RICOH COMPANY, LTD.
Consolidated Financial Statements
For the nine months ended December 31, 2008
This is an English translation of the Quarterly Securities Report (Shihanki
Hokokusho) for the nine months ended December 31, 2008 pursuant to the Japanese
Financial Instrument and Exchange Law.
Ricoh Company, Ltd. and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 2008 and March 31, 2008
Millions of Yen
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December 31, March 31,
ASSETS 2008 2008
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Current Assets:
Cash and cash equivalents 155,141 170,607
Time deposits 1,986 1,531
Trade receivables:
Notes 52,193 57,068
Accounts 466,292 463,999
Less- Allowance for doubtful receivables (18,991) (16,666)
Current maturities of long-term finance receivables, net 195,611 194,642
Inventories:
Finished goods 149,063 117,658
Work in process and raw materials 75,064 74,365
Deferred income taxes and other 69,112 60,936
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Total current assets 1,145,471 1,124,140
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Property, Plant and Equipment, at cost:
Land 45,494 46,681
Buildings 232,382 235,106
Machinery and equipment 599,126 587,956
Construction in progress 11,952 12,884
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Total 888,954 882,627
Less- Accumulated depreciation (628,174) (627,994)
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Net property, plant and equipment 260,780 254,633
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Investments and Other Assets:
Long-term finance receivables, net 464,205 445,436
Investment securities 54,010 71,244
Investments in and advances to affiliates 1,655 1,977
Goodwill 267,536 112,538
Other intangible assets 113,850 114,402
Lease deposits and other 97,612 89,998
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Total investments and other assets 998,868 835,595
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Total 2,405,119 2,214,368
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1
Millions of Yen
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December 31, March 31,
LIABILITIES AND SHAREHOLDERS' INVESTMENT 2008 2008
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Current Liabilities:
Short-term borrowings 364,394 75,784
Current maturities of long-term indebtedness 101,753 82,658
Trade payables;
Notes 19,121 18,942
Accounts 305,704 341,627
Accrued income taxes 10,090 28,909
Accrued expenses and other 145,553 165,836
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Total current liabilities 946,615 713,756
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Long-term Liabilities:
Long-term indebtedness 251,068 225,930
Accrued pension and severance costs 131,891 99,830
Deferred income taxes and other 41,573 36,373
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Total long-term liabilities 424,532 362,133
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Minority Interests 49,073 58,283
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Commitments and Contingent Liabilities (Note 7)
Shareholders' Investment:
Common stock 135,364 135,364
Additional paid-in capital 186,083 186,448
Retained earnings 839,390 835,238
Accumulated other comprehensive income (loss) (139,262) (31,005)
Treasury stock at cost (36,676) (45,849)
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Total shareholders' investment 984,899 1,080,196
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Total 2,405,119 2,214,368
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The accompanying notes are an integral part of these financial statements.
2
Ricoh Company, Ltd. and Consolidated Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended December 31, 2008
Millions of Yen
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Nine months ended
December 31, 2008
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Net Sales:
Products 810,962
Post sales and rentals 673,691
Other revenue 83,365
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Total 1,568,018
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Cost of Sales:
Products 539,027
Post sales and rentals 305,244
Other revenue 66,258
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Total 910,529
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Gross profit 657,489
Selling, General and Administrative Expenses 571,111
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Operating income 86,378
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Other (Income) Expenses:
Interest and dividend income (3,828)
Interest expense 4,322
Foreign currency exchange (gain) loss, net 19,752
Other, net 6,069
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Total 26,315
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Income before Income Taxes, Minority Interests and Equity in Earnings of
Affiliates 60,063
Provision for Income Taxes:
Current 23,718
Deferred 4,562
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Total 28,280
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Minority Interests 2,258
Equity in Earnings of Affiliates 15
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Net Income 29,540
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Yen
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Per Share of Common Stock:
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Basic: 40.84
Diluted: 39.73
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Cash dividends paid per share 35.00
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Per American Depositary Share, each representing 5 shares of common stock:
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Basic: 204.20
Diluted: 198.65
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Cash dividends paid per share 175.00
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The accompanying notes are an integral part of these financial statements.
3
For the Three Months Ended December 31, 2008
Millions of Yen
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Three months ended
December 31, 2008
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Net Sales:
Products 237,511
Post sales and rentals 239,369
Other revenue 25,211
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Total 502,091
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Cost of Sales:
Products 156,254
Post sales and rentals 112,246
Other revenue 19,446
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Total 287,946
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Gross profit 214,145
Selling, General and Administrative Expenses 192,843
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Operating income 21,302
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Other (Income) Expenses:
Interest and dividend income (750)
Interest expense 1,874
Foreign currency exchange (gain) loss, net 18,473
Other, net 517
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Total 20,114
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Income before Income Taxes, Minority Interests and Equity in Earnings of
Affiliates 1,188
Provision for Income Taxes:
Current (4,661)
Deferred 10,359
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Total 5,698
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Minority Interests 288
Equity in Earnings of Affiliates (7)
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Net Income (4,805)
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Yen
-----------------------------------------------------------------------------------------------
Per Share of Common Stock:
-----------------------------------------------------------------------------------------------
Basic: (6.62)
Diluted: --
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Cash dividends paid per share 18.00
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Per American Depositary Share, each representing 5 shares of common stock:
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Basic: (33.10)
Diluted: --
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Cash dividends paid per share 90.00
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The accompanying notes are an integral part of these financial statements.
4
Ricoh Company, Ltd. and Consolidated Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended December 31, 2008
Millions of Yen
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Nine months ended
December 31, 2008
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 29,540
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 74,449
Equity in earnings of affiliates, net of dividends received (15)
Deferred income taxes 4,562
Losses on disposals and sales of property, plant and equipment 1,170
Pension and severance costs, less payment 3,273
Changes in assets and liabilities, net of effects from acquisition-
Decrease in trade receivables 15,315
Increase in inventories (30,936)
Increase in finance receivables (11,509)
Decrease in trade payables (50,108)
Decrease in accrued income taxes and
accrued expenses and other (56,210)
Other, net 29,234
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Net cash provided by operating activities 8,765
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment 73
Expenditures for property, plant and equipment (72,344)
Payments for purchases of available-for-sale securities (1,275)
Proceeds from sales of available-for-sale securities 243
Increase in time deposits, net (689)
Purchase of business, net of cash acquired (158,673)
Other, net (18,063)
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Net cash used in investing activities (250,728)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term indebtedness 54,355
Repayment of long-term indebtedness (53,511)
Increase in short-term borrowings, net 295,813
Repayment of long-term debt securities (26,143)
Dividends paid (25,320)
Payment for purchase of treasury stock (605)
Other, net (427)
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Net cash provided by financing activities 244,162
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EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (17,665)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (15,466)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 170,607
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CASH AND CASH EQUIVALENTS AT END OF PERIOD 155,141
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The accompanying notes are an integral part of these financial statements.
5
Ricoh Company, Ltd. and Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
According to the article 93 of the "Regulations Regarding Terms, Forms and
Preparation of Interim Consolidated Financial Statements" (Cabinet office
Ordinance No.64, 2007), the accompanying consolidated financial statements of
Ricoh (Ricoh Company, Ltd. and its consolidated subsidiaries) have been prepared
in conformity with U.S. generally accepted accounting principles. Significant
accounting and reporting policies are summarized below:
The accompanying consolidated financial statements for the nine months ended
December 31, 2008 are presented in Japanese yen, the functional currency of the
Company and its domestic subsidiaries.
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.
(A) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and all majority-owned subsidiaries. The accounts of variable interest
entity as defined by the FASB Interpretation ("FIN") No. 46 (revised December
2003), "Consolidated of Variable Interest Entities" are included in the
consolidated financial statements, if applicable. Investments in entities in
which Ricoh has the ability to exercise significant influence over the entities'
operating and financial policies (generally 20 to 50 % ownership) are accounted
for on an equity basis. All significant intercompany balances and transactions
have been eliminated in consolidation.
The accounts of certain consolidated subsidiaries have been included on the
basis of fiscal periods ended within three months prior to December 31.
(B) 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,
6
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 ("EITF") Issue No.00-21, "Revenue
Arrangements with Multiple Deliverables". Pursuant to EITF 00-21, the delivered
item in a multiple element arrangement should be considered a separate unit of
accounting if all of the following criteria are met: (1) a delivered item has
value to customers on a stand-alone basis, (2) there is objective and reliable
evidence of fair value of an undelivered item, and (3) the delivery of the
undelivered item must be probable and controlled by Ricoh if the arrangement
includes the right of return. The price charged when the element is sold
separately generally determines fair value. Otherwise, revenue is deferred until
the undelivered elements are fulfilled as a single unit of accounting.
Revenue from the sale of equipment under sales-type leases is recognized as
product sales at the inception of the lease. Other revenue consists primarily of
interest income on sales-type leases and direct-financing leases, which are
recognized as Other revenue over the life of each respective lease using the
interest method.
(C) 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
end of the period, and income and expenses are translated at the average rates
of exchange prevailing during each period. The resulting translation adjustments
are included as a part of accumulated other comprehensive income (loss) in
shareholders' investment.
All foreign currency transaction gains and losses are included in other income
and expense in the period incurred.
(D) 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.
(E) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
As discussed further in Note 6, Ricoh manages its exposure to certain market
risks, primarily foreign currency and interest rate risks, through the use of
derivative instruments. As a matter of policy, Ricoh does not enter into
derivative contracts for trading or speculative purposes.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.133
"Accounting for Derivative Instruments and Hedging Activities", SFAS No.138
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,
an amendment of FASB Statement No.133" and SFAS No.149 "Amendment of Statement
133 on Derivative Instruments and Hedging Activities", Ricoh recognizes all
derivative instruments as either assets or liabilities in the consolidated
balance sheets and
7
measures those instruments at fair value. When Ricoh enters into a derivative
contract, it makes a determination as to whether or not for accounting purposes
the derivative is part of a hedging relationship. In general, a derivative may
be designated as either (1) a hedge of the fair value of a recognized asset or
liability or an unrecognized firm commitment ("fair value hedge"), (2) a hedge
of the variability of the expected cash flows associated with an existing asset
or liability or a forecasted transaction ("cash flow hedge"), or (3) a foreign
currency fair value or cash flow hedge ("foreign currency hedge"). Ricoh
formally documents all relationships between hedging instruments and hedged
items, as well as its risk-management objective and strategy for undertaking
various hedge transactions. This process includes linking all derivatives that
are designated as fair value, cash flow, or foreign currency hedges to specific
assets and liabilities on the consolidated balance sheets or to specific firm
commitments or forecasted transactions.
For derivative contracts that are designated and qualify as fair value hedges
including foreign currency fair value hedges, the derivative instrument is
marked-to-market with gains and losses recognized in current period earnings to
offset the respective losses and gains recognized on the underlying exposure.
For derivative contracts that are designated and qualify as cash flow hedges
including foreign currency cash flow hedges, the effective portion of gains and
losses on these contracts is reported as a component of accumulated other
comprehensive income (loss) and reclassified into earnings in the same period
the hedged item or transaction affects earnings. Any hedge ineffectiveness on
cash flow hedges is immediately recognized in earnings. For all derivative
instruments that are not designated as part of a hedging relationship and for
designated derivative instruments that do not qualify for hedge accounting, the
contracts are recorded at fair value with the gain or loss recognized in current
period earnings.
(F) ALLOWANCE FOR DOUBTFUL TRADE RECEIVABLES AND FINANCE RECEIVABLES
Ricoh records allowances for doubtful receivables that are based upon historical
experience and specific customer collection issues. The estimated amount of
probable credit losses in its existing receivables is determined from write-off
history adjusted to reflect current economic conditions and specific allowances
for receivables including nonperforming leases, impaired loans or other accounts
of which Ricoh has concluded it will be unable to collect all amounts due
according to original terms of the lease or loan agreement. Account balances net
of expected recovery from available collateral are charged-off against the
allowances when collection is considered remote.
(G) SECURITIES
Ricoh conforms with SFAS No.115, "Accounting for Certain Investments in Debt and
Equity Securities" which requires all investments in debt and marketable equity
securities to be classified as either held-to-maturity, trading, or
available-for-sale securities. As of December 31, 2008 and March 31, 2008, 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.
8
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.
(H) INVENTORIES
Inventories are mainly stated at the lower of average cost or net realizable
values. Inventory costs include raw materials, labor and manufacturing
overheads.
(I) 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. The depreciation period
generally ranges from 5 years to 50 years for buildings and 2 years to 12 years
for machinery and equipment.
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.
(J) CAPITALIZED SOFTWARE COSTS
In accordance with Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," Ricoh capitalizes
qualifying cost of computer software. Costs incurred during the application
development stage as well as upgrades and enhancements that results in
additional functionality are capitalized. The capitalized software is amortized
on a straight line basis over their estimated useful lives.
(K) GOODWILL AND OTHER INTANGIBLE ASSETS
SFAS No.141, "Business Combinations" requires the use of only the purchase
method of accounting for business combinations and refines the definition of
intangible assets acquired in a purchase business combination. SFAS No.142,
"Goodwill and Other Intangible Assets" eliminates the amortization of goodwill
and instead requires annual impairment testing thereof. SFAS 142 also requires
acquired intangible assets with a definite useful life to be amortized over
their respective estimated useful lives and reviewed for impairment when an
indication of impairment is identified in accordance with SFAS No.144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." Other
intangible assets with definite useful lives, consisting primarily of software,
patents, customer relationships and tradenames are amortized on a straight line
basis over 1 year to 20 years. Any acquired intangible asset determined to have
an indefinite useful life is not amortized, but instead is tested annually for
impairment based on its fair value until its life would be determined to no
longer be indefinite.
(L) PENSION AND RETIREMENT ALLOWANCES PLANS
The measurement of pension costs and liabilities is determined in accordance
with SFAS No.87, "Employers' Accounting for Pensions" and SFAS No.158,
"Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans." Under SFAS 158, Ricoh recognized the funded status (i.e., the
9
difference between the fair value of plan assets and the projected benefit
obligations) of its pension fund plans on the consolidated balance sheets, with
a corresponding adjustment to accumulated other comprehensive income (loss), net
of tax. The expected long-term rate of return on plan assets used for pension
accounting is determined based on the historical long-term rate of return on
plan assets. The discount rate is determined based on the rates of return of
high-quality fixed-income investments currently available and expected to be
available during the period to maturity of the pension benefits.
(M) INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences and carryforwards are expected to be
realized or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
FIN 48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB
Statement No. 109" requires a more-likely-than-not threshold for financial
statement recognition and measurement of tax positions taken or expected to be
taken in a tax return. Ricoh recognizes interest and penalties accrued related
to unrecognized tax benefits in income taxes in the consolidated statement of
income.
(N) RESEARCH AND DEVELOPMENT EXPENSES AND ADVERTISING COSTS
Research and development expenses and advertising costs are expensed as
incurred.
(O) SHIPPING AND HANDLING COSTS
Shipping and handling costs, which mainly include transportation to customers,
are included in selling, general and administrative expenses in the consolidated
statements of income.
(P) 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 group of assets 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.
(Q) EARNINGS PER SHARE
Basic net income per common share is calculated by dividing net income by the
weighted-average number of shares outstanding during the period. The calculation
of diluted net income per common share is similar to the calculation of basic
net income per share, except that the weighted-average number of shares
outstanding includes the additional dilution from potential common stock
equivalents such as convertible bonds.
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(R) NON-CASH TRANSACTIONS
The following non-cash transaction has been excluded from the consolidated
statements of cash flows:
Millions of Yen
--------------------------------------------------------------
Nine months ended
December 31, 2008
--------------------------------------------------------------
Issuance of treasury stock in exchange for
subsidiary's stock 9,138
--------------------------------------------------------------
(S) USE OF ESTIMATES
Management of Ricoh has made a number of estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, including
impairment losses of long-lived assets and the disclosures of fair value of
financial instruments and contingent assets and liabilities, to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates. Ricoh has
identified four areas where it believes assumptions and estimates are
particularly critical to the consolidated financial statements. These are
determination of the allowance for doubtful receivables, impairment of
securities, impairment of long-lived assets and goodwill, realizability of
deferred tax assets and pension accounting.
(T) NEW ACCOUNTING STANDARDS
In September 2006, the FASB issued SFAS No.157, "Fair Value Measurements," which
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. SFAS 157 applies under other
accounting pronouncements that require or permit fair value measurements, where
fair value is the relevant measurement attribute. SFAS 157 does not require any
new fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007, and was adopted by Ricoh in fiscal year beginning April
1, 2008. The adoption of SFAS 157 did not have a material effect on Ricoh's
consolidated financial position or results of operations. In February 2008, the
FASB issued Staff Positions ("FSP") No. FAS 157-1, "Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13" and FSP 157-2, "Effective Date of FASB Statement
No. 157," which delays the effective date of SFAS 157 for all nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually) and remove certain leasing transactions from its scope.
In September 2006, the FASB issued SFAS 158. SFAS 158 requires companies to
recognize an asset or liability for the overfunded or underfunded status of
their benefit plans in their financial statements and to recognize changes in
that funded status in comprehensive income (loss) in the year in which the
changes occur. SFAS 158 also requires the measurement date for plan assets and
liabilities to coincide with the sponsor's year-end. The standard provides two
transition alternatives related to the change in measurement date provisions.
The recognition of an asset and liability related to the funded status provision
is effective for fiscal years ending after December 15, 2006. The effect of
adoption of SFAS 158 on Ricoh's financial condition as of March 31, 2007 has
been included in the accompanying consolidated financial statements. The change
in measurement date provisions is effective for fiscal years ending after
December 15, 2008 and was adopted by Ricoh in the fiscal year beginning April 1,
2008. The adoption of SFAS 158 did not have a material effect on Ricoh's
consolidated financial position or results of operations.
In December 2007, the FASB issued SFAS No.141 (revised 2007), "Business
Combinations " ("SFAS 141R"). SFAS 141R establishes principles and requirements
for how an acquirer recognizes and measures
11
in its financial statements the identifiable assets acquired, the liabilities
assumed, any noncontrolling interest in the acquiree and the goodwill acquired.
SFAS 141R also establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination. SFAS 141R is
effective for fiscal years beginning on or after December 15, 2008 and is
required to be adopted by Ricoh in the first quarter beginning April 1, 2009.
Ricoh will apply prospectively to all business combinations subsequent to the
effective date.
In December 2007, the FASB issued SFAS No.160, "Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51." This Statement
requires that the noncontrolling interest in the equity of a subsidiary be
accounted for and reported as equity, provides revised guidance on the treatment
of net income and losses attributable to the noncontrolling interest and changes
in ownership interests in a subsidiary and the valuation of retained
noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160
also requires additional disclosures that identify and distinguish between the
interests of the controlling and noncontrolling owners. Pursuant to the
transition provisions of SFAS 160, Ricoh will adopt SFAS 160 in fiscal year 2009
via retrospective application of the presentation and disclosure requirements.
Ricoh is currently evaluating the effect that the adoption of SFAS 160 will have
on its consolidated results of operations and financial condition.
In March 2008, the FASB issued SFAS No.161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133".
SFAS 161 requires disclosures of how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted
for and how derivative instruments and related hedged items affect an entity's
financial position, financial performance, and cash flows. SFAS 161 is effective
for the first reporting period beginning after November 15, 2008 and is required
to be adopted by Ricoh in the fourth quarter beginning January 1, 2009. Ricoh is
currently evaluating the effect that the adoption of SFAS 161 will have on its
consolidated results of operations and financial condition.
In April 2008, the FASB finalized FSP 142-3, "Determination of the Useful Life
of Intangible Assets". The position amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS 142. The position applies to
intangible assets that are acquired individually or with a group of other assets
and both intangible assets acquired in business combinations and asset
acquisitions. FSP 142-3 is effective for fiscal years beginning after December
15, 2008, and interim periods within those fiscal years. Ricoh is currently
evaluating the effect that the adoption of FSP 142-3 will have on its
consolidated results of operations and financial condition.
12
2. ACQUISITION
Ricoh acquired IKON Office Solutions, Inc. ("IKON") through the Company's wholly
owned U.S. distribution subsidiary, Ricoh Americas Corporation ("RAC") on
October 31, 2008 for total cash consideration of approximately Yen 170 billion,
including transaction cost. This acquisition was financed with bank loan. IKON
supplies and services a wide range of office equipment, such as MFPs, fax
machines and printers, in the U.S., Canada and the Western European markets.
Ricoh made the acquisition to strengthen its sales and service network in the
Americas and Europe. Assets, liabilities and operations of IKON are included in
the accompanying consolidated financial statements since the acquisition date.
The unaudited pro forma results presented below include the effect of the IKON
acquisition as if it had been consummated as of April 1, 2008.
Pro forma results do not include any synergies or other expected benefits of the
acquisition. Accordingly, the unaudited pro forma financial information is not
necessarily indicative of either future results of operations or results that
might have been achieved had the acquisition been consummated as of April 1,
2008.
Millions of yen
---------------------------------------------------------------------------------------
Nine months ended Three months ended
December 31, 2008 December 31, 2008
---------------------------------------------------------------------------------------
Net sales 1,782,422 525,753
Net income 32,752 -5,196
---------------------------------------------------------------------------------------
Yen
---------------------------------------------------------------------------------------
Nine months ended Three months ended
December 31, 2008 December 31, 2008
---------------------------------------------------------------------------------------
Earnings per share:
Basic 45.28 -7.16
Diluted 44.05 --
---------------------------------------------------------------------------------------
13
3. SECURITIES
Marketable securities and investment securities as of December 31, 2008 and
March 31, 2008 consist of the following:
Millions of Yen
-----------------------------------------------------------------------------------
December 31, 2008 March 31, 2008
-----------------------------------------------------------------------------------
Marketable securities:
Available-for-sale securities -- 0
-----------------------------------------------------------------------------------
Investment securities:
Available-for-sale securities 52,365 69,962
Non-marketable equity securities 1,645 1,282
-----------------------------------------------------------------------------------
54,010 71,244
-----------------------------------------------------------------------------------
The current and non-current security types of available-for-sale securities, and
the respective cost, gross unrealized holding gains, gross unrealized holding
losses and fair value as of December 31, 2008 and March 31, 2008 are as follows:
Millions of Yen
------------------------------------------------------------------------------------------------------------
December 31, 2008 March 31, 2008
------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
unrealized unrealized unrealized unrealized
holding holding Fair holding holding Fair
Cost gains losses value Cost gains losses value
------------------------------------------------------------------------------------------------------------
Current: -- -- -- -- 0 -- -- 0
------------------------------------------------------------------------------------------------------------
Non-current:
Equity securities 63,074 3,148 13,856 52,365 62,208 6,231 3,723 64,716
Corporate debt securities -- -- -- -- 6,000 -- 754 5,246
------------------------------------------------------------------------------------------------------------
63,074 3,148 13,856 52,365 68,208 6,231 4,477 69,962
------------------------------------------------------------------------------------------------------------
Proceeds from the sales of available-for-sale securities were Yen 243 million
and Yen 100,025 million for the nine months ended December 31,2008 and for the
year ended March 31, 2008, respectively.
There were no significant realized gains or losses on sales of
available-for-sale securities for the nine months ended December 31, 2008 and
for the year ended March 31, 2008.
4. RELATED TO STOCKHOLDERS' EQUITY
Cash dividends paid during the nine months ended December 31, 2008
Resolved at the General meeting of Shareholders on June 26, 2008
-----------------------------------------------------------------
Total amount of dividends (million of yen) 12,256
Dividend per share of common stock (yen) 17.00
Record date March 31, 2008
Effective date June 27, 2008
Resource for dividend Retained earnings
-----------------------------------------------------------------
14
Resolved at the Board meeting on October 28, 2008
-----------------------------------------------------------------
Total amount of dividends (million of yen) 13,064
Dividend per share of common stock (yen) 18.00
Record date September 30, 2008
Effective date December 1, 2008
Resource for dividend Retained earnings
-----------------------------------------------------------------
5. PER SHARE DATA
Shareholders' equity per share was Yen 1,357.20 and Yen 1,498.29 as of December
31, 2008 and March 31, 2008, respectively. Dividends per share shown in the
consolidated statement of income are computed based on dividends paid for the
nine months ended December 31, 2008 and the year ended March 31, 2008.
A reconciliation of the numerator and the denominators of the basic and diluted
per share computations for net income are as follows:
Thousands of shares
------------------------------------------------------------------------------------
Nine months ended Three months ended
December 31, 2008 December 31, 2008
------------------------------------------------------------------------------------
Weighted average number of shares of common
stock outstanding 723,339 725,746
Effect of dilutive securities:
Euro Yen Zero Coupon Convertible Bonds
- Due December 2011 19,741 19,741
------------------------------------------------------------------------------------
Diluted shares of common stock outstanding 743,080 745,487
------------------------------------------------------------------------------------
Millions of yen
------------------------------------------------------------------------------------
Nine months ended Three months ended
December 31, 2008 December 31, 2008
------------------------------------------------------------------------------------
Net income 29,540 (4,805)
Effect of dilutive securities:
Euro Yen Zero Coupon Convertible Bonds
- Due December 2011 (19) (6)
------------------------------------------------------------------------------------
Diluted net income 29,521 (4,811)
------------------------------------------------------------------------------------
Yen
------------------------------------------------------------------------------------
Nine months ended Three months ended
December 31, 2008 December 31, 2008
------------------------------------------------------------------------------------
Earnings per share:
Basic 40.84 (6.62)
Diluted 39.73 --
------------------------------------------------------------------------------------
15
6. DERIVATIVE FINANCIAL INSTRUMENTS
Risk Management Policy
Ricoh enters into various derivative financial instrument contracts in the
normal course of business in connection with the management of its assets and
liabilities.
Ricoh uses derivative instruments to reduce risk and protect market value of
assets and liabilities in conformity with the Ricoh's policy. Ricoh does not use
derivative financial instruments for trading or speculative purposes, nor is it
a party to leveraged derivatives.
All derivative instruments are exposed to credit risk arising from the inability
of counterparties to meet the terms of the derivative contracts. However, Ricoh
does not expect any counterparties to fail to meet their obligations because
these counterparties are financial institutions with satisfactory credit
ratings. Ricoh utilizes a number of counterparties to minimize the concentration
of credit risk.
Foreign Exchange Risk Management
Ricoh conducts business on a global basis and holds assets and liabilities
denominated in foreign currencies. Ricoh enters into foreign exchange contracts
and foreign currency options to hedge against the potentially adverse impacts of
foreign currency fluctuations on these assets and liabilities denominated in
foreign currencies.
Interest Rate Risk Management
Ricoh enters into interest rate swap agreements to hedge against the potential
adverse impacts of changes in fair value or cash flow fluctuations on interest
of its outstanding debt.
Fair Value Hedges
Changes in the fair value of derivative instruments and the related hedged items
designated and qualifying as fair value hedges are included in other (income)
expenses in 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 nine months ended December 31, 2008 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 nine months ended December 31, 2008 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 (147) million of the balance of accumulated other
comprehensive income (loss) as of December 31, 2008
16
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 in the consolidated
statement of income.
7. COMMITMENTS AND CONTINGENT LIABILITIES
Ricoh was contingently liable for certain guarantees including employees housing
loans of Yen 361 million as of December 31, 2008.
As of December 31, 2008 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.
8. FAIR VALUE MEASUREMENTS
In September 2006, the FASB issued SFAS 157, which defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. SFAS 157 applies under other accounting pronouncements
that require or permit fair value measurements, where fair value is the relevant
measurement attribute. SFAS 157 does not require any new fair value
measurements. SFAS 157 is effective for fiscal years beginning after November
15, 2007, and was adopted by Ricoh in the fiscal year beginning April 1, 2008.
Pursuant to the provisions of FSP 157-2, Ricoh have decided to defer adoption of
SFAS 157 for one year for nonfinancial assets and nonfinancial liabilities that
are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis.
SFAS 157 defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS 157 establishes a three-level fair
value hierarchy that prioritizes the inputs used to measure fair value. The
three levels of inputs used to measure fair value are as follows:
Level 1 - Inputs are quoted prices in active markets for identical assets or
liabilities.
Level 2 - Inputs are quoted prices for similar assets or liabilities in an
active market, quoted prices for identical or similar assets or
liabilities in markets that are not active, inputs other than quoted
prices that are observable and market-corroborated inputs which are
derived principally from or corroborated by observable market data.
Level 3 - Inputs are derived from valuation techniques in which one or more
significant inputs or value drivers are unobservable.
17
The following table presents the fair-value hierarchy levels of Ricoh's assets
and liabilities that are measured at fair value on a recurring basis as of
December 31, 2008.
Millions of Yen
-----------------------------------------------------------------------
December 31, 2008
-----------------------------------------------------------------------
Level 1 Level 2 Level 3 Total
-----------------------------------------------------------------------
Assets:
Available-for-sale securities 50,890 -- -- 50,890
Derivative instruments -- 3,309 -- 3,309
Other investments -- -- 4,283 4,283
-----------------------------------------------------------------------
Total assets 50,890 3,309 4,283 58,482
-----------------------------------------------------------------------
Liabilities:
Derivatives instruments -- 4,641 -- 4,641
-----------------------------------------------------------------------
Total liabilities -- 4,641 -- 4,641
-----------------------------------------------------------------------
Available-for-sale securities
Marketable securities are classified Level 1 in the faire value hierarchy
Marketable securities are valued using a market approach based on the quoted
market prices of identical instruments in active markets.
Derivative instruments
Ricoh uses foreign exchange contracts, foreign currency options and interest
rate swap agreements to manage exposure to the variability of cash flow. These
derivative instruments are classified as Level 2 in the fair value hierarchy,
since they are valued using observable market data such as LIBOR-based yield
curves.
Other investments
Other investments classified as Level 3 in the fair value hierarchy represent
the retained interests in securitizations of finance lease receivables in which
Ricoh valued using cash flows discounted by an estimated interest rate
reflecting underlying risks. The following table presents a reconciliation of
activity for such retained interests on a net basis.
Millions of yen
--------------------------------------------------------------------------------------------
Nine months ended Three months ended
Other investments December 31, 2008 December 31, 2008
--------------------------------------------------------------------------------------------
Balance at beginning of period 5,887 4,286
Total gains or losses (realized and unrealized)
Included in net income -- --
Included in other comprehensive income (loss) -- --
Sales, collections and repurchases, net (1,604) (3)
--------------------------------------------------------------------------------------------
Balance at end of period 4,283 4,283
--------------------------------------------------------------------------------------------
18
9. 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 1.
(A) OPERATING SEGMENT INFORMATION
Millions of Yen
---------------------------------------------------------------------------------------
Nine months ended Three months ended
December 31, 2008 December 31, 2008
---------------------------------------------------------------------------------------
Sales-
Imaging & Solutions 1,363,768 443,996
Industrial Products 97,226 27,092
Other 110,496 32,182
Intersegment transaction (3,472) (1,179)
---------------------------------------------------------------------------------------
Consolidated 1,568,018 502,091
---------------------------------------------------------------------------------------
Operating Income-
Imaging & Solutions 139,418 41,215
Industrial Products (968) (1,744)
Other 579 (1,002)
Elimination 1 2
Unallocated expense 52,652 17,169
---------------------------------------------------------------------------------------
Consolidated 86,378 21,302
---------------------------------------------------------------------------------------
Other, net (26,315) (20,114)
---------------------------------------------------------------------------------------
Income before Income Taxes, Minority Interests
and Equity in Earnings of Affiliates 60,063 1,188
---------------------------------------------------------------------------------------
Millions of Yen
--------------------------------------------------------------------------
December 31, March 31,
2008 2008
--------------------------------------------------------------------------
Total assets-
Imaging & Solutions 1,850,959 1,643,500
Industrial Products 96,852 91,635
Other 100,333 106,233
Elimination (1,179) (1,063)
Corporate assets 358,154 374,063
--------------------------------------------------------------------------
Consolidated 2,405,119 2,214,368
--------------------------------------------------------------------------
Unallocated expense represents expenses for corporate headquarters.
Intersegment sales are not separated by operating segment because they are
immaterial.
(B) GEOGRAPHIC INFORMATION
Sales which are attributed to countries based on location of customers for the
nine months and the three months ended December 31, 2008 are as follows:
Millions of Yen
---------------------------------------------------------------------------------------
Nine months ended Three months ended
December 31, 2008 December 31, 2008
---------------------------------------------------------------------------------------
Sales-
Japan 704,886 221,069
The Americas 350,467 132,882
Europe 408,263 119,553
Other 104,402 28,587
---------------------------------------------------------------------------------------
Consolidated 1,568,018 502,091
---------------------------------------------------------------------------------------
(C) ADDITIONAL INFORMATION
The following information shows net sales and operating income recognized by
geographic origin for the nine months and the three months ended December 31,
2008. 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 Financial Instrument and Exchange Law, which a Japanese public
company is subject to.
Millions of Yen
---------------------------------------------------------------------------------------
Nine months ended Three months ended
December 31, 2008 December 31, 2008
---------------------------------------------------------------------------------------
Sales-
Japan
External customers 723,708 224,054
Intersegment 346,985 110,052
---------------------------------------------------------------------------------------
Total 1,070,693 334,106
---------------------------------------------------------------------------------------
The Americas
External customers 351,451 134,803
Intersegment 3,172 916
---------------------------------------------------------------------------------------
Total 354,623 135,719
---------------------------------------------------------------------------------------
Europe
External customers 405,532 118,625
Intersegment 2,046 560
---------------------------------------------------------------------------------------
Total 407,578 119,185
---------------------------------------------------------------------------------------
Other
External customers 87,327 24,609
Intersegment 126,922 41,757
---------------------------------------------------------------------------------------
Total 214,249 66,366
---------------------------------------------------------------------------------------
Elimination of intersegment sales (479,125) (153,285)
---------------------------------------------------------------------------------------
Consolidated 1,568,018 502,091
---------------------------------------------------------------------------------------
Operating Income-
Japan 60,142 12,425
The Americas (12,663) (7,384)
Europe 26,761 6,608
20
Other 10,063 1,765
---------------------------------------------------------------------------------------
Elimination of intersegment sales 2,075 7,888
---------------------------------------------------------------------------------------
Consolidated 86,378 21,302
---------------------------------------------------------------------------------------
Other, net (26,315) (20,114)
---------------------------------------------------------------------------------------
Income before Income Taxes, Minority Interests
and Equity in Earnings of Affiliates 60,063 1,188
---------------------------------------------------------------------------------------
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.
10. SUPPLEMENTARY INFORMATION TO THE STATEMENT OF INCOME
The following amounts are charged to selling, general and administrative
expenses for the nine months and the three months ended December 31, 2008:
Millions of Yen
-----------------------------------------------------------------------
Nine months ended Three months ended
December 31, 2008 December 31, 2008
-----------------------------------------------------------------------
Research and development costs 93,506 30,259
Advertising costs 10,686 2,687
Shipping and handling costs 15,656 4,161
-----------------------------------------------------------------------
21