20-F 1 d511848d20f.htm FORM 20-F FORM 20-F
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 20 – F

 

 

 

(Mark One)

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2013

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report             

For the transition period from              to             

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)

Daisuke Segawa, (T)+81-3-6278-4108, (F)+81-3-6673-4476

13-1, Ginza 8-chome, Chuo-ku, Tokyo 104-8222, Japan

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

  

Name of each exchange on which registered

None

   None

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)

 

* 223,676 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, 2013: 725,036,416 shares (excluding 19,875,662 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    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 basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  x

    

International Financial Reporting Standards as issued

by the International Accounting Standards Board  ¨.

   Other  ¨.

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ¨    Item 18  ¨.

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.

 

 

 


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Defined Terms, Conventions and Presentation of Financial Information

On June 21, 2013 the noon buying rate for cable transfers in New York City as certified for customs purposes by the Federal Reserve Board for the Japanese Yen to the U.S. Dollar was ¥97.48 = 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 2013” refers to Ricoh’s fiscal year ended March 31, 2013, and other fiscal years of Ricoh are referred to in a corresponding manner.

As used in this annual report, “U.S. GAAP” means U.S. generally accepted accounting principles.

Cautionary Statement With Respect to Forward-Looking Statements

Statements made in this annual report with respect to Ricoh’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are or may be deemed to be forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, about the future performance of Ricoh. These forward-looking statements are made in reliance upon the protections provided by such acts for forward-looking statements. Forward-looking statements include but are not limited to those using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “may” or “might” and words of similar meaning in connection with a discussion of future operations or financial performance. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. Ricoh cautions you that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore you should not place undue reliance on them. You also should not rely on any obligation of Ricoh to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Ricoh disclaims any such obligation. Risks and uncertainties that might affect Ricoh include, but are not limited to (i) general economic conditions in Ricoh’s markets, particularly levels of consumer spending; (ii) exchange rates, particularly between the Japanese Yen and the U.S. Dollar, the Euro, and other currencies in which Ricoh makes significant sales or in which Ricoh’s assets and liabilities are denominated; (iii) Ricoh’s ability to continue to design and develop products and services, and win acceptance of its products and services which are offered in highly competitive markets characterized by continual introduction of new products, rapid development in new technology, and consumer preferences that are subjective and likely to change; (iv) Ricoh’s ability to successfully implement strategies for its office equipment business, such as further globalization of its operations to increase account sales to corporate clients, reinforcement of the color printer line-up to meet growing demand for color products among its office users, implementation of optimal printing solutions for customers’ digitally networked offices and enhancement of printing capabilities centered on multi-functional printers (“MFPs”), and implementation of optimal localization of manufacturing operations so that such operations are closer to the customer; (v) Ricoh’s ability to continuously devote sufficient resources to research and development, and capital expenditures for digital and networking equipment, such as digital plain paper copiers (“PPCs”), MFPs, laser printers, GELJET printers and production printing products; (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.”


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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

     11   

Item 4A. Unresolved Staff Comments

     35   

Item 5. Operating and Financial Review and Prospects

     36   

Item 6. Directors, Senior Management and Employees

     79   

Item 7. Major Shareholders and Related Party Transactions

     95   

Item 8. Financial Information

     96   

Item 9. The Offer and Listing

     96   

Item 10. Additional Information

     98   

Item 11. Quantitative and Qualitative Disclosures About Market Risk

     113   

Item 12. Description of Securities Other Than Equity Securities

     116   

PART II

  

Item 13. Defaults, Dividend Arrearages and Delinquencies

     118   

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

     118   

Item 15. Controls and Procedures

     118   

Item 16. [RESERVED]

     120   

Item 16A. Audit Committee Financial Expert

     120   

Item 16B. Code of Ethics

     120   

Item 16C. Principal Accountant Fees and Services

     120   

Item 16D. Exemptions from the Listing Standards for Audit Committees

     123   

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     123   

Item 16F. Change in Registrant’s Certifying Accountant

     123   

Item 16G. Corporate Governance

     123   

Item 16H. Mine Safety Disclosure

     123   

PART III

  

Item 17. Financial Statements

     124   

Item 18. Financial Statements

     124   

Item 19. Exhibits

     124   


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PART I

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 financial statements as of March 31, 2012 and 2013, and for the years ended March 31, 2011, 2012 and 2013 that appear elsewhere in this annual report.

With respect to the selected consolidated financial data for the earliest year of the five-year period (2009), we omit such information because we are not able to provide the restated financial data without unreasonable effort and expense.

 

     Millions of Yen except per share amounts and number of shares  
     2010      2011      2012     2013  

Income Statement Data:

          

Net sales:

   ¥ 2,015,811       ¥ 1,941,336       ¥ 1,903,477      ¥ 1,924,497   

Restructuring charges

     —           885         30,169        13,053   

Loss on impairment of goodwill

     —           —           27,491        —     

Loss on impairment of long-lived assets

     2,353         765         9,519        1,379   

Operating income (loss)

     65,901         58,071         (18,068     63,464   

Income (loss) before income taxes and equity in earnings of affiliates

     57,082         44,169         (31,937     58,173   

Net income (loss) attributable to Ricoh Company, Ltd.

     27,044         18,630         (44,560     32,467   

Per American Depositary Share:(1)

          

Net income (loss) (basic)

     186.35         128.40         (307.10     223.90   

Net income (loss) (diluted)

     181.25         125.75         (307.10     —     

 

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     Millions of Yen except per share amounts and number of shares  
     2010     2011     2012     2013  

Balance Sheet Data:

        

Total assets

     2,377,983        2,255,564        2,289,358        2,360,697   

Total Ricoh Company, Ltd. shareholders’ equity

     969,358        925,243        822,704        897,996   

Total equity

     1,019,891        978,130        879,018        958,658   

Common stock

     135,364        135,364        135,364        135,364   

Weighted average number of shares outstanding

     725,613,259        725,554,477        725,483,319        725,062,802   

Cash dividends declared Per American Depositary Share:(1), (2)

        

Interim

     82.50        82.50        82.50        62.50   
   $ (0.95   $ (0.98   $ (1.06   $ (0.76

Year-end

     82.50        82.50        42.50        82.50   
   $ (0.92   $ (1.03   $ (0.53   $ (0.85

Cash and cash equivalents

     237,101        172,221        156,210        117,051   

Capital investments

     66,886        66,875        73,271        86,569   

Long-term indebtedness, excluding current installment

     514,719        479,423        525,435        476,381   

 

Notes:

(1) Each American Depositary Share represents five shares of Ricoh Common Stock.
(2) Cash dividends declared per American Depositary Share for any given fiscal year consist of interim dividends paid during the fiscal year and year-end dividends to be paid after the fiscal year-end for such fiscal year, which are not equal to the dividends paid during such fiscal year, set forth under “Per American Depositary Share, each representing 5 shares of common stock – Cash dividends paid per share” in the Consolidated Statements of Operations appearing elsewhere in this annual report.

In the preceding table, cash dividends declared in U.S. Dollars are based on the exchange rates at each respective payment date or the latest practicable 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 Board.

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 Board during the previous six months and prior five fiscal years:

 

     December
2012
     January
2013
     February
2013
     March
2013
     April
2013
     May
2013
 

High

     81.86         86.92         91.38         93.32         92.96         97.28   

Low

     86.64         91.28         93.64         96.16         99.61         103.52   

 

     Year ended March 31,  
     2009      2010      2011      2012      2013  

Year-end

     99.15         93.40         82.76         82.41         94.16   

Average*

     100.85         92.49         85.00         78.86         83.26   

High

     87.80         86.12         78.74         75.72         77.41   

Low

     110.48         100.71         94.68         85.26         99.16   

 

* The average Japanese Yen exchange rates represent average noon buying rate on the last business day of each month during the respective period.

 

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B. Capitalization and Indebtedness.

Not applicable.

C. Reasons for the Offer and Use of Proceeds.

Not applicable.

D. Risk Factors.

Ricoh is a global manufacturer of office equipment and conducts business on a global scale. As such, Ricoh is exposed to various risks which include the risks listed below. Although certain risks that may affect Ricoh’s businesses are listed in this section, this list is not exhaustive. Ricoh’s business may in the future also be affected by other risks that are currently unknown or that are not currently considered significant or material. In addition, this section contains forward-looking statements that are subject to the “Cautionary Statement With Respect to Forward-Looking Statements” appearing 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, production printing products and digital duplicators. 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;

 

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No assurances can be made that Ricoh will be able to successfully manage the distribution system for its new products to eliminate the risk of loss resulting from a failure to take advantage of market opportunities;

 

   

No assurances can be made that Ricoh will succeed in marketing any newly developed product or technology; and

 

   

No assurances can be given that Ricoh will be able to respond adequately to changes in the industry.

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, production printing products and digital duplicators, will continue to grow in the future. While most of PPCs sold by Ricoh are 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.

 

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Ricoh Must Successfully Operate in Highly Competitive Markets

The document imaging and management industry, including the copier industry, is intensely competitive. Ricoh expects to face increased competition in the various markets in which it operates. Currently, Ricoh’s competitors include other large manufacturers and distributors of office equipment. In addition, as digital and other new technology develops and as new office equipment products using these newly developed technologies gain increased market acceptance, Ricoh may find itself competing with new competitors that develop such new technologies, including computer software and hardware manufacturers and distributors. Accordingly, it is possible that new 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 Ricohs Major Markets May Adversely Affect Ricoh’s Sales

Demand for Ricoh’s products is affected by cyclical changes in the economies of Ricoh’s major markets, including Japan, the United States and Europe. Economic downturns and declines in consumption in Ricoh’s major markets may adversely affect Ricoh’s financial results and condition.

Foreign Exchange Fluctuations Affect Ricoh’s Results

Local currency-denominated financial results in each of the Company’s subsidiaries around the world are translated into Japanese Yen by applying the average market rate during each financial period and recorded on Ricoh’s consolidated statements of operations. 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.

 

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In addition, operating profits and losses are highly sensitive to the fluctuations in the value of the Japanese Yen because the high volume of Ricoh’s production and sales activities in the Americas, Europe and Other, such as China, results in a large proportion of revenues and costs denominated in local currencies. Although Ricoh engages in hedging transactions such as forward contracts with several financial institutions having credit ratings satisfactory to Ricoh to minimize the negative effects of short-term fluctuations in foreign exchange rates among major currencies such as the U.S. Dollar, the Euro and Japanese Yen, mid-to-long-term volatile changes in the exchange rate levels make it difficult for Ricoh to execute planned procurement, production, logistics, and sales activities and may adversely affect Ricoh’s financial results and condition.

Crude Oil Price Fluctuations Affect Ricoh’s Results

Many of the parts or materials used in manufacturing Ricoh’s products are made from oil. If the price of crude oil rises, the purchase price of such product parts or materials may increase as well. Furthermore, a rise in the price of crude oil may lead to an increase in shipping and handling costs due in part to a rise in the cost of fuel and the cost of utilities. Ricoh may not be able to pass these incremental costs onto the sales price of its products. Such fluctuations in crude oil prices may therefore adversely affect Ricoh’s financial position and results of operations.

Ricoh Is Subject to Government Regulation That Can Limit Its Activities or Increase Its Cost of Operations

Ricoh is subject to various governmental regulations and approval procedures in the countries in which it operates. For example, Ricoh may be required to obtain approvals for its business and investment plans, be subject to export regulations and tariffs, as well as rules and regulations relating to commerce, antitrust, patent, consumer and business taxation, exchange control, and environmental and recycling laws. Ricoh has established a Corporate Social Responsibility Office to heighten awareness of the importance of corporate social responsibility. Through this office, Ricoh involves its employees in various activities designed to ensure compliance with applicable regulations as part of its overall risk management and compliance program. However, if Ricoh is unable to comply with any of these regulations or fails to obtain the requisite approvals, Ricoh’s activities in such countries may be restricted. In addition, even if Ricoh is able to comply with these regulations, compliance can result in increased costs. In either event, Ricoh’s financial results and condition may be adversely affected.

Ricoh Is Subject to Internal Control Evaluations and Attestation Over Financial Reporting under the Sarbanes-Oxley Act of 2002 of the United States and the Financial Instruments and Exchange Act of Japan

The United States Securities and Exchange Commission (the “SEC”), as required by Section 404 of the Sarbanes-Oxley Act of 2002 of the United States, adopted rules requiring every company that files reports with the SEC to include a management report on such company’s internal control over financial reporting in its annual report. In addition, the company’s independent registered public accounting firm must publicly attest to the effectiveness of the company’s internal control over financial reporting. Furthermore, the Financial Instruments and Exchange Act of Japan requires Japanese companies whose shares are listed on the Japanese stock exchanges to submit a report which evaluates internal control over financial reporting to the commissioner of the financial bureau of Japan. Ongoing compliance with these requirements is complex, costly and time-consuming. If Ricoh were to fail to maintain effective internal control over financial reporting, Ricoh’s management were to fail to assess on a timely basis the adequacy of such internal control, or Ricoh’s independent registered public accounting firm were to fail to attest on a timely basis to the effectiveness of such internal control or issue a qualified opinion, Ricoh could be subject to regulatory sanctions or could face adverse reactions in the financial markets due to loss of investor confidence.

 

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Ricoh’s Business Depends on Protecting Its Intellectual Property Rights

Ricoh owns or licenses a number of intellectual property rights in the field of office equipment automation and, when Ricoh believes it is necessary or desirable, obtains additional licenses for the use of other parties’ intellectual property rights. If Ricoh fails to protect, maintain or obtain such rights, its performance and ability to compete may be adversely affected. Ricoh has a program in place under which company employees are compensated for any valuable intellectual property rights arising out of any inventions developed by them during the course of their employment with Ricoh. While unlikely, management believes that there could arise instances in the future where Ricoh may become the subject of legal actions or proceedings where claims alleging inadequate compensation are asserted by company employees.

Ricoh Is Dependent on Securing and Retaining Specially Skilled Personnel

Ricoh believes that it can continue to remain competitive by securing and retaining additional personnel who are highly skilled in the fields of management and information technology. However, the number of skilled personnel is limited and the competition for attracting and retaining such personnel is intense, particularly in the information technology industry. Securing and retaining skilled personnel in the information technology industry is especially important for Ricoh to compete effectively with its competitors as expectations and market standards for office equipment become more technologically advanced. Ricoh cannot assure that it will be able to successfully secure and retain additional skilled personnel.

Ricoh May Be Adversely Affected by Its Employee Benefit Obligations

With respect to its employee benefit obligations and plan assets, Ricoh accrues the cost of such benefits based on applicable accounting policies and funds such benefits in accordance with governmental regulations. Currently, there is no immediate and significant funding requirement; however, if returns from investment assets continue to decrease and/or turn to be negative due to market conditions, such as the fluctuations in the stock or bond markets, additional funding and accruals may be required. Such additional funding and accruals may adversely affect Ricoh’s financial position and results of operations.

 

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Ricoh’s Operations Are Subject to Environmental Laws and Regulations

Ricoh’s operations are subject to many environmental laws and regulations governing, among other things, air emissions, wastewater discharges, the use and handling of hazardous substances, waste disposal, product recycling, and soil and ground-water contamination. Ricoh faces risks of environmental liability in our current and historical manufacturing activities. Costs associated with future additional environmental compliance or remediation obligations could adversely affect Ricoh’s business, operating results, and financial condition.

Risks Associated with Ricoh’s Equipment Financing Business May Adversely Affect Ricoh’s Financial Condition

Ricoh provides financing to some of its customers in connection with its equipment sales and leases. Ricoh evaluates the creditworthiness and the amount of credit extended to a customer prior to the financing arrangement and during the financing term on a regular basis. Depending on such evaluations, Ricoh makes adjustments to such extensions of credit as it deems necessary to minimize any potential risks of concentrating credit risk or non-payment of credit. Despite the application of these monitoring procedures, no assurances can be made that Ricoh will be able to fully collect on such extensions of credit due to unforeseeable defaults by its customers.

In addition, these financing arrangements that Ricoh enters into with its customers result in long-term receivables bearing a fixed rate of interest. However, Ricoh finances these financing arrangements primarily with short-term borrowings subject to a variable interest rate. Although Ricoh engages in hedging activities, Ricoh is not able to fully hedge this interest rate mismatch.

If Ricoh is unable to successfully manage these risks associated with its equipment financing business, Ricoh’s financial results and condition may be adversely affected.

Ricoh May Be Subject to Product Liability Claims that Could Significantly Affect Its Financial Condition

Ricoh may be held responsible for any defects that occur with respect to its products and services. Based on the defect, Ricoh may be liable for significant damages, which may adversely affect its financial results and condition. Furthermore, as Ricoh increasingly provides products and services utilizing sophisticated and complex technologies, such defects may occur more frequently. Such potential increase in defects, which could result in an increase in Ricoh’s liability, may adversely affect its financial results and condition.

In addition, negative publicity concerning these defects could make it more difficult for Ricoh to attract and maintain customers to purchase Ricoh products and services. As a result, Ricoh’s financial results and condition may be adversely affected.

Ricoh’s Performance Can Be Affected by Alliance with, and Strategic Investments in, 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. Ricoh also makes strategic investments to acquire interests in companies that Ricoh believes would support existing businesses and/or lead to new businesses. Such strategic investments may not necessarily lead to the expected outcome or performance and may result in increased time and expenses being incurred due to the integration of businesses, technologies, products and/or personnel necessitated by such investments. Accordingly, these types of management decisions may have a significant impact on the future performance of Ricoh. Failure to maintain an on-going alliance, establish a necessary alliance or make a strategic investment to acquire an interest in a company may adversely affect Ricoh’s future financial position and results of operations.

 

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Inadvertent or Accidental Leakage or Disclosure of Confidential or Sensitive Information May Adversely Affect Ricoh’s Operations

Ricoh obtains confidential or sensitive information from various sources, including its customers, in the ordinary course of its business. Ricoh also holds trade secrets regarding its technologies and other confidential or sensitive information relating to marketing. To prevent unauthorized access and/or fraudulent leakage or disclosure of such confidential or sensitive information, Ricoh has implemented an internal management system, which includes measures to improve security and access to its internal database, as well as employee training programs to educate its employees with respect to compliance with applicable regulations relating to information security and data access. Despite Ricoh’s efforts, however, confidential or sensitive information may be inadvertently or accidentally leaked or disclosed and any such leakage or disclosure may result in Ricoh incurring damages, which may adversely affect Ricoh’s reputation. In addition, Ricoh may incur significant expenses for defending any lawsuits that may arise from such claims. Furthermore, the leakage or disclosure of Ricoh’s confidential or sensitive marketing and technological information to a third party may adversely affect Ricoh’s financial results and condition.

Ricoh May Suffer Loss as a Result of Catastrophic Disaster, Information Technology Problems or Infectious Diseases

Several of Ricoh’s manufacturing facilities in Japan could be subject to a catastrophic loss caused by earthquakes as such facilities are located in areas with above average seismic activity. If any of these facilities were to experience a catastrophic loss, Ricoh could experience disruptions in its operations and delays in its production and shipments. If such occurred, Ricoh would likely record a decrease in revenue, and require large expenditures to repair or replace the damaged facility, which is likely to affect Ricoh’s financial position and results of operations.

As Ricoh becomes increasingly dependent on information technology, software and hardware defects, computer viruses, as well as internal database problems (e.g., falsifications or disappearance of information relating to our customers) pose a greater risk to its operations. Although Ricoh has taken various precautionary measures, such as installing firewalls and anti-virus software to detect and eliminate computer viruses, Ricoh may not be able to completely prevent or mitigate the effects of such problems, which may affect Ricoh’s performance.

 

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In addition, the Ricoh 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 its operations worldwide, additional risks, such as infectious diseases (e.g., a new strain of influenza) and epidemics, may adversely affect Ricoh’s operations and financial positions.

Shortage of Electric Power Supply in Japan May Affect Ricohs Production

Most of nuclear reactors in Japan have been stopped for inspection since the Great East Japan Earthquake, which caused the availability of electric power supply in Japan to be unpredictable. Such uncertainty of electric power supply may affect Ricoh’s production activity or cost of production.

 

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Item 4. Information on the Company

A. History and Development of the Company

The Company was 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 (such as PPCs), MFPs, laser printers, GELJET printers, production printing products, digital duplicators, facsimile machines, personal computers and servers, network related software and other equipment, including semiconductors and cameras. More recently, Ricoh has further expanded its businesses to manufacture and sell products such as projectors, video conference systems, thermal rewritable products and interactive digital whiteboard solutions.

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 Section of each 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, later known as Ricoh Corporation and now known as Ricoh Americas Corporation).
April 1963    The Company changes its corporate name to Ricoh Company, Ltd.
July 1967    The Company establishes Tohoku Ricoh Co., Ltd. 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, later known as Ricoh Europe B.V. and now known as Ricoh Europe Holdings B.V.) in the Netherlands.
January 1973    The Company establishes Ricoh Electronics, Inc. (a subsidiary) in the United States.

 

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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.

December 1978

   The Company establishes Ricoh Business Machines, Ltd. (a subsidiary, now known as Ricoh Hong Kong Ltd.).

March 1981

   The Company builds the Ricoh Electronics Development Center at the Ikeda plant to develop and manufacture electronic devices.

October 1981

   The Company lists its securities on the Paris Stock Exchange (now known as Euronext Paris).

May 1982

   The Company establishes sensitized paper production facilities in Sakai, Fukui (now known as the Fukui plant), which takes over some of the sensitized paper production from the Osaka plant (now known as the Ikeda plant).

December 1983

   The Company establishes Ricoh UK Products Ltd. (a subsidiary).

October 1985

   The Company builds a copier manufacturing plant in Gotenba, Shizuoka.

April 1986

   The Company opens a research and development (“R&D”) facility in Yokohama, Kanagawa (now known as the Ricoh Research and Development Center) in commemoration of the Company’s 50th anniversary, to which it transfers some of its R&D operations from the Ohmori plant.

April 1987

   The Company establishes Ricoh Industrie France S.A. (a subsidiary, now known as Ricoh Industrie France S.A.S.).

April 1989

   The Company sets up an electronic devices facility in Yashiro-cho, Kato-gun, Hyogo (now known as the Yashiro plant).

January 1991

   The Company establishes Ricoh Asia Industry (Shenzhen) Ltd. (a subsidiary) in China.

March 1995

   Ricoh Corporation acquires Savin Corporation, an American office equipment sales company.

September 1995

   The Company acquires Gestetner Holdings PLC (now known as Ricoh Europe 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. (a subsidiary, now known as Ricoh Innovations Corporation) in the United States.

August 1999

   Ricoh Hong Kong Ltd. acquires Inchcape NRG Ltd., a Hong Kong-based office equipment sales company.

January 2001

   Ricoh Corporation acquires Lanier Worldwide, Inc., an American office equipment sales company.

October 2002

   The Company establishes Ricoh China Co., Ltd. (a subsidiary).

 

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April 2003

   Tohoku Ricoh Co., Ltd. becomes a wholly-owned subsidiary of the Company.

October 2004

   The Company acquires Hitachi Printing Solutions, Ltd. in Japan.

August 2005

   The Company opens Ricoh Technology Center in Ebina, Kanagawa to integrate its domestic development facilities and offices.

November 2005

   The Company relocates its headquarters to Chuo-ku, Tokyo.

January 2007

   Ricoh Europe B.V. acquires the European operations of Danka Business Systems PLC.

June 2007

   InfoPrint Solutions Company, LLC (now known as Ricoh Production Print Solutions, LLC), a joint venture company of Ricoh and International Business Machines Corporation (“IBM”), commences its operations.

May 2008

   The Company establishes Ricoh Manufacturing (Thailand) Ltd. (a subsidiary) in Thailand.

August 2008

   Ricoh Elemex Corporation becomes a wholly-owned subsidiary of the Company.

October 2008

   Ricoh Americas Corporation acquires all of the outstanding shares of IKON Office Solutions, Inc. (“IKON”, now known as Ricoh USA, Inc.), an American office equipment sales and service company.

July 2010

   Seven domestic sales subsidiaries and the marketing group of the Company are merged into one domestic sales subsidiary named Ricoh Japan Corporation.

August 2010

   The Company completes the construction of a new building that expands the Ricoh Technology Center, which is located in Ebina, Kanagawa.

October 2011

   The Company acquires the PENTAX imaging systems business from HOYA Corporation (now known as Pentax Ricoh Imaging Co., Ltd.).

April 2013

   The Company transfers part of its engineering functions and operations previously performed by the Company and its manufacturing subsidiaries in Japan to Ricoh Technologies Company, Ltd.

April 2013

   The Company transfers part of its production functions and operations previously performed by the Company and its manufacturing subsidiaries in Japan to Ricoh Industry Company, Ltd.

 

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The Company’s registered head office and executive 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 investments for fiscal years 2011, 2012 and 2013 were ¥66.8 billion, ¥73.2 billion and ¥86.5 billion, respectively. Ricoh directed a significant portion of its capital investments for fiscal years 2011, 2012 and 2013 towards digital and networking equipment, such as digital PPCs/MFPs, laser printers and production printing products, and manufacturing facilities to maintain or enhance its competitiveness in the industry. For fiscal year 2013, Ricoh’s capital investments included ¥9.0 billion for purchasing mold casts used in the manufacturing of MFPs, production printing equipment and printers, ¥5.3 billion to increase the production capacity of a plant that manufactures polymerized PxP toner in Japan and ¥4.7 billion to upgrade the facilities for manufacturing its thermal media products. By geographic areas, for fiscal year 2013, Ricoh made capital investments in Japan, the Americas, Europe, Middle East and Africa, and Other in the amounts of ¥51.4 billion, ¥17.7 billion, ¥11.0 billion and ¥6.3 billion, respectively.

Ricoh projects that for fiscal year 2014, its capital investments will amount to approximately ¥89.0 billion, which will principally be used for investments in manufacturing facilities of digital and networking equipment with new engines, toners, semiconductors and thermal media. It is expected that Ricoh’s capital investments in Japan, the Americas, Europe, Middle East and Africa, and Other will be in the amount of approximately ¥50.5 billion, ¥20.1 billion, ¥14.3 billion and ¥4.1 billion, respectively, for fiscal year 2014. These capital investments are expected to be financed with internally generated funds and/or borrowings from third parties.

B. Business Overview

Ricoh is a leading manufacturer of office automation equipment. Ricoh’s principal products include copiers (such as PPCs), printers (such as MFPs, laser printers and GELJET printers), production printing products, digital duplicators and facsimile machines. Ricoh is also a prominent manufacturer of digital and advanced electronic devices such as semiconductor devices. In recent years, Ricoh has been rapidly building a solid presence globally as a comprehensive document solutions provider that helps its customers streamline their businesses and decrease operating costs. More specifically, Ricoh supports its office and production printing equipment businesses by offering customers various “solution” systems that work with personal computers and servers, network systems, application software and related product support and after-sales services to assist customers in fully utilizing the Ricoh products that they purchase. Ricoh’s product support services include assisting customers in setting up their information technology environment or network. Ricoh also offers various supplies and peripheral products to be used with its products and systems. More recently, Ricoh has further expanded its businesses to manufacture and sell products such as projectors, video conference systems, thermal rewritable products and interactive digital whiteboard solutions.

 

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PRODUCTS

Ricoh’s operating segments consist of “Imaging & Solutions,” “Industrial Products” and “Other.”

Ricoh’s management analyzes its business operations and performance based on these segments.

The following table sets forth Ricoh’s sales by products for fiscal years 2011, 2012 and 2013.

SALES BY PRODUCT

 

     Millions of Yen (except for percentages)
For the Year Ended March 31,
 
     2011     2012     2013  

Imaging & Solutions

               

Office Imaging

   ¥ 1,381,175         71.2   ¥ 1,323,263         69.5   ¥ 1,329,608         69.1

Production Printing

     150,044         7.7        148,564         7.8        147,040         7.6   

Network System Solutions

     181,411         9.3        199,273         10.5        208,743         10.8   

Industrial Products

     107,032         5.5        98,052         5.2        93,094         4.8   

Other

     121,674         6.3        134,325         7.0        146,012         7.7   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   ¥ 1,941,336         100.0   ¥ 1,903,477         100.0   ¥ 1,924,497         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

Note:

(1) The above consolidated financial data set forth net sales to external customers by product.
(2) The product categories in Imaging & Solutions were reclassified into Office Imaging, Production Printing and Network System Solutions in fiscal year 2013 from the previous product categories of Imaging Solutions and Network System Solutions. In addition, certain products were reclassified into the Network System Solutions product category in Imaging & Solutions and Industrial Products from Other in fiscal year 2013. Figures for the prior fiscal years set forth in the above table have been reclassified to reflect such changes.

Imaging & Solutions

This segment consists of products that are widely used in the office and production printing environments and are categorized as follows:

(1) Office Imaging

For fiscal year 2013, the Office Imaging product category accounted for 69.1% of Ricoh’s net sales.

The Office Imaging product category includes monochrome and color digital PPCs/MFPs, laser printers, GELJET printers, digital duplicators, projectors, video conference systems, facsimiles, scanners, related parts and supplies, services, support and software.

 

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Ricoh continues to be a global leader in PPCs/MFPs and has been a pioneer in the development of digital machines. Ricoh manufactures a wide range of PPCs/MFPs with a variety of copying speeds and functions to simplify printing, copying, scanning and distribution tasks. Ricoh continues to strengthen its digital PPC/MFP product lineup with new product offerings that range from low-end models (regular print speed models for low volume copying or printing) to high-end models (high print speed models for large volume copying or printing). PPCs/MFPs use a drum or other medium coated with a photo conductive material on which an image of the original document is projected optically and developed by applying a dry powder-based toner. The application of this printing process enables higher picture quality and is environmentally friendly. Ricoh’s PPCs/MFPs are designed to provide information technology support for all types of office environments by delivering enhanced basic features (i.e., reduction, enlargements), simpler operation, reduced paper consumption through electronic storage, and better connectivity with document distribution and storage systems. Ricoh also manufactures a wide range of laser printers that print in monochrome or color and in a variety of print speeds, are able to connect to a network and are multifunctional in that they have scanning, faxing and copying capabilities as well as advanced finishing capabilities. GELJET printers utilize “GELJET technology” developed by Ricoh, which enables ultra-fine particle pigment dispersion to produce higher image qualities. All GELJET printers are color printers. Digital duplicators are economical versions of production printing products, although the print speed per minute is not as high as production printing products. Digital duplicators are tailored toward customers who may need large numbers of prints quickly but do not wish to invest in production printing products. Ricoh’s digital duplicators offer a variety of features and publishing conveniences, including color capabilities and computer connectivity.

In response to customer demand, Ricoh continues to be focused in recent years on designing a wide-range of products that enhance productivity, have improved security features, and are user and environmentally friendly.

For example, during fiscal year 2013, Ricoh released the MP 9002/7502/6002/6002GP series as part of its monochrome MFP product lineup. These products are manufactured using electric furnace steel sheets that are made of 100% steel scrap. The use of scrap materials has reduced the consumption of new resources in Ricoh’s office equipment. In addition, during fiscal year 2013, Ricoh introduced a full line-up of reconditioned multifunction products, which are comprised of the MP C4000RC SRF/MP C2800RC SRF for color printing and the MP 7501RC/6001RC/5000RC/4000RC/3350RC/2550RC series for monochrome printing. These products are manufactured using mainly reusable parts and have contributed to the reduction of CO2 levels during the manufacturing process.

With respect to printers, Ricoh introduced a complete new lineup of products, which are the SP C831/C831M/C830/C731/C731M/C730/C730M/C730L for color printers and the SP 8300/8300M for monochrome printers. These products are equipped with a user friendly 4.3 inch full color LCD touch panel, which improved visibility and operability. Furthermore, by enabling a connection to the cloud environment, features on these printers, such as printing from mobile devices, have become easier to use. Ricoh also introduced GELJET SG 7100 printer and the multi-function GELJET SG 3100SF printer during fiscal year 2013, both of which are compact models. These models combine high-quality color images, fast print speeds and double-sided printing capabilities of a laser printer while using inkjet technology. Its fast-drying, waterproof viscous inks allow users to reduce full-color printing and copying costs without compromising quality.

The market for projectors is experiencing greater competition as demand increases and technological advancements are made. Ricoh believes that its extensive knowledge in optical system technologies and processing techniques, which it uses in its existing businesses and has acquired over the years, as well as new R&D activity for projectors that it is undertaking will enable it to introduce innovative products that will meet customer demands. During fiscal year 2013, Ricoh developed and introduced six new projection systems (twelve models), including the desk edge / short throw projectors PJ WX3340N and PJ WX4240N.

 

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With respect to video conference systems, faster and inexpensive IP networks are enabling seamless interaction between diverse forms of information and using various communication methods and devices. The unified communication systems (“UCS”) business, which is a business that integrates video, voice and various other forms of information to achieve efficient communication, offers solutions in line with this communication evolution, and serves to enhance the efficiency and improve the productivity of customers’ business while saving costs. In light of such environment, Ricoh has entered into the UCS business. Ricoh offers systems and cloud services which unify various data such as video, voice, documents, text and handwritten input, thereby enabling communication “anytime, anywhere, with anyone.”

In addition, in Japan as well as the overseas market, Ricoh continues to expand its managed document services (“MDS”). Historically, Ricoh has grown its business by inventing and selling new products. While Ricoh remains committed to providing innovative hardware and software products, Ricoh believes that its MDS can provide customers added-values and has been expanding the scope of such services since its acquisition of IKON in fiscal year 2009. The objective of Ricoh’s MDS is to provide customers with a competitive advantage over its competitors, decrease costs, improve efficiencies and strengthen data security protection.

Ricoh believes that customers’ needs are changing and its MDS business is able to address such changing needs. Unlike before, customers appear to be less willing to pay for hardware and software which they must manage and optimize themselves. Rather, customers appear to be seeking a consultative partner that provides not only innovative products but also solutions that enable customers to pay only for what they actually use, which may change quickly based on changes in their business environment and the markets they serve. Based on Ricoh’s experience, customers also appear to be looking to outsource non-core business functions to third-party partners who are willing to invest, collaborate and work with them.

More specifically, Ricoh’s MDS is a global service that helps customers improve their document workflow and office processes, manages and optimizes customer’s information, increases productivity and reduces total cost of ownership (“TCO”). Ricoh’s MDS is provided to customers in the following five phases:

Phase I (Understand – Understanding the state of the customer’s environment): In this phase, Ricoh works with customers and conducts a detailed assessment of the state of the customer’s document output environment. Ricoh’s dedicated team of analysts performs this assessment and provides the customer with an analysis of the customer’s environment, including limitations to its environment and associated costs.

Phase II (Improve – Presenting a design proposal that focuses on the customer’s goals): Using the assessment from Phase I, Ricoh’s experts (including a team of analysts, system engineers, consultants and technology specialists) develop and provide recommendations to achieve the customer’s objectives in this phase. Such objectives may include enhancing efficiency, increasing productivity, and deriving measurable and sustained cost savings.

 

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Phase III (Transform – Transforming the customer’s environment): In this phase, Ricoh provides a clear roadmap that shows how the customer can transition from the current state to the desired future state, and offers the services of experts who can ensure that the transition to a new environment is accomplished efficiently, with minimum impact on the customer’s business, and the objectives of the change can be realized quickly.

Phase IV (Govern – Governing the new environment for continuous improvement): In this phase, Ricoh provides onsite services to generate cost savings, fleet productivity and workflow improvements. Ricoh strives to deliver measurable and sustained improvements that differentiate Ricoh’s MDS from other print solutions and ensure measurable cost containment, reduced IT efforts and enhanced end-user satisfaction.

Phase V (Optimize – Optimize the new environment): In this last phase, Ricoh provides services that transform the customer’s workflow and enables customers to deliver information at the appropriate time and format, while at the same time saving costs for such action. In providing this service, Ricoh offers the services of its experts without adding to the customers’ headcount and without having customers relinquishing control over their own information infrastructure. Ricoh’s experts will work as an extension of the customer’s staff, applying the requisite expertise as needed.

(2) Production Printing

For fiscal year 2013, the Production Printing product category accounted for 7.6% of Ricoh’s net sales. Production printing products are high-speed laser printers designed to be used as a central printing device to satisfy customers’ needs to print-on-demand and print large volumes. Products in this product category include cut sheet printer, continuous feed printer, related parts and supplies, services, support and software.

The recent expansion of new communication tools such as web portals and tablets has triggered a transfer of information from printed media such as magazines to electronic media, and this is gradually beginning to have an impact on the commercial printing market, a market that is mostly dependent on offset printing methods. On the other hand, innovation (high speed, high definition and high reliability) in printing technologies (primarily laser and inkjet technologies) has made it possible to print in limited quantities on an as-needed basis, even in small lots, thereby decreasing costs. It has also become possible for Ricoh’s production printing products to adapt to a wide variety of highly attractive ideas for printing, thereby meeting the diverse needs of customers who require printing services. In the commercial printing sector, therefore, in addition to conventional offset printing, Ricoh offers customers a wider variety of services such as print-on-demand (POD), variable printing and web-to-print. It is now also possible for companies to produce a variety of printed materials in-house that previously were not possible to produce, all at a higher speed and lower cost. For these reasons, the demand for production printing has been increasing in the printing market.

During fiscal year 2012, Ricoh developed and introduced the RICOH Pro C751EX/C651EX for its production printing customers. The RICOH Pro C751EX/C651EX is a color laser printer with a high print speed of 75/65 pages per minute for both monochrome and color printing on A4-sized paper. In addition, these laser printers (1) can produce high quality images with a print resolution of 1,200 dpi x 4,800 dpi by using technology unique to Ricoh and its oil-free polymerized PxP toners, (2) can maintain high productivity by functioning stably for long hours with optional parts that replace paper and toner bottles without interruptions, and supply a maximum of 7,700 sheets of paper, (3) are highly versatile machines being capable of printing on different weighted paper that ranges from 52.3g to 300g/m2 and different sized paper ranging from postcard-sized paper to paper measuring 13 x 19.2 inches, (4) offer a variety of finishing options, including an in-line paper booklet maker and trimmer which can assist customers automate their printing jobs, and (5) have large LCD color display operating panels enabling easy and comfortable operation by customers.

 

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(3) Network System Solutions

For fiscal year 2013, the Network System Solutions product category accounted for 10.8% of Ricoh’s net sales. The primary function of products in this category is to assist customers in establishing a networked environment and provide customized printing solutions that satisfy customers’ individual needs. The principal products in the Network System Solutions product category include personal computers and servers, network systems, application software, and related services and support such as document outsourcing services.

Ricoh is focused on providing solutions to customers to optimize their office environment. The solutions products that Ricoh offers in this product category are generally comprised of three key components: (1) hardware, (2) software and (3) support and services. By identifying and utilizing the most appropriate hardware and software to address customers’ needs, and supplementing such products with a comprehensive support and service team (such as a 24-hour IT monitoring center, and an expert team of hardware and software engineers), Ricoh strives to assist its customers in creating a working environment that is more efficient.

Industrial Products

The Industrial Products operating segment consists of products that are used in the industrial sector. For fiscal year 2013, this segment accounted for 4.8% of Ricoh’s net sales. Principal products in this segment include thermal media, optical equipment, semiconductor devices, electronic components and rewritable printing technology.

Through technological enhancements in its thermal media business, Ricoh has been 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 (such as dispatch labels), reward cards, identification cards, medical films, food labels, industrial use labels, amusement tags and tickets, pharmaceutical labels and thermal rewritable films that utilize thermo-chromic printing technology that can be used to erase and update text and graphics up to 500 times. Ricoh is continuing to take steps to increase its presence in this business, especially in the emerging markets. In order to gain a foothold in these markets, Ricoh has established a subsidiary in India.

Ricoh’s optical equipment business utilizes technology originally developed by Ricoh for its copiers and cameras. This business supplies optical equipment and optical supply parts, such as lens units, to third parties.

Ricoh also manufactures various types of semiconductor devices. Such devices include application-specific integrated circuits (“ASICs”) and application-specific standard products (“ASSPs”) that are often used in digital copiers, printers, personal computers, PC card, cellular phones and other digital appliances.

 

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The electronic components business consists of components supplied to Ricoh’s manufacturing plants in connection with the production of its own products, such as copiers and printers, as well as components supplied to third parties.

Ricoh’s rewritable printing technology enables printed images to be rewritten multiple times by using a technology that controls coloring and discoloring reactions on thermal media. Application of this technology to rewritable cards and rewritable papers is set to expand. Rewritable printing technology was first practically applied in loyalty cards, patient registration cards, commuter passes, and other rewritable cards. Now, the convenience of these cards has greatly increased in light of the ability to view digital information recorded on the magnetic recording strips on the back of these cards. The technology has subsequently been applied to rewritable sheets, making it possible to sharply reduce the use of printed paper at factories and other sites, and to rewritable hybrid media (“RHM”), which is a new information media incorporated into distribution and production management systems in combination with RF tags. Ricoh’s rewritable technology has been commercialized as RECO-View RF tags, and its use is increasing.

Additionally, Ricoh has continued its development of advanced devices, modules and materials based on its core optical and thermal technology. In light of such development efforts, in fiscal year 2013, Ricoh introduced a re-writable hybrid media that allows for images made chemically to appear or disappear through the controlled application of heat. Furthermore, Ricoh has introduced a line-up of five Factory Automation (FA) cameras and fourteen lenses that can be used in manufacturing lines for inspection, pattern matching, and alignment. These products have contributed to the increased productivity and reduction of costs in Ricoh’s customers’ manufacturing facilities.

Other

The Other operating segment, which accounted for 7.7% of Ricoh’s net sales for fiscal year 2013, includes digital cameras, 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 capture and input images, Ricoh expects that the digital camera market will continue to grow in the future. To further expand its digital camera business, Ricoh acquired the PENTAX imaging systems business from HOYA Corporation in October 2011. With this acquisition, Ricoh currently offers a full lineup of digital cameras from compact cameras to top of the line single lens reflex (“SLR”) cameras. Ricoh continued to strengthen its product lineup in fiscal year 2013 with the introduction of “PENTAX Q10,” a digital compact interchangeable lens SLR camera, and “PENTAX K-5 II” a top of the line K series camera.

The “PENTAX Q10” is one of the world’s smallest and lightest digital camera with an interchangeable lens system. PENTAX Q10 provides exceptional image quality with its improved 12.4 megapixels 1/2.3 inch backlit CMOS image sensor, which is a highly efficient light-gathering instrument designed specifically to produce very low noise at high levels of sensitivity. In addition, the sensor-shift shake reduction system with integrated DRII dust reduction allows users to capture stabilized, blur and dust free images even in low lighting environments. The PENTAX Q10 accepts the PENTAX Q-mount lens system for convenient interchangeability with a variety of specialty Q lenses. The PENTAX Q10 is made-to-order and is available in 100 different color combinations.

 

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The “PENTAX K-5 II” is equipped with a high resolution sensor, highly advanced autofocus system and accurate shake reduction system. The large 16.3 megapixel CMOS sensor on this camera delivers high resolution image quality, color accuracy and low noise in multiple aspect ratios. The 11 point SAFOX X autofocus system offers the widest EV focus range in its class and is ideal for focusing in low conditions, as low as -3EV. The PENTAX body-based shake reduction stabilization system is compatible with every PENTAX lens ever made. The fully weather sealed cold-proof design can function in various natural settings, such as water, fog, snow, sand and dust, as well as in the studio.

Ricoh provides certain financing services in Japan through Ricoh Leasing Co., Ltd., which leases industrial equipment and medical equipment as well as office equipment, and offers loans, such as support loans, to small businesses and independent medical doctors. Ricoh is also increasing its financing services in the United States and Western Europe by extending more leases to customers in order to meet the change in customers’ demand to “use” equipment rather than to “own” equipment, and to support sales of the Imaging Solutions business.

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.

GROUP VISION AND MANAGEMENT PLANS

(1) Basic Management Policy

Ricoh Group aims “To be the most trusted brand with irresistible appeal in the global market.”, and makes its missions “to be committed to providing excellence to improve the quality of living” and “to save the precious earth and fulfill its responsibilities for creating sustainable society”.

To these ends, Ricoh is providing innovative products and services to all customers who handle information at work in offices and in their lives out of the office, based on the Ricoh brand benefits of “Harmonize with the environment”, “Simplify your life and work”, and “Support knowledge management”. Also, Ricoh aims to earn greater trust by continuing to contribute to the improvement of customers’ productivity and knowledge creation in aiming to continue growing in the future.

(2) Medium and Long Term Management Strategy

The business environment surrounding the Ricoh Group has drastically changed in the past several years and Ricoh is currently at a turning point with respect to its core Imaging & Solutions business.

In developed countries, demands for copiers and multi-function equipment have become stagnant. More information is processed in the office environment than ever before; however, the increase in the information communicated is handled more through the internet by devices such as smart phones and tablet PCs. This trend has increased the variations in the way we print. Furthermore, amid heightened cost consciousness since the world financial crisis, combined with the development of cloud computing, the values sought by customers are shifting towards an emphasis on “owning products” in addition to “using services”. It is becoming increasingly difficult to respond adequately to customer demands through product function and price alone.

 

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Ricoh has launched the 17th Mid-Term Management Plan that runs from April 2011 to March 2014, which defines “business creation and integration” and “establishment of highly efficient management” as its two basic strategies to adapt to these changes.

For “business creation and integration”, aiming for “regeneration”, Ricoh is implementing measures to reinforce the earning power through core businesses, to create new profit models in current core businesses and to accelerate development for new growth businesses.

With regard to the “establishment of highly efficient management”, Ricoh is reconstructing its corporate systems in order to build an organization that can maintain accelerated business growth while properly responding to any changes in the business environment. More specifically, Ricoh will strive to realize a corporate culture that encourages the accelerated implementation of growth strategies that seek to achieve in-depth restructuring as part of the Corporate Restructuring and Growth Program (“CRGP”), which Ricoh started in fiscal year 2009. Ricoh intends to achieve this restructuring by (1) streamlining its sales systems, (2) reviewing non-profitable businesses and deciding either to support and turn around such businesses or withdraw from such businesses, (3) integrating production sites and shifting resources to growth areas, (4) encouraging operational re-engineering, such as re-engineering its business processes, streamlining redundant operations and reorganizing headquarter functions, (5) relocating approximately 15,000 personnel to new growth areas and reducing personnel headcount by approximately 10,000 persons, (6) reducing purchase costs by centralizing purchase functions and aggregating purchase orders and (7) reviewing its development processes (such as the “create without making” process, which means to develop products without incurring costs arising from test models) and strengthening its support for low cost development. In addition, as part of the 17th MTP and to invest in its future growth, Ricoh intends to (1) make capital investments of approximately ¥250.0 billion during fiscal years 2012 to 2014, (2) maintain R&D expenses at 5-6% of net sales (which it intends to use to expand into new business areas and streamline existing business areas while also engaging in product development for the emerging markets) and (3) expand its business infrastructure in new areas and growth areas (which it intends to accomplish by reallocating resources and implementing strategic investments into new business areas).

To improve the allocation of human resources, Ricoh spent ¥16.6 billion during fiscal year 2013, and plans to spend ¥10.0 billion during fiscal year 2014. Ricoh is starting to see the benefits of its restructuring efforts and aims to achieve ¥66.0 billion of cost savings through these restructuring efforts by the end of fiscal year 2014.

In order to achieve stable performance and build a robust management structure for further growth under the current economic environment, Ricoh has implemented various restructuring initiatives, which include reducing expenses, streamlining overlapping operations and relocating personnel to growth areas, as well as an exhaustive review of all operations. Furthermore, to enhance the global competitiveness of its engineering and manufacturing functions, Ricoh reorganized parts of its engineering and manufacturing resources relating to imaging products at production related companies and some portion of those same resources of Ricoh in Japan, and integrated them into Ricoh Technologies Company Ltd. and Ricoh Industry Company Ltd. on April 1, 2013.

 

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Furthermore, Ricoh has not only taken various steps to cope with the worldwide financial meltdown, the Thailand flooding, the catastrophic earthquake and tsunami in Japan and huge shift in ICT business, but has also implemented various initiatives to build a strong and stable management structure. This coming fiscal year 2014 will be an important year for the Ricoh Group in developing a market for further growth. To achieve this growth, Ricoh set forth and has implemented the following four core action plans during fiscal year 2013.

A. Reinforce the earning power through its core businesses

With respect to its core business in the Office Imaging product category, Ricoh will continue to win over competition and increase market share by improving the features of its products at competitive prices, along with providing quicker innovative solutions to its customers. Furthermore, by increasing the efficiency of its development, manufacturing and sales operations, Ricoh will aim to increase its profitability.

Additionally, in the emerging markets which continue to grow, Ricoh intends to increase its profits through the expansion of its sales channels as well as increasing its sales through the various IT services companies it has acquired over the past several years. Furthermore, Ricoh aims to develop products and services based on the features and prices demanded by customers in the respective markets. In addition to China and India, Ricoh will continue to establish its presence in markets or countries in which it expects strong growth.

With respect to the Production Printing product category, Ricoh will continue to enhance its product lineup. Ricoh expects an increase in revenue from the increased print volume achieved from the sale of these products. Furthermore, Ricoh will strengthen its solutions offering in areas such as commercial printing to provide solutions to new customers.

B. Create new profit models in its current core businesses

Ricoh aims to constantly be in search of solutions for a wider range of issues surrounding its customers so that it can establish an additional growth model to its existing multi-function and printer business. Ricoh intends to further enhance its MDS and IT services. Ricoh also intends to strengthen its solutions product offerings that enhance communications such as its projection system, video conference system and its interactive whiteboard solution. Additionally, by providing improved connectivity of its multi-functional products and printers to smart phones and tablet PCs, Ricoh aims to offer more innovative work style solutions to its customers.

C. Accelerate development for new growth businesses

For Ricoh to take advantage of new business opportunities, Ricoh will continue to provide the market with innovative optical, image processing and environmental technology solutions. Especially in the area of optical systems in the Industrial Products operating segment, Ricoh intends to enhance its applied technology to develop and market new devices and modules. Furthermore, for its Other operating segment, especially surrounding its digital SLR cameras, Ricoh will continue to strengthen its products and sales network to solidify its presence in this market. Moreover, to maintain long-term growth, Ricoh intends to continue improving and strengthening its process of identifying and capitalizing on profitable business opportunities.

 

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D. Improve resource efficiency

Ricoh intends to increase overall business efficiency so that it can maximize the value of its products and services that is generated through resources that it utilized. Ricoh intends to continue placing an effort on establishing a corporate culture that will value employees in all areas (development, manufacturing, sales, headquarters, etc.) whose common goal would be to work to earn an even greater level of trust and confidence from customers and be viewed as a reliable partner.

For corporations to be sustainable, Ricoh believes that they must contribute to the welfare of mankind, the development of society and the conservation of earth’s environment. To continue to grow and to be respected in society, Ricoh aims to continue enhancing its corporate value with respect to the society, the environment and the economy. For example, as part of these efforts, in April 2012 Ricoh introduced a new global brand tagline “imagine. change.” to express the concept that collective imagination can pave the way for change into the future.

With this new global brand tagline, Ricoh will continue its efforts to be innovative so that it can remain one step ahead of its customers’ expectations and remain their most valued and trusted business partner.

SALES AND DISTRIBUTION

Ricoh continues to utilize the following three marketing and sales channels for the distribution of its products to end-user customers in Japan: (1) direct sales by Ricoh to end-user customers through domestic subsidiaries and affiliates, (2) sales through independent dealers of office equipment and (3) sales through independent office supply wholesalers and retailers. Ricoh estimates that over one-half of its PPC/MFP and laser printer sales in Japan by revenue are derived from its direct sales channels to end-user customers, with the remaining balance being divided between sales through independent dealers of office equipment and independent office supply wholesalers and retailers.

Outside of Japan, Ricoh has organized its marketing and sales channels to accommodate its four operating regions: (1) the Americas, (2) Europe, Middle East and Africa, (3) Asia and Oceania and (4) China. 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 the marketing and sales channels used for the distribution of products in 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 that Ricoh purchased through acquisitions (i.e., the “Savin” brand, the “Lanier” brand and the “Infotec” brand) and (2) sales of Ricoh’s products by other companies under their brand names where Ricoh is the original equipment manufacturer (“OEM”). Savin and Lanier were originally Ricoh’s OEM distributors prior to their acquisition.

 

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With respect to direct sales to end-user customers, Ricoh recognizes revenue for sales upon the delivery and installation of equipment. Revenue from the sales of equipment under sales-type leases is recognized as product sales at the inception of the lease. With respect to sales through independent dealers or independent office supply wholesalers and retailers, Ricoh recognizes revenue upon the delivery of the equipment to such independent dealers or independent office supply wholesalers and retailers. Information regarding the methods by which Ricoh recognizes revenue is also set forth in Item 5. Critical Accounting Policies and Note 2 to the Consolidated Financial Statements which are included in this annual report.

AFTER-SALES SERVICE

Ricoh provides repair and maintenance services for its products to end-user customers based on 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 end-user customers pursuant to maintenance service contracts customarily entered into at the time the equipment is originally sold to the end-user customer.

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. The total number of Ricoh’s sales and service personnel in Japan is approximately 19,000. Similar to Japan, Ricoh employees and contracted maintenance providers provide repair and maintenance services to end-user customers in the overseas market who purchase Ricoh products. The total number of Ricoh’s overseas sales and service personnel is approximately 43,900.

Ricoh’s customer support system (“@Remote”) is available globally in order to enhance customer satisfaction and service efficiency. This system allows Ricoh to remotely monitor copiers that are in operation and provide prompt service to such copiers.

Additional information regarding the manner in which 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 included in this annual report.

PRINCIPAL MARKETS

Ricoh distributes its products and competes in the following four geographic areas: (1) Japan, (2) the Americas, (3) Europe, Middle East and Africa and (4) Other. In the aggregate, Ricoh’s sales increased in fiscal year 2013. As noted below, for fiscal year 2013, net sales in Japan, the Americas, Europe Middle East and Africa, and Other as a percentage of total net sales were 45.2%, 25.8%, 21.9% and 7.1%, respectively. The table below breaks down for each geographic area the total net sales amount and percentage of such net sales amount as compared against total net sales for each of the last three fiscal years.

 

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SALES BY GEOGRAPHIC AREA

 

     Millions of Yen (except for percentages to net sales)
For the Year Ended March 31,
 
     2011     2012     2013  

Japan

   ¥ 875,819         45.1   ¥ 886,425         46.6   ¥ 870,397         45.2

The Americas

     520,000         26.8        468,728         24.6        496,605         25.8   

Europe, Middle East and Africa

     428,519         22.1        421,373         22.1        421,740         21.9   

Other

     116,998         6.0        126,951         6.7        135,755         7.1   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   ¥ 1,941,336         100.0   ¥ 1,903,477         100.0   ¥ 1,924,497         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

Note:

(1) Sales amounts set forth in the above table are based on the location of the purchaser (external customer) of the product. For example, if the product is manufactured in Japan and sold to an external customer located in the United States, such sale would be recorded as a sale in the Americas.
(2) The Middle East and Africa were reclassified from the Other geographic area into the Europe geographic area in this fiscal year 2013. Figures for the prior fiscal years set forth in the above table have been reclassified to reflect such changes.

(1) Japan

The Japanese economy showed signs of gradual recovery in light of the recovery and restoration of the areas affected by the Great East Japan Earthquake. In light of such condition, demand for office equipment increased. While expectations arising from the economic recovery plans introduced by the Japanese prime minister’s new cabinet and the monetary easing measures introduced by the Bank of Japan helped to weaken the Yen and increase stock prices at the end of fiscal year 2013, the overall economic outlook still remained unpredictable.

Under such conditions, sales in the Imaging & Solutions operating segment derived from external customers located in Japan decreased by 2.2% as compared to fiscal year 2012, due primarily to the slowdown in after-sales revenue.

In the Industrial Products operating segment, sales of semiconductor devices and electronic components decreased as compared to fiscal year 2012. As a result, sales in the Industrial Products operating segment decreased by 16.5% as compared to the previous fiscal year.

Sales in the Other operating segment increased compared to fiscal year 2012 due primarily to a full fiscal year’s worth of sales being reflected from Pentax Ricoh Imaging Co., Ltd., which was established through an acquisition in October 2011, as opposed to only six months’ worth of sales.

(2) The Americas

In the Americas, economic conditions remained unpredictable despite the gradual recovery in individual consumption and capital investments. Despite such uncertain economic conditions, the weakening of the Yen against the U.S. Dollar towards the end of fiscal year 2013 contributed to the increase in overall sales by 5.9% as compared to the previous fiscal year.

(3) Europe, Middle East and Africa

Economic conditions remained uncertain in Europe, Middle East and Africa due to the prolonged European debt crisis. While the Yen showed signs of weakness against the Euro towards the end of the fiscal year, the Yen remained strong against the Euro during most of the fiscal year. Under such conditions, the sales in Europe, Middle East and Africa increased by 0.1% as compared to the previous fiscal year.

(4) Other

The Other geographic area includes China, South East Asia and Oceania. Although sales in this geographic area, including China and India, increased in fiscal year 2013, there have been indications of a slowdown in economic growth in these two countries as well as the rest of the markets in this geographic area. Ricoh recorded increased sales in this geographic area by 6.9% as compared to fiscal year 2012 due primarily to continuing sales efforts made by its sales force.

 

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COMPETITION

The office equipment industry in which Ricoh primarily competes remains highly competitive and Ricoh continues to encounter intense competition in its Imaging & Solutions operating segment. Furthermore, competition in each of the product categories in the Imaging & Solutions operating segment is expected to increase in the future as Ricoh’s competitors enhance and expand their product and service offerings. For example, in response to the trend in the office equipment market towards more price competitive multifunction products that can handle up to A4-sized paper, especially in the emerging markets, Ricoh’s competitors have introduced a wide range of monochrome and color products that can handle up to A4-sized paper, thereby increasing the level of competition in these products. This increase in competition may result in price reductions and decreases in profitability as well as market share in these products. Ricoh seeks to prevail over the intense competition in the office equipment market by providing customers with equipment that optimizes the TCO of such equipment and enhancing office productivity and efficiency. However, Ricoh cannot provide assurance that it will be able to compete successfully against existing or future competitors. Moreover, Ricoh may face competition from some of its current customers and companies with which Ricoh has strategic business relationships.

The size and number of Ricoh’s competitors vary across its product categories, as do the resources allocated by its 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 the 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 and production printing equipment, and dedication to meet customers’ needs.

SEASONALITY

Sales in the Imaging & Solutions operating 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. However, the effect of this seasonality on a consolidated basis has customarily been minimal. For example, sales generated during the month of March due to this seasonality accounted for 11.1% of Ricoh’s sales in Japan for fiscal year 2013. However, the effect of this seasonality on a consolidated basis was minimal for fiscal year 2013, as only 5.0% of Ricoh’s total consolidated sales for fiscal year 2013 were generated from sales in Japan during the month of March.

 

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SOURCES OF SUPPLY

Raw materials, parts and components used in the production of Ricoh’s products, such as plastics, rubber and chemicals are procured on a global basis. Prices of some raw materials that Ricoh uses fluctuate according to the market and prices of some parts and components that Ricoh uses fluctuate as well. Generally, Ricoh maintains multiple suppliers for the most significant categories of raw materials, parts and components to address such fluctuations. Because very few of the raw materials required by Ricoh in manufacturing its products can be procured in Japan, most of the raw materials used by Ricoh come from outside of Japan. Ricoh monitors the availability of raw materials on a regular basis to ensure that it will not encounter any shortages. Ricoh has not experienced any significant difficulty in obtaining the raw materials, parts and components necessary for it to manufacture its products and believes that it will be able to continue to obtain necessary raw materials, parts and components in sufficient quantities to meet its manufacturing needs in the future. A 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 it will be able to adequately manage the impact of any such price volatility in connection with the raw materials, parts and components that are required to manufacture its products.

INTELLECTUAL PROPERTY

Ricoh holds a large number of patents and trademark rights. While Ricoh considers such intellectual property rights to be valuable assets and important for its operations, it believes that its business is not dependent to any material extent upon any single patent or trademark right, or any related group of 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 such single license or agreement, or any related group of licenses or agreements.

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.

 

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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 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. These regulations govern, among other things, energy conservation, air emissions, wastewater discharges, the use and handling of hazardous substances, waste disposal, product recycling, and soil and ground-water contamination. These regulations are imposed by the environmental regulatory agencies in the jurisdictions in which Ricoh conducts its operations. For example, in the United States these agencies are the United States Environmental Protection Agency and the State environmental regulatory agencies in the jurisdictions in which Ricoh conducts operations.

The products sold by Ricoh are increasingly subject to a variety of environment-related requirements in the markets in which it operates that restrict or prohibit the types of substance that are used or present in the products, require manufacturers and distributors to “take back” and either dispose of or recycle products at the end of their useful life, and require or encourage increased energy efficiency. These product-related requirements are frequently accompanied by labeling requirements intended to inform customers about the presence or absence of certain substances in products, or provide information about the recyclability of the products. These requirements affect Ricoh’s global supply chain, since supplied components must meet the applicable requirements in order for Ricoh’s products to be in compliance. For example, environmental regulations which may affect Ricoh’s businesses in the European Union include (but are not limited to) the European Union Directive on Waste Electrical and Electronic Equipment (the “WEEE Directive”), the European Union Directive on the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (the “RoHS Directive”), the European Union Regulation on the Registration, Evaluation, Authorisation and Restriction of Chemicals (the “REACH Regulation”) and the European Union Directive on Energy-related Products (the “ErP Directive”). Beginning in August 2005, the WEEE Directive, as enacted by individual European Union countries, made manufacturers or importers of electrical and electronic equipment in the European Union financially responsible for the collection, recycling, treatment, recovery and legitimate disposal of collected waste electrical and electronic equipment. The RoHS Directive prohibits the presence of more than specific concentrations of lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls (PBB) or polybrominated diphenyl ethers (PBDE) in electrical and electronic equipment that is to be sold in the European Union market from July 2006. The REACH Regulation entered into force in June 2007 and, among other things, requires the registration of chemical substances manufactured or used in products that are sold in the European Union. This regulation covers almost all forms of chemicals, and also imposes some requirements on “articles” (as defined in the REACH Regulation) manufactured in or imported into the European Union. The ErP Directive sets forth a framework for establishing eco-design requirements for energy-related products by systematically integrating environmental aspects at early stages of the product design. One of the important goals of the ErP Directive is to improve the overall environmental performance of products throughout their life-cycle. A variety of similar product-related environmental requirements have been or are expected to be enacted in other regions where Ricoh operates, including in the United States (including requirements established by individual States), Canada, South America and Asia. The scope of these requirements, including the types of equipment and substances covered and the nature and severity of the restrictions or prohibitions imposed, may expand as legislatures and regulators in the markets in which Ricoh operates review and amend these requirements.

 

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While Ricoh’s businesses may be affected by various government regulations, Ricoh currently operates, and expects to continue operating, its business without significant difficulty in complying with applicable government regulations.

C. Organizational Structure

As of March 31, 2013, the Ricoh group includes the Company, 220 subsidiaries and seven affiliates located worldwide. In addition, starting from fiscal year 2011, Variable Interest Entities (“VIE”) have been consolidated into Ricoh. See Note [2] (b) and Note [4] to the Consolidated Financial Statements for additional information.

The Company is the parent of the Ricoh group. The Company heads the R&D activities of Ricoh products with assistance from its subsidiaries. The Company and its subsidiaries and affiliates maintain an integrated domestic and international manufacturing and distribution structure.

The following is a list of the principal subsidiaries of the Company as of March 31, 2013. None of the Company’s seven affiliates are considered material affiliates of Ricoh.

 

Company Name

  

Country of
Formation

  

Proportion of
Ownership

Interest

  

Main Businesses

(Subsidiaries)

        

Ricoh Optical Industries Co., Ltd.

   Japan    100.0   

Manufacturing optical equipment

Hasama Ricoh, Inc.

   Japan    100.0   

Manufacturing parts for office equipment

Tohoku Ricoh Co., Ltd.

   Japan    100.0   

Manufacturing office equipment

Ricoh Printing Systems, Ltd.

   Japan    100.0   

Manufacturing and sale of office equipment

Ricoh Elemex Corporation

   Japan    100.0   

Manufacturing and sales of office equipment

Ricoh Microelectronics Co., Ltd.

   Japan    100.0   

Manufacturing parts for office equipment

Ricoh Japan Corporation

   Japan    100.0   

Sale of office equipment

Ricoh Technosystems Co., Ltd.

   Japan    100.0   

Maintenance, service and sale of office equipment

Ricoh IT Solutions Co., Ltd.

   Japan    100.0   

Development and construction of network system

Ricoh Logistics System Co., Ltd.

   Japan    100.0   

Logistics services and custom clearances

Ricoh Leasing Co., Ltd.

   Japan    51.1   

General leasing

Ricoh Creative Service Co., Ltd.

   Japan    100.0   

Management of group facility, advertisement and printing

 

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Company Name

  

Country of
Formation

  

Proportion of
Ownership

Interest

  

Main Businesses

Pentax Ricoh Imaging Co., Ltd.

   Japan    100.0   

Manufacturing and sale of digital camera

Ricoh Electronics, Inc.

   U.S.A.    100.0   

Manufacturing office equipment and related supplies

Ricoh UK Products Ltd.

   U.K.    100.0   

Manufacturing office equipment

Ricoh Industrie France S.A.S.

   France    100.0   

Manufacturing office equipment and related supplies

Ricoh Asia Industry (Shenzhen) Ltd.

   China    100.0   

Manufacturing office equipment and related supplies

Shanghai Ricoh Digital Equipment Co., Ltd.

   China    100.0   

Manufacturing and sale of office equipment

Ricoh Components Asia (Hong Kong) Co., Ltd.

   Hong Kong, China    100.0   

Sale of parts for office equipment

Ricoh Components & Products (Shenzhen) Co., Ltd.

   China    100.0   

Manufacturing parts for office equipment

Ricoh Manufacturing (Thailand) Ltd.

   Thailand    100.0   

Manufacturing office equipment

Pentax Ricoh Imaging Products (Philippines) Corporation

   Philippines    100.0   

Manufacturing digital camera

Ricoh Americas Holdings, Inc.

   U.S.A.    100.0   

Holding company in the U.S.A.

Ricoh Americas Corporation

   U.S.A.    100.0   

Sale of office equipment

Ricoh Canada Inc.

   Canada    100.0   

Sale of office equipment

Ricoh USA, Inc.

   U.S.A.    100.0   

Sale of office equipment

Ricoh Printing Systems America, Inc.

   U.S.A.    100.0   

Manufacturing and sales of office equipment

Ricoh Production Print Solutions, LLC

   U.S.A.    100.0   

Sale of office equipment

Pentax Ricoh Imaging Americas Corporation

   U.S.A.    100.0   

Sale of digital camera

Ricoh Europe Holdings PLC

   U.K.    100.0   

Holding company in Europe

Ricoh UK Ltd.

   U.K.    100.0   

Sale of office equipment

Ricoh Deutschland GmbH

   Germany    100.0   

Sale of office equipment

Ricoh France S.A.S

   France    100.0   

Sale of office equipment

Ricoh Italia S.R.L.

   Italy    100.0   

Sale of office equipment

Ricoh Espana S.L.U.

   Spain    100.0   

Sale of office equipment

Ricoh Belgium N.V.

   Belgium    100.0   

Sale of office equipment

Ricoh Nederland B.V.

   Netherlands    100.0   

Sale of office equipment

Ricoh Europe SCM B.V.

   Netherlands    100.0   

Sale of office equipment

Ricoh Schweiz AG

   Switzerland    100.0   

Sale of office equipment

Ricoh Sverige AB.

   Sweden    100.0   

Sale of office equipment

Pentax Ricoh Imaging France S.A.S.

   France    100.0   

Sale of digital camera

Ricoh Finance Nederland B.V.

   Netherlands    100.0   

Corporate finance

Ricoh China Co., Ltd.

   China    100.0   

Sale of office equipment

Ricoh Hong Kong Ltd.

   Hong Kong, China    100.0   

Sale of office equipment

 

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Company Name

  

Country of
Formation

  

Proportion of
Ownership

Interest

  

Main Businesses

Ricoh Asia Industry Ltd.

  

Hong Kong,

China

   100.0   

Sale of office equipment

Ricoh Asia Pacific Pte Ltd

   Singapore    100.0   

Sale of office equipment

Ricoh Asia Pacific Operations Ltd.

  

Hong Kong,

China

   100.0   

Sale of office equipment

Ricoh Thailand Ltd.

   Thailand    100.0   

Sale of office equipment

Ricoh India Ltd.

   India    73.6   

Sale of office equipment

Ricoh Australia Pty, Ltd.

   Australia    100.0   

Sale of office equipment

And 170 other subsidiaries

        

(Affiliates)

        

7 affiliates (none of which are material affiliates)

        

 

Notes:

(1) Proportion of ownership interest includes indirect ownership.
(2) Ricoh Leasing Co., Ltd. is the only subsidiary of the Company that is a “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X.
(3) Tohoku Ricoh Co., Ltd. and Ricoh Printing Systems, Ltd. were acquired by Ricoh Industry Co., Ltd. as of April 1, 2013.

 

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D. Property, Plant and Equipment

Ricoh manufactures its products primarily in fourteen plants in Japan and eleven 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. None of Ricoh’s plants are subject to any material environmental issues that may affect the extent to which Ricoh is able to utilize such plants. The following table gives certain information as of March 31, 2013 regarding the Company’s and its subsidiaries’ principal manufacturing and other facilities. With the exceptions of GR Advanced Materials Ltd., the manufacturing and other facilities listed below have floor space exceeding 10,000 square meters.

 

Name (Location)

   Floor space   

Principal activities and products manufactured

     (in thousands of
square meters)
    

Japan:

     

Ricoh Company, Ltd.

     

Ohmori Plant (Tokyo)

   54    Parts relating to copiers

Atsugi Plant (Kanagawa)

   73    Office equipment and other products

Numazu Plant (Shizuoka)

   105    Paper and toner

Ikeda Plant (Osaka)

   27    Electronic devices

Fukui Plant (Fukui)

   34    Papers and toner

Yashiro Plant (Hyogo)

   34    Electronic devices

Ricoh Technology Center (Kanagawa)

   127    R&D

Head Office (Tokyo)

   21    Head office and marketing of office equipment

Research & Development Center (Kanagawa)

   17    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 (Kanagawa)

   40   

Marketing of office equipment, other business and related services

Katsuta office (Ibaraki)

   54    R&D of production printing products

Subsidiaries:

     

Ricoh Optical Industries Co., Ltd. (Iwate)

   23    Optical equipment

Tohoku Ricoh Co., Ltd. (Miyagi)

   64   

Office equipment, toner and parts relating to copiers and duplicators

Hasama Ricoh, Inc. (Miyagi)

   14   

Parts relating to copiers and data processing equipment

 

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Name (Location)

   Floor space   

Principal activities and products manufactured

     (in thousands of
square meters)
    

Ricoh Unitechno Co., Ltd. (Saitama)

   20    Office equipment

Ricoh Elemex Corporation. (Aichi)

   45    Office equipment and measuring equipment

Ricoh Microelectronics Co., Ltd. (Tottori)

   12    Printed circuit boards and electronic components

Ricoh Keiki Co., Ltd. (Saga)

   10    Printed circuit boards and parts relating to copiers

Ricoh Printing Systems, Ltd. (Ibaraki)

   54    Printers and production printing products

Overseas:

     

Ricoh Electronics, Inc.

(Irvine, Santa Ana and Tustin, California and Lawrenceville, Georgia, U.S.A.)

   123    Copiers, parts relating to copiers, toner and thermal paper

Ricoh UK Products Ltd. (Telford, United Kingdom)

   36    Copiers, parts relating to copiers and toner

Ricoh Industries France S.A.S.

(Colmar, France)

   49    Copiers, parts relating to copiers and thermal paper

Ricoh Asia Industry (Shenzhen) Ltd. (Shenzhen, China)

   42    Copiers, parts relating to copiers, and toner

Ricoh Components & Products (Shenzhen) Ltd.

(Shenzhen, China)

   54    Printed circuit boards and electronic components

Ricoh Thermal Media (Wuxi) Co., Ltd.

(Shenzhen, China)

   24    Direct thermal paper and thermal transfer ribbon

Shanghai Ricoh Digital Equipment Co., Ltd.

(Shanghai, China)

   32    Copiers, facsimile equipment and parts relating to copiers

Ricoh Manufacturing (Thailand) Ltd.

(Rayong, Thailand)

   38    Printers and parts relating to printers

GR Advanced Materials Ltd.

(Scotland, United Kingdom)

   8    Supplies relating to duplicators

 

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Name (Location)

   Floor space   

Principal activities and products manufactured

     (in thousands of
square meters)
    

Pentax Ricoh Imaging Products (Philippines) Corporation (Cebu, Philippines)

   16    Digital camera equipment

Pentax Ricoh Imaging Products (Vietnam) Corporation (Hanoi, Vietnam)

   17    Optical equipment

 

Note:

(1) Apart from above, Ricoh owns the Gotenba plant which is currently in idle (having floor space of 70 thousand square meters).

Ricoh considers its manufacturing facilities to be well maintained and believes its plant capacity is adequate for its current needs, though successive investments in manufacturing facilities are being considered for its long-term success.

Item 4.A. Unresolved Staff Comments

Not applicable.

 

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Item 5. Operating and Financial Review and Prospects

OVERVIEW

Ricoh is engaged primarily in the development, manufacturing, sales and servicing of office automation equipment, such as PPCs/MFPs, laser printers, GELJET printers, production printing products, digital duplicators and facsimile machines, as well as semiconductor devices, digital cameras and thermal media products. Ricoh supports its office automation equipment business by offering customers various “solution” systems that work with personal computers and servers, network systems, application software and related product support and after-sales services to assist customers in fully utilizing the Ricoh products that they purchase. Ricoh’s product support services include assisting customers in setting up their information technology environment or network. More recently, Ricoh has further expanded its businesses to manufacture and sell products such as projectors, video conference systems, thermo-sensitive media devices (such as re-writable thermal media devices) and interactive digital whiteboard solutions.

Ricoh distributes its products and competes in the following four geographic areas: (1) Japan, (2) the Americas, (3) Europe, Middle East and Africa and (4) Other, which includes China, Southeast Asia and Oceania. For additional information on Ricoh’s business, see Item 4.B. Information on the Company – Business Overview.

Because of the global nature of Ricoh’s operations, Ricoh’s results of operations and financial conditions are affected both by economic and political developments in Japan and the rest of the world, as well as by demand and competition in its lines of business. Furthermore, competition in the businesses Ricoh operates has increased significantly and is likely to continue increasing in the future. Recent notable trends in the office solutions business include (1) increased demand for lower-priced products such as MFPs that can handle up to A4-sized paper, particularly in emerging countries, (2) increased demand for comprehensive services that reduce the TCO of a product and/or that streamline the overall workflow of the business process (not just the document process), particularly in developed countries, and (3) increased demand for solutions that enable customers to reduce their environmental impact and improve the sustainability of their operations.

Historically, Ricoh’s revenues have been derived mainly from the manufacturing and sale of office automation equipment. In recent years, the key factor to achieve revenue growth has been the expansion of available product lines and areas of services to respond to the increasingly diverse needs of customers. Although the global economic outlook remains unpredictable, Ricoh remains focused on achieving sustained growth to remain competitive. To achieve such growth, Ricoh has striven to broaden its revenue and earnings base by expanding its available product lines and areas of service. More specifically, in light of the recent trends, Ricoh’s strategies include (1) introducing variable product lines such as MFPs, laser printers and production printers with advanced features, (2) expanding its lineup of MFPs that print on A4-sized paper and strengthening its sales structure in emerging countries, (3) expanding and strengthening its global MDS business and IT service business by making capital investments such that the Ricoh group as a whole on a global basis is able to provide such services at a high quality level, (4) expanding its new businesses, such as its projectors and UCS businesses taking into consideration developments in the mobile and cloud communication businesses such that it can propose and create new ways of conducting business, and (5) enhancing offerings of products with environmentally-friendly features such that it can provide customers with the ability to reduce their environmental impact and improve the sustainability of their business operations (which Ricoh refers to as “Total Green Office Solution”). These strategies are all part of Ricoh’s 17th Mid-term Management Plan of “business creation and integration,” which aims for “regeneration” by implementing measures to reinforce earning power through core businesses, creating new profit models in its current core businesses and accelerating the development for new growth businesses.

 

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In addition, Ricoh continues to steadily improve its operational efficiency through cost-cutting measures across its business units, which includes 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 continues to analyze the cost structure of its products at the design phase to minimize production costs. These are part of Ricoh’s 17th Mid-term Management Plan of “establishment of highly efficient management,” under which Ricoh strives to reconstruct its corporate systems in order to build an organization that can maintain accelerated business growth while properly responding to any changes in the business environment.

While the global economy showed signs of moderate recovery during fiscal year 2013, the situation remained unpredictable. The U.S. economy showed gradual recovery in individual consumption and capital investment; however, the debt crisis in Europe, the slowdown in economic growth in China and the rest of the emerging markets, and the political instability in the Middle East caused uncertainties to remain in the global market. While the Japanese economy showed some signs of a modest recovery during fiscal year 2013, in part due to the economic stimulus measures implemented by the Japanese government, it continued to face challenging conditions as the Japanese Yen appreciated relative to other currencies (such as the U.S. Dollar and the Euro) during most of the fiscal year.

Ricoh’s consolidated net sales for fiscal year 2013 increased by 1.1% to ¥1,924.4 billion from ¥1,903.4 billion for fiscal year 2012, due primarily to the increase in net sales in its Imaging & Solutions operating segment and the Other operating segment. This increase was due mainly to the appreciation of the U.S. Dollar against the Japanese Yen. Net sales would have remained flat when excluding the effects of foreign currency exchange fluctuations. Cost of sales increased by 0.4% for fiscal year 2013. Cost of sales increased at a rate less than the rate at which net sales increased as compared to the previous fiscal year due primarily to the increase in sales of post sales and rentals with low cost of sales ratio. In addition, the group-wide activities to streamline costs has contributed to the decrease in cost of sales. As a result, gross profit increased by 2.1% for fiscal year 2013 as compared to fiscal year 2012, to ¥768.6 billion. Selling, general and administrative expenses decreased by 1.8% as compared to fiscal year 2012, to ¥690.7 billion, due primarily to decreases in costs achieved through Ricoh’s continuing restructuring efforts and efforts to reduce R&D expenses incurred during the development phase of new products. For fiscal year 2013, restructuring charges, which are included in cost of sales and operating expenses in the consolidated statements of operations, decreased by ¥17.5 billion to ¥16.6 billion from ¥34.1 billion for fiscal year 2012. Ricoh continued its restructuring activities in order to enhance its competitiveness and improve its profitability. The fiscal year 2013 restructuring charges of ¥16.6 billion consisted of ¥8.6 billion recorded by the Company and its domestic subsidiaries, and ¥7.9 billion recorded by its overseas subsidiaries. As a result, operating income for fiscal year 2013 increased to ¥63.4 billion, which was an improvement from an operating loss of ¥18.0 billion from the previous fiscal year. Ricoh is targeting to achieve net sales of ¥2,100.0 billion and operating income of ¥140.0 billion by March 2014.

 

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As noted previously, to improve the allocation of human resources, Ricoh spent ¥16.6 billion during fiscal year 2013, and plans to spend ¥10.0 billion during fiscal year 2014. Ricoh is starting to see the benefits of its restructuring efforts and aims to achieve ¥66.0 billion of cost savings through these restructuring efforts by the end of fiscal year 2014. Moreover, the Company intends to expedite its reduction of human resources to achieve the 17th MTP targeted reduction of headcount by approximately 10,000 persons prior to the end of fiscal year 2014. In addition, the Company has been advancing structural reform to maintain accelerated growth while responding to the changes in the business environment. More specifically, this includes (1) establishing Ricoh Technologies Company, Ltd. and Ricoh Industry Company, Ltd. in April 2013, to which it transferred parts of its engineering and production functions and operations previously performed by the Company and its manufacturing subsidiaries in Japan, with the intent to enhance the global competitiveness of the Company’s engineering and production functions by centralizing them at such companies, (2) discontinuing production of office automation equipment at the Gotemba plant in Japan, (3) strengthening its global procurement chain by establishing a central procurement facility in Thailand, (4) transferring the measuring equipment business in November 2011 to AIREX Co., Ltd., which is a company established with Aichi Tokei Denki Co., Ltd. as the co-parent, and (5) planning the reorganization of its electronic components business, which it announced in April 2013.

KEY PERFORMANCE INDICATORS

The following table shows changes in the key performance indicators that Ricoh’s management used in assessing its performance for the last three fiscal years. Ricoh’s management considers these indicators to be important in monitoring and evaluating its performance to meet the expectation of its shareholders.

 

     For the year ended March 31,  
     2011     2012     2013  

Net sales (in billions of Yen)

     1,941.3        1,903.4        1,924.4   

Operating income (loss) to net sales ratio(1)

     3.0     (0.9 %)      3.3

Return on assets(2)

     0.8     (2.0 %)      1.4

Inventory turnover within months(3)

     1.79        2.03        2.03   

Interest-bearing debt (in billions of Yen)

     629.6        741.8        702.7   

 

Notes:

(1) Operating income to net sales ratio = Operating income divided by net sales.
(2) Return on assets = Net income divided by average total assets for the fiscal year.
(3) Inventory turnover within months = Inventory divided by average monthly cost of sales.

In fiscal year 2013, Ricoh’s consolidated net sales increased by 1.1% to ¥1,924.4 billion, from ¥1,903.4 billion for fiscal year 2012, due primarily to the increase in net sales in the Imaging & Solutions operating segment and the Other operating segment. Operating income to net sales ratio increased by 4.2 percentage points to 3.3% from -0.9% for fiscal year 2012 due primarily to the increase in operating income resulting from the increase in net sales and the decrease in selling, general and administrative expenses. Return on assets increased by 3.4 percentage points to 1.4% from -2.0% for fiscal year 2012 due mainly to an increase in net income. Inventory turnover within months was at the same level as compared to the fiscal year 2012. Repayment of debts contributed to the decrease in interest-bearing debt by ¥39.1 billion.

 

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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 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 scenarios.

Ricoh considers an accounting policy to be critical if it is important to its financial condition and results, and requires significant judgments and estimates on the part of management in its application. Ricoh believes that the following represent the critical accounting policies of the Company. For a summary of the significant accounting policies, including the critical accounting policies discussed below, see Note [2] to the Consolidated Financial Statements.

Revenue Recognition

Ricoh believes that revenue recognition is critical for its financial statements because consolidated 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 Ricoh’s sales contracts.

 

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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 can be cancelled at any time by the customer upon a short notice period.

Ricoh enters into arrangements with multiple elements, which may include any combination of products, equipment, installation and maintenance. Consideration in a multiple-element arrangement is allocated at the inception of the arrangement to all deliverables on the basis of the relative selling price if both of the following criteria are met: the delivered item(s) has value to the customer on a stand-alone basis; and the delivery of the undelivered item must be probable and controlled by Ricoh if the arrangement includes the right of return. If these criteria are not met, revenue is deferred until the undelivered elements are fulfilled and accounted for 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 Ricoh’s customers could result in a material impact on Ricoh’s consolidated results of operation and financial position.

The following table illustrates Ricoh’s allowance for doubtful receivables for finance receivables for fiscal years 2011, 2012 and 2013.

 

Description

   2011     2012     2013  
     (Millions of Yen)  

Finance receivables

     666,757        697,939        705,264   

Allowance for Finance receivables

     (12,299     (10,219     (10,249

Allowance ratio

     1.8     1.5     1.5

The decrease in the allowance ratio in fiscal year 2012 as compared to fiscal year 2011 was due primarily to a recovery of more than 60% of the allowance provided in fiscal year 2011 as a result of the Great East Japan Earthquake.

 

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The following table illustrates Ricoh’s allowance for doubtful receivables for trade receivables by geographic location for fiscal years 2011, 2012 and 2013.

 

Description

   Japan     Americas     Europe,
Middle East
and Africa
    Other     Total  
     (Millions of Yen)  

For the year ended March 31, 2011:

          

Trade receivables

     241,443        72,129        128,950        23,299        465,821   

Allowance for doubtful receivables

     (7,930     (2,210     (6,007     (617     (16,764

Allowance ratio

     3.3     3.1     4.7     2.6     3.6

For the year ended March 31, 2012:

          

Trade receivables

     255,208        75,306        127,487        25,593        483,594   

Allowance for doubtful receivables

     (8,579     (1,832     (5,313     (656     (16,380

Allowance ratio

     3.4     2.4     4.2     2.6     3.4

For the year ended March 31, 2013:

          

Trade receivables

     240,182        89,511        162,982        32,330        525,005   

Allowance for doubtful receivables

     (7,546     (2,149     (4,992     (737     (15,424

Allowance ratio

     3.1     2.7     3.1     2.3     2.9

In fiscal year 2012, the allowance ratio in the Americas as well as Europe, Middle East and Africa decreased as compared to fiscal year 2011 due primarily to improved collection efforts and a decrease in outstanding old debt receivables that were due.

In fiscal year 2013, the allowance ratio in Europe, Middle East and Africa decreased as compared to fiscal year 2012 due primarily to improved collection efforts and a decrease in outstanding old debt receivables that were due.

Pension Accounting

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 plan assets and the discount rate are two critical assumptions. Assumptions are evaluated at least annually, and events may occur or circumstances may change that may have a significant effect on the critical assumptions. In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods, thereby reducing the year-to-year volatility in pension expenses. As of March 31, 2013, Ricoh recognized and reflected in its consolidated balance sheets the funded status of its pension plans (equal to the difference between the fair value of plan assets and the projected benefit obligations) in the total amount of ¥163.0 billion.

For fiscal years 2011, 2012 and 2013, Ricoh used expected long-term rates of return on pension plan assets of 2.9%, 2.9% and 3.5%, respectively. In determining the expected long-term rate of return on pension plan assets, Ricoh considers the current and projected asset allocations, as well as expected long-term investment returns and risks for each category of the plan assets based on Ricoh’s analysis of historical results. The projected allocation of the plan assets is developed in consideration of the expected long-term investment returns for each category of the plan assets. To moderate the level of volatility in pension plan asset returns and to reduce risks, approximately 25%, 50%, 20% and 5% of the plan assets are projected to be allocated to equity securities, debt securities, life insurance company general accounts and other financial instruments, respectively. As of March 31, 2013, the actual allocation of assets was generally consistent with the projected allocation stated above. The actual returns for fiscal years 2011, 2012 and 2013 were approximately 2.2% (gain), 4.7% (gain) and 9.0% (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.

 

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With respect to the discount rate used in the annual actuarial valuation of the pension benefit obligations, the other critical assumption, Ricoh’s weighted average discount rates for fiscal years 2011, 2012 and 2013 were 3.4%, 2.9% and 2.7%, 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, 2013.

 

Change in Assumption

   Change in
Pension Benefit
Obligations
  Change in
Pre-Tax Pension
Expenses
     (Billions of Yen)

50 basis point increase / decrease in discount rate

   – /+ ¥28.2   – /+ ¥1.3

50 basis point increase / decrease in expected return on assets

   —     – /+ ¥1.7

Recovery of the Carrying Values of Impairment of Long-Lived Assets and Goodwill

As of March 31, 2013, the aggregate carrying values of Ricoh’s property, plant and equipment was ¥290.9 billion and the carrying values of Ricoh’s intangible assets, excluding goodwill, was ¥107.7 billion. Ricoh believes that the recovery of the carrying values of these long-lived assets are critical to Ricoh’s financial statements because of the significant amount of judgment required to determine the estimated undiscounted cash flows to be generated from these long-lived assets along with the related fair values of these assets, and the fact that an impairment charge has had, and could continue to have, a significant adverse effect on Ricoh’s results of operations.

Ricoh reviews long-lived assets with a definite life for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group 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 cash flows of the asset or asset group. If an asset or asset group 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 asset group 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.

 

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As of March 31, 2013, the carrying value of Ricoh’s goodwill was ¥221.2 billion. Ricoh believes that the recovery of the carrying value of goodwill is critical to Ricoh’s financial statements because of the significant amount of judgment required to determine the fair value of its reporting units along with the related implied fair value of the goodwill when required to do so, and the fact that a goodwill impairment charge has had, and could continue to have, a significant adverse effect on Ricoh’s results of operations.

Ricoh reviews the carrying value of its goodwill for impairment annually at December 31 and when a triggering event occurs between annual impairment tests. At December 31, 2012, the Imaging & Solutions reporting unit had goodwill with a carrying value of ¥201.7 billion.

Ricoh utilizes an income approach for determining the fair value of the Imaging & Solutions reporting unit. For purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. Ricoh uses its adjusted market capitalization based on the quoted market price of its shares at December 31 and an assumed control premium of 35% at December 31, 2012 to determine the discount rate. Ricoh uses its forecasts to estimate future cash flows, which includes an estimate of long-term future growth rates. Ricoh derives its discount rates using a capital asset pricing model and analyzing published rates for industries relevant to its reporting units to estimate the cost of equity financing. Ricoh uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in its internally developed forecasts.

The discount rate used for the Imaging & Solutions reporting unit at December 31, 2012 was 9.1%. Under this approach, management concluded that fair value of the Imaging & Solutions reporting unit exceeded its carrying value by approximately 15.5%, and therefore, the goodwill in this reporting unit was not impaired. The most critical assumptions in determining the fair value of this reporting unit is the discount rate, which is influenced primarily by equity risk premium assumption, the implied company specific cash flow uncertainty risk premium assumption, and the control premium.

If the assumed control premium was lowered to 20% or the discount rate was increased to 9.6%, then the estimated fair value of the Imaging & Solutions reporting unit is estimated to exceed its carrying value by approximately 2.5%.

For fiscal year 2012, as a result of first step testing, Ricoh determined that the carrying amount of a production printing reporting unit exceeded its fair value estimate using both the income approach and the cost approach due to worsening economic circumstances. Consequently, Ricoh determined that second step testing was needed for this production printing reporting unit. At second step testing of goodwill of this production printing reporting unit, to determine the implied fair value of goodwill, Ricoh assigned the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination. As a result, the implied fair value of goodwill assigned to this production printing reporting unit was measured at zero and Ricoh recorded an impairment charge of ¥27,491 million.

No goodwill impairment was recognized in fiscal 2011.

While Ricoh believes that its estimates of future cash flows, discount rates are reasonable, changes to these assumptions in the future could result in a different conclusion about the recoverability of its long-lived assets, including goodwill.

 

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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 other than temporary. Factors considered in assessing whether impairment other than temporary impairment exists include: (1) the financial condition and near term prospects of the issuer and (2) 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.

Ricoh recognized asset impairment charge for its securities that were determined to be other than temporary in the amounts of ¥1.8 billion, ¥5.0 billion and ¥0.3 billion for fiscal years 2011, 2012 and 2013, respectively. Based on an evaluation of evidence available to it as of the end of fiscal year 2013, the Company believes that the decline in fair value of securities, in which impairment charges are not recognized in the statement of operations, are temporary and do not represent an other-than-temporary impairment. This is because when considering the length of time that fair value has been below cost, the extent of decline and the financial condition of the issuers, the Company expects that its fair value will recover to a level above its costs while the Company holds onto these investments. In addition, there are no significant unrealized holding losses of securities at March 31, 2013 as described in Note [5] to the Consolidated Financial Statements.

Realizability of Deferred Tax Assets

Ricoh records a valuation allowance to reduce its 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 recorded 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. The amount of valuation allowances increased from ¥42,553 million yen at March 31, 2012 to ¥56,081 million yen. The increase is primarily attributable to a certain U.S. subsidiary which continues to incur losses and sufficient taxable income is not expected to be generated in the future as of March 31, 2013 as well as the valuation allowance for deferred tax assets denominated in foreign currencies (mostly U.S. dollars) due to the depreciation of Japanese Yen.

 

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NEW ACCOUNTING STANDARDS NOT YET ADOPTED

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2013-02. This ASU requires an entity to report the effect of reclassifications out of accumulated other comprehensive income. This ASU is effective prospectively for reporting periods after December 15, 2012. The adoption of ASU 2013-02 will not have any effect on Ricoh’s consolidated financial position or results of operations.

 

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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)     % Change  
     2011     2012     2013     2012     2013  

Net sales

                

Products

   ¥ 935,280        ¥ 876,399        ¥ 868,128          (6.3     (0.9

Post sales and rentals

     901,402          920,827          941,564          2.2        2.3   

Other revenue

     104,654          106,251          114,805          1.5        8.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     1,941,336        100.0     1,903,477        100.0     1,924,497        100.0     (2.0     1.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of sales

                

Products

     647,155          626,426          628,509          (3.2     0.3   

Post sales and rentals

     427,796          448,478          446,302          4.8        (0.5

Other revenue

     77,444          75,951          81,085          (1.9     6.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     1,152,395        59.4     1,150,855        60.5     1,155,896        60.1     (0.1     0.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     788,941        40.6     752,622        39.5     768,601        39.9     (4.6     2.1   

Selling, general and administrative expenses

     729,220        37.6     703,511        37.0     690,735        35.9     (3.5     (1.8

Restructuring charges

     885        0.0     30,169        1.6     13,053        0.6     —          (56.7

Loss on impairment of goodwill

     —          —          27,491        1.4     —          —       —          —     

Loss on impairment of long-lived assets

     765        0.0     9,519        0.4     1,379        0.1     —          (85.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     58,071        3.0     (18,068     (0.9 )%      63,434        3.3     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other (income) expenses:

                

Interest and dividend income

     (2,985       (3,129       (3,048      

Interest expense

     8,528          6,979          7,377         

Foreign currency exchange loss, net

     5,956          4,355          121         

Loss on impairment of securities

     1,844          5,012          332         

Other, net

     559          652          479         
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     13,902        0.7     13,869        0.8     5,261        3.0     (0.2     (62.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes and equity in earnings of affiliates

     44,169        2.3     (31,937     (1.7 )%      58,173        3.0     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income taxes

     22,410        1.2     8,223        0.4     20,838        1.1     (63.3     153.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity in earnings of affiliates

     (22       39          31         
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

     21,737        1.1     (40,121     (2.1 )%      37,366        1.9     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to noncontrolling interests

     3,107        0.2     4,439        0.2     4,899        0.2     42.9        10.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Ricoh Company, Ltd.

     18,630        1.0     (44,560     (2.3 )%      32,467        1.7     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     YEN     Change  

Reference: Exchange Rates*

   2011     2012     2013     2012     2013  

US$ 1

   ¥ 85.77        ¥ 79.08        ¥ 83.06        ¥ (6.69   ¥ 3.98   

EURO 1

   ¥ 113.28        ¥ 109.05        ¥ 107.08        ¥ (4.23   ¥ (1.97
* These rates are the annual average exchange rates calculated by Ricoh using 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.

 

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SALES BY PRODUCT

 

     Millions of Yen (except for percentages)     % Change  
     2011     2012     2013     2012     2013  

Imaging & Solutions

                   

Office Imaging

   ¥ 1,381,175         71.2   ¥ 1,323,263         69.5   ¥ 1,329,608         69.1     (4.2     0.5   

Production Printing

     150,044         7.7        148,564         7.8        147,040         7.6        (1.0     (1.0

Network System Solutions

     181,411         9.3        199,273         10.5        208,743         10.8        9.8        4.8   

Industrial Products

     107,032         5.5        98,052         5.2        93,094         4.8        (8.4     (5.1

Other

     121,674         6.3        134,325         7.0        146,012         7.7        10.4        8.7   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   ¥ 1,941,336         100.0   ¥ 1,903,477         100.0   ¥ 1,924,497         100.0     (2.0     1.1   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

Notes:

(1) The above consolidated financial data set forth net sales to external customers by product.
(2) The product categories in Imaging & Solutions were classified into Office Imaging, Production Printing and Network System Solutions in fiscal year 2013 from the previous product categories of Imaging Solutions and Network System Solutions. In addition, certain products were reclassified into the Network System Solutions product category in Imaging & Solutions and Industrial Products from Other in fiscal year 2013. Figures for the prior years set forth in the above table have been reclassified to reflect such changes.

Fiscal Year 2013 Compared to Fiscal Year 2012

Net sales. Consolidated net sales for fiscal year 2013 increased by 1.1% (or ¥21.0 billion) to ¥1,924.4 billion from ¥1,903.4 billion for fiscal year 2012. For fiscal year 2013, Ricoh reported an increase in net sales in the Imaging & Solutions operating segment and the Other operating segment. When excluding the impact of foreign currency exchange rate fluctuations, Ricoh’s consolidated net sales would have remained relatively flat.

More specifically, the increase in net sales was due primarily to the increase in other revenue of 8.1% and the increase in post sales and rental of 2.3%, despite the 0.9% decrease in sale of products.

Products. The 0.9% decrease in net sales derived from products was due primarily to the decrease in net sales overseas. Even though the total number of units sold in the Americas and Europe increased compared to the previous fiscal year, sales of high-end products decreased due to restrained capital investments by large customers in the developed countries to whom Ricoh’s high-end products are targeted. High-end products refer to products that have high print speeds, such as the MP 9002/7502/6002/6002 GP series that it introduced during fiscal year 2013. The decrease in sales of high-end products resulted in a decrease in net sales for fiscal year 2013. Moreover, the boycott of Japanese products in China also led to a decrease in sales in China. The weakening of the Japanese Yen towards the end of fiscal year 2013 positively affected sales, but in total, net sales derived from products decreased compared to the previous fiscal year. Despite such business and economic environment, Ricoh continued to introduce new MFP product models during fiscal year 2013. The introduction of these new product models contributed to the increase in sales of Ricoh’s color products in the domestic market and also to the increase in sales of MFPs that can handle up to A4-sized paper and color products overseas.

 

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Post sales and rentals. Net sales derived from post sale services and rentals of equipment increased by 2.3% as compared to fiscal year 2012. This increase was primarily generated by the increase in overseas sales due to (1) the depreciation of the Yen against the U.S. Dollar towards the end of the fiscal year, (2) the increase in sales of MDS achieved through investments made in the development and deployment of a suite of cloud-type tools for device and print management purposes, increased headcount of professional staff that assist customers and improved services provided by its staff to customers as Ricoh provided intensive training for its MDS staff globally, (3) the increase in IT services revenue brought in through the acquisition of a German IT services company, ADA-Das SystemHaus GmbH (“ADA”), which was one of Germany’s leading IT services company and has the capacity to provide a full line of IT infrastructure services to the mid- to large-sized customers and (4) the increase in the production printing after-service revenue achieved through the increase in the sales of internally developed cut sheet products. In the domestic market, even though customer’s total printing volume increased compared to the previous fiscal year, competition led to a decrease in the cost per page charges, which resulted in a decrease in sales. The increase in overseas sales offset fully the decreased sales in the domestic market, resulting in an increase in net sales derived from post sales and rentals for fiscal year 2013.

Other revenue. Net sales derived from other sources (such as digital cameras, financing and logistics) increased by 8.1% as compared to the previous fiscal year due mainly to increased net sales from digital cameras and financing services. Pentax Ricoh Imaging Co., Ltd., which was established through an acquisition in the second half of fiscal year 2012 and whose net sales were reflected for the full fiscal year for the first time, contributed to the increase in sales of the Company’s digital camera products. Net sales from financing services increased due primarily to Ricoh Leasing Co., Ltd. in Japan recording an increase in leasing volume during fiscal year 2013. This increase was due primarily to (1) improved value added product offerings to leasing customers through Ricoh’s collaboration with its vendors, (2) improved sales relationships with its preferred customers and (3) increased demand in leased equipment in light of the recovery and restoration of the areas affected by the Great East Japan Earthquake.

Cost of sales and Gross profit. Consolidated cost of sales for fiscal year 2013 increased by 0.4% (or ¥5.0 billion) to ¥1,155.8 billion from ¥1,150.8 billion for fiscal year 2012. Cost of sales increased at a rate less than the rate at which net sales increased, as compared to fiscal year 2012. This was achieved due primarily to the increase in sales of post sales and rentals with low cost of sales ratio as discussed below. In addition, the group-wide activities to streamline costs has contributed to the decrease in cost of sales.

Consolidated gross profit for fiscal year 2013 increased by 2.1% (or ¥16.0 billion) to ¥768.6 billion from ¥752.6 billion for fiscal year 2012. The gross profit ratio increased from 39.5% to 39.9% due primarily to the increase in sales of post sales and rentals and the group-wide activities to streamline costs, as well as sales in the Americas having low cost of sales ratio due to the weakening of the Japanese Yen against the U.S. Dollar towards the end of fiscal year 2013.

Products. Even though sales derived from products decreased, cost of sales derived from products increased by 0.3% due primarily to the decrease in sales of high end products with higher profit margins, such as the MP 9002/7502/6002/6002 GP series, that was introduced during fiscal year 2013, and increased sales of the more aggressively priced MFPs that can handle up to A4-sized paper in the emerging markets.

 

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Post sales and rentals. Cost of sales decreased even though sales increased due to (1) the increase in sales of MDS and IT services with low cost of sales ratio, and (2) the increase in sales of supplies in the Americas with low cost of sales ratio, which was achieved by the depreciation of the Japanese Yen relative to the U.S. Dollar towards the end of fiscal year 2013. This resulted in an increase in gross profit ratio of 1.3%.

Other revenue. Cost of sales derived from other sources (such as digital cameras, financing and logistics) increased by 6.8% due primarily to the increase in sales. This increase was due to a higher cost of sales ratio caused by the decrease in interest rates for financings.

Selling, general and administrative expenses. Consolidated selling, general and administrative expenses for fiscal year 2013 decreased by 1.8% (or ¥12.8 billion) to ¥690.7 billion from ¥703.5 billion for fiscal year 2012. Despite an increase in selling, general and administrative expenses due to (1) additional investments made for both new businesses and the IT service business, (2) the depreciation of the Japanese Yen against the U.S. Dollar towards the end of fiscal year 2013 and (3) Pentax Ricoh Imaging Co., Ltd. being reflected for the full fiscal year for the first time, such increase was more than offset by the decrease in costs achieved through Ricoh’s continuing restructuring efforts and efforts to reduce R&D expenses incurred for the development of new products.

Restructuring charges. Consolidated restructuring charges for fiscal year 2013 decreased by ¥17.1 billion to ¥13.0 billion from ¥30.1 billion for fiscal year 2012. Ricoh continued its restructuring activities in order to enhance competitiveness and improve profitability. The fiscal year 2013 restructuring charges of ¥13.0 billion consisted of ¥5.7 billion recorded by the Company and its domestic subsidiaries, and ¥7.3 billion recorded by its overseas subsidiaries. See Note [21] to the Consolidated Financial Statements for additional information.

Operating income (loss). Consolidated operating income for fiscal year 2013 increased to ¥63.4 billion from a loss of ¥18.0 billion for fiscal year 2012. This increase in operating income compared to fiscal year 2012 was due primarily to the increase in gross profit resulting from the increase in net sales and the decrease in selling, general and administrative expenses.

Interest and dividend income. Consolidated interest and dividend income for fiscal year 2013 decreased by ¥0.1 billion to ¥3.0 billion from ¥3.1 billion for fiscal year 2012.

Interest expense. Consolidated interest expense for fiscal year 2013 increased by ¥0.4 billion to ¥7.3 billion from ¥6.9 billion for fiscal year 2012.

Foreign currency exchange loss, net. Consolidated foreign currency exchange loss, net included in other (income) expenses for fiscal year 2013 decreased by ¥4.2 billion to ¥0.1 billion from ¥4.3 billion for fiscal year 2012. This decrease was due primarily to a decrease in foreign currency exchange loss in relation to loans made to affiliates.

Loss on impairment of securities. Consolidated loss on impairment of securities for fiscal year 2013 decreased by ¥4.7 billion to ¥0.3 billion from ¥5.0 billion for fiscal year 2012.

 

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Other, net. Consolidated other, net included in other (income) expenses for fiscal year 2013 decreased by ¥0.2 billion to an expense of ¥0.4 billion from an expense of ¥0.6 billion for fiscal year 2012.

Provision for income taxes. Total consolidated provision for income taxes for fiscal year 2013 increased by ¥12.6 billion to ¥20.8 billion from ¥8.2 billion for fiscal year 2012. The expected statutory rate and effective tax rate during fiscal year 2013 were 38% and 36%, respectively. The difference between the expected statutory tax benefit rate and the effective tax rate resulted primarily from (1) the difference in the statutory tax rates applicable between the Company and Ricoh’s overseas subsidiaries and (2) a decrease in tax credit, which partially offset an increase in the valuation allowance for certain deferred taxes. See Note [9] to the Consolidated Financial Statements for additional information.

Equity in earnings (losses) of affiliates. Consolidated equity in earnings (losses) of affiliates for fiscal year 2013 decreased by ¥8 million to ¥31 million from ¥39 million for fiscal year 2012.

Net income attributable to noncontrolling interests. Consolidated net income attributable to noncontrolling interests for fiscal year 2013 increased by ¥0.4 billion to ¥4.8 billion from ¥4.4 billion for fiscal year 2012. This increase was due primarily to the improved performance of Ricoh Leasing Co., Ltd. for fiscal year 2013.

Net income (loss) attributable to Ricoh Company, Ltd. Consolidated net income (loss) attributable to the Company for fiscal year 2013 increased by ¥76.9 billion to ¥32.4 billion from a loss of ¥44.5 billion for fiscal year 2012 due primarily to an increase in operating income.

 

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Operating Segments

 

     Millions of Yen (except for percentages)     % Change  
     2012     2013    

Imaging & Solutions

          

Net sales

   ¥ 1,671,100        100.0   ¥ 1,685,391        100.0     0.9   

Operating expenses

     1,616,132        96.7        1,547,435        91.8        (4.3

Operating income

   ¥ 54,968        3.3   ¥ 137,956        8.2     151.0   

Industrial Products

          

Net sales

   ¥ 102,783        100.0   ¥ 97,408        100.0     (5.2

Operating expenses

     104,448        101.6        98,262        100.9        (5.9

Operating loss

   ¥ (1,665     (1.6 )%    ¥ (854     (0.9 )%      —     

Other

          

Net sales

   ¥ 134,325        100.0   ¥ 146,012        100.0     8.7   

Operating expenses

     139,083        103.5        151,282        103.6        8.8   

Operating loss

   ¥ (4,758     (3.5 )%    ¥ (5,270     (3.6 )%      —     

Corporate and Elimination

          

Net sales

   ¥ (4,731     ¥ (4,314    

Operating expenses

     61,882          64,084       

Operating loss

   ¥ (66,613     ¥ (68,398    

Consolidated

          

Net sales

   ¥ 1,903,477        100.0   ¥ 1,924,497        100.0     1.1   

Operating expenses

     1,921,545        100.9        1,861,063        96.7        (3.1

Operating income (loss)

   ¥ (18,068     (0.9 )%    ¥ 63,434        3.3     —     

 

Notes:

(1) The above segment financial data, which set forth net sales, operating expenses and operating income (loss) for each operating segment, include both transactions with external customers as well as intersegment transactions. Notwithstanding the foregoing, all net sales recorded in the Imaging & Solutions operating segment and the Other operating segment reflect sales to external customers only, as none of the products in the Imaging & Solutions operating segment or the Other operating segment were sold to other Ricoh group companies that conduct businesses in the other operating segments. Accordingly, the segment net sales figures for the Imaging & Solutions operating segment set forth in the above table are the aggregate of the sales figures for the Office Imaging product category, the Production Printing product category and the Network System Solutions product category set forth in the “SALES BY PRODUCT” table included under Item 5.A. Operating Results.
(2) The product categories in Imaging & Solutions were classified into Office Imaging, Production Printing and Network System Solutions in fiscal year 2013 from the previous product categories of Imaging Solutions and Network System Solutions. In addition, certain products were reclassified into the Network System Solutions product category in Imaging & Solutions and Industrial Products from Other in fiscal year 2013. Figures for the prior years set forth in the above table have been reclassified to reflect such changes.

Imaging & Solutions

Net sales in the Imaging & Solutions operating segment for fiscal year 2013 increased by 0.9% (or ¥14.2 billion) to ¥1,685.3 billion from ¥1,671.1 billion for fiscal year 2012. Excluding the net effect of the foreign currency exchange rate fluctuations, sales in the Imaging & Solutions operating segment would have decreased by 0.3% (or ¥4.7 billion) for fiscal year 2013 as compared to fiscal year 2012, due to decreased net sales in the domestic market.

More specifically, sales in the Office Imaging product category for fiscal year 2013 increased by 0.5% (or ¥6.4 billion) to ¥1,329.6 billion from ¥1,323.2 billion for fiscal year 2012. This increase was due primarily to the increase in overseas sales, especially in the Americas, and the depreciation of the Japanese Yen against the U.S. Dollar towards the end of the fiscal year. In the Americas, the gradual recovery of the U.S. economy contributed to the increase in sales of Ricoh’s MFP and laser printer products as well as the increase in the MDS sales achieved through Ricoh’s continued investments in MDS business. Such increases in sales completely offset the decrease in after-sales revenue for the domestic market as Ricoh decreased its cost per page charges to remain competitive.

 

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To strengthen its product lineup, Ricoh continued to introduce new MFP models, such as MFPs that can handle up to A4-sized paper and color MFPs, in fiscal year 2013. As a result, sales of MFPs that can handle up to A4-sized paper increased in the overseas market and the number of color machine units sold increased in both the domestic and overseas markets.

Sales in the Production Printing product category for fiscal year 2013 decreased by 1.0% (or ¥1.5 billion) to ¥147.0 billion from ¥148.5 billion for fiscal year 2012. The decrease in sales of third party products (such as non-Ricoh products sold by Ricoh subsidiaries) were the main cause for the decrease in sales in this product category. Even under such conditions, Ricoh’s internally developed cut sheet printers achieved solid increase in sales during fiscal year 2013.

Sales in the Network System Solutions product category for fiscal year 2013 increased by 4.8% (or ¥9.5 billion) to ¥208.7 billion from ¥199.2 billion for fiscal year 2012. This increase was due primarily to (1) realigning the functional organization for accelerating the implementation of IT services, (2) the development of human resources and (3) sales from ADA, a German IT services company acquired by Ricoh during fiscal year 2013. Furthermore, increased sales of new businesses such as projectors and UCS also contributed to the increase in sales in this product category.

Gross profit increased due primarily to the appreciation of the U.S. Dollar against the Japanese Yen and Ricoh’s continuing efforts to implement group-wide activities to streamline costs.

Operating expense decreased due to a decrease in impairment costs of long-lived assets and a decrease in goodwill impairment costs which were not incurred during fiscal year 2013. Furthermore, the decrease by ¥16.2 billion as compared to fiscal year 2012 of total severance-related expenses and other restructuring costs incurred along with the continued group-wide activities to streamline costs contributed to the decrease in total expenses. In addition, Ricoh’s continuing efforts to streamline the design process helped to keep R&D expenses down during the development phase of new products, which also contributed to the decrease in operating expense ratio for fiscal year 2013.

As a result of the above, operating income for the Imaging & Solutions operating segment for fiscal year 2013 increased by ¥83.0 billion to ¥137.9 billion from ¥54.9 billion for fiscal year 2012.

 

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Industrial Products

Net sales in the Industrial Products operating segment for fiscal year 2013 decreased by 5.2% (or ¥5.3 billion) to ¥97.4 billion from ¥102.7 billion for fiscal year 2012. This decrease was due primarily to the decrease in sales of semiconductor devices and measuring equipment. With respect to semiconductor devices, Ricoh experienced a decrease in net sales because of the continued downturn in the Japanese market for analog one-chip LSIs for cellular phones and power and battery management ICs. With respect to measuring equipment, sales decreased due primarily to the transfer of operations to AIREX Co., Ltd., a company established with Aichi Tokei Denki Co., Ltd. as the co-parent. Sales in the thermal business on the other hand increased due to the successful development of products that meet customer needs. Furthermore, to increase our presence in the global market and increase sales, especially in the emerging market, Ricoh established a new business facility in India in June 2012 to oversee the Asia Pacific region. In addition, Ricoh has also taken steps to work with local dealerships to strengthen its sales channel in the emerging market.

Operating expenses in this segment for fiscal year 2013 decreased due primarily to Ricoh being able to procure raw materials used in the thermal media business at lower costs, which contributed to the increase in gross profit. In addition, total operating expenses decreased due to Ricoh’s continuing group-wide activities to streamline costs. The activities to streamline costs were effective especially in the electronic devices business (such as the semiconductor business) in which cost of sales and selling, general and administrative costs decreased even with the reduction in sales. Furthermore, severance-related expenses and other restructuring costs incurred during fiscal year 2013 decreased by ¥1.2 billion as compared to the previous fiscal year, which also contributed to the decrease in operating expenses.

As a result of the above, the Industrial Products operating segment for fiscal year 2013 reported an operating loss of ¥0.8 billion from an operating loss of ¥1.6 billion for fiscal year 2012.

Other

Net sales in the Other operating segment for fiscal year 2013 increased by 8.7% (or ¥11.7 billion) to ¥146.0 billion from ¥134.3 billion for fiscal year 2012 due mainly to increased net sales from digital cameras and financing services. Pentax Ricoh Imaging Co., Ltd., which was established through an acquisition in the second half of fiscal year 2012 and whose net sales were reflected for the full fiscal year for the first time, contributed to the increase in sales of Ricoh’s digital camera products. Net sales from financing services increased due primarily to Ricoh Leasing Co., Ltd. in Japan recording an increase in leasing volume during fiscal year 2013. This increase was due primarily to (1) improved value added product offerings to leasing customers through Ricoh’s collaboration with its vendors, (2) improved sales relationships with its preferred customers and (3) increased demand in leased equipment in light of the recovery and restoration of the areas affected by the Great East Japan Earthquake.

 

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Operating expenses in this operating segment increased due to the decline in profit margin in the financing business and the increase in expenses relating to the digital camera business. With regards to the financing business, the decrease in interest rates led to a decline in profit margin and gross profit did not increase as much as the increase in sales from financing. Furthermore, restructuring costs incurred in the digital camera business led to an increase in operating expense, which resulted in an increase in the loss incurred for this business. After the acquisition of PENTAX imaging systems business from HOYA Corporation, the Company has taken steps to strategically focus its sales on digital SLRs, and hybrid and high-end compact digital cameras for growth. Because of this change in business strategy, the Company incurred significant losses on abandonment of goods, which was completed during fiscal year 2013. The digital camera business showed a steady increase in sales and Ricoh received positive reviews from the market on the new products it released during the second half of fiscal year 2013.

As a result of the above, operating loss for the Other operating segment for fiscal year 2013 increased by ¥0.5 billion to ¥5.2 billion as compared to ¥4.7 billion for fiscal year 2012.

 

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Geographic Information by Geographic Origin

 

     Millions of Yen (except for percentages)     % Change  
     2012     2013    

Japan

          

Net sales

   ¥ 1,274,596        100.0   ¥ 1,262,302        100.0     (1.0

Operating expenses

     1,293,454        101.5        1,235,391        97.9        (4.5

Operating income (loss)

   ¥ (18,858     (1.5 )%    ¥ 26,911        2.1     —     

The Americas

          

Net sales

   ¥ 475,393        100.0   ¥ 500,955        100.0     5.4   

Operating expenses

     501,785        105.6        494,295        98.7        (1.5

Operating income (loss)

   ¥ (26,392     (5.6 )%    ¥ 6,660        1.3     —     

Europe, Middle East and Africa

          

Net sales

   ¥ 416,210        100.0   ¥ 415,425        100.0     (0.2

Operating expenses

     398,537        95.8        389,244        93.7        (2.3

Operating income

   ¥ 17,673        4.2   ¥ 26,181        6.3     48.1   

Other

          

Net sales

   ¥ 278,159        100.0   ¥ 311,255        100.0     11.9   

Operating expenses

     270,479        97.2        298,502        95.9        10.4   

Operating income

   ¥ 7,680        2.8   ¥ 12,753        4.1     66.1   

Corporate and Elimination

          

Net sales

   ¥ (540,881     ¥ (565,440    

Operating expenses

     (542,710       (556,369    

Operating income (loss)

   ¥ 1,829        ¥ (9,071    

Consolidated

          

Net sales

   ¥ 1,903,477        100.0   ¥ 1,924,497        100.0     1.1   

Operating expenses

     1,921,545        100.9        1,861,063        96.7        (3.1

Operating income (loss)

   ¥ (18,068     (0.9 )%    ¥ 63,434        3.3     —     

 

Notes:

(1) The above consolidated financial data, which set forth net sales, operating expenses and operating income (loss) for each geographic area by geographic origin, include both transactions with external customers as well as transactions between geographic areas.
(2) The Middle East and Africa were reclassified from the Other geographic area into the Europe geographic area in fiscal year 2013. Figures for the prior fiscal years set forth in the above table have been reclassified to reflect such changes.

Japan

Sales in Japan for fiscal year 2013 decreased by 1.0% (or ¥12.2 billion) to ¥1,262.3 billion from ¥1,274.5 billion for fiscal year 2012. One of the main reasons for this decrease was caused by the severe business environment and increased competition that led to a decrease in the cost per copy charge of Ricoh’s core MFP products. The decrease in cost per copy charge resulted in an after-sales revenue decrease in fiscal year 2013 even though TDV increased. In addition, the slow rate of economic recovery in the Americas and Europe caused a decrease in export sales of PPCs/MFPs from Japan. Furthermore, the sales decrease with respect to semiconductor devices caused by the continuing downturn in the Japanese market for analog one-chip LSIs for cellular phones and power and battery management ICs, and the decrease in sales of measuring equipment due to the transfer of this operation to AIREX Co., Ltd., which is a company established with Aichi Tokei Denki Co., Ltd. as the co-parent, both adversely affected total sales in Japan. While sales of Pentax Ricoh Imaging Co., Ltd. were reflected for the full fiscal year for the first time thereby increasing sales in Japan, such increase in sales was not sufficient to offset the decrease in sales mentioned above, which resulted in an overall sales decrease in Japan.

 

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Operating expense in Japan decreased due primarily to a decrease in impairment costs of long-lived assets and a decrease in impairment costs of goodwill which were not incurred in fiscal year 2013 (in fiscal year 2012, Ricoh incurred a total of ¥15.1 billion in impairment costs of long-lived assets and goodwill). Furthermore, total severance-related expenses and other restructuring costs incurred during fiscal year 2013 decreased by ¥17.8 billion as compared to the previous fiscal year and contributed to the decrease in operating expenses, along with Ricoh’s continuing group-wide activities to streamline costs.

As a result of the above, operating income (loss) in Japan for fiscal year 2013 increased by ¥45.7 billion to an income of ¥26.9 billion from a loss of ¥18.8 billion for fiscal year 2012.

The Americas

Net sales in the Americas for fiscal year 2013 increased by 5.4% (or ¥25.6 billion) to ¥500.9 billion from ¥475.3 billion for fiscal year 2012. The gradual recovery of the U.S. economy contributed to the increase in sales of Ricoh’s MFP and laser printer products in the U.S., Canada and Latin America. The weakening of the Japanese Yen against the U.S. Dollar towards the end of fiscal year 2013 also contributed to the increase in overall sales in the Americas.

Operating expenses in the Americas for fiscal year 2013 decreased due primarily to a decrease in impairment costs of long-lived assets and a decrease in impairment costs of goodwill which were not incurred in fiscal year 2013 (in fiscal year 2012, Ricoh incurred a total of ¥18.1 billion in impairment costs of long-lived assets and goodwill). On the other hand, restructuring cost increased by ¥5.2 billion from the previous fiscal year due to fees incurred relating to the reorganization and optimization of Ricoh’s sales channels on a nationwide basis and additional expenses incurred in relation to the integration of the IT systems used in the Americas. Even when excluding these costs, the increase in the operating expense ratio for fiscal year 2013 was less than the increase in the sales ratio, and Ricoh’s group-wide activities to streamline costs contributed greatly in achieving such result.

As a result of the above, operating income for fiscal year 2013 increased by ¥32.9 billion to an income of ¥6.6 billion from a loss of ¥26.3 billion for fiscal year 2012.

Europe, Middle East and Africa

Sales in Europe, Middle East and Africa for fiscal year 2013 decreased by 0.2% (or ¥0.8 billion) to ¥415.4 billion from ¥416.2 billion for fiscal year 2012. Although the private sector investments decreased in light of the uncertain macroeconomic environment brought forth by the prolonged European debt crisis, Ricoh’s recent acquisition of the German IT services company, ADA, contributed to the increase in sales of its IT service business. However, the Yen’s appreciation against the Euro for most of fiscal year 2013 offset this increase, resulting in a small decrease in sales.

 

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Operating expenses in Europe, Middle East and Africa for fiscal year 2013 decreased by 2.3% (or ¥9.3 billion) to ¥389.2 billion from ¥398.5 billion for fiscal year 2012. Operating expenses decreased due to the impairment loss on goodwill and long-lived assets in the amount of ¥1.9 billion incurred during fiscal year 2012 not being incurred for fiscal year 2013. In addition, Ricoh’s restructuring cost decreased by ¥5.3 billion as compared to the fiscal year 2012. Even if the above two factors that decreased operating expenses were not taken into consideration, group-wide activities to streamline costs decreased operating expenses as compared to fiscal year 2012.

As a result of the above, operating income for fiscal year 2013 increased by 48.1% (or ¥8.5 billion) to ¥26.1 billion from ¥17.6 billion for fiscal year 2012.

Other

Net sales in the Other geographic area, which includes China, Southeast Asia and Oceania, increased for fiscal year 2013 by 11.9% (or ¥33.1 billion) to ¥311.2 billion from ¥278.1 billion for fiscal year 2012. This increase was due primarily to increased sales of low-end MFPs in the Asia Pacific region. In addition, recovery from the flood in Thailand that occurred in fiscal year 2011 and the increase in sales from manufacturing subsidiaries in Asia to subsidiaries in other overseas geographic areas due to the weakened Yen contributed to an increase in the sales in the Other geographic area.

Operating expenses in the Other geographic area for fiscal year 2013 increased by 10.4% (or ¥28.0 billion) to ¥298.5 billion from ¥270.5 billion for fiscal year 2012. This increase was due primarily to the increase in cost of sales resulting from the increase in sales. In addition, the impairment cost of ¥1.7 billion incurred in fiscal year 2012 was not incurred in fiscal year 2013 and such factor contributed to the increase in profit ratio. Even without the impact of the impairment cost, profit ratio improved by 0.7% due to the cost reduction activities implemented by the manufacturing facilities.

As a result of the above, operating income for fiscal year 2013 increased by 66.1% (or ¥5.1 billion) to ¥12.7 billion from ¥7.6 billion for fiscal year 2012.

Fiscal Year 2012 Compared to Fiscal Year 2011

Net sales. Consolidated net sales for fiscal year 2012 decreased by 2.0% (or ¥37.9 billion) to ¥1,903.4 billion from ¥1,941.3 billion for fiscal year 2011. For fiscal year 2012, Ricoh recorded a decrease in net sales in the Imaging & Solutions operating segment and the Industrial Products operating segment. This decrease was due primarily to the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen. Had the foreign currency exchange rates remained the same as in fiscal year 2011, Ricoh’s consolidated net sales would have increased by 1.2%.

More specifically, the 2.0% decrease in net sales was due primarily to the 6.3% decrease in sale of products, despite the 2.2% increase in sales derived from post sales and rentals and the 1.5% increase in other revenue.

 

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Products. The 6.3% decrease in net sales derived from products was due primarily to the appreciation of the Japanese Yen relative to the U.S. Dollar and the Euro. The decrease in net sales of PPCs/MFPs and laser printers also contributed to this decrease as customers decreased their capital investments in developed countries in light of the slowly recovering economies. Ricoh’s shipments and manufacturing of products were delayed in light of disruptions to the transportation infrastructure and the shortage of fuel and materials caused by the Great East Japan Earthquake and the flood in Thailand. Ricoh missed certain business opportunities otherwise available as a result of these delays, which contributed to the decrease in net sales.

Despite such business and economic environment, Ricoh continued to introduce new product models with advanced features in not only MFPs but also production printing products during fiscal year 2012. The introduction of these new product models expanded Ricoh’s market coverage to include color cut sheets in the production printing area and increased the total number of color MFPs sold as such units were favorably received in Japan.

Post sales and rentals. Net sales derived from post sale services and rentals of equipment increased 2.2% as compared to the previous fiscal year. This increase was due primarily to the increase in net sales generated by the network system solutions business, which provides support services to assist customers establish a networked environment and customized printing solutions that satisfy customers’ individual needs. The continuing increase in the number of production printing machines that are in operation in light of Ricoh’s sales efforts also contributed to the increase in net sales derived from post sale services. While customers continued to make efforts to decrease their printing costs by reducing total printing volume, which decreased Ricoh’s sales of supplies for products and post sale services, such decrease was fully offset by the increased sales in the network system solutions business and the contribution to sales made by the increase in the number of production printing machines in operation.

Other revenue. Net sales derived from other sources (such as financings and logistics) increased 1.5% as compared to the previous fiscal year due mainly to increased net sales from financing services. Net sales from financing services increased due primarily to Ricoh Leasing Co., Ltd. in Japan recording an increase in leasing volume during fiscal year 2012 in part because of the ongoing reconstruction in the areas affected by the Great East Japan Earthquake.

Cost of sales and Gross profit. Consolidated cost of sales for fiscal year 2012 decreased by 0.1% (or ¥1.5 billion) to ¥1,150.8 billion from ¥1,152.3 billion for fiscal year 2011. This decrease was due primarily to the net effect of depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen as well as the decrease in sales of products.

Consolidated gross profit for fiscal year 2012 decreased by 4.6% (or ¥36.3 billion) to ¥752.6 billion from ¥788.9 billion for fiscal year 2011. The gross profit ratio decreased from 40.6% to 39.5% due primarily to the net effect of the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen. Due to the appreciation of the Japanese Yen, local currency-denominated export sales of products primarily manufactured in Japan and distributed and sold by the Company to its overseas customers through its subsidiaries in the Americas and Europe caused Ricoh to generate lower sales margin in terms of Japanese Yen as these subsidiaries were not able to increase the sales price of its products to make up for the shortfall arising from the appreciation of the Japanese Yen due to the competitive environment.

 

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Products. Cost of sales derived from products decreased by 3.2% due primarily to the net effect of the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen as well as the decrease in sales of products. Due to the appreciation of the Japanese Yen, local currency-denominated export sales of products primarily manufactured in Japan and distributed and sold by the Company to its overseas customers through its subsidiaries in the Americas and Europe caused Ricoh to generate lower sales margin in terms of Japanese Yen as these subsidiaries were not able to increase the sales price of its products to make up for the shortfall arising from the appreciation of the Japanese Yen due to the competitive environment. As a result, despite ongoing cost reduction efforts made by Ricoh, such as efforts to decrease production costs, the gross profit ratio of products decreased from 30.8% to 28.5%.

Post sales and rentals. Cost of sales derived from post sale services and rentals of equipment increased by 4.8% due primarily to the increase in sales derived from post sale services, such as support and maintenance services and sales of supplies for machines. Due primarily to the decrease in sales prices for post sale services and rentals that Ricoh implemented to remain competitive in the market environment where customers made efforts to decrease their printing costs, gross profit ratio of post sale services and rentals decreased from 52.5% to 51.3%.

Other revenue. Cost of sales derived from other sources (such as financings and logistics) decreased by 1.9% despite the increase in net sales. This decrease was mainly due to the decrease in financing costs as interest rates remained low in Japan. As a result, gross profit ratio of other revenue improved from 26.0% to 28.5%

Selling, general and administrative expenses. Consolidated selling, general and administrative expenses for fiscal year 2012 decreased by 3.5% (or ¥25.7 billion) to ¥703.5 billion from ¥729.2 billion for fiscal year 2011. This decrease was due primarily to group-wide cost reduction efforts in the manufacturing and sales operations as well as the effect of the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen.

Restructuring charges. Consolidated restructuring charges for fiscal year 2012 increased by ¥29.3 billion to ¥30.1 billion from ¥0.8 billion for fiscal year 2011. Ricoh initiated restructuring activities in order to enhance competitiveness and improve profitability. The fiscal year 2012 restructuring charges of ¥30.1 billion consisted of ¥22.6 billion recorded by the Company and its domestic subsidiaries, and ¥7.5 billion recorded by its overseas subsidiaries. See Note [21] to the Consolidated Financial Statements for additional information.

Operating income (loss). Consolidated operating income (loss) for fiscal year 2012 decreased by ¥76.0 billion to a loss of ¥18.0 billion from an income of ¥58.0 billion for fiscal year 2011. Operating income (loss) as a percentage of net sales decreased by 3.9 percentage points from 3.0% for fiscal year 2011 to -0.9% for fiscal year 2012. This decrease in operating income compared to fiscal year 2011 was due primarily to the decrease in gross profit resulting from the decrease in net sales and the increase in selling, general and administrative expenses.

 

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Interest and dividend income. Consolidated interest and dividend income for fiscal year 2012 increased slightly by ¥0.2 billion to ¥3.1 billion from ¥2.9 billion for fiscal year 2011.

Interest expense. Consolidated interest expense for fiscal year 2012 decreased by ¥1.6 billion to ¥6.9 billion from ¥8.5 billion for fiscal year 2011. Despite an increase in interest-bearing debt in fiscal year 2012, Ricoh’s interest expense decreased as fiscal year 2012 was the first fiscal year to enjoy the full benefits of the tender offer for and subsequent purchase and retirement of high-interest bearing bonds issued by IKON before maturity in the amount of ¥25.1 billion in December 2010.

Foreign currency exchange loss, net. Consolidated foreign currency exchange loss, net included in other (income) expenses for fiscal year 2012 decreased by ¥1.6 billion to ¥4.3 billion from ¥5.9 billion for fiscal year 2011. This decrease was due primarily to Ricoh’s foreign exchange hedging activities which Ricoh engaged in to hedge the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen.

Loss on impairment of securities. Consolidated loss on impairment of securities for fiscal year 2012 increased by ¥3.2 billion to ¥5.0 billion from ¥1.8 billion for fiscal year 2011. This increase in loss on impairment of securities was attributable to the decrease in the stock markets in fiscal year 2012.

Other, net. Consolidated other, net included in other (income) expenses for fiscal year 2012 increased by ¥0.1 billion to an expense of ¥0.6 billion from an expense of ¥0.5 billion for fiscal year 2011.

Provision for income taxes. Total consolidated provision for income taxes for fiscal year 2012 decreased by ¥14.2 billion to ¥8.2 billion from ¥22.4 billion for fiscal year 2011. The expected statutory tax benefit rate during fiscal year 2012 was -41%. However, Ricoh actually recognized income tax expense at an effective tax rate of 26%. This decline in expected tax benefits in fiscal year 2012 primarily resulted from (1) a reduction to net deferred tax assets that existed on November 30, 2011 that had to be re-measured using new tax rates in accordance with the change in Japanese tax law, (2) not being able to recognize a tax benefit for impairment losses on goodwill and (3) an increase in the valuation allowance for certain deferred tax assets. See Note [9] to the Consolidated Financial Statements for additional information.

 

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Equity in earnings (losses) of affiliates. Consolidated equity in earnings (losses) of affiliates for fiscal year 2012 increased by ¥61 million to an income of ¥39 million from a loss of ¥22 million for fiscal year 2011. See Note [6] to the Consolidated Financial Statements for additional information.

Net income attributable to noncontrolling interests. Consolidated net income attributable to noncontrolling interests for fiscal year 2012 increased by ¥1.3 billion to ¥4.4 billion from ¥3.1 billion for fiscal year 2011. This increase was due primarily to the improved performance of Ricoh Leasing Co., Ltd. for fiscal year 2012.

Net income (loss) attributable to Ricoh Company, Ltd. Consolidated net income (loss) attributable to the Company for fiscal year 2012 decreased by ¥63.1 billion to a loss of ¥44.5 billion from an income of ¥18.6 billion for fiscal year 2011. This decrease was due primarily to a decrease in operating income of ¥76.0 billion, which was partially offset by a decrease in the provision for income taxes by ¥14.2 billion.

 

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Operating Segments

 

     Millions of Yen (except for percentages)     % Change  
     2011     2012    

Imaging & Solutions

          

Net sales

   ¥ 1,712,630        100.0   ¥ 1,671,100        100.0     (2.4

Operating expenses

     1,580,344        92.3        1,616,132        96.7        2.3   

Operating income

   ¥ 132,286        7.7   ¥ 54,968        3.3     (58.4

Industrial Products

          

Net sales

   ¥ 112,445        100.0   ¥ 102,783        100.0     (8.6

Operating expenses

     111,447        99.1        104,448        101.6        (6.3

Operating income (loss)

   ¥ 998        0.9   ¥ (1,665     (1.6 )%      —     

Other

          

Net sales

   ¥ 121,674        100.0   ¥ 134,325        100.0     10.4   

Operating expenses

     126,577        104.0        139,083        103.5        9.9   

Operating loss

   ¥ (4,903     (4.0 )%    ¥ (4,758     (3.5 )%      —     

Corporate and Elimination

          

Net sales

   ¥ (5,413     ¥ (4,731    

Operating expenses

     64,897          61,882       

Operating loss

   ¥ (70,310     ¥ (66,613    

Consolidated

          

Net sales

   ¥ 1,941,336        100.0   ¥ 1,903,477        100.0     (2.0

Operating expenses

     1,883,265        97.0        1,921,545        100.9        2.0   

Operating income (loss)

   ¥ 58,071        3.0   ¥ (18,068     (0.9 )%      —     

 

Notes:

(1) The above segment financial data, which set forth net sales, operating expenses and operating income (loss) for each operating segment, include both transactions with external customers as well as intersegment transactions. Notwithstanding the foregoing, all net sales recorded in the Imaging & Solutions operating segment and the Other operating segment reflect sales to external customers only, as none of the products in the Imaging & Solutions operating segment or the Other operating segment were sold to other Ricoh group companies that conduct businesses in the other operating segments. Accordingly, the segment net sales figures for the Imaging & Solutions operating segment set forth in the above table are the aggregate of the sales figures for the Imaging Solutions product category and the Network System Solutions product category set forth in the “SALES BY PRODUCT” table included under Item 5.A. Operating Results.
(2) Product Category in Imaging & Solutions was reclassified as Office Imaging, Production Printing and Network System Solutions in this fiscal year (Imaging Solutions and Network System Solutions as previous category). Certain products were reclassified into Network System Solutions and Industrial Products from Other in this fiscal year. The above reclassification was made to the prior year’s figures.

Imaging & Solutions

Net sales in the Imaging & Solutions operating segment for fiscal year 2012 decreased by 2.4% (or ¥41.5 billion) to ¥1,671.1 billion from ¥1,712.6 billion for fiscal year 2011. This decrease was due primarily to the net effect of the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen. Excluding the net effect of the foreign currency exchange rate fluctuations, sales in the Imaging & Solutions operating segment would have increased by 1.0% (or ¥16.9 billion) for fiscal year 2012 as compared to fiscal year 2011.

 

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More specifically, sales in the Office Imaging product category for fiscal year 2012 decreased by 4.2% (or ¥57.9 billion) to ¥1,323.2 billion from ¥1,381.1 billion for fiscal year 2011. This decrease was due primarily to the net effect of the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen. The decrease in net sales of PPCs/MFPs and laser printers also contributed to this decrease as customers decreased their capital investments in developed countries in light of the slowly recovering economies. Ricoh’s shipments and manufacturing of products were delayed in light of disruptions to the transportation infrastructure and the shortage of fuel and materials caused by the Great East Japan Earthquake and the flood in Thailand. Ricoh missed certain business opportunities otherwise available as a result of these delays, which also contributed to the decrease in net sale. Despite such adverse business and economic conditions, Ricoh continued to introduce new MFPs with advanced features during fiscal year 2012. The introduction of new product models increased the total number of color MFPs sold as such units were favorably received in Japan.

Sales in the Production Printing Product category for fiscal year 2012 decreased by 1.0% (or ¥1.5 billion) to ¥148.5 billion from ¥150.0 billion for fiscal year 2011. This decrease was due primarily to the net effect of the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen. Excluding the net effect of the foreign currency exchange rate fluctuations, sales in this category would have increased by 5.0% (or ¥75.6 billion) for fiscal year 2012 as compared to fiscal year 2011. Ricoh continued to introduce new production printing products with advanced features during fiscal year 2012. The introduction of these new product models expanded Ricoh’s market coverage of color cut sheets in the production printing area.

Sales in the Network System Solutions product category for fiscal year 2012 increased by 9.8% (or ¥17.8 billion) to ¥199.2 billion from ¥181.4 billion for fiscal year 2011. Sales in the solutions business (such as support services that help customers establish networked environments using Ricoh’s imaging solutions products and software solutions to optimize total printing costs) continued to increase in Japan and Europe for fiscal year 2012 as customers continued to seek products that streamlined the process of document scanning, indexing and distribution by integrating hardware and software.

For fiscal year 2012, the cost of sales in the Imaging & Solutions operating segment decreased in line with the decrease in sales. Due primarily to the appreciation of the Japanese Yen, local currency-denominated export sales of products primarily manufactured in Japan and distributed and sold by the Company to its overseas customers through its subsidiaries in the Americas and Europe caused a decrease in gross profit as these subsidiaries were not able to increase the sales price of its products to make up for the shortfall arising from the appreciation of the Japanese Yen due to the competitive environment. In addition, operating expenses for this operating segment increased for fiscal year 2012 due primarily to an impairment loss on goodwill and long-lived assets for the production printing business in the amount of ¥37.0 billion and severance-related expenses and other restructuring charges in the amount of ¥29.7 billion. As a result, operating expenses in the Imaging & Solutions operating segment for fiscal year 2012 increased by 2.3% (or ¥35.8 billion) to ¥1,616.1 billion from ¥1,580.3 billion for fiscal year 2011.

As a result of the above, operating income for the Imaging & Solutions operating segment for fiscal year 2012 decreased sharply by 58.4% (or ¥77.3 billion) to ¥54.9 billion from ¥132.2 billion for fiscal year 2011.

 

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Industrial Products

Net sales in the Industrial Products operating segment for fiscal year 2012 decreased by 8.6% (or ¥9.7 billion) to ¥102.7 billion from ¥112.4 billion for fiscal year 2011. This decrease was due primarily to the decrease in sales of semiconductor devices and electronic components. With respect to semiconductor devices, Ricoh experienced a decrease in net sales because of the downturn in the Japanese market for analog one-chip LSIs for cellular phones and power and battery management ICs. With respect to electronic components, sales of ECUs (embedded controller unit) and PCBs (printed circuit board) decreased due primarily to decreased customer demand.

Operating expenses in this operating segment for fiscal year 2012 decreased by 6.3% (or ¥7.0 billion) to ¥104.4 billion from ¥111.4 billion for fiscal year 2011. This decrease was due primarily to the decrease in cost of sales resulting from the decrease in net sales. However, operating expenses did not decrease in line with the decrease in net sales as the cost of sales ratio in respect of semiconductor devices increased in light of the fact that the decrease in production volume (in response to decrease in demand) made it difficult for Ricoh to fully cover the fixed costs associated with the manufacturing of such devices. In addition, the increase in the cost of sales ratio in respect of thermal media also contributed to operating expenses not decreasing in line with the decrease in net sales. The cost of sales ratio in respect of thermal media increased due primarily to the fact that production costs for such products in Europe did not decrease in line with the decrease in sales as Ricoh fell short of reaching its cost reduction targets in the manufacturing process for such devices. Consequently, gross profit decreased as compared to fiscal year 2011 due primarily to decreased net sales as well as the increased cost of sales ratio. In addition, severance-related expenses and other restructuring charges in the amount of ¥1.4 billion also contributed to operating expenses not decreasing in line with the decrease in net sales.

As a result of the above, the segment results for the Industrial Products operating segment for fiscal year 2012 decreased to an operating loss of ¥1.6 billion from an operating income of ¥0.9 billion for fiscal year 2011.

Other

Net sales in the Other operating segment for fiscal year 2012 increased by 10.4% (or ¥12.7 billion) to ¥134.3 billion from ¥121.6 billion for fiscal year 2011. This increase was due primarily to the increase in sales of digital cameras as a result of the acquisition of the PENTAX imaging systems business from HOYA Corporation in October 2011. The increase in net sales from the financing business conducted by Ricoh Leasing Co., Ltd. in Japan also contributed to the increase in net sales in this operating segment. Net sales from the financing business increased as leasing volume increased during fiscal year 2012 in part because of the ongoing reconstruction in the areas affected by the Great East Japan Earthquake. While sales from logistics decreased due to the decrease in logistical services provided to PPC/MFP dealers as such dealers purchased fewer PPCs/MFPs during fiscal year 2012, such decrease was completely offset by the net sales increases derived from the digital camera and financing businesses.

 

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Operating expenses in this operating segment for fiscal year 2012 increased by 9.9% (or ¥12.5 billion) to ¥139.0 billion from ¥126.5 billion for fiscal year 2011. This increase was due primarily to the acquisition of the PENTAX imaging systems business from HOYA Corporation. Despite the contributions to gross profit from the acquisition of the PENTAX imaging systems business, gross profit in the Other operating segment decreased due primarily to the decreased profitability of Ricoh’s digital camera business (excluding the PENTAX imaging systems business) as Ricoh decreased the sales price of its cameras to boost customer demand. Selling, general and administrative expenses increased due primarily to the increase in research and development activities undertaken by Ricoh to create new products and services that followed the fiscal year 2012 introduction of projectors and UCSs. Severance-related expenses and other restructuring charges in the amount of ¥0.4 billion also contributed to the increase in operating expenses.

As a result of the above, operating loss for the Other operating segment for fiscal year 2012 decreased by ¥0.2 billion to ¥4.7 billion as compared to ¥4.9 billion for fiscal year 2011.

 

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Geographic Information by Geographic Origin

 

     Millions of Yen (except for percentages)     % Change  
     2011     2012    

Japan

          

Net sales

   ¥ 1,286,335        100.0   ¥ 1,274,596        100.0     (0.9

Operating expenses

     1,257,207        97.7        1,293,454        101.5        2.9   

Operating income (loss)

   ¥ 29,128        2.3   ¥ (18,858     (1.5 )%      —     

The Americas

          

Net sales

   ¥ 523,896        100.0   ¥ 475,393        100.0     (9.3

Operating expenses

     529,157        101.0        501,785        105.6        (5.2

Operating income (loss)

   ¥ (5,261     (1.0 )%    ¥ (26,392     (5.6 )%      —     

Europe, Middle East and Africa

          

Net sales

   ¥ 424,901        100.0   ¥ 416,210        100.0     (2.0

Operating expenses

     397,186        93.5        398,537        95.8        0.3   

Operating income

   ¥ 27,715        6.5   ¥ 17,673        4.2     (36.2

Other

          

Net sales

   ¥ 268,536        100.0   ¥ 278,159        100.0     3.6   

Operating expenses

     256,438        95.5        270,479        97.2        5.5   

Operating income

   ¥ 12,098        4.5   ¥ 7,680        2.8     (36.5

Corporate and Elimination

          

Net sales

   ¥ (562,332     ¥ (540,881    

Operating expenses

     (556,723       (542,710    

Operating income (loss)

   ¥ (5,609     ¥ 1,829       

Consolidated

          

Net sales

   ¥ 1,941,336        100.0   ¥ 1,903,477        100.0     (2.0

Operating expenses

     1,883,265        97.0        1,921,545        100.9        2.0   

Operating income (loss)

   ¥ 58,071        3.0   ¥ (18,068     (0.9 )%      —     

 

Notes:

(1) The above consolidated financial data, which set forth net sales, operating expenses and operating income (loss) for each geographic area by geographic origin, include both transactions with external customers as well as transactions between geographic areas.
(2) Middle East and Africa were reclassified from Other into Europe in this fiscal year. The reclassification was made to the prior year’s figures.

Japan

Sales in Japan for fiscal year 2012 decreased by 0.9% (or ¥11.8 billion) to ¥1,274.5 billion from ¥1,286.3 billion for fiscal year 2011. This decrease was due primarily to the decrease in export sales of PPCs/MFPs from Japan to the markets in the Americas and Europe. This is because (1) the Japanese Yen appreciated relative to the U.S. Dollar and the Euro, (2) customer demand for such Ricoh products decreased in light of the slow rate of economic recovery in such countries and (3) Ricoh missed certain business opportunities otherwise available as its shipments and manufacturing of products were delayed in light of disruptions to the transportation infrastructure and the shortage of fuel and materials caused by the Great East Japan Earthquake and the flood in Thailand. In addition, sales of semiconductor devices and electrical components decreased due to a decrease in market demand for such products, which also contributed to the decrease in sales in Japan.

 

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Operating expenses in Japan for fiscal year 2012 increased by 2.9% (or ¥36.2 billion) to ¥ 1,293.4 billion from ¥1,257.2 billion for fiscal year 2011. This increase was due primarily to severance-related expenses and other restructuring charges in the amount of ¥26.5 billion and an impairment loss on goodwill and long-lived assets in the amount of ¥15.1 billion.

As a result of the above, operating income (loss) in Japan for fiscal year 2012 decreased by ¥47.9 billion to a loss of ¥18.8 billion from an income of ¥29.1 billion for fiscal year 2011.

The Americas

Net sales in the Americas for fiscal year 2012 decreased by 9.3% (or ¥48.5 billion) to ¥475.3 billion from ¥523.8 billion for fiscal year 2011. Although Ricoh expanded its sales network in recent years through its acquisition of IKON, overall sales in the Americas geographic areas decreased in fiscal year 2012 due primarily to the decrease in customer demand and the appreciation of the Japanese Yen against the U.S. Dollar.

Operating expenses in the Americas for fiscal year 2012 decreased by 5.2% (or ¥27.4 billion) to ¥501.7 billion from ¥529.1 billion for fiscal year 2011. This decrease in operating expenses was due primarily to the decrease in cost of sales resulting from the decrease in net sales. Operating expenses did not decrease in line with the decrease in net sales, however, as Ricoh recorded an impairment loss on goodwill and long-lived assets in the amount of ¥18.1 billion and severance-related expenses and other restructuring charges in the amount of ¥1.5 billion as part of operating expenses in fiscal year 2012.

As a result of the above, operating loss for fiscal year 2012 increased by ¥21.1 billion to ¥26.3 billion from ¥5.2 billion for fiscal year 2011.

Europe, Middle East and Africa

Sales in Europe, Middle East and Africa for fiscal year 2012 decreased by 2.0% (or ¥8.7 billion) to ¥416.2 billion from ¥424.9 billion for fiscal year 2011. This decrease in sales was due primarily to the appreciation of the Japanese Yen against the Euro.

Operating expenses in Europe, Middle East and Africa for fiscal year 2012 increased slightly by 0.3% (or ¥1.4 billion) to ¥398.5 billion from ¥397.1 billion for fiscal year 2011. This increase was due primarily to severance-related expenses and other restructuring charges in the amount of ¥5.8 billion and an impairment loss on goodwill and long-lived assets in the amount of ¥1.9 billion. Such increase completely offset the decrease in cost of sales resulting from the appreciation of the Japanese Yen against the Euro.

As a result of the above, operating income for fiscal year 2012 decreased by 36.2% (or ¥10.1 billion) to ¥17.6 billion from ¥27.7 billion for fiscal year 2011.

 

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Other

Net sales in the Other geographic area, which includes China, Southeast Asia and Oceania, increased for fiscal year 2012 by 3.6% (or ¥9.6 billion) to ¥278.1 billion from ¥268.5 billion for fiscal year 2011. This increase was due primarily to the increase in sales in the emerging markets as Ricoh introduced lower-priced PPCs/MFPs (such as those that print on A4-sized paper only) in such markets and expanded its sales network by employing additional personnel to engage in sales promotional activity for such products. As a result, sales in the Other geographic area increased.

Operating expenses in the Other geographic area for fiscal year 2012 increased by 5.5% (or ¥14.0 billion) to ¥270.4 billion from ¥256.4 billion for fiscal year 2011. This increase was due primarily to the increase in cost of sales resulting from the increase in sales. Selling, general and administrative expenses also increased due mainly to increased sales promotion expenses as Ricoh expanded its sales force to capture future growth in these markets. In addition, severance-related expenses and other restructuring charges in the amount of ¥0.3 billion also contributed to the increase in operating expenses for this geographic area.

As a result of the above, operating income for fiscal year 2012 decreased by 36.5% (or ¥4.4 billion) to ¥7.6 billion from ¥12.0 billion for fiscal year 2011.

 

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B. Liquidity and Capital Resources

Cashflows

The following table summarizes Ricoh’s cashflows for each of the three fiscal years ended March 31, 2011, 2012 and 2013, as reported in the Consolidated Statements of Cashflows in the accompanying Consolidated Financial Statements.

 

     (Billions of Yen)
For the year ended March 31,
 
     2011     2012     2013  

Net cash provided by operating activities

     128.6        11.2        124.5   

Net cash used in investing activities

     (91.9     (112.4     (106.4

Net cash provided by (used in) financing activities

     (93.0     87.8        (64.3

Net decrease in cash and cash equivalents

     (64.9     (16.0     (39.1

Cash and cash equivalents at beginning of year

     237.1        172.2        156.2   

Cash and cash equivalents at end of year

     172.2        156.2        117.0   

Operating Cashflows

As compared to fiscal year 2012, net cash provided by operating activities for fiscal year 2013 increased by ¥113.3 billion due primarily to (1) the depreciation of the Yen against the U.S. Dollar and the Euro towards the end of fiscal year, which contributed to an increase in cash collections of local currency-denominated export sales of products primarily manufactured in Japan and distributed and sold by the Company to its overseas customers through its subsidiaries in the Americas and Europe, (2) the decrease in total severance-related expenses and other restructuring costs, (3) the increase in collection of receivables through strengthened credit controls, and (4) the decrease in cash payments for parts and materials due to activities taken by the Company in fiscal year 2013 to minimize inventory.

As compared to fiscal year 2011, net cash provided by operating activities for fiscal year 2012 decreased by ¥117.4 billion due primarily to (1) the appreciation of the Japanese Yen against the U.S. Dollar and the Euro during fiscal year 2012, which caused a decrease in cash collections of local currency-denominated export sales of products primarily manufactured in Japan and distributed and sold by the Company to its overseas customers through its subsidiaries in the Americas and Europe as these subsidiaries were not able to increase the sales price of its products to make up for the shortfall arising from the appreciation of the Japanese Yen due to the competitive environment, (2) Ricoh losing business opportunities and incurring increased air freight costs to meet delivery deadlines as disruptions to the transportation infrastructure and the shortage of fuel and materials caused by the Great East Japan Earthquake and the flood in Thailand delayed Ricoh’s shipments and manufacturing of products and (3) Ricoh expending additional funds for its manufacturing operations towards the end of the fiscal year in anticipation of increased demand for its products, which failed to materialize. In addition, severance payments and other restructuring charges also contributed to the decrease in cash provided by operating activities.

 

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Investing Cashflows

For fiscal year 2013, net cash used in investing activities consisted mainly of ¥86.5 billion of expenditures for tangible fixed assets and ¥12.2 billion of expenditures for intangible fixed assets. Expenditures for tangible fixed assets in fiscal year 2013 consisted primarily of ¥12.7 billion for mold and die as well as jigs used in the production of PPCs/MFPs and laser printers, ¥8.0 billion to increase the production capacity and improve the production efficiency of Ricoh’s manufacturing subsidiaries (¥4.5 billion of which was used in Japan and ¥3.5 billion of which was used overseas), ¥5.3 billion to increase the production capacity of a plant that manufactures polymerized PxP toner in Japan and ¥4.7 billion to upgrade the facilities for manufacturing its thermal media products. Expenditures for intangible fixed assets in fiscal year 2013 consisted primarily of ¥3.3 billion to purchase and implement the Enterprise Resource Planning (“ERP”) system, which was purchased with the goal of improving the efficiency of sales administration and accounting functions across the Ricoh group. Net cash used in investing activities decreased by ¥5.9 billion in fiscal year 2013 compared to the previous fiscal year due primarily to the decrease in spending for acquisitions.

For fiscal year 2012, net cash used in investing activities consisted mainly of ¥73.2 billion of expenditures for tangible fixed assets, ¥14.8 billion for the purchase of business, net of cash acquired (which was used primarily for the acquisition of the PENTAX imaging systems business from HOYA Corporation to further expand not only Ricoh’s camera business but also its consumer products and services business), and ¥14.5 billion of expenditures for intangible fixed assets. Expenditures for tangible fixed assets in fiscal year 2012 consisted primarily of ¥9.3 billion for mold and die as well as jigs used in the production of PPCs/MFPs and laser printers, ¥8.3 billion for the construction of an additional toner manufacturing plant and related equipment to increase the production capacity of polymerized PxP toners and other products, and ¥8.2 billion to increase the production capacity and improve the production efficiency of Ricoh’s manufacturing subsidiaries (¥4.7 billion of which was used in Japan and ¥3.5 billion of which was used overseas). Expenditures for intangible fixed assets in fiscal year 2012 consisted primarily of ¥3.5 billion to upgrade the IT system, which aimed to improve the administrative and development efficiency of the Ricoh group. Net cash used in investing activities increased in fiscal year 2012 compared to fiscal year 2011 due primarily to the acquisition of the business discussed above, net of cash acquired.

 

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For fiscal year 2011, net cash used in investing activities consisted mainly of ¥66.9 billion of expenditures for tangible fixed assets and ¥18.8 billion of expenditures for intangible fixed assets. Expenditures for tangible fixed assets in fiscal year 2011 consisted primarily of ¥8.1 billion to construct the new building to house the Ricoh Technology Center, ¥5.6 billion for mold casts used in the manufacturing of MFPs, production printing equipment and printers and ¥4.6 billion to construct the second plant to manufacture polymerized PxP toners. Expenditures for intangible fixed assets in fiscal year 2011 consisted primarily of ¥7.9 billion to purchase and implement the Enterprise Resource Planning (“ERP”) system, which was aimed to improve the efficiency of sales administration and accounting across the Ricoh group.

Financing Cashflows

For fiscal year 2013, net cash used in financing activities consisted primarily of ¥59.0 billion of net decrease in debt with original maturities of three months or less, ¥9.3 billion to repay debt with original maturities of more than three months, net of proceeds, and ¥15.2 billion to pay dividends. Additionally, Ricoh Leasing Co., Ltd. issued the 14th series of unsecured straight bonds in the amount of ¥20.0 billion in November 2012. Furthermore, in order to refinance its long-term debt upon maturity in fiscal year 2013, Ricoh borrowed ¥30.0 billion from the Development Bank of Japan Inc (“DBJ”). The DBJ Environmental Ratings Loan Program is the world’s first system of financing based on environmentally responsible ratings. DBJ has set forth three levels of interest rates based on the results of the environmental rating. By receiving the highest rating, Ricoh was able to borrow at the most favorable interest rate. As compared to fiscal year 2012, net cash used in financing activities increased in fiscal year 2013 primarily due to the repayment of long-term debt.

For fiscal year 2012, net cash provided by financing activities consisted primarily of ¥68.9 billion in proceeds from the issuance of debt with original maturities of three months or less and ¥65.8 billion in proceeds from the issuance of debt with original maturities of more than three months, net of cash repaid, which was partially offset by net cash used in financing activities consisting primarily of ¥23.9 billion to pay dividends and ¥22.4 billion to repay outstanding long-term debt securities. The repayment of outstanding long-term debt securities in the amount of ¥22.4 billion consisted primarily of ¥20.0 billion to repay upon maturity in March 2012 the 6th series of unsecured straight bonds issued by the Company and ¥2.2 billion to repay the outstanding zero coupon convertible bonds of the Company in December 2011. While the total amount of indebtedness increased in fiscal year 2012, interest expense decreased as Ricoh reduced the outstanding long-term debt securities of IKON (which had a higher interest rate) and replaced such borrowing with borrowings in Japan (which have lower interest rates). Due primarily to the increase in short-term borrowings and long-term indebtedness compared to fiscal year 2011, net cash provided by financing activities exceeded the net cash used in financing activities for fiscal year 2012.

 

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For fiscal year 2011, net cash used in financing activities consisted primarily of ¥87.9 billion to repay outstanding long-term debt securities, ¥92.7 billion to repay debt with original maturities of more than three months, ¥31.8 billion of net decrease in debt with original maturities of three months or less and ¥23.9 billion to pay dividends, which were partially offset by ¥79.7 billion of proceeds received from the issuance of long-term debt securities and ¥64.4 billion of proceeds received from debt with original maturities of more than three months. The Company issued the 9th series of unsecured straight bonds in the amount of ¥40.0 billion and the 10th series of unsecured straight bonds in the amount of ¥20.0 billion in June 2010. Ricoh Leasing Co., Ltd. issued the 13th series of unsecured straight bonds in the amount of ¥20.0 billion in May 2010. Proceeds from the issuance of long-term debt securities totaled ¥79.7 billion net of issuance costs. In December 2010, ¥52.8 billion aggregate principal amount of zero coupon convertible bonds (constituting a portion of the total outstanding principal amount thereof) were redeemed before maturity, upon the exercise of put options granted to the holders of the bonds. Ricoh redeemed bonds issued by IKON by way of a tender offer and subsequent retirement of bonds before maturity in the amount of ¥25.1 billion. Ricoh Leasing Co., Ltd. repaid unsecured straight bonds in the amount of ¥10.0 billion in December 2010 upon maturity. Repayments of long-term debt securities totaled ¥87.9 billion.

Cash and Asset-Liability Management

Ricoh has in recent years tried to achieve greater efficiencies in the utilization of cash balances held by its subsidiaries pursuant to its policy of ensuring adequate financing and liquidity for its operations and growth, and maintaining the strength of its balance sheet. One method that Ricoh has implemented to achieve greater efficiency is building up its group cash management system in Japan, the United States and Europe. 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 in Japan, the United States, the United Kingdom and the Netherlands 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 paid to third parties in connection with borrowings to finance operations.

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 currency contracts and foreign currency options. Another form of derivative financial contracts that Ricoh enters into is interest rate swap agreements to hedge against the potentially adverse impacts of fair value or cashflow fluctuations on its outstanding debt interests. Ricoh uses these derivative instruments to reduce its risk and to protect the market value of its assets and liabilities in conformity with Ricoh’s policy. Ricoh does not use derivative financial instruments for trading or speculative purposes, nor is it a party to leveraged derivatives. Detailed discussion of these derivative contracts is provided in Item 11. Quantitative and Qualitative Disclosures About Market Risk.

Ricoh also engages in limited securitization activities through its domestic leasing affiliate, Ricoh Leasing Co., Ltd. For a discussion of such activities, see Note [4] to the Consolidated Financial Statements.

 

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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 long-term debt securities. In assessing its liquidity and capital resources needs, Ricoh places importance on the balances of cash and cash equivalents in the balance sheet and operating cashflows in the cashflow statements.

As of March 31, 2013, Ricoh had ¥117.0 billion in cash and cash equivalents and ¥703.6 billion in aggregate borrowing facilities. Of the ¥703.6 billion in aggregate borrowing facilities, ¥639.5 billion was available to be borrowed by Ricoh as of March 31, 2013. As of March 31, 2013, the amounts available by bank loans and commercial paper were ¥363.4 billion and ¥276.1 billion, respectively. Ricoh Leasing Co., Ltd. has committed credit lines with several banks having credit ratings satisfactory to Ricoh in the aggregate amount of ¥50.0 billion. This ¥50.0 billion committed credit line amount of Ricoh Leasing Co., Ltd. is included in the ¥703.6 billion figure for aggregate borrowing facilities.

The Company, Ricoh Leasing Co., Ltd. and certain overseas subsidiaries raise capital by issuing commercial paper and long-term debt securities in various currencies. Ricoh Leasing Co., Ltd. and certain overseas subsidiaries of the Company issue commercial paper to meet their short-term funding requirements. Utilization of such capacity depends on Ricoh’s financing needs, investor demand and market conditions, as well as the ratings outlook for Ricoh’s securities. Interest rates for commercial paper issued by the Company and its subsidiaries ranged from 0.10% to 0.38%, interest rates for bank loans ranged from 0.10% to 10.50% and interest rates for long-term debt securities ranged from 0.35% to 7.30% during fiscal year 2013. For fiscal year 2013, the Company and its subsidiaries did not have any medium-term note programs.

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, 2013, S&P assigned long-term and short-term credit ratings for the Company of A and A-1, respectively, and Moody’s assigned a short-term credit rating for the Company of P-1.

While some of its subsidiaries may be restricted from paying dividends for various reasons, such as capital adequacy requirements, Ricoh does not expect such restrictions to have a significant impact on its ability to meet its cash obligations.

As is customary in Japan, substantially all of the bank loans are subject to general agreements with each lending bank which provide, among other things, that the bank may request additional security for loans if there is reasonable and probable cause for the necessity of such additional security and the bank may treat any security furnished, as well as any cash deposited in such bank, as security for all present and future indebtedness. The Company has never been requested to furnish such additional security. In some cases, the Company’s long-term debt securities contain customary covenants, including a “limitation on liens” covenant. The Company was in compliance with the covenants in its bank agreements and securities as of March 31, 2013. The Company is not subject to any covenants limiting its ability to incur additional indebtedness. For additional detail regarding these securities, see Note [11] to the Consolidated Financial Statements.

 

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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 2014. Even if there were a decrease in cashflows from operations as a result of fluctuations in customer demands from one year to another due to unexpected changes in global economic conditions, Ricoh believes that current funds on hand along with funds available under existing borrowing facilities would be sufficient to finance its anticipated operations. In addition, Ricoh believes that it is able to secure adequate resources to fund ongoing operating requirements and investments related to the expansion of existing businesses and the development of new projects through its access to the financial and capital markets. While interest rates of such instruments may fluctuate, Ricoh believes that the effect of such fluctuations will not significantly affect Ricoh’s liquidity, mainly due to the adequate amount of Ricoh’s cash and cash equivalents on hand, stable cashflow generated from its operating activities and group-wide cash management system.

Ricoh expects that its capital expenditures for fiscal year 2014 will amount to approximately ¥89.0 billion, which will principally be used for investments in manufacturing facilities of digital and networking equipment with new engines, toners, thermal media and optical equipment. In addition, Ricoh is obligated to repay long-term indebtedness in the aggregate principal amount of ¥161.1 billion during fiscal year 2014, and in the aggregate principal amount of ¥350.6 billion during fiscal years 2015 through 2017.

The Company and certain of its subsidiaries have various employee pension plans covering all of their employees. As described in Note [12] to the Consolidated Financial Statements, the unfunded portion of these employee pension plans amounted to ¥163.0 billion as of March 31, 2013. The unfunded amount was recorded as an asset of ¥3.9 billion and a liability of ¥167.0 billion on the consolidated balance sheet of Ricoh as of March 31, 2013. The amounts contributed to pension plans for fiscal years 2011, 2012 and 2013 were ¥14.4 billion, ¥12.1 billion and ¥13.4 billion, respectively.

Ricoh believes that its cashflow from operating and investing activities together with existing lines of credit and borrowing facilities constitute adequate sources of funding to satisfy its liquidity needs and future obligations as described above. Ricoh’s management is of the opinion that Ricoh’s working capital is sufficient for its present requirements.

As of March 31, 2013, ¥74.0 billion of cash and cash equivalents are held by Ricoh’s foreign subsidiaries. If these funds are needed for Ricoh’s operations in Japan, Ricoh would be required to accrue and pay Japanese taxes to repatriate these funds. However, Ricoh’s intent is to permanently reinvest these funds outside of Japan and Ricoh’s current plans do not make it necessary for it to repatriate them to fund its operations in Japan.

 

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C. Research and Development, Patents and Licenses

Research and Development

Since its formation, Ricoh’s basic management philosophy has been to contribute to society by developing and providing innovative and useful products with an emphasis on the relationship between people and information. Based on this management philosophy, Ricoh undertakes a variety of R&D activities to develop new technologies, products and systems to facilitate better communication. The Research and Development Group function as the headquarters of Ricoh’s R&D activities, which are conducted at its R&D bases throughout Japan and certain satellite R&D bases overseas. Ricoh conducts a wide range of R&D activities, from seeds research (i.e., early stage research) to research in elemental technologies, product applications and manufacturing technologies, including environmental technologies.

In Japan, Ricoh conducts basic and advanced research in connection with optical technologies, new materials, devices, information electronics, environmental technologies and software technologies as well as elemental development for new products. In addition, Ricoh has established satellite R&D bases in the United States, China and India through which it conducts R&D activities that focus on developing products that can be marketed globally and that take into consideration the needs of such particular geographic area. All aspects of Ricoh’s research efforts are focused on developing products and services that are suitable for the new work environment. Ricoh also engages in R&D activities to protect the environment in every stage of each of its products’ life cycles to realize Ricoh’s three core values of “harmonizing with the environment (i.e., reducing and minimizing environmental impact),” “simplifying your life and work (i.e., enhancing user friendliness and striving towards simplification),” and “supporting knowledge management (i.e., offering solutions to process information).” For fiscal years 2011, 2012 and 2013, Ricoh’s consolidated R&D expenditures totaled ¥110.5 billion, ¥119.0 billion and ¥112.0 billion, respectively.

Out of total consolidated R&D expenditures of ¥112.0 billion for fiscal year 2013, ¥84.2 billion was used for R&D activities relating to the Imaging & Solutions operating segment. Ricoh’s R&D activities in the Imaging & Solutions operating segment continued to include (1) designing new optical designs for copiers, printers and production printing products, (2) developing imaging data processing technology, (3) developing electrophotographic and inkjet supply technology, (4) advancing elemental technology for the next-generation of image producing engines, (5) developing cutting edge software technology and (6) developing applications for the advancement of IT solutions.

 

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Out of total consolidated R&D expenditures of ¥112.0 billion for fiscal year 2013, ¥8.1 billion was used for R&D activities relating to the Industrial Products operating segment. In the Industrial Products operating segment, Ricoh’s R&D activities continued to include (1) developing cameras and lenses for FA, (2) developing RECO-View RF(IC) tag series which is a unique product line combining RF tags with rewriting capability, (3) developing photo (UV)-curable Inkjet Ink that significantly reduces skin allergies.

Out of total consolidated R&D expenditures of ¥112.0 billion for fiscal year 2013, ¥1.7 billion was used for R&D activities relating to the Other operating segment. In this segment, Ricoh continued to develop its image capturing device technology for digital cameras and its related applications technology.

In addition, Ricoh continues to engage in the development of its fundamental research fields, which focus on R&D activities that can be applied to various products and that are difficult to categorize into a specific operating segment. Out of total consolidated R&D expenditures of ¥112.0 billion for fiscal year 2013, ¥18.0 billion was used for R&D activities relating to fundamental research fields. Such R&D activities include R&D in nanotechnology, micro-machining, general technologies in measuring, analysis and simulation, new materials and devices, next-generation image display technologies, manufacturing technology, system software modules, photonics technology for high speed and high quality image processing, the next-generation of office systems and office solutions, and environmental technologies.

For a summary of Ricoh’s R&D expenditures for fiscal years 2011, 2012 and 2013, see Note [23] to the Consolidated Financial Statements.

Patents and Licenses

Ricoh owns approximately 46,800 patents as of March 31, 2013 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 the termination of any licensing agreement or group of related licensing agreements will materially affect its business.

 

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The following table lists some of the important patent and licensing agreements which the Company is currently a party to:

 

Counterparty

   Country
and
Region
  

Summary of the Contract

  

Contract Term

International

Business Machines

Corporation

   USA    Comprehensive cross license patent agreement relating to the information processing technology area (reciprocal agreement)    March 28, 2007 to expiration date of the patent subject to the agreement
ADOBE Systems Incorporated    USA    Patent licensing agreements relating to development on printer software and sales (the counterparty as the licensee)    January 1, 1999 to March 31, 2015

Lemelson Medical,

Education & Research Foundation Limited Partnership

   USA    Patent licensing agreement relating to computer image analysis and other products (the counterparty as the licensee)    March 31, 1993 to expiration date of the patent subject to the agreement
Canon Inc.    Japan    Patent licensing agreement relating to office equipment (reciprocal agreement)    October 1, 1998 to expiration date of the patent subject to the agreement
KYOCERA Document Solutions Inc.    Japan    Patent licensing agreement relating to method of controlling multi function peripheral (the Company as the licensor)    January 1, 2012 to December 31, 2018
KYOCERA Document Solutions Inc.    Japan    Patent licensing agreement relating to facsimile functions (the Company as the licensor)    June 1, 2012 to May 31, 2017
Hitachi, Ltd.    Japan    Patent licensing agreement relating to optical record and playback equipment, and multi function peripheral (reciprocal agreement)    January 1, 2007 to December 31, 2013
Sony Corporation    Japan    Patent licensing agreements relating to optical disks (the Company as the licensor ) and digital cameras (reciprocal agreement)    April 1, 2009 to March 31, 2018
Brother Industries, Ltd.    Japan    Patent licensing agreement relating to digital photography (the Company as the licensor)    October 1, 2009 to September 30, 2014
Quantum Storage Inc.    Taiwan    Patent licensing agreement relating to optical disc (the Company as the licensor)    February 22, 2011 to February 22, 2016
Hewlett-Packard Company    USA    Comprehensive cross license patent agreement relating to the document processing system area (reciprocal agreement)    October 31, 2011 to expiration date of the patent subject to the agreement

D. Trend Information

See “OVERVIEW” above and “Cautionary Statement With Respect to Forward-Looking Statements” in this Annual Report.

 

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E. Off-Balance Sheet Arrangements

Ricoh acts as a guarantor for some of its employees’ housing loans, whose arrangements are not included on Ricoh’s consolidated balance sheets. As of March 31, 2013, the total amount of such guarantees was ¥8 million.

F. Tabular Disclosure of Contractual Obligations

The following table sets forth Ricoh’s contractual obligations as of March 31, 2013.

 

     Millions of Yen
Payments due by period
 
      Total      Less than
1 year
     1-3 years      3-5 years      More than
5 years
 

CONTRACTUAL OBLIGATIONS

              

Long-term Debt Obligations

   ¥ 637,561       ¥ 161,180       ¥ 273,636       ¥ 159,065       ¥ 43,680   

Interest Expense Associated with Long-term Debt Obligations

     15,698         5,145         5,201         2,242         3,110   

Capital (Finance) Lease Obligations

     1,952         879         562         342         169   

Operating Lease Obligations

     79,959         24,001         32,456         12,374         11,128   

Purchase Obligations

     40,539         40,539         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL

   ¥ 775,709       ¥ 231,744       ¥ 311,855       ¥ 174,023       ¥ 58,087   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ricoh expects to contribute ¥15.3 billion to its pension plan during fiscal year 2014 and is currently unable to predict funding requirements for periods beyond fiscal year 2014 due to uncertainties related to changes in actuarial assumptions, return on plan assets and changes to plan membership.

Ricoh had operating lease commitments with rental payments totaling ¥47.5 billion for fiscal year 2013.

G. Safe Harbor

See “Cautionary Statement With Respect to Forward-Looking Statements.”

 

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Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

Directors and Audit & Supervisory Board Members of the Company as of June 21, 2013 were as follows:

 

Name
(Date of Birth)

  

Current Position
(Function/Business area)

  

Date

  


Business Experience

Shiro Kondo

(October 7, 1949)

  

Chairman of the Board and

Representative Director

   Apr. 1973   

Joined the Company

      June 2000   

Senior Vice President

      Oct. 2000   

General Manager of Imaging System Business Group

      June 2002   

Executive Vice President

      Oct. 2004   

General Manager of MFP Business Group

      June 2005   

Director

      June 2005   

Corporate Executive Vice President

      Apr. 2007   

Representative Director (Current)

      Apr. 2007   

President

      Apr. 2007   

CEO (Chief Executive Officer)

      Apr. 2013   

Chairman (Current)

      Apr. 2013   

Chairman of the Board (Current)

  

 

Principal business activities and other principal directorships performed outside of Ricoh:

  

Representative of Asahi Mutual Life Insurance Company

Director of COCA-COLA WEST COMPANY, LIMITED

Zenji Miura

(January 5, 1950)

  

Representative Director

   Apr. 1976   

Joined the Company

      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

     

June 2005

June 2005

  

Corporate Executive Vice President

CFO (Chief Financial Officer)

      Apr. 2006   

CIO (Chief Information Officer)

      Apr. 2006   

General Manager of Corporate Planning Division

      Apr. 2009   

CSO (Chief Strategy Officer)

      Apr. 2011   

Representative Director (Current)

      Apr. 2011   

Deputy President

      Oct. 2011   

General Manager of Imaging Systems Business Group

      Apr. 2012   

Chairman and CEO (Chief Executive Officer) of Ricoh Americas Holdings, Inc.

      May 2012   

General Manager of Americas Marketing Group

      Apr. 2013   

President (Current)

      Apr. 2013   

CEO (Chief Executive Officer) (Current)

   Principal business activities and other principal directorships performed outside of Ricoh:
  

Director of Nippon Venture Capital Co., Ltd.

Audit & Supervisory Board Member of COCA-COLA WEST COMPANY, LIMITED

 

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Name
(Date of Birth)

  

Current Position
(Function/Business area)

  

Date

  


Business Experience

Shiro Sasaki

(December 23, 1949)

  

Director

   Apr. 1972   

Joined the Company

      Apr. 2000   

President of Gestetner Holdings PLC

      Apr. 2002   

President of NRG Group PLC

      June 2004   

Group Executive Officer, Senior Vice President

      Apr. 2006   

Chairman of Ricoh Europe B.V.

      Apr. 2006   

Chairman of NRG Group PLC

      Apr. 2007   

Chairman of Ricoh Europe, PLC

      Apr. 2007   

Chairman of Ricoh Europe (Netherlands) B.V.

      June 2009   

General Manager of Europe Marketing Group

      June 2010   

Director (Current)

      Apr. 2011   

Corporate Executive Vice President (Current)

      Apr. 2011   

General Manager of Production Printing Business Group (Current)

      Apr. 2011   

Chairman and CEO (Chief Executive Officer) of Ricoh Production Print Solutions, LLC (Current)

      Apr. 2011   

General Manager of Trade Affairs & Export/Import Administration Division (Current)

      June 2012   

CMO (Chief Marketing Officer) (Current)

Nobuo Inaba

(November 11, 1950)

  

Director

   Apr. 1974   

Joined the Bank of Japan

      May 1992   

Director, Head of Securities Division, Credit and Market Management Department of the Bank of Japan

      May 1994   

Director, Head of Planning Division Policy Planning Office of the Bank of Japan

      May 1996   

Deputy Director-General, Policy Planning Office of the Bank of Japan

      Apr. 1998   

Deputy Director-General (Adviser), Policy Planning Office of the Bank of Japan

      Apr. 2000   

Adviser to the Governor Monetary Policy Studies Department, Policy Planning Office of the Bank of Japan

      June 2001   

Director-General, Information System Services Department of the Bank of Japan

      June 2002   

Director-General, Bank Examination and Surveillance Department of the Bank of Japan

      May 2004   

Executive Director, Financial System Stability of the Bank of Japan

      May 2008   

Joined the Company

      May 2008   

Executive Advisor

      Apr. 2010   

President of Ricoh Institute of Sustainability and Business (Current)

      June 2010   

Director (Current)

      June 2010   

Corporate Executive Vice President (Current)

      June 2012   

CIO (Chief Information Officer) (Current)

 

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Name

(Date of Birth)

  

Current Position

(Function/Business area)

  

Date

  

Business Experience

Yohzoh Matsuura

(April 15, 1956)

   Director    Apr. 1980   

Joined the Company

      Oct. 2004   

General Manager of Imaging Engine Development Division

      Apr. 2008   

Corporate Vice President

      Apr. 2010   

Corporate Senior Vice President

      July 2010   

General Manager of MFP Business Group (Current)

      Apr. 2011   

General Manager of Controller Development Division

      June 2012   

Director (Current)

      June 2012   

Corporate Executive Vice President (Current)

      June 2012   

In charge of environmental management

      Apr. 2013   

General Manager of Research and Development Group (Current)

Yoshinori Yamashita

(August 22, 1957)

   Director    Mar. 1980   

Joined the Company

      Apr. 2008   

President of Ricoh Electronics, Inc.

      Apr. 2010   

Group Executive Officer, Corporate Vice President

      Apr. 2011   

Corporate Senior Vice President

      Apr. 2011   

General Manager of Corporate Planning Division (Current)

      June 2012   

Director (Current)

      June 2012   

Corporate Executive Vice President (Current)

      Apr. 2013   

In charge of Internal Management and Control (Current)

Kunihiko Satoh

(October 21, 1956)

   Director    Mar. 1979   

Joined the Company

      June 2005   

Corporate Vice President

      Apr. 2007   

Group Executive Officer, Corporate Vice President

      Apr. 2009   

Representative Director, President of Ricoh Kansai Co., Ltd.

      Oct. 2011   

Corporate Senior Vice President

      Oct. 2011   

Representative Director, President and CEO (Chief Executive Officer) of Ricoh Japan Corporation (Current)

      Oct. 2011   

General Manager of Japan Marketing Group (Current)

      June 2012   

Director (Current)

      June 2012   

Corporate Executive Vice President (Current)

 

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Name

(Date of Birth)

  

Current Position

(Function/Business area)

  

Date

  

Business Experience

Kenichi Kanemaru

(November 19, 1952)

  

Director

   Apr. 1973   

Joined the Company

      June 1999   

President of Ricoh UK Products Ltd.

      June 2004   

Group Executive Officer, Senior Vice President

      Oct. 2004   

Senior Vice President

      Apr. 2006   

General Manager of Imaging System Production Business Group

      Apr. 2008   

Corporate Senior Vice President

      Apr. 2008   

General Manager of Production Business Group

      Feb. 2011   

General Manager of Global Procurement Division (Current)

      June 2013   

Director (Current)

      June 2013   

Corporate Executive Vice President (Current)

      June 2013   

CHO (Chief Human Resource Officer) (Current)

      June 2013   

In charge of Corporate Social Responsibility (Current)

      June 2013   

In charge of environmental management (Current)

Mochio Umeda

(August 30, 1960)

  

Outside Director

   Jan. 1988   

Joined Arthur D. Little (Japan) Inc.

      Oct. 1994   

Director of Arthur D. Little, Inc.

      May 1997   

Founded MUSE Associates, LLC. (U.S.A)

      May 1997   

President of MUSE Associates, LLC. (U.S.A) (Current)

      Aug. 2000   

Founded Pacifica Fund I, LP.

      Aug. 2000   

Managing Director of Pacifica Fund I, LP. (Current)

      June 2010   

Outside Director (Current)

      Mar. 2012   

Outside Director of ASATSU-DK INC. (Current)

      June 2012   

Founded MUSE ASSOCIATES INC.

      June 2012   

President of MUSE ASSOCIATES INC. (Current)

Kunio Noji

(November 17, 1946)

  

Outside Director

   Apr.1969   

Joined KOMATSU LTD.

      June 1997   

Director of KOMATSU LTD.

      June 2001   

Managing Director and President of Production Division and e-Komatsu Technical Center of KOMATSU LTD.

      Apr. 2003   

Director and Senior Executive Officer, President of Construction & Mining Equipment Marketing Division of KOMATSU LTD.

      Apr. 2005   

Supervising Construction & Mining Equipment Business and e-Komatsu technical Center of KOMATSU LTD.

      July 2006   

General Manager of KOMATSU Way Division of KOMATSU LTD

      June 2007   

President and CEO of KOMATSU LTD.

      June 2012   

Outside Director (Current)

      Apr. 2013   

Chairman of the Board of KOMATSU LTD. (Current)

      June 2013   

Outside Director of NEC Corporation (Current)

 

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Name

(Date of Birth)

  

Current Position

(Function/Business area)

  

Date

  

Business Experience

Kunihito Minakawa

(August 15, 1954)

  

Audit & Supervisory Board Member

  

Apr. 1978

Jan. 2008

  

Joined the Company

General Manager of Business Strategy & Planning Center of International Business Group

      Apr. 2009   

General Manager of Finance and Accounting Division

      Jan. 2010   

General Manager of Group Management System Planning Office of Finance and Accounting Division

      Apr. 2010   

Corporate Vice President

      Apr. 2011   

General Manager of CRGP Office

      Apr. 2012   

Corporate Senior Vice President

      June 2013   

Audit & Supervisory Board Member (Current)

Mitsuhiro Shinoda

(November 23, 1953)

  

Audit & Supervisory Board Member

   Apr. 1978   

Joined the Company

      Oct. 2000   

General Manager of Group Management Department of Corporate Planning Division

      Apr. 2001   

General Manager of Audit Office

      June 2003   

General Manager of Finance Department of Finance and Accounting Division

      Nov. 2004   

General Manager of Internal Management & Control Office of Finance and Accounting Division

      Apr. 2007   

General Manager of Internal Management & Control Division

      June 2011   

Audit & Supervisory Board Member (Current)

Takao Yuhara

(June 7, 1946)

  

Outside Audit & Supervisory Board Member

   Apr. 1969   

Joined Nippon Chemical Industrial Co., Ltd.

      May 1971   

Joined SONY CORPORATION

      June 2003   

Corporate Executive Officer and Group CFO (Chief Financial Officer) of SONY CORPORATION

      Dec. 2007   

Managing Executive Officer of ZENSHO CO., LTD. (ZENSHO CO., Ltd. is changed its name to ZENSHO HOLDINGS CO., Ltd. in October. 2011)

      June 2008   

Outside Audit & Supervisory Board Member (Current)

      May 2011   

Managing Director and CFO of ZENSHO CO., LTD.

 

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Name
(Date of Birth)

  

Current Position
(Function/Business area)

  

Date

  

Business Experience

Kimitoshi Yabuki

(August 22, 1956)

  

Outside Audit & Supervisory Board Member

   Apr. 1987   

Qualified as an attorney-at-law in Japan

      Apr. 1987   

Joined Nagashima & Ohno

      Sep. 1991   

Graduated from Columbia Law School, NY (LLM)

      Sep. 1991   

Joined Covington and Burling in Washington DC and Brussels

      May 1996   

Joined Yabuki Law Office (Current)

      Mar. 2000   

Outside Audit & Supervisory Board Member of UPS Japan K.K.

      June 2008   

Outside Director of the Board of Eisai Co., Ltd.,

      June 2013   

Outside Audit & Supervisory Board Member (Current)

Kiyohisa Horie

(March 7, 1948)

  

Substitute Audit & Supervisory Board Member

   Apr.1970   

Joined Horie Morita Audit Office (now: Meiji Audit Corporation)

        

Joined Showa Accounting Office

      Aug.1980   

Registered as Certified Public Accountant

      Mar.1988   

Registered as Tax Accountant

      Apr.1988   

Senior Partner of Meiji Audit Corporation (Current)

      May.1988   

Representative Director of Showa Accounting Office (Current)

      May.1988   

Managing Partner of Meiji Audit Corporation (Current)

      May.1998   

Vice-Chairman & Managing Partner of Meiji Audit Corporation (Current)

Directors and Audit & Supervisory Board Members are elected at a general meeting of shareholders for two and four years terms, respectively, and may serve any number of consecutive terms. The Board of Directors appoints from among its members a Chairman and one or more Representative Directors in accordance with the Corporation Law of Japan.

The Company maintains an executive officer system and under such system there are 28 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.

 

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Executive Officers of the Company as of June 21, 2013 were as follows:

 

Name

  

Current Position

(Function/Business area)

  

Date

  

Business Experience

Shiro Kondo

(October 7, 1949)

  

Chairman and

Chairman of the Board

  

See above for his business experience and other information.

Zenji Miura

(January 5, 1950)

  

President and

Chief Executive Officer

  

See above for his business experience and other information.

Shiro Sasaki

(December 23, 1949)

  

Corporate Executive Vice President

(Chief Marketing Officer)

  

See above for his business experience and other information.

  

(General Manager of Production Printing Business Group)

(General Manager of Trade Affairs & Export/Import Administration Division)

(Chairman and CEO (Chief Executive Officer) of Ricoh Production Print Solutions LLC)

  

Nobuo Inaba

(November 11, 1950)

  

Corporate Executive Vice President

(Chief Information Officer)

(President of Ricoh Institute of Sustainability and Business)

   See above for his business experience and other information.

Yohzoh Matsuura

(April 15, 1956)

  

Corporate Executive Vice President

(General Manager of MFP Business Group)

(General Manager of Research and Development Group)

   See above for his business experience and other information.

Yoshinori Yamashita

(August 22, 1957)

  

Corporate Executive Vice President

(In charge of Internal Management and Control)

(General Manager of Corporate Planning Division)

   See above for his business experience and other information

Kunihiko Satoh

(October 21, 1956)

  

Corporate Executive Vice President

(Representative Director, President and CEO (Chief Executive Officer) of Ricoh Japan Corporation

(General Manager of Japan Marketing Group)

   See above for his business experience and other information

Kenichi Kanemaru

(November 19, 1952)

  

Corporate Executive Vice President

(CHO (Chief Human Resource Officer))

(In charge of Corporate Social Responsibility)

(In charge of environmental management)

(General Manager of Global Procurement Division)

   See above for his business experience and other information

 

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Name

  

Current Position
(Function/Business area)

  

Date

  

Business Experience

Soichi Nagamatsu

  

Corporate Senior Vice President

   July 2004   

Joined the Company

(March 25, 1951)

  

(General Manager of Legal & Intellectual Property Division)

(General Manager of Network Appliance Business Group)

   July 2004   

Deputy General Manager of Research and Development Group

      Apr. 2006   

Corporate Vice President

      Apr. 2006   

General Manager of Research and Development Group

      Apr. 2006   

General Manager of Corporate Technology Planning Division

      Apr. 2007   

General Manager of Office System Development Center of Research and Development Group

      Dec. 2007   

General Manager of Advanced Prototyping Center of Research and Development Group

      Apr. 2008   

General Manager of Corporate Technology Development Group

      Apr. 2008   

General Manager of Office Solution Technology Development Center of Corporate Technology Development Group

      Apr. 2008   

General Manager of Advanced Technology R&D Center of Research and Development Group

      Apr. 2008   

Chairman of Ricoh Software Research Center (Beijing) Co., Ltd.

      Apr. 2009   

General Manager of Corporate Planning Division

      Oct. 2009   

General Manager of New Business Development Center of Corporate Planning Division

      Apr. 2010   

Corporate Senior Vice President (Current)

      Apr. 2011   

General Manager of Network Appliance Business Group (Current)

      Oct. 2011   

General Manager of Eco Solution Division

      Apr. 2012   

General Manager of Eco Solution Center of Network Appliance Business Group

      Apr. 2013   

General Manager of Legal & Intellectual Property Division (Current)

Kenichi Matsubayashi

  

Corporate Senior Vice President

(General Manager of Chemical Technology & Products Business Group)

   Apr. 1971   

Joined the Company

(June 5, 1948)

      Apr. 2001   

Deputy General Manager of RS Products Division of Production Business Group

     

Apr. 2003

  

Deputy General Manager of Procurement Control Center of Production Business Group

     

Oct. 2003

  

General Manager of RS Products Division of Production Business Group

      June 2005   

Corporate Vice President

      Oct. 2008   

Representative Director, President of Yamanashi Electronics Co., Ltd.

      Apr. 2011   

Corporate Senior Vice President (Current)

      Oct. 2012   

General Manager of Chemical Technology & Products Business Group (Current)

 

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Name

  

Current Position

(Function/Business area)

  

Date

  

Business Experience

Hidetsugu Nonaka

   Corporate Senior Vice President    Apr. 1978   

Joined the Company

(December 5, 1953)

  

(General Manager of Global Marketing Group)

   Apr. 2006   

General Manager of Document Solutions & Services Devision

  

(General Manager of China & Emerging Markets Strategy Center of Global Marketing Group)

   Apr. 2009   

Corporate Vice President

      June 2009   

Associate Director

      Apr. 2011   

Deputy General Manager of Global Marketing Group

     

Apr. 2012

Apr. 2012

  

Corporate Senior Vice President (Current)

General Manager of Global Marketing Group (Current)

      Apr. 2012   

General Manager of Service & Support Center of Global Marketing Group

      Apr. 2012   

Chairman of Ricoh China Co., Ltd.

      May 2012   

General Manager of Imaging Product Business Center of Global Marketing Group

      Apr. 2013   

General Manager of China & Emerging Markets Strategy Center of Global Marketing Group (Current)

Katsumi Kurihara

  

Corporate Senior Vice President

(General Manager of Quality of Management Division)

(General Manager of Process Innovation Group)

   Apr. 1978   

Joined the Company

(March 24, 1956)

      Apr. 2006   

General Manager of Engineering Process Innovation Center of MFP Business Group

      Apr. 2007   

Deputy General Manager of Office Business Planning Center

      Apr. 2007   

General Manager of Engineering Process Innovation Center of Office Business Planning Center

      Apr. 2009   

General Manager of Quality of Management Division (Current)

      Apr. 2010   

Corporate Vice President

      Apr. 2011   

General Manager of Quality and Process Innovation Center of Quality Management Division

      Oct. 2011   

Deputy General Manager of Business Process Reengineering Group

      Oct. 2011   

General Manager of Quality and Process Innovation Center of Quality of Management Division

      Apr. 2012   

Corporate Senior Vice President (Current)

      Apr. 2012   

Deputy General Manager of Process Innovation Group

      June 2012   

General Manager of Process Innovation Group (Current)

 

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Name

  

Current Position
(Function/Business area)

  

Date

  

Business Experience

Seiji Sakata

(September 12, 1958)

  

Corporate Senior Vice President

(General Manager of Human Resources Division)

(General Manager of Corporate Sports Promotion Center)

   Apr. 1981   

Joined the Company

      Apr. 2008   

Deputy General Manager of MFP Business Group

      Oct. 2008   

General Manager of 2nd Designing Center of MFP Business Group

      Apr. 2009   

General Manager of Controller Development Division

      Apr. 2010   

Corporate Vice President

      Apr. 2011   

General Manager of Human Resources Division (Current)

      Apr. 2011   

General Manager of General Administration Corporate Strategic Center of Human Resources Division

      Apr. 2011   

Deputy General Manager of Corporate Sports Promotion Center

      Apr. 2012   

Corporate Senior Vice President (Current)

      Oct. 2012   

General Manager of General Administration Strategic Center

      Oct. 2012   

General Manager of Corporate Sports Promotion Center (Current)

Daisuke Segawa

(July 21, 1954)

  

Corporate Senior Vice President

(General Manager of Finance and Accounting Division)

   Mar. 1980   

Joined the Company

      Oct. 2004   

General Manager of Corporate Planning Division

      June 2005   

Corporate Vice President

      Apr. 2006   

General Manager of Finance and Accounting Division

     

July 2008

  

Group Executive Officer, Corporate Vice President

     

Apr. 2009

  

Associate Director

     

May 2009

  

President and CEO (Chief Executive Officer) of InfoPrint Solutions Company, LLC

     

June 2009

  

Group Executive Officer, Corporate Vice President

     

Dec. 2010

  

General Manager of NPPC Preparation Office

     

Apr. 2011

  

Deputy General Manager of Production Printing Business Group

     

Apr. 2011

  

President and COO (Chief Operating Officer) of Ricoh Production Print Solutions, LLC.

     

Apr. 2013

  

Associate Director

     

Apr. 2013

  

Deputy General Manager of Finance and Accounting Division

     

June 2013

  

Corporate Senior Vice President (Current)

     

June 2013

  

General Manager of Finance and Accounting Division (Current)

Masayuki Ishihara

(August 20, 1956)

  

Corporate Senior Vice President

(General Manager of Production Business Group)

(President of RICOH Industry Co., Ltd.)

   Mar. 1979   

Joined the Company

      Apr. 2011   

Deputy General Manager of Production Business Group