------------------
Net Income 91,766 83,143 97,057 $ 829,547
----------------------------------------------------------------------------------------------------------------
Yen U.S. Dollars
---------------------------------------- ------------
Per Share of Common Stock:
----------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting
change 113.69 112.64 132.33 1.13
Cumulative effect of accounting change 9.94 - - -
Net income 123.63 112.64 132.33 1.13
Weighted average common shares outstanding
(Thousand of shares) 742,293 738,160 733,434 733,434
----------------------------------------------------------------------------------------------------------------
Cash dividends paid per share 15.00 20.00 22.00 $ 0.19
----------------------------------------------------------------------------------------------------------------
Per American Depositary Share, each representing
5 shares of common stock:
----------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting
change 568.45 563.20 661.65 5.66
Cumulative effect of accounting change 49.70 - - -
Net income 618.15 563.20 661.65 5.66
----------------------------------------------------------------------------------------------------------------
Cash dividends paid per share 75.00 100.00 110.00 $ 0.94
----------------------------------------------------------------------------------------------------------------
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, 2004, 2005 AND 2006
Thousands of
Millions of Yen U.S. Dollars
---------------------------------- ------------
2004 2005 2006 2006
--------------------------------------------------------------------------------------------------------------
Common Stock:
Beginning balance 135,364 135,364 135,364 $1,156,957
--------------------------------------------------------------------------------------------------------------
Ending balance 135,364 135,364 135,364 $1,156,957
--------------------------------------------------------------------------------------------------------------
Additional Paid-in Capital:
Beginning balance 186,521 186,599 186,551 $1,594,453
Gain (loss) on disposal of treasury stock in exchange for
subsidiary's stock 78 (48) (101) (863)
--------------------------------------------------------------------------------------------------------------
Ending balance 186,599 186,551 186,450 $1,593,590
--------------------------------------------------------------------------------------------------------------
Retained Earnings:
Beginning balance 434,748 515,372 584,515 $4,995,855
Adjustment for change in fiscal year end of consolidated
subsidiaries - 777 - -
Net income for the year 91,766 83,143 97,057 829,547
Dividends declared and approved (11,142) (14,777) (16,178) (138,274)
--------------------------------------------------------------------------------------------------------------
Ending balance 515,372 584,515 665,394 $5,687,128
--------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (loss):
Beginning balance (94,733) (30,272) (21,963) $ (187,718)
Adjustment for change in fiscal year end of consolidated
subsidiaries - (1,665) - -
Foreign currency translation adjustments (5,393) 9,041 14,876 127,145
Unrealized gains (losses) on securities, net of
reclassification adjustment (4,556) 765 4,137 35,359
Unrealized gains on derivatives, net of reclassification
adjustment 154 141 40 342
Minimum pension liability adjustments 74,256 27 7,009 59,906
--------------------------------------------------------------------------------------------------------------
Ending balance (30,272) (21,963) 4,099 $ 35,034
--------------------------------------------------------------------------------------------------------------
Treasury stock:
Beginning balance (4,386) (11,932) (21,469) $ (183,496)
Purchase of treasury stock; 5,731,150 shares in 2004,
6,179,522 shares in 2005 and 5,048,765 shares in 2006 (11,411) (12,178) (10,660) (91,111)
Sales of treasury stock; 6,873 shares in 2004, 24,810
shares in 2005 and 33,760 shares in 2006 13 49 66 564
Issuance of treasury stock in exchange for subsidiary's
stock; 2,010,533 shares in 2004, 1,305,700 shares in
2005 and 521,400 shares in 2006 3,852 2,592 1,001 8,556
--------------------------------------------------------------------------------------------------------------
Ending balance (11,932) (21,469) (31,062) $ (265,487)
--------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for the year 91,766 83,143 97,057 $ 829,547
Other comprehensive income for the year, net of tax 64,461 9,974 26,062 222,752
--------------------------------------------------------------------------------------------------------------
Total comprehensive income for the year 156,227 93,117 123,119 $1,052,299
--------------------------------------------------------------------------------------------------------------
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, 2004, 2005 AND 2006
Thousands of
Millions of Yen U.S. Dollars
----------------------------------- ------------
2004 2005 2006 2006
---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 91,766 83,143 97,057 $ 829,547
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 76,968 78,201 84,460 721,880
Equity in earnings of affiliates, net of dividends
received (1,001) (1,966) (1,431) (12,231)
Deferred income taxes 3,338 11,353 (3,294) (28,154)
Losses on disposals and sales of property, plant and
equipment 2,035 4,056 920 7,863
Pension and severance costs, less payments (609) 4,307 3,342 28,564
Cumulative effect of accounting change, net of tax (7,373) - - -
Changes in assets and liabilities, net of effects from
acquisition-
(Increase) decrease in trade receivables (11,367) (26,429) 13,429 114,778
(Increase) decrease in inventories (4,317) (12,885) 3,726 31,846
Increase in finance receivables (32,650) (30,294) (30,029) (256,658)
(Decrease) increase in trade payables 21,316 27,276 (4,495) (38,419)
(Decrease) increase in accrued income taxes
and accrued expenses and other (5,913) (13,719) 2,497 21,342
Other, net 22,718 9,737 10,687 91,343
---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 154,911 132,780 176,869 1,511,701
---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment 190 721 3,085 26,368
Expenditures for property, plant and equipment (75,432) (84,076) (101,793) (870,026)
Payments for purchases of available-for-sale securities (35,518) (79,431) (138,607) (1,184,675)
Proceeds from sales of available-for-sale securities 45,464 118,120 141,620 1,210,427
(Increase) decrease in time deposits 9,915 (511) 61 521
Acquisitions of subsidiaries, net of cash acquired - (43,214) - -
Other, net (8,002) (7,807) (24,431) (208,812)
---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (63,383) (96,198) (120,065) (1,026,197)
---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term indebtedness 13,349 72,206 63,751 544,880
Repayment of long-term indebtedness (31,509) (60,613) (93,752) (801,299)
(Decrease) increase in short-term borrowings, net (10,728) (38,052) 39,618 338,615
Proceeds from issuance of long-term debt securities 1,000 18,000 10,000 85,470
Repayment of long-term debt securities (23,910) (22,000) (52,000) (444,444)
Dividend paid (11,136) (14,793) (16,178) (138,274)
Payment for purchase of treasury stock (11,411) (10,624) (10,653) (91,051)
Other, net (490) (563) (775) (6,623)
---------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (74,835) (56,439) (59,989) (512,726)
---------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (2,897) 1,200 3,383 28,914
---------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,796 (18,657) 198 1,692
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 189,243 203,039 186,857 1,597,069
ADJUSTMENT FOR CHANGE IN FISCAL YEAR END OF
CONSOLIDATED SUBSIDIARIES - 2,475 - -
---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 203,039 186,857 187,055 $ 1,598,761
---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR-
Interest 6,479 5,402 5,717 $ 48,863
Income taxes 66,914 40,803 44,854 383,368
---------------------------------------------------------------------------------------------------------------------
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 U.S. generally accepted accounting principles. Significant
accounting and reporting policies are summarized below:
(A) BASIS OF PRESENTATION
The accompanying consolidated financial statements for each of the years in the
three year period ended March 31, 2006 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, 2006 is included solely for the convenience of readers outside Japan
and has been made using the exchange rate of Yen 117 to US$1, the approximate
rate of exchange prevailing at the Federal Reserve Bank of New York on
March 31, 2006.
The books of the Company and its domestic subsidiaries are maintained in
conformity with Japanese accounting principles and practices, while foreign
subsidiaries maintain their books in conformity with the standards of their
country of domicile.
The accompanying consolidated financial statements reflect necessary
adjustments, not recorded in the books, to present them in conformity with U.S.
generally accepted accounting principles.
(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.
The accounts of certain consolidated subsidiaries have been included on the
basis of fiscal periods ended within three months prior to March 31.
F-8
At the beginning of fiscal year 2005, the Company changed the year end of
certain overseas subsidiaries from December 31 to March 31. As a result,
unappropriated retained earnings increased by Yen 777 million and accumulated
other comprehensive income (loss) in shareholders' investment decreased by
Yen 1,665 million.
(C) REVENUE RECOGNITION
Ricoh generates revenue principally through the sale of equipment, supplies and
related services under separate contractual arrangements for each. Ricoh
recognizes revenue when (1) it has a firm contract, (2) the product has been
shipped to and accepted by the customer or the service has been provided,
(3) the sales price is fixed or determinable and (4) amounts are reasonably
assured of collection.
Products sales is recognized at the time of delivery and installation at the
customer location. Equipment revenues are based on established prices by
product type and model and are net of discounts. A sales return is accepted
only when the equipment is defective and does not meet Ricoh's product
performance specifications. Other than installation, there are no customer
acceptance clauses in the sales contract.
Post sales and rentals result primarily from maintenance contracts that are
normally entered into at the time the equipment is sold. Standard service fee
prices are established depending on equipment classification and include a cost
value for the estimated services to be performed based on historical experience
plus a profit margin thereon. As a matter of policy, Ricoh does not discount
such prices. On a monthly basis, maintenance service revenues are earned and
recognized by Ricoh and billed to the customer in accordance with the contract
and include a fixed monthly fee plus a variable amount based on usage. The
length of the contract ranges up to five-years, however, most contracts are
cancelable at any time by the customer upon a short notice period. Leases not
qualifying as sales-type leases or direct financing leases are accounted for as
operating leases and related revenue is recognized over the lease term.
Ricoh enters into arrangements with multiple elements, which may include any
combination of products, equipment, installation and maintenance. Ricoh
allocates revenue to each element based on its relative fair value if such
element meets the criteria for treatment as a separate unit of accounting as
prescribed in 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.
Revenue from the sale of equipment under sales-type leases is recognized as
product sales at the inception of the lease. Other revenue consists primarily
of interest income on sales-type leases and direct-financing leases, which are
recognized as Other revenue over the life of each respective lease using the
interest method.
F-9
(D) FOREIGN CURRENCY TRANSLATION
For foreign operations with functional currencies other than the Japanese yen,
assets and liabilities are translated at the exchange rates in effect at each
fiscal year-end, and income and expenses are translated at the average rates of
exchange prevailing during each fiscal year. The resulting translation
adjustments are included as a part of accumulated other comprehensive income
(loss) in shareholders' investment.
All foreign currency transaction gains and losses are included in other income
and expenses in the period incurred.
(E) CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with maturities of
three months or less at the date of purchase such as time deposits and
short-term investment securities which are available-for sale at any time,
present insignificant risk of changes in value due to being readily convertible
into cash and have an original maturity of three months or less, such as money
management funds and free financial funds.
(F) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
As discussed further in Note 14, Ricoh manages its exposure to certain market
risks, primarily foreign currency and interest rate risks, through the use of
derivative instruments. As a matter of policy, Ricoh does not enter into
derivative contracts for trading or speculative purposes.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.133
as amended, Ricoh recognized all derivative instruments as either assets or
liabilities in the Consolidated Balance Sheets and measures those instruments
at fair value. When Ricoh enters into a derivative contract, it makes a
determination as to whether or not for accounting purposes the derivative is
part of a hedging relationship. In general, a derivative may be designated as
either (1) a hedge of the fair value of a recognized asset or liability or an
unrecognized firm commitment ("fair value hedge"), (2) a hedge of the
variability of the expected cash flows associated with an existing asset or
liability or a forecasted transaction ("cash flow hedge"), or (3) a foreign
currency fair value or cash flow hedge ("foreign currency hedge"). Ricoh
formally documents all relationships between hedging instruments and hedged
items, as well as its risk-management objective and strategy for undertaking
various hedge transactions. This process includes linking all derivatives that
are designated as fair value, cash flow, or foreign currency hedges to specific
assets and liabilities on the consolidated balance 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.
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 for which Ricoh has concluded it will be unable to collect all
amounts due according to original terms of the lease or loan agreement. Account
balances net of expected recovery from available collateral are charged-off
against the allowances when collection is considered remote.
(H) SECURITIES
Ricoh applies SFAS No.115, "Accounting for Certain Investments in Debt and
Equity Securities" which requires all investments in debt and marketable equity
securities to be classified as either held-to-maturity, trading, or
available-for-sale securities. As of March 31, 2005 and 2006, all of Ricoh's
investments in debt and marketable equity securities are classified as
available-for-sale securities. Those available-for-sale securities are reported
at fair value with unrealized gains and losses, net of related taxes, excluded
from earnings and reported in accumulated other comprehensive income (loss).
Available-for-sale securities, which mature or are expected to be sold in one
year, are classified as current assets.
Individual securities classified as available-for-sale securities are reduced
to fair market value by a charge to income for other than temporary declines in
value. Factors considered in assessing whether an indication of other than
temporary impairment exists with respect to available-for-sale securities
include: length of time and extent of decline, financial condition and near
term prospects of issuer and intent and ability of the Company to retain its
investments for a period of time sufficient to allow for any anticipated
recovery in market value.
The cost of the securities sold is computed based on the average cost of each
security held at the time of sale.
Non-marketable equity securities owned by Ricoh primarily relate to less than
20% owned companies and are stated at cost.
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.
(I) INVENTORIES
Inventories are mainly stated at the lower of average cost or net realizable
values. Inventory costs include raw materials, labor and manufacturing
overheads.
(J) PROPERTY, PLANT AND EQUIPMENT
For the Company and its domestic subsidiaries, depreciation of property, plant
and equipment is computed principally by using the declining-balance method
over the estimated useful lives. Most of the foreign subsidiaries have adopted
the straight-line method for computing depreciation, which currently accounts
for approximately 34% 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.
F-11
Effective rates of depreciation for the years ended March 31, 2004, 2005 and
2006 are summarized below:
2004 2005 2006
-----------------------------------------------------------------------
Buildings 8.1% 8.5% 8.9%
Machinery and equipment 42.9 43.8 40.5
-----------------------------------------------------------------------
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, 2005 and 2006 were as follows:
Thousands of
Millions of Yen U.S. Dollars
----------------- ------------
2005 2006 2006
------------------------------------------------------------------
Aggregate cost 7,051 6,895 $58,932
Accumulated depreciation 4,615 4,911 41,974
------------------------------------------------------------------
The related future minimum lease payments and the present value of the net
minimum lease payments as of March 31, 2006 were Yen 3,615 million ($30,897
thousand) and Yen 3,453 million ($29,513 thousand), respectively.
Ordinary maintenance and repairs are charged to expense as incurred. Major
replacements and improvements are capitalized. When properties are retired or
otherwise disposed of, the property and related accumulated depreciation
accounts are relieved of the applicable amounts, and any differences are
included in earnings.
(K) CAPITALIZED SOFTWARE COSTS
Costs incurred for computer software developed or obtained for internal use are
capitalized and amortized on a straight line basis over their estimated useful
lives in accordance with Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use."
(L) GOODWILL AND OTHER INTANGIBLE ASSETS
SFAS No.141, "Business Combinations" requires the use of only the purchase
method of accounting for business combinations and refines the definition of
intangible assets acquired in a purchase business combination. SFAS No.142,
"Goodwill and Other Intangible Assets" eliminates the amortization of goodwill
and instead requires annual impairment testing thereof. SFAS 142 also requires
acquired intangible assets with a definite useful life to be amortized over
their respective estimated useful lives and reviewed for impairment in
accordance with SFAS No.144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". Any acquired intangible asset determined to have an
indefinite useful life is not amortized, but instead is tested annually for
impairment based on its fair value until its life would be determined to no
longer be indefinite.
Ricoh completed its annual assessment of the carrying value of indefinite-lived
intangible assets, including goodwill for the years ended March 31, 2004, 2005
and 2006 and determined that no goodwill impairment charge was necessary.
F-12
(M) PENSION AND RETIREMENT ALLOWANCES PLANS
The measurement of pension costs and liabilities is determined in accordance
with SFAS No.87, "Employers' Accounting for Pensions." 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.
(N) INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences and carryforwards are expected to be
realized or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(O) RESEARCH AND DEVELOPMENT EXPENSES AND ADVERTISING COSTS
Research and development expenses and advertising costs are expensed as
incurred.
(P) SHIPPING AND HANDLING COSTS
Shipping and handling costs, which mainly include transportation to customers,
are included in selling, general and administrative expenses on the
consolidated statements of income.
(Q) IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
Long-lived assets and acquired intangible assets with a definite life are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or group of assets may not be recoverable.
Recoverability of assets to be held and used is assessed by comparing the
carrying amount of an asset or asset group to the expected future undiscounted
net cash flows of the asset or group of assets. If an asset or group of assets
is considered to be impaired, the impairment charge to be recognized is
measured as the amount by which the carrying amount of the asset or group of
assets exceeds fair value. Long-lived assets meeting the criteria to be
considered as held for sale are reported at the lower of their carrying amount
or fair value less costs to sell.
(R) EARNINGS PER SHARE
Basic net income per 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
F-13
outstanding includes the additional dilution from potential common stock
equivalents such as convertible bonds.
Ricoh has no dilutive securities outstanding as of and for the years ended
March 31, 2004, 2005 and 2006, and therefore there is no difference between
basic and diluted net income per share.
(S) NON-CASH TRANSACTIONS
The following non-cash transactions have been excluded from the consolidated
statements of cash flows:
Thousands of
Millions of Yen U.S. Dollars
-------------------------- ------------
2004 2005 2006 2006
---------------------------------------------------------------------------------------------------------------
Capital lease obligations incurred 75 865 261 $2,231
Issuance of treasury stock in exchange for subsidiary's stock 3,930 2,545 905 7,735
Transfer of marketable equity securities to employee retirement benefit
trust 3,648 - - -
---------------------------------------------------------------------------------------------------------------
(T) 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 U.S. generally accepted
accounting principles. Actual results could differ from those estimates.
The Company has identified five areas where it believes assumptions and
estimates are particularly critical to the consolidated financial statements.
These are determination of the allowance for doubtful receivables, impairment
of securities, impairment of long-lived assets including goodwill,
realizability of deferred tax assets and pension accounting.
(U) NEW ACCOUNTING STANDARDS
In November 2004, the FASB issued SFAS No.151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4" to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs, and wasted material (spoilage).
Among other provisions, the new rule requires that items such as idle facility
expense, excessive spoilage, double freight, and rehandling cost be recognized
as current period charges regardless of whether they meet the criterion of "so
abnormal" as stated in ARB No. 43. In addition, SFAS 151 requires that the
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. SFAS 151 is effective for the
fiscal years beginning after June 15, 2005 and is required to be adopted by
Ricoh in the fiscal year beginning April 1, 2006. The adoption of SFAS 151 is
not expected to have a material effect on the Company's consolidated results of
operations and financial position.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153 eliminates
the exception from fair value measurement for non-monetary exchanges of similar
productive assets in paragraph 21(b) of APB Opinion No. 29, "accounting for
Nonmonetary Transactions", and replaces it with an exception for exchanges that
do not
F-14
have commercial substance. SFAS 153 specifies that a non-monetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS 153 is effective for the
fiscal years beginning after June 15, 2005 and is required to be adopted by
Ricoh in the fiscal year beginning April 1, 2006. The adoption of SFAS 153 is
not expected to have a material effect on the Company's consolidated results of
operations and financial position.
In May 2005, the FASB issued No. 154, "Accounting Changes and Error Corrections
- a replacement of APB Opinion No. 20 and SFAS No.3". SFAS 154 replaces APB 20,
"Accounting Changes" and SFAS 3, "Reporting Accounting Changes in Interim
Financial Statements", and requires retrospective applications to prior
periods' financial statements of a voluntary change in accounting principle
unless it is impracticable. SFAS 154 is effective for the fiscal years
beginning after December 15, 2005 and is required to be adopted by Ricoh in the
fiscal year beginning April 1, 2006. The adoption of SFAS 154 is not expected
to have a material effect on the Company's consolidated results of operations
and financial position.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments--an amendment of SFAS No. 133 and 140". SFAS 155 amends
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" and
SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". SFAS 155 permits fair value re-measurement for
any hybrid financial instrument that contains an embedded derivative, and
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative. SFAS 155 is
effective for the fiscal years beginning after September 15, 2006 and is
required to be adopted by Ricoh in the fiscal year beginning April 1, 2007. The
Company is currently evaluating the effect that the adoption of SFAS 155 will
have on its consolidated results of operations and financial condition but does
not expect it to have a material impact.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets--an amendment of FASB Statement No. 140". SFAS 156 amends SFAS
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" to clarify the accounting for servicing assets
and servicing liabilities. Among other provisions, the new accounting standard
requires all separately recognized servicing assets and servicing liabilities
to be initially measured at fair value, if practicable. SFAS 156 is effective
for the fiscal years beginning after September 15, 2006 and is required to be
adopted by Ricoh in the fiscal year beginning April 1, 2007. The Company is
currently evaluating the effect that the adoption of SFAS 156 will have on its
consolidated results of operations and financial condition but does not expect
it to have a material impact.
3. ACQUISITION
In October 2004, the Company acquired all of the issued and outstanding capital
stock of Hitachi Printing Solutions, Ltd. for total cash consideration of
Yen 44,085 million including direct acquisition costs. The company made the
acquisition to strengthen and expand its printing operations. The acquired
company was a non-public manufacturer and a subsidiary of Hitachi, Ltd. and was
renamed Ricoh Printing Systems, Ltd. ("RPS") upon acquisition by the Company.
The Company used the purchase method of accounting to account for the
acquisition of RPS and, accordingly, the purchase price has been allocated to
the tangible and intangible net assets of RPS based on the estimated fair value
of such net assets. The amount of consideration paid in excess of the estimated
fair value of the net assets acquired of Yen 19,583 million was recorded as
goodwill which is not tax deductible. Assets, liabilities and operations of RPS
have been included in the accompanying consolidated financial statements since
the acquisition date.
F-15
The following table reflects the October 1, 2004 condensed balance sheet of
RPS, as adjusted to give effect to the purchase method accounting adjustments:
Millions of Yen
------------------------------------------------------------------
Cash and cash equivalents 2,412
Receivables and other assets 31,463
Property and equipment 10,404
Identifiable intangible assets 20,400
Goodwill 19,583
Liabilities (40,177)
------------------------------------------------------------------
44,085
------------------------------------------------------------------
Identifiable intangible assets of RPS primarily comprise customer relationships
of Yen 13,900 million, which are estimated to have a remaining useful life of 5
to 12 years. Goodwill arising from the acquisition of RPS has all been
allocated to the Office Solutions segment. As a result of the goodwill
impairment test, impairment loss has not been recognized.
4. FINANCE RECEIVABLES
Finance receivables as of March 31, 2005 and 2006 are comprised primarily of
lease receivables and installment loans.
Ricoh's products are leased to domestic customers primarily through Ricoh
Leasing Company, Ltd., a majority-owned domestic subsidiary and to overseas
customers primarily through certain overseas subsidiaries. These leases are
accounted for as sales-type leases in conformity with SFAS 13. Sales revenue
from sales-type leases is recognized at the inception of the leases.
Information pertaining to Ricoh's lease receivables as of March 31, 2005 and
2006 is as follows:
Thousands of
Millions of Yen U.S. Dollars
------------------------ ------------
2005 2006 2006
-------------------------------------------------------------------------------------
Minimum lease payments receivable 568,911 603,698 $ 5,159,812
Estimated non-guaranteed residual value 3,030 4,144 35,419
Unearned income (48,290) (50,797) (434,162)
Allowance for doubtful receivables (15,199) (15,023) (128,402)
-------------------------------------------------------------------------------------
Lease receivables, net 508,452 542,022 4,632,667
-------------------------------------------------------------------------------------
Less: Current portion of lease receivable, net (165,295) (177,414) (1,516,359)
-------------------------------------------------------------------------------------
Amounts due after one year, net 343,157 364,608 $ 3,116,308
-------------------------------------------------------------------------------------
As of March 31, 2006, 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
------------------------------------------------------
2007 201,372 $1,721,128
2008 163,493 1,397,376
2009 123,527 1,055,786
2010 75,409 644,521
2011 30,851 263,684
2012 and thereafter 9,046 77,317
------------------------------------------------------
Total 603,698 $5,159,812
------------------------------------------------------
F-16
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, 2005 and 2006 was Yen 50,131 million and Yen 52,295 million ($446,966
thousand), respectively. The current portions of loan receivables were Yen 1,341
million and Yen 1,468 million ($12,547 thousand), respectively, as of March 31,
2005 and 2006, and are included in short-term finance receivables, net in the
accompanying balance sheet. Loan activity for the years ended March 31, 2004,
2005 and 2006 is as follow:
Thousands of
Millions of Yen U.S. Dollars
-------------------------------- ------------
2004 2005 2006 2006
----------------------------------------------------------------------------
Extension of new loans 13,686 12,456 12,657 $108,179
Repayment of outstanding loans 12,706 13,001 10,495 89,701
----------------------------------------------------------------------------
Ricoh sold finance lease receivables in prior years through securitization
transactions. Servicing assets or liabilities related to securitization
transactions initiated were not recorded, because the servicing fees adequately
compensate Ricoh. Ricoh's retained interests are subordinate to the investor's
interests. Their value is subject to credit and interest rate risk on the sold
financial assets. The investors and Special Purpose Entities that hold the
lease receivables have limited recourse to Ricoh's retained interest in such
receivables for failure of debtors to pay. Ricoh determines the value of the
retained interests by discounting the future cash flows. Those cash flows are
estimated based on credit losses and other information as available and are
discounted at a rate which Ricoh believes is commensurate with the risk free
rate plus a risk premium.
Key economic assumptions used in measuring the fair value of retained interests
related to securitization transactions completed during the years ended
March 31, 2005 and 2006 were as follows:
2005 2006
--------------------------------------------------------------------
Expected credit losses 0.75% - 1.35% 0.35% - 0.50%
Discount rate 2.00% - 3.00% 2.00% - 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, 2006 are presented below.
Thousands of
Millions of Yen U.S. Dollars
--------------- ------------
2006 2006
-------------------------------------------------------------------------------
Carrying value of retained interests (included in
lease deposits and other in the consolidated
balance sheet) 5,914 $50,547
Expected credit losses:
+10% 32 274
+20% 65 556
Discount rate:
+10% 22 188
+20% 44 376
-------------------------------------------------------------------------------
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.
F-17
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, 2004, 2005 and 2006:
Thousands of
Millions of Yen U.S. Dollars
-------------------------- ------------
2004 2005 2006 2006
--------------------------------------------------------------------------------------
Servicing fees received 25 22 22 $ 188
Repurchases of delinquent or ineligible assets 4,643 4,060 2,575 22,009
--------------------------------------------------------------------------------------
The components of all receivables managed and securitized, amounts of
delinquencies and the components of net credit losses as of March 31, 2005 and
2006, and for the years then ended, are as follows:
Millions of Yen
---------------------------------------------------------------------------------
2005 2006
---------------------------------------- ----------------------------------------
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 567,795 1,016 2,746 601,594 919 2,401
Less: Receivables securitized (44,145) (44,549)
--------------- -----------
Receivables held in portfolio 523,650 557,045
-------------------------------------------------------------------------------------------------------------------
Thousands of U.S. Dollars
----------------------------------------
2006
----------------------------------------
Principal
amount of
Total principal receivables
amount of 4 months or Net credit
receivables more past due losses
-------------------------------------------------------------------------------------------------------------------
Principal amount outstanding $5,141,829 $7,855 $20,521
Less: receivables securitized (380,761)
---------------
Receivables held in portfolio $4,761,068
-------------------------------------------------------------------------------------------------------------------
5. SECURITIES
Marketable securities and investment securities as of March 31, 2005 and 2006
consist of the following:
Thousands of
Millions of Yen U.S. Dollars
--------------------- ------------
2005 2006 2006
----------------------------------------------------------------------------
Marketable securities:
Available-for-sale securities 138 162 $ 1,385
----------------------------------------------------------------------------
Investment securities:
Available-for-sale securities 24,205 29,934 $255,846
Non-marketable equity securities 6,949 6,485 55,427
----------------------------------------------------------------------------
31,154 36,419 $311,273
----------------------------------------------------------------------------
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, 2005 and 2006 are as follows:
F-18
Millions of Yen
------------------------------------------------------------------------------------
2005 2006
------------------------------------------ -----------------------------------------
Gross Gross Gross Gross
unrealized unrealized unrealized unrealized
holding holding holding holding Fair
Cost gains losses Fair value Cost gains losses value
-------------------------------------------------------------------------------------------------------------------
Current:
Corporate debt securities 137 - - 137 161 - - 161
Other 1 - - 1 1 - - 1
-------------------------------------------------------------------------------------------------------------------
138 - - 138 162 - - 162
-------------------------------------------------------------------------------------------------------------------
Non-current:
Equity securities 7,479 9,021 49 16,451 8,034 15,716 37 23,713
Corporate debt securities 6,000 45 - 6,045 6,000 50 - 6,050
Other 1,229 480 - 1,709 171 0 0 171
-------------------------------------------------------------------------------------------------------------------
14,708 9,546 49 24,205 14,205 15,766 37 29,934
-------------------------------------------------------------------------------------------------------------------
Thousands of U.S. Dollars
-----------------------------------------
2006
-----------------------------------------
Gross Gross
unrealized unrealized
holding holding Fair
Cost gains losses value
-------------------------------------------------------------------------------------------------------------------
Current:
Corporate debt securities $ 1,376 $ - $ - $ 1,376
Other 9 - - 9
-------------------------------------------------------------------------------------------------------------------
$ 1,385 $ - $ - $ 1,385
-------------------------------------------------------------------------------------------------------------------
Non-current:
Equity securities $ 68,666 $ 134,325 $ 316 $ 202,675
Corporate debt securities 51,282 427 - 51,709
Other 1,462 0 0 1,462
-------------------------------------------------------------------------------------------------------------------
$121,410 $134,752 $316 $ 255,846
-------------------------------------------------------------------------------------------------------------------
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, 2006 were as follows:
Millions of Yen
---------------------------------------
Less than 12 months 12 months or longer
------------------- -------------------
Gross Gross
unrealized unrealized
Fair holding Fair holding
value losses value losses
---------------------------------------------------------------------------
2006:
Noncurrent:
Available-for-sale:
Equity securities 223 37 - -
---------------------------------------------------------------------------
Thousands of U.S. Dollars
---------------------------------------
Less than 12 months 12 months or longer
------------------- -------------------
Gross Gross
unrealized unrealized
Fair holding Fair holding
value losses value losses
---------------------------------------------------------------------------
2006:
Noncurrent:
Available-for-sale:
Equity securities $1,906 $316 - -
---------------------------------------------------------------------------
The contractual maturities of debt securities classified as available-for-sale
as of March 31, 2006, regardless of their balance sheet classification, are as
follows:
Thousands of
Millions of Yen U.S. Dollars
------------------- ------------------
Cost Fair value Cost Fair value
----------------------------------------------------------------------------
Due within one year 161 161 $ 1,376 $ 1,376
Due after one year through five years 6,000 6,050 51,282 51,709
----------------------------------------------------------------------------
6,161 6,211 $52,658 $ 53,085
----------------------------------------------------------------------------
Proceeds from the sales of available-for-sale securities were Yen 45,464
million, Yen 118,120 million and Yen 141,620 million ($1,210,427 thousand) for
the years ended March 31, 2004, 2005 and 2006, respectively.
F-19
The realized gain on the sales of available-for-sale securities for the year
ended March 31, 2006 was Yen 1,053 million ($9,000 thousand). There were no
significant realized losses of available-for-sale securities for the year ended
March 31, 2006. There were no significant realized gains or losses of
available-for-sale securities for the years ended March 31, 2004 and 2005
except the contributed marketable equity securities to the Company's employee
benefit trust as discussed below.
Effective October 1, 2005, UFJ holdings, Inc. ("UFJ") and Mitsubishi Tokyo
Financial Group, Inc. completed a merger, in which the UFJ shares of common
stock owned by the Company were exchanged for shares of common stock of the
newly merged entity, Mitsubishi UFJ Financial Group, Inc. ("MUFG"). As a result
of this merger and common share exchange, the Company recognized a gain on
securities of Yen 992 million ($ 8,479 thousand) between the cost of UFJ shares
surrendered and the current market value of MUFG shares in "Other, net" as
other (income) expenses on its consolidated statements of income for the year
ended March 31, 2006.
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 pension liability was reduced by the fair market value 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 available-for-sale
equity securities 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 were Yen 3,648 million and Yen 2,658 million,
respectively.
In connection with the 2004 Transfer, 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 to its
employee retirement benefit trusts. Ricoh 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 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. In addition, Ricoh recognized in its fiscal 2004
consolidated statement of income a cumulative effect of accounting change, net
of tax, of Yen 7,373 million 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 Co., Ltd.,
a 21.2% 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 36,603 million and Yen 38,214 million
($326,615 thousand) as of March 31, 2005 and 2006, respectively. The quoted
market value of Ricoh's investment in this company was Yen 46,155 million
($394,487 thousand) as of March 31, 2006.
Ricoh's equity in the underlying net book values of the other 20% to 50% owned
companies is approximately equal to their individual carrying values of
Yen 12,713 million and Yen 13,814 million ($118,068 thousand) at March 31, 2005
and 2006 respectively.
Summarized financial information for all affiliates as of March 31, 2005 and
2006 and for the years ended March 31, 2004, 2005 and 2006 is as follows:
Thousands of
Millions of Yen U.S. Dollars
--------------------- ------------
FINANCIAL POSITION 2005 2006 2006
----------------------------------------------------------------------------
Assets-
Current assets 116,247 112,312 $ 959,932
Other assets 164,170 174,529 1,491,700
----------------------------------------------------------------------------
280,417 286,841 $2,451,632
----------------------------------------------------------------------------
Liabilities and shareholders' investment-
Current liabilities 37,426 29,084 $ 248,581
Other liabilities 18,512 20,335 173,803
Shareholders' investment 224,479 237,422 2,029,248
----------------------------------------------------------------------------
280,417 286,841 $2,451,632
----------------------------------------------------------------------------
Thousands of
Millions of Yen U.S. Dollars
-------------------------------- ------------
OPERATIONS 2004 2005 2006 2006
----------------------------------------------------------------------------
Sales 317,512 330,362 320,537 $2,739,632
Costs and expenses 307,665 315,729 309,164 2,642,427
----------------------------------------------------------------------------
Net income 9,847 14,633 11,373 $ 97,205
----------------------------------------------------------------------------
The significant transactions of Ricoh with these affiliates for the years ended
March 31, 2004, 2005 and 2006, and the related account balances at March 31,
2005 and 2006 are summarized as follows:
Thousands of
Millions of Yen U.S. Dollars
-------------------------------- ------------
2004 2005 2006 2006
----------------------------------------------------------------------------
Transactions-
Sales 19,534 19,365 20,205 $172,692
Purchases 18,714 27,286 25,617 218,949
Dividend income 1,064 1,154 1,175 10,043
----------------------------------------------------------------------------
F-21
Unrealized profits regarding the above transactions were eliminated in the
consolidated financial statements.
Thousands of
Millions of Yen U.S. Dollars
--------------------- ------------
2005 2006 2006
----------------------------------------------------------------------------
Account balances-
Receivables 3,416 3,493 $ 29,855
Payables 2,964 2,706 23,128
----------------------------------------------------------------------------
As of March 31, 2006, consolidated retained earnings included undistributed
earnings of 20% to 50% owned companies accounted for by the equity method in
the amount of Yen 44,209 million ($377,855 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 follows:
Millions of Yen
---------------------------------------------------------------------------------
2005 2006
---------------------------------------- ----------------------------------------
Gross carrying Accumulated Net carrying Gross carrying Accumulated Net carrying
amount amortization amount amount amortization amount
--------------------------------------------------------------------------------------------------------------------
Other intangible assets subject to
amortization:
Software 58,681 (28,277) 30,404 89,331 (43,593) 45,738
Trade name and customer base 29,937 (6,877) 23,060 30,799 (11,994) 18,805
Other 18,287 (3,848) 14,439 22,074 (8,940) 13,134
---------------------------------------------------------------------------------
Total 106,905 (39,002) 67,903 142,204 (64,527) 77,677
Other intangible assets not
subject to amortization 1,511 1,498
------------ ------------
Total other intangible assets 69,414 79,175
--------------------------------------------------------------------------------------------------------------------
Thousands of U.S. Dollars
----------------------------------------
2006
----------------------------------------
Gross carrying Accumulated Net carrying
amount amortization amount
--------------------------------------------------------------------------------------------------------------------
Other intangible assets subject to
amortization:
Software $ 763,513 $(372,590) $390,923
Trade name and customer base 263,239 (102,513) 160,726
Other 188,667 (76,410) 112,257
----------------------------------------
Total 1,215,419 (551,513) 663,906
Other intangible assets not
subject to amortization 12,803
------------
Total other intangible assets $676,709
--------------------------------------------------------------------------------------------------------------------
Gross carrying amount of software was increased for the year ended March 31,
2006 mainly due to the capitalization of costs to develop back-office
information systems.
F-22
The aggregate amortization expense of other intangible assets subject to
amortization for the years ended March 31, 2004, 2005 and 2006 was Yen 9,284
million, Yen 11,405 million and Yen 16,992 million ($145,231 thousand). The
future amortization expense for each of the next five years relating to
intangible assets currently recorded in the consolidated balance sheets is
estimated to be the following at March 31, 2006:
Thousands of
Years ending March 31 Millions of Yen U.S. Dollars
----------------------------------------------------------------
2007 17,449 $149,137
2008 14,984 128,068
2009 9,361 80,009
2010 4,838 41,350
2011 2,210 18,889
----------------------------------------------------------------
The changes in the carrying amounts of goodwill for the year ended March 31,
2005 and 2006, were as follows:
Thousands of
Millions of Yen U.S. Dollars
------------------- ------------
2005 2006 2006
-------------------------------------------------------------------------
Balance at beginning of year 25,298 47,502 $406,000
Goodwill acquired during the year 21,722 1,783 15,239
Foreign exchange impact 482 2,649 22,641
-------------------------------------------------------------------------
Balance at end of year 47,502 51,934 $443,880
-------------------------------------------------------------------------
As of March 31, 2006, most of the carrying value of goodwill was allocated to
the Office Solutions segment.
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, 2004, 2005 and 2006 are as follows:
Thousands of
Millions of Yen U.S. Dollars
-------------------------------- ------------
2004 2005 2006 2006
-----------------------------------------------------------------------------------------------------
Income before income taxes, minority interests,
equity in earnings of affiliates and cumulative
effect of accounting change:
Domestic 98,162 88,562 109,218 $ 933,487
Foreign 44,901 46,821 46,981 401,547
-----------------------------------------------------------------------------------------------------
143,063 135,383 156,199 $1,335,034
-----------------------------------------------------------------------------------------------------
Provision for income taxes-
Current:
Domestic 38,908 28,081 43,584 $ 372,513
Foreign 14,395 11,200 17,273 147,632
-----------------------------------------------------------------------------------------------------
53,303 39,281 60,857 520,145
-----------------------------------------------------------------------------------------------------
Deferred:
Domestic 1,951 8,737 (780) (6,667)
Foreign 1,387 2,616 (2,514) (21,487)
-----------------------------------------------------------------------------------------------------
3,338 11,353 (3,294) (28,154)
-----------------------------------------------------------------------------------------------------
Consolidated provision for income taxes 56,641 50,634 57,563 $ 491,991
-----------------------------------------------------------------------------------------------------
F-23
Total income taxes are allocated as follows:
Thousands of
Millions of Yen U.S. Dollars
------------------------------- ------------
2004 2005 2006 2006
-----------------------------------------------------------------------------------------
Provision for income taxes 56,641 50,634 57,563 $491,991
Shareholders' investment:
Foreign currency translation adjustments (1,334) 3,378 1,266 10,821
Unrealized gains (losses) on securities (3,617) 407 2,472 21,128
Unrealized gains (losses) on derivatives 109 97 27 231
Minimum pension liability adjustment 49,733 129 5,195 44,402
Cumulative effect of accounting change 5,722 - - -
-----------------------------------------------------------------------------------------
107,254 54,645 66,523 $568,573
-----------------------------------------------------------------------------------------
The Company and its domestic subsidiaries are subject to a National Corporate
tax of 30%, an inhabitant tax of approximately 6% and a deductible Enterprise
tax approximately 8%, which in the aggregate resulted in the normal statutory
tax rate of approximately 41%. Based on an enacted change in the Japanese tax
laws in March 2003, the normal statutory tax rate was reduced to approximately
41% 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 normal statutory tax
rate differs from the effective tax rate for the years ended March 31, 2004,
2005 and 2006 as a result of the following:
2004 2005 2006
--------------------------------------------------------------------------------------------------------
Normal statutory tax rate 42% 41% 41%
Nondeductible expenses 1 1 0
Tax benefits not recognized on operating losses of certain consolidated subsidiaries 2 1 2
Utilization of net operating loss carryforward not previously recognized (1) (2) (2)
Tax credit for increased research and development expense (3) (3) (3)
Effect of change in enacted tax rate 1 - -
Other, net (2) (1) (1)
--------------------------------------------------------------------------------------------------------
Effective tax rate 40% 37% 37%
--------------------------------------------------------------------------------------------------------
Nondeductible expenses include directors' bonuses and entertainment expenses.
The tax effects of temporary differences and carryforwards giving rise to the
consolidated deferred income tax assets and liabilities as of March 31, 2005
and 2006 are as follows:
Thousands of
Millions of Yen U.S. Dollars
----------------------- ------------
2005 2006 2006
------------------------------------------------------------------------------------------------------
Assets:
Accrued expenses 20,717 21,417 $183,051
Property, plant and equipment 3,458 3,014 25,761
Accrued pension and severance costs 33,781 30,888 264,000
Net operating loss carryforwards 5,993 4,941 42,231
Other 27,400 29,601 253,000
------------------------------------------------------------------------------------------------------
91,349 89,861 768,043
Less- Valuation allowance (7,079) (8,197) (70,060)
------------------------------------------------------------------------------------------------------
84,270 81,664 $697,983
------------------------------------------------------------------------------------------------------
F-24
Thousands of
Millions of Yen U.S. Dollars
----------------------- ------------
2005 2006 2006
------------------------------------------------------------------------------------------------------
Liabilities:
Sales-type leases (6,548) (6,460) $ (55,214)
Undistributed earnings of foreign subsidiaries and affiliates (17,092) (18,618) (159,128)
Net unrealized holding gains on available-for-sale securities (4,592) (6,613) (56,521)
Basis difference of acquired intangible assets (11,482) (9,372) (80,103)
Other (13,765) (13,498) (115,367)
------------------------------------------------------------------------------------------------------
(53,479) (54,561) $(466,333)
------------------------------------------------------------------------------------------------------
Net deferred tax assets 30,791 27,103 $ 231,650
------------------------------------------------------------------------------------------------------
Net deferred tax assets as of March 31, 2005 and 2006 are included in the
consolidated balance sheets as follows:
Thousands of
Millions of Yen U.S. Dollars
----------------------- ------------
2005 2006 2006
------------------------------------------------------------------------------------------------------
Deferred income taxes and other (Current Assets) 37,812 40,632 $ 347,282
Lease deposits and other (Non-current Assets) 42,393 38,053 325,239
Accrued expenses and other (Current Liabilities) (647) (208) (1,777)
Deferred income taxes (Long-Term Liabilities) (48,767) (51,374) (439,094)
------------------------------------------------------------------------------------------------------
30,791 27,103 $ 231,650
------------------------------------------------------------------------------------------------------
The net changes in the total valuation allowance for the years ended March 31,
2004 and 2005 were a decrease of Yen 183 million and Yen 1,931 million
respectively, and an increase of Yen 1,118 million ($9,556 thousand) for the
year ended March 31, 2006. As a result of recording of operating losses in the
past, certain subsidiaries of Ricoh have had valuation allowances against
deferred tax assets for local taxes. However, based on both improved operating
results in recent years and a sound outlook for the future operating
performance of these subsidiaries, Ricoh reversed Yen 2,959 million ($25,291
thousand) of valuation allowance, resulting in a reduction of income tax
expenses for the year ended March 31, 2006. The valuation allowance primarily
relates to deferred tax assets of the consolidated subsidiaries with net
operating loss carryforwards for tax purposes that are not expected to be
realized.
In assessing the realizability of deferred tax assets, Ricoh considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible and whether loss
carryforwards are utilizable. Ricoh considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical
taxable income and projections for future taxable income over the periods in
which the deferred tax assets are deductible, Ricoh believes it is more likely
than not that the benefits of these deductible differences, net of the existing
valuation allowance will be realized. The amount of the deferred tax asset
considered realizable, however, would be reduced if estimates of future taxable
income during the carryforward period are reduced.
As of March 31, 2006, certain subsidiaries had net operating losses carried
forward for income tax purposes of approximately Yen 15,337 million ($131,085
thousand) which were available to reduce future income taxes, if any.
Approximately Yen 543 million ($4,641 thousand) of the operating losses will
expire within 3 years and Yen 5,756 million ($49,197 thousand) will expire
within 4 to 7 years. The remainder principally have an indefinite carryforward
period.
F-25
The Company has not recognized a deferred tax liability for certain portion of
the undistributed earnings of its foreign subsidiaries of Yen 189,779 million
($1,622,043 thousand) as of March 31, 2006 because the Company considers these
earnings to be permanently reinvested. Calculation of related unrecognized
deferred tax liability is not practicable.
9. SHORT-TERM BORROWINGS
Short-term borrowings as of March 31, 2005 and 2006 consist of the following:
Weighted average Thousands of
interest rate Millions of Yen U.S. Dollars
---------------- --------------------- ------------
2005 2006 2005 2006 2006
---------------------------------------------------------------------------------------------
Borrowings, principally from banks 3.5% 3.8% 8,641 16,056 $137,231
Commercial paper 2.9 3.1 30,069 66,464 568,068
---------------------------------------------------------------------------------------------
38,710 82,520 $705,299
---------------------------------------------------------------------------------------------
These short-term borrowings included borrowings, principally from banks and
commercial paper denominated in foreign currencies amounting to Yen
37,710 million and Yen 55,212 million ($471,897 thousand) as of March 31, 2005
and 2006, respectively.
The Company and certain of its subsidiaries enter into the contracts with
financial institutions regarding lines of credit and overdrawing. Those same
financial institutions hold the issuing programs of commercial paper and
medium-term notes. Ricoh had aggregate lines of credit of Yen 822,103 million
and Yen 801,630 million ($6,851,538 thousand) as of March 31, 2005 and 2006,
respectively. Unused lines of credit amounted to Yen 689,993 million and
Yen 703,949 million ($6,016,658 thousand) as of March 31, 2005 and 2006,
respectively, of which Yen 219,291 million and Yen 252,843 million ($2,161,051
thousand) related to commercial paper and Yen 128,346 million and Yen 154,458
million ($1,320,154 thousand) related to medium-term notes programs at
prevailing interest rates and the unused portion is available for immediate
borrowings.
10. LONG-TERM INDEBTEDNESS
Long-term indebtedness as of March 31, 2005 and 2006 consists of the followings:
Thousands of
Millions of Yen U.S. Dollars
------------------------ ------------
2005 2006 2006
-------------------------------------------------------------------------------------------------------------
Bonds-
2.075%, straight bonds, payable in yen, due April 2005 40,000 - $ -
0.87%, straight bonds, payable in yen, due March 2007 35,000 35,000 299,146
1.34%, straight bonds, payable in yen, due March 2009 25,000 25,000 213,675
0.73%, straight bonds, payable in yen, due June 2006 issued by a
consolidated subsidiary 10,000 10,000 85,470
0.70%, straight bonds, payable in yen, due June 2007 issued by a
consolidated subsidiary 10,000 10,000 85,470
2.10%, straight bonds, payable in yen, due October 2009 issued by a
consolidated subsidiary 10,000 10,000 85,470
1.11%, straight bonds, payable in yen, due March 2010 issued by a
consolidated subsidiary - 10,000 85,470
Medium-term notes, 0.17% weighted average, due through 2015 issued
by a consolidated subsidiary 22,000 10,000 85,470
-------------------------------------------------------------------------------------------------------------
Total bonds 152,000 110,000 940,171
-------------------------------------------------------------------------------------------------------------
F-26
Thousands of
Millions of Yen U.S. Dollars
------------------------- ------------
2005 2006 2006
-------------------------------------------------------------------------------------------------------------
Unsecured loans-
Banks and insurance companies, 1.43% weighted average, due
through 2009 212,416 183,956 1,572,273
-------------------------------------------------------------------------------------------------------------
Secured loans-
Banks, insurance companies and other financial institution, 1.02%
weighted average, due through 2013 1,133 795 6,795
-------------------------------------------------------------------------------------------------------------
Capital lease obligations (see Note 2(j)) 3,804 3,453 29,513
-------------------------------------------------------------------------------------------------------------
Total 369,353 298,204 2,548,752
SFAS 133 fair value adjustment 2,022 553 4,727
Less- Current maturities included in current liabilities (144,808) (103,131) (881,462)
-------------------------------------------------------------------------------------------------------------
226,567 195,626 $1,672,017
-------------------------------------------------------------------------------------------------------------
Secured loans are collateralized by land, buildings and lease receivables with
a book value of Yen3,167 million ($27,068 thousand) as of March 31, 2006.
All bonds outstanding as of March 31, 2006 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, 2006.
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, 2006 are as follows:
Thousands of
Years ending March 31 Millions of Yen U.S. Dollars
-----------------------------------------------------------
2007 103,125 $ 881,410
2008 79,173 676,692
2009 59,144 505,504
2010 46,868 400,581
2011 8,189 69,992
2012 and thereafter 1,705 14,573
-----------------------------------------------------------
Total 298,204 $2,548,752
-----------------------------------------------------------
F-27
11. PENSION AND RETIREMENT ALLOWANCE PLANS
The Company and certain of its subsidiaries have various contributory and
noncontributory employees' pension fund plans in trust covering substantially
all of their employees. Under the plans, employees are entitled to lump-sum
payments at the time of termination or retirement, or to pension payments.
Contributions to above pension plans have been made to provide future pension
payments in conformity with an actuarial calculation determined by the current
basic rate of pay.
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 were 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 an amount
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. 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. These gains and losses were included in operating income.
F-28
In addition to the 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 which
was included in selling, general and administrative expenses in its fiscal 2004
consolidated statement of income.
The changes in the benefit obligation and plan assets of the pension plans for
the years ended March 31, 2005 and 2006 are as follows:
Thousands of
Millions of Yen U.S. Dollars
------------------------ ------------
2005 2006 2006
-------------------------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year 313,426 343,623 $2,936,949
Service cost 14,762 14,691 125,564
Interest cost 9,218 10,192 87,111
Plan participants' contributions 457 517 4,419
Amendments (91) - -
Actuarial loss 2,697 10,437 89,205
Settlement (4,316) (654) (5,590)
Benefits paid (19,818) (14,408) (123,145)
Foreign exchange impact 3,572 4,415 37,735
Benefit obligation assumed in connection with business acquisition 23,716 - -
-------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 343,623 368,813 $3,152,248
-------------------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year 213,315 237,500 $2,029,915
Actual return on plan assets 9,401 49,560 423,590
Employer contribution 12,359 13,853 118,402
Plan participants' contributions 457 517 4,419
Settlement (3,192) - -
Benefits paid (13,534) (9,855) (84,231)
Foreign exchange impact 2,783 3,361 28,726
Plan assets acquired in connection with business acquisition 15,911 - -
-------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 237,500 294,936 $2,520,821
-------------------------------------------------------------------------------------------------------------
Funded status (106,123) (73,877) $ (631,427)
Unrecognized net actuarial loss 102,851 64,714 553,111
Unrecognized prior service cost (57,134) (54,212) (463,350)
Unrecognized net asset at transition, net of amortization (984) (533) (4,556)
-------------------------------------------------------------------------------------------------------------
Net amount recognized (61,390) (63,908) $ (546,222)
-------------------------------------------------------------------------------------------------------------
Amounts recognized in the balance sheets consist of:
Prepaid benefit cost 4,685 18,170 $ 155,299
Accrued benefit liability (91,022) (94,765) (809,957)
Intangible assets 111 55 470
Accumulated other comprehensive income, gross of tax 24,836 12,632 107,966
-------------------------------------------------------------------------------------------------------------
Net amount recognized (61,390) (63,908) $ (546,222)
-------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations 313,715 354,060 $3,026,154
-------------------------------------------------------------------------------------------------------------
F-29
Weighted-average assumptions used to determine benefit obligations at March 31,
2005 and 2006 were as follows:
2005 2006
---------------------------------------------------------------
Discount rate 3.0% 2.8%
Rate of compensation increase 5.0% 5.4%
---------------------------------------------------------------
Weighted-average assumptions used to determine the net periodic benefit cost
for the years ended March 31, 2004, 2005 and 2006 were as follows:
2004 2005 2006
---------------------------------------------------------------
Discount rate 2.6% 2.9% 3.0%
Rate of compensation increase 3.4% 5.3% 5.0%
Expected long-term return on plan assets 2.5% 2.9% 3.2%
---------------------------------------------------------------
The net periodic benefit costs of the pension plans for the three years ended
March 31, 2006 consisted of the following components:
Thousands of
Millions of Yen U.S. Dollars
-------------------------------- ------------
2004 2005 2006 2006
------------------------------------------------------------------------------
Service cost 15,694 14,762 14,691 $125,564
Interest cost 12,719 9,218 10,192 87,111
Expected return on plan assets (5,872) (6,571) (7,645) (65,342)
Net amortization 10,805 1,648 1,833 15,667
Settlement benefit (2,537) (980) (140) (1,197)
------------------------------------------------------------------------------
Total net periodic pension cost 30,809 18,077 18,931 $161,803
------------------------------------------------------------------------------
In accordance with the provisions of SFAS 87, Ricoh has recorded an adjustment
for minimum pension liability at March 31, 2005 and 2006. 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 and the fair value of plan assets for the
pension plans with projected benefit obligations in excess of plan assets, and
the accumulated benefit obligations and the fair value of plan assets for the
pension plans with accumulated benefit obligations in excess of plan assets are
as follows:
Thousands of
Millions of Yen U.S. Dollars
--------------------- ------------
2005 2006 2006
-------------------------------------------------------------------------------------------------------
Plans with projected benefit obligations in excess of plan assets:
Projected benefit obligations 338,201 222,095 $1,898,248
Fair value of plan assets 235,161 129,327 1,105,359
Plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligations 281,411 190,144 $1,625,162
Fair value of plan assets 216,249 118,214 1,010,376
-------------------------------------------------------------------------------------------------------
F-30
Ricoh's benefit plan asset allocation at March 31, 2005 and 2006 are as follows:
2005 2006
----------------------------------------------------------------
Equity securities 48.5% 51.7%
Debt securities 27.1% 21.1%
Life insurance company general accounts 14.8% 20.5%
Other 9.6% 6.7%
----------------------------------------------------------------
Total 100.0% 100.0%
----------------------------------------------------------------
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.
Common stock and bonds of the Company and certain of its domestic subsidiaries
included in plan assets were immaterial at March 31, 2005 and 2006.
Ricoh's investment policies and strategies for the pension benefits do not use
target allocations for the individual asset categories. Ricoh's investment
goals are to maximize returns subject to specific risk management policies. Its
risk management policies permit investments in mutual funds and debt and equity
securities and prohibit direct investment in derivative financial instruments.
Ricoh addresses diversification by the use of mutual fund investments whose
underlying investments are in domestic and international fixed income
securities and domestic and international equity securities. These mutual funds
are readily marketable and can be sold to fund benefit payment obligations as
they become payable.
Ricoh uses a December 31 measurement date for the pension plans.
Ricoh expects to contribute Yen 13,080 million ($111,795 thousand) to its
pension plans for the year ending March 31, 2007.
The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid:
Thousands of
Years ending March 31 Millions of Yen U.S. Dollars
-----------------------------------------------------
2007 15,162 $129,590
2008 17,613 150,538
2009 18,622 159,162
2010 19,594 167,470
2011 18,856 161,162
2012- 2016 96,302 823,094
-----------------------------------------------------
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.
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. The Japanese
Commercial Code also provides that to the
F-31
extent that the sum of the additional paid-in capital and the legal reserve
exceeds 25% of the stated capital, the amount of the excess (if any) is
available for appropriations by the resolution of the shareholders. Certain
foreign subsidiaries are also required to appropriate their earnings to legal
reserves under the laws of the respective countries. Legal reserves included in
retained earnings as of March 31, 2005 and 2006 were Yen 17,053 million and
Yen 17,156 million ($146,632 thousand), respectively, and are restricted from
being used as dividends.
The Corporation Law of Japan ("the Law"), which has been in force since May 1,
2006, requires a company to obtain the approval of shareholders for
transferring on amount between capital and additional paid-in capital. The Law
also permits a company to transfer an amount of common stock or additional
paid-in capital to retained earnings in principle upon approval of shareholders.
Semiannual cash dividends are approved by the shareholders after the end of
each fiscal period or are declared by the Board of Directors after the end of
each interim six-month period. Such dividends are payable to shareholders of
record at the end of each such fiscal or interim six-month period. At the
general meeting to be held on June 28, 2006, the shareholders will be asked to
approve the declaration of a cash dividend (Yen 12 per share) on the common
stock totaling Yen 8,764 million ($74,906 thousand), which will be paid to
shareholders of record as of March 31, 2006. The declaration of this dividend
has not been reflected in the consolidated financial statements as of March 31,
2006.
The amount of retained earnings legally available for dividend distribution is
that recorded in the Company's non-consolidated books and amounted to
Yen 354,858 million ($3,032,974 thousand) as of March 31, 2006.
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
-------------------------------------------------------------------------------------------------------------------
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 gains (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
-------------------------------------------------------------------------------------------------------------------
F-32
Millions of Yen
----------------------------------
Before-tax Tax Net-of-tax
amount expense amount
-------------------------------------------------------------------------------------------------------------------
2005:
Foreign currency translation adjustments 12,419 (3,378) 9,041
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the year 1,024 (347) 677
Less- Reclassification adjustment for (gains) losses realized in net
income 148 (60) 88
Net unrealized gains (losses) 1,172 (407) 765
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses) arising during the year 45 (17) 28
Less- Reclassification adjustment for (gains) losses realized in net
income 193 (80) 113
Net unrealized gains (losses) 238 (97) 141
Minimum pension liability adjustment 156 (129) 27
-------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 13,985 (4,011) 9,974
-------------------------------------------------------------------------------------------------------------------
2006:
Foreign currency translation adjustments 16,142 (1,266) 14,876
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the year 8,662 (3,308) 5,354
Less- Reclassification adjustment for (gains) losses realized in net
income (2,053) 836 (1,217)
Net unrealized gains (losses) 6,609 (2,472) 4,137
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses) arising during the year (527) 216 (311)
Less- Reclassification adjustment for (gains) losses realized in net
income 594 (243) 351
Net unrealized gains (losses) 67 (27) 40
Minimum pension liability adjustment 12,204 (5,195) 7,009
-------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 35,022 (8,960) 26,062
-------------------------------------------------------------------------------------------------------------------
Thousands of U.S. Dollars
----------------------------------
2006:
Foreign currency translation adjustments $137,966 $(10,821) $127,145
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the year 74,034 (28,273) 45,761
Less- Reclassification adjustment for (gains) losses realized in net
income (17,547) 7,145 (10,402)
Net unrealized gains (losses) 56,487 (21,128) 35,359
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses) arising during the year (4,504) 1,846 (2,658)
Less- Reclassification adjustment for (gains) losses realized in net
income 5,076 (2,076) 3,000
Net unrealized gains (losses) 572 (230) 342
Minimum pension liability adjustment 104,308 (44,402) 59,906
-------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) $299,333 $(76,581) $222,752
-------------------------------------------------------------------------------------------------------------------
F-33
Changes in accumulated other comprehensive income (loss) are as follows:
Millions of Yen
--------------------------------------------------------------------------
Total
Foreign Accumulated
currency Unrealized Unrealized Minimum other
translation gains (losses) gains (losses) pension liability comprehensive
adjustments on securities on derivatives adjustment income (loss)
-------------------------------------------------------------------------------------------------------------------
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)
-------------------------------------------------------------------------------------------------------------------
2005:
Beginning balance (19,411) 4,026 (24) (14,863) (30,272)
Adjustment for change in fiscal year
end of consolidated subsidiaries (1,849) - - 184 (1,665)
Change during the year 9,041 765 141 27 9,974
-------------------------------------------------------------------------------------------------------------------
Ending balance (12,219) 4,791 117 (14,652) (21,963)
-------------------------------------------------------------------------------------------------------------------
2006:
Beginning balance (12,219) 4,791 117 (14,652) (21,963)
Change during the year 14,876 4,137 40 7,009 26,062
-------------------------------------------------------------------------------------------------------------------
Ending balance 2,657 8,928 157 (7,643) 4,099
-------------------------------------------------------------------------------------------------------------------
Thousands of U.S. Dollars
--------------------------------------------------------------------------
2006:
Beginning balance $(104,436) $40,949 $1,000 $(125,231) $(187,718)
Change during the year 127,145 35,359 342 59,906 222,752
-------------------------------------------------------------------------------------------------------------------
Ending balance $ 22,709 $76,308 $1,342 $ (65,325) $ 35,034
-------------------------------------------------------------------------------------------------------------------
14. 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.
F-34
FOREIGN EXCHANGE RISK MANAGEMENT
Ricoh conducts business on a global basis and holds assets and liabilities
denominated in foreign currencies. Ricoh enters into foreign exchange contracts
and foreign currency options to hedge against the potentially adverse impacts
of foreign currency fluctuations on those assets and liabilities denominated in
foreign currencies.
INTEREST RATE RISK MANAGEMENT
Ricoh enters into interest rate swap agreements to hedge against the potential
adverse impacts of changes in fair value or cash flow fluctuations on interest
of its outstanding debt.
FAIR VALUE HEDGES
Changes in the fair value of derivative instruments and the related hedged
items designated and qualifying as fair value hedges are included in other
(income) expenses on the consolidated statements of income. There is no hedging
ineffectiveness nor are net gains or losses excluded from the assessment of
hedge effectiveness for the years ended March 31, 2004, 2005 and 2006 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, 2004, 2005 and 2006 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 82 million ($701
thousand) of the balance of accumulated other comprehensive income as of
March 31, 2006.
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.
15. COMMITMENTS AND CONTINGENT LIABILITIES
As of March 31, 2006, Ricoh had outstanding contractual commitments for
acquisition or construction of plant, equipment and other assets aggregating
Yen 2,774 million ($23,709 thousand).
As of March 31, 2006, Ricoh was also contingently liable for certain guarantees
including employees housing loans of Yen 1,193 million ($10,197 thousand).
Ricoh made rental payments totaling Yen 40,339 million, Yen 39,000 million and
Yen 42,046 million ($359,368 thousand) for the years ended March 31, 2004, 2005
and 2006, respectively, under cancelable and non-cancelable operating lease
agreements for office space and machinery and equipment.
The minimum rental payments required under operating lease that have lease
terms in excess of one year as of March 31, 2006 are as follows;
F-35
Thousands of
Years ending March 31 Millions of Yen U.S. Dollars
------------------------------------------------------------
2007 14,693 $125,581
2008 12,804 109,436
2009 10,100 86,325
2010 6,350 54,274
2011 4,114 35,162
2012 and thereafter 9,855 84,231
------------------------------------------------------------
Total 57,916 $495,009
------------------------------------------------------------
As of March 31, 2006, 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.
16. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
(A) CASH AND CASH EQUIVALENTS, TIME DEPOSITS, TRADE RECEIVABLES, SHORT-TERM
BORROWINGS, CURRENT MATURITIES OF LONG-TERM INDEBTEDNESS, TRADE PAYABLES
AND ACCRUED EXPENSES
The carrying amounts approximate fair values because of the short maturities of
these instruments.
(B) MARKETABLE SECURITIES AND INVESTMENT SECURITIES
The fair value of the marketable securities and investment securities is
principally based on quoted market price.
(C) INSTALLMENT LOANS
The fair value of installment loans is based on the present value of future
cash flows using the current rate for similar instruments of comparable
maturity.
(D) LONG-TERM INDEBTEDNESS
The fair value of each of the long-term indebtedness instruments is based on
the quoted price in the most active market or the present value of future cash
flows associated with each instrument discounted using the current borrowing
rate for similar instruments of comparable maturity.
(E) INTEREST RATE SWAP AGREEMENTS
The fair value of interest rate swap agreements is estimated by obtaining
quotes from brokers.
(F) FOREIGN CURRENCY CONTRACTS AND FOREIGN CURRENCY OPTIONS
The fair value of foreign currency contracts and foreign currency options is
estimated by obtaining quotes from brokers.
The estimated fair value of the financial instruments as of March 31, 2005 and
2006 is summarized as follows:
F-36
Millions of Yen Thousands of U.S. Dollars
-------------------------------------------------- -------------------------
2005 2006 2006
------------------------ ------------------------ -------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value Amount Fair Value
-------------------------------------------------------------------------------------------------------------
Marketable securities and
Investment securities 31,292 31,292 36,581 36,581 $ 312,658 $ 312,658
Installment loans 50,131 50,292 52,295 52,404 446,966 447,897
Long-term indebtedness (226,567) (228,839) (195,626) (195,731) (1,672,017) (1,672,915)
Interest rate swap agreements,
net 1,683 1,683 1,175 1,175 10,043 10,043
Foreign currency contracts, net 181 181 (1,147) (1,147) (9,803) (9,803)
Foreign currency options, net (813) (813) (270) (270) (2,308) (2,308)
-------------------------------------------------------------------------------------------------------------
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.
17. SEGMENT INFORMATION
The operating segments presented below are the segments of Ricoh for which
separate financial information is available and for which a measure of profit
or loss is evaluated regularly by Ricoh's management in deciding how to
allocate resources and in assessing performance. The accounting policies of the
segments are substantially the same as those described in the summary of
significant accounting policies, as discussed in Note 2.
Ricoh's operating segments are comprised of Office Solutions, including copiers
and related supplies, communications and information systems, Industrial
Products, including thermal media and semiconductors, and Other, including
optical discs and digital cameras.
In connection with the adoption of the 15th medium-term management plan on
April 1, 2005, Ricoh revised its business segments for the year ended March 31,
2006. Presentation of business segments for each of the years ended March 31,
2004 and 2005 have also been revised to conform to current presentation.
The following tables present certain information regarding Ricoh's operating
segments and operations by geographic areas for the years ended March 31, 2004,
2005 and 2006.
F-37
(A) OPERATING SEGMENT INFORMATION
Thousands of
Millions of Yen U.S. Dollars
---------------------------------------- ------------
2004 2005 2006 2006
-------------------------------------------------------------------------------------------------------------
Sales-
Office Solutions 1,460,395 1,531,428 1,637,228 $13,993,402
Industrial Products 113,854 121,914 123,200 1,052,991
Other 208,458 163,272 157,226 1,343,812
Intersegment transaction (2,462) (2,506) (2,564) (21,914)
-------------------------------------------------------------------------------------------------------------
Consolidated 1,780,245 1,814,108 1,915,090 $16,368,291
-------------------------------------------------------------------------------------------------------------
Operating Expenses-
Office Solutions 1,261,444 1,335,059 1,434,279 $12,258,795
Industrial Products 110,743 121,872 124,108 1,060,752
Other 201,508 167,431 151,114 1,291,573
Intersegment transaction (2,494) (2,475) (2,594) (22,171)
Unallocated expense 59,038 56,715 56,169 480,077
-------------------------------------------------------------------------------------------------------------
Consolidated 1,630,239 1,678,602 1,763,076 $15,069,026
-------------------------------------------------------------------------------------------------------------
Operating Income-
Office Solutions 198,951 196,369 202,949 $ 1,734,607
Industrial Products 3,111 42 (908) (7,761)
Other 6,950 (4,159) 6,112 52,239
Elimination and unallocated expense (59,006) (56,746) (56,139) (479,820)
-------------------------------------------------------------------------------------------------------------
Consolidated 150,006 135,506 152,014 $ 1,299,265
-------------------------------------------------------------------------------------------------------------
Other Income(Expenses) (6,943) (123) 4,185 $ 35,769
-------------------------------------------------------------------------------------------------------------
Income before Income Taxes, Minority Interests, Equity
in Earnings of Affiliates and Cumulative Effect of
Accounting Change 143,063 135,383 156,199 $ 1,335,034
-------------------------------------------------------------------------------------------------------------
Thousands of
Millions of Yen U.S. Dollars
---------------------------------------- ------------
2004 2005 2006 2006
-------------------------------------------------------------------------------------------------------------
Total Assets-
Office Solutions 1,184,913 1,358,136 1,426,635 $12,193,462
Industrial Products 76,295 72,406 84,595 723,034
Other 142,071 125,278 114,925 982,265
Elimination (8,047) (10,174) (2,088) (17,846)
Corporate assets 457,561 408,023 417,116 3,565,094
-------------------------------------------------------------------------------------------------------------
Consolidated 1,852,793 1,953,669 2,041,183 $17,446,009
-------------------------------------------------------------------------------------------------------------
Expenditure for segment assets-
Office Solutions 60,893 70,638 90,383 $ 772,504
Industrial Products 7,742 8,509 7,451 63,684
Other 5,443 3,451 2,366 20,222
Corporate assets 1,429 2,103 1,854 15,846
-------------------------------------------------------------------------------------------------------------
Consolidated 75,507 84,701 102,054 $ 872,256
-------------------------------------------------------------------------------------------------------------
F-38
Thousands of
Millions of Yen U.S. Dollars
---------------------------------------- ------------
2004 2005 2006 2006
-------------------------------------------------------------------------------------------------------------
Depreciation-
Office Solutions 55,521 53,439 57,326 $ 489,966
Industrial Products 7,134 7,450 6,631 56,675
Other 3,075 2,635 2,355 20,128
Corporate assets 1,954 3,272 1,156 9,881
-------------------------------------------------------------------------------------------------------------
Consolidated 67,684 66,796 67,468 $ 576,650
-------------------------------------------------------------------------------------------------------------
Unallocated expense represents expenses for corporate headquarters.
Intersegment sales are not separated by operating segment because they are
immaterial.
Corporate assets consist primarily of cash and cash equivalents and marketable
securities maintained for general corporate purposes.
(B) GEOGRAPHIC INFORMATION
Sales which are attributed to countries based on location of customers and
long-lived assets by location for the years ended March 31, 2004, 2005 and 2006
are as follows:
Thousands of
Millions of Yen U.S. Dollars
-------------------------------------- ------------
2004 2005 2006 2006
-----------------------------------------------------------------------------------
Sales-
Japan 914,060 972,975 972,076 $ 8,308,342
The Americas 326,380 325,597 387,412 3,311,214
Europe 402,392 408,906 434,800 3,716,239
Other 137,413 106,630 120,802 1,032,496
-----------------------------------------------------------------------------------
Consolidated 1,780,245 1,814,108 1,915,090 $16,368,291
-----------------------------------------------------------------------------------
Property, Plant and Equipment -
Japan 183,763 195,052 210,973 $ 1,803,188
The Americas 20,198 17,744 18,111 154,795
Europe 26,020 25,352 26,783 228,915
Other 8,731 9,262 12,376 105,777
-----------------------------------------------------------------------------------
Consolidated 238,712 247,410 268,243 $ 2,292,675
-----------------------------------------------------------------------------------
(C) ADDITIONAL INFORMATION
The following information shows net sales and operating income recognized by
geographic origin for the years ended March 31, 2004, 2005 and 2006. 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-39
Thousands of
Millions of Yen U.S. Dollars
---------------------------------------- ------------
2004 2005 2006 2006
----------------------------------------------------------------------------------------------------------------
Sales-
Japan
External customers 962,127 994,499 998,797 $ 8,536,726
Intersegment 351,070 392,216 413,087 3,530,659
----------------------------------------------------------------------------------------------------------------
Total 1,313,197 1,386,715 1,411,884 12,067,385
----------------------------------------------------------------------------------------------------------------
The Americas
External customers 315,504 322,975 385,746 3,296,974
Intersegment 5,249 7,486 7,630 65,214
----------------------------------------------------------------------------------------------------------------
Total 320,753 330,461 393,376 3,362,188
----------------------------------------------------------------------------------------------------------------
Europe
External customers 400,646 412,333 434,304 3,712,000
Intersegment 3,770 3,310 4,449 38,026
----------------------------------------------------------------------------------------------------------------
Total 404,416 415,643 438,753 3,750,026
----------------------------------------------------------------------------------------------------------------
Other
External customers 101,968 84,301 96,243 822,590
Intersegment 91,373 89,647 104,045 889,273
----------------------------------------------------------------------------------------------------------------
Total 193,341 173,948 200,288 1,711,863
----------------------------------------------------------------------------------------------------------------
Elimination of intersegment sales (451,462) (492,659) (529,211) (4,523,171)
----------------------------------------------------------------------------------------------------------------
Consolidated 1,780,245 1,814,108 1,915,090 $16,368,291
----------------------------------------------------------------------------------------------------------------
Operating Expenses-
Japan 1,215,875 1,298,640 1,312,655 $11,219,274
The Americas 305,284 316,651 378,108 3,231,692
Europe 382,383 391,271 417,341 3,567,017
Other 182,870 162,042 185,283 1,583,615
----------------------------------------------------------------------------------------------------------------
Elimination of intersegment sales (456,173) (490,002) (530,311) (4,532,572)
----------------------------------------------------------------------------------------------------------------
Consolidated 1,630,239 1,678,602 1,763,076 $15,069,026
----------------------------------------------------------------------------------------------------------------
Operating Income-
Japan 97,322 88,075 99,229 $ 848,111
The Americas 15,469 13,810 15,268 130,496
Europe 22,033 24,372 21,412 183,009
Other 10,471 11,906 15,005 128,248
----------------------------------------------------------------------------------------------------------------
Elimination of intersegment profit 4,711 (2,657) 1,100 9,401
----------------------------------------------------------------------------------------------------------------
Consolidated 150,006 135,506 152,014 $ 1,299,265
----------------------------------------------------------------------------------------------------------------
Other Expenses (6,943) (123) 4,185 $ 35,769
----------------------------------------------------------------------------------------------------------------
Income before Income Taxes, Minority Interests,
Equity in Earnings of Affiliates and Cumulative
Effect of Accounting Change 143,063 135,383 156,199 $ 1,335,034
----------------------------------------------------------------------------------------------------------------
Total Assets-
Japan 1,071,297 1,187,190 1,220,780 $10,434,017
The Americas 188,644 206,979 240,726 2,057,487
Europe 188,184 228,568 235,897 2,016,214
Other 63,701 66,319 79,102 676,085
Elimination (116,594) (143,410) (152,438) (1,302,889)
Corporate assets 457,561 408,023 417,116 3,565,095
----------------------------------------------------------------------------------------------------------------
Consolidated 1,852,793 1,953,669 2,041,183 $17,446,009
----------------------------------------------------------------------------------------------------------------
F-40
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, 2004, 2005 and 2006.
18. SUPPLEMENTARY INFORMATION TO THE STATEMENT OF INCOME
The following amounts were charged to selling, general and administrative
expenses for the years ended March 31, 2004, 2005 and 2006:
Thousands of
Millions of Yen U.S. Dollars
------------------------------- ------------
2004 2005 2006 2006
---------------------------------------------------------------------------
Research and development costs 92,515 110,478 110,385 $943,462
Advertising costs 17,950 16,442 15,732 134,462
Shipping and handling costs 12,352 14,043 16,058 137,248
---------------------------------------------------------------------------
19. SUBSEQUENT EVENT
On May 31, 2006, San-Ai Co., Ltd., a subsidiary of the Company, completed the
sale of its content distribution business to Giga Networks Co., Ltd., a
subsidiary of Faith, Inc. The sale price was Yen 12.0 billion. The Company
expects to recognize a gain on this sale equal to Yen 5.0 billion.
F-41
RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II. - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED MARCH 31, 2006
(Millions of Yen)
Additions
---------------------
Balance at Charged to Charged to Deduction Balance at
beginning costs and other from Translation end of
Description of period expenses accounts reserves (2)(3) adjustment period
------------------------------------------------------------------------------------------------------------
For the year ended March 31, 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
For the year ended March 31, 2005:
Allowance for doubtful
receivables/(1)/-
Trade receivables 17,039 1,822 (65) (1,729) 384 17,451
Finance receivables 15,239 3,584 - (2,280) 23 16,566
Deferred tax asset valuation
allowance 9,010 1,212 (23) (3,298) 178 7,079
For the year ended March 31, 2006:
Allowance for doubtful
receivables/(1)/-
Trade receivables 17,451 1,424 (27) (3,366) 549 16,031
Finance receivables 16,566 1,744 - (1,992) 76 16,394
Deferred tax asset valuation
allowance 7,079 3,843 (56) (2,959) 290 8,197
------------------------------------------------------------------------------------------------------------
Notes:
(1) See Note 2(g) to Consolidated Financial Statements.
(2) Receivables - Write-offs.
(3) Deferred tax - Realization of tax benefits
F-42