-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IWpI2kEw0EWyejwqQgX+xe3LFilYaIRBrbLvG9jZY1/JjjHL+3Bi/2wOShmaO0LV QnawpDn7UAF9ta+ChGbhtg== 0000317891-04-000009.txt : 20040630 0000317891-04-000009.hdr.sgml : 20040630 20040630061229 ACCESSION NUMBER: 0000317891-04-000009 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RICOH CO LTD CENTRAL INDEX KEY: 0000317891 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 000000000 STATE OF INCORPORATION: M0 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 002-68279 FILM NUMBER: 04889973 BUSINESS ADDRESS: STREET 1: 15-5 1-CHOME MINAMI-AOYAMA STREET 2: MINATO-KU CITY: TOKYO 107-8544 JAPAN STATE: M0 ZIP: 00000 MAIL ADDRESS: STREET 1: 15-5 1-CHOME MINAMI-AOYAMA STREET 2: MINATO-KU CITY: TOKYO 107-8544 JAPAN STATE: M0 ZIP: 00000 20-F 1 r20f.txt FORM 20-F SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 20 - F ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2004 -------------- 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) 15-5, Minami-Aoyama 1-chome, Minato-ku, Tokyo 107-8544, Japan ------------------------------------------------------------- (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act. Title of each class Name of each exchange on which registered None None - ---- ---- 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) * 331,043 American Depositary Shares evidenced by American Depositary Receipts, each American Depositary Share representing 5 shares of Common Stock of Ricoh Company, Ltd. Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. Common stock outstanding as of March 31, 2004: 738,894,891 shares (excluding 6,017,187 shares of Treasury Stock) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 [ ] Item 18 [X]. Defined Terms, Conventions and Presentation of Financial Information - -------------------------------------------------------------------- On June 25, 2004, the noon buying rate for cable transfers in New York City as certified for customs purposes by the Federal Reserve Bank of New York for the Japanese Yen to the U.S. Dollar was Yen 107.82 = U.S.$1.00. In this document, the term "Company" refers to Ricoh Company, Ltd., the registrant, and "Ricoh" refers to the Company and its consolidated subsidiaries, unless the context otherwise indicates. Ricoh's fiscal year end is March 31. In this document "fiscal year 2004" refers to Ricoh's fiscal year ended March 31, 2004, and other fiscal years of Ricoh are referred to in a corresponding manner. Cautionary Statement With Respect to Forward-Looking Statements - --------------------------------------------------------------- Statements made in this annual report with respect to Ricoh's current plans, estimates, strategies and beliefs and other statements that are not historical facts are or may be deemed to be forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, about the future performance of Ricoh. These forward-looking statements are made in reliance upon the protections provided by such acts for forward-looking statements. Forward-looking statements include but are not limited to those using words such as "believe," "expect," "plans," "strategy," "prospects," "forecast," "estimate," "project," "anticipate," "may" or "might" and words of similar meaning in connection with a discussion of future operations or financial performance. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management's assumptions and beliefs in light of the information currently available to it. Ricoh cautions you that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward- looking statements, and therefore you should not place undue reliance on them. You also should not rely on any obligation of Ricoh to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Ricoh disclaims any such obligation. Risks and uncertainties that might affect Ricoh include, but are not limited to (i) general economic conditions in Ricoh's markets, particularly levels of consumer spending; (ii) exchange rates, particularly between the Japanese Yen and the U.S. Dollar, the Euro, and other currencies in which Ricoh makes significant sales or in which Ricoh's assets and liabilities are denominated; (iii) Ricoh's ability to continue to design and develop products and services, and win acceptance of its products and services which are offered in highly competitive markets characterized by continual introduction of new products, rapid development in new technology, and consumer preferences that are subjective and likely to change; (iv) Ricoh's ability to successfully implement strategies for its Office Equipment business, such as further globalization of its operations to increase account sales to corporate clients, reinforcement of the color printer lineup to meet growing demand for color products among its office users, implementation of optimal printing solutions for customers' digitally networked offices and enhancement of printing capabilities centered on multi-functional printers ("MFPs"), and implementation of optimal localization of manufacturing operations so that such operations are closer to its customer; (v) Ricoh's ability to continuously devote sufficient resources to research and development, and capital expenditures for digital and networking equipment, such as digital plain paper copiers ("PPCs"), MFPs and laser printers; (vi) the success of Ricoh's alliances with various computer manufacturers which Ricoh may engage in alliances with in the future; and (vii) the outcome of contingencies. Important information regarding risks and uncertainties is also set forth elsewhere in this annual report, including in "Risk Factors" included in "Item 3. Key Information," "Item 4. Information on the Company," "Item 5. Operating and Financial Review and Prospects" and "Item 11. Quantitative and Qualitative Disclosures About Market Risk." TABLE OF CONTENTS PART I Item 1. Identity of Directors, Senior Management and Advisers..................1 Item 2. Offer Statistics and Expected Timetable................................1 Item 3. Key information........................................................1 Item 4. Information on the Company.............................................9 Item 5. Operating and Financial Review and Prospects..........................24 Item 6. Directors, Senior Management and Employees............................61 Item 7. Major Shareholders and Related Party Transactions.....................75 Item 8. Financial Information.................................................76 Item 9. The Offer and Listing.................................................77 Item 10. Additional Information................................................79 Item 11. Quantitative and Qualitative Disclosures About Market Risk............93 Item 12. Description of Securities Other Than Equity Securities................96 PART II Item 13. Defaults, Dividend Arrearages and Delinquencies.......................96 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds...........................................................96 Item 15. Controls and Procedures...............................................96 Item 16. [RESERVED]............................................................96 PART III Item 17. Financial Statements..................................................99 Item 18. Financial Statements..................................................99 Item 19. Exhibits..............................................................99
Item 1. Identity of Directors, Senior Management and Advisers ----------------------------------------------------- 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 has been derived from the audited consolidated financial statements of Ricoh prepared in accordance with accounting principles generally accepted in the United States as of each of the dates and for each of the periods indicated below. This information should be read in conjunction with Ricoh's audited consolidated balance sheets as of March 31, 2003 and 2004, the related consolidated statements of income, shareholders' investment and cash flows for the three years ended March 31, 2002, 2003 and 2004 and the notes thereto that appear elsewhere in this annual report.
Millions of Yen except per share amounts and number of shares Year ended March 31, ---------------------------------------------------------------------- 2000 2001 2002 2003 2004 ----------- ----------- ----------- ----------- ----------- INCOME STATEMENT DATA: Net sales: 1,447,157 1,538,262 1,672,340 1,738,358 1,780,245 Operating income 88,921 105,105 129,695 133,654 150,006 Net income 41,928 53,228 61,614 72,513 91,766 PER AMERICAN DEPOSITARY SHARE: Net income (Basic) 303.05 384.25 441.35 498.95 618.15 Net income (Diluted) 280.30 355.10 412.30 484.05 618.15 BALANCE SHEET DATA: Total Assets 1,543,320 1,704,791 1,832,928 1,884,922 1,852,793 Shareholder's investment 541,506 556,728 633,020 657,514 795,131 Common Stock 103,112 103,434 120,461 135,364 135,364 Weighted Average Number of shares outstanding 691,744,901 692,616,894 698,025,167 726,659,698 742,292,806 Cash dividends declared Per American Depositary Share: Interim 27.50 30.00 30.00 35.00 40.00 ($0.29) ($0.27) ($0.24) ($0.28) ($0.36) Year-end 27.50 30.00 35.00 35.00 50.00 ($0.26) ($0.28) ($0.29) ($0.29) ($0.46)
-1-
Millions of Yen except per share amounts and number of shares Year ended March 31, ---------------------------------------------------------------------- 2000 2001 2002 2003 2004 ----------- ----------- ----------- ----------- ----------- At year-end: Cash and cash equivalents 152,622 107,746 170,172 189,243 203,039 Capital investments 58,356 73,329 75,676 73,956 75,507 Long-term indebtedness 307,962 217,743 332,995 345,902 281,570
Notes: 1. Each American Depositary Share represents five shares of Ricoh Common Stock. 2. Long-term indebtedness includes convertible bonds and debentures. (See Note 10 to the Consolidated Financial Statements.) In the preceding table, cash dividends declared in U.S. Dollars are based on the exchange rates at each respective payment date, using the noon buying rates for cable transfer in Japanese Yen in New York City as certified for customs purposes by the Federal Reserve Bank of New York. On June 25, 2004, the noon buying rate for cable transfers in New York City as certified for customs purposes by the Federal Reserve Bank of New York for the Japanese Yen to the U.S. Dollar was Yen 107.82 = U.S.$1.00. The following table sets forth the exchange rates for the Japanese Yen and the U.S. Dollar based on the noon buying rate for cable transfers in Japanese Yen in New York City as certified for customs purposes by the Federal Reserve Bank of New York during the previous six months and prior five fiscal years: December January February March April May 2003 2004 2004 2004 2004 2004 -------- ------- -------- ------ ------ ------ High 106.93 105.52 105.36 104.18 103.70 108.50 Low 109.61 107.17 109.59 112.12 110.37 114.30 Year ended March 31, ------------------------------------------ 2000 2001 2002 2003 2004 ------ ------ ------ ------ ------ Year-end 102.73 125.54 132.70 118.07 104.18 Average* 109.96 111.65 125.64 121.10 112.75 High 101.53 104.19 115.89 115.71 104.18 Low 124.45 125.54 134.77 133.40 120.55 *The average Japanese Yen exchange rates represent average noon buying rate on the last business day of each month during the respective period. -2- B. Capitalization and indebtedness. Not applicable. C. Reasons for the offer and use of proceeds. Not applicable. D. Risk factors. Ricoh is a global manufacturer of office equipment and conducts business on a global scale. As such, Ricoh is exposed to various risks which include the risks listed below. Although certain risks that may affect Ricoh's businesses are listed in this section, this list is not exhaustive. Ricoh's business may in the future also be affected by other risks that are currently unknown or that are not currently considered significant or material. In addition, this section contains forward-looking statements that are subject to the "Cautionary Statement with Respect to Forward-Looking Statements" appearing elsewhere in this annual report. RICOH'S SUCCESS WILL DEPEND ON ITS ABILITY TO RESPOND TO RAPID TECHNOLOGICAL CHANGES IN THE DOCUMENT IMAGING AND MANAGEMENT INDUSTRY The document imaging and management industry includes products such as copiers, printers, facsimile machines and scanners. The technology used in this industry changes rapidly and products in this industry will often require frequent and timely product enhancements or have a short product life cycle. Most of Ricoh's products are a part of this industry and as such Ricoh's success will depend on its ability to respond to such technological changes in the industry. To remain competitive in this industry, Ricoh invests a significant amount of resources and capital every year in research and development activities. Despite this investment, the process of developing new products or technologies is inherently complex and uncertain and there are a number of risks that Ricoh is subject to, including the following: . No assurances can be made that Ricoh will successfully anticipate whether its products or technologies will satisfy its customers' needs or gain market acceptance; . No assurances can be made that the introduction of more advanced products that also possess the capabilities of existing products will not adversely affect the sales performance of each such product; . No assurances can be made that Ricoh will be able to procure raw materials and parts necessary for new products or technologies from its suppliers at competitive prices; . No assurances can be made that Ricoh will be able to successfully manage the distribution system for its new products to eliminate the risk of loss resulting from a failure to take advantage of market opportunities; -3- . No assurances can be made that Ricoh will succeed in marketing any newly developed product or technology; and . No assurances can be given that Ricoh will be able to respond adequately to changes in the industry. Ricoh's failure to respond to any risks associated with this industry, including those described above, may reduce Ricoh's future growth and profitability and may adversely affect Ricoh's financial results and condition. In addition to the above general risks, Ricoh is exposed to the following specific risks relating to the document imaging and management industry: Digital Technology ------------------ Among the various technologies used in the document imaging and management industry, Ricoh believes the successful development of digital technology is one of the most essential factors in attaining a competitive advantage. Ricoh currently is a leader in digital technology and believes that the importance of digital technology used in office equipment, including copiers, printers, facsimiles and scanners, will continue to grow in the future. While most of Ricoh's PPCs sold in Japan and the majority of PPCs sold overseas are already digital, Ricoh believes that the digital technology used in connection with digital copiers and other digital products will continue to develop and that competition with respect to digital products will intensify. There is no assurance that Ricoh will continue to be in the forefront of digital technology despite its commitment to invest in research and development activities in this area. Failure of Ricoh to adequately develop digital technology may adversely affect Ricoh's financial results and condition. Multi-Functional Equipment -------------------------- Ricoh believes that the document imaging and management industry is moving towards a multi-functional office environment where various office equipment (including copiers, facsimile machines, computers, printers and scanners) become more interdependent on each other due to the increasing use of digital technology and initiatives taken by many offices to eventually become a "paperless office." As a result, certain existing office equipment may either be consolidated into a multi-functional equipment or may be linked together electronically to perform various office functions. Although Ricoh already manufactures certain multi-functional equipment, as a result of this trend towards multi-functional equipment, some of Ricoh's products may become obsolete while other products may require substantial product enhancements, requiring technologies currently unavailable within Ricoh. No assurances can be made that Ricoh will be able to successfully adjust to such changes. RICOH MUST SUCCESSFULLY OPERATE IN HIGHLY COMPETITIVE MARKETS The document imaging and management industry, including the copier industry, is intensely competitive. Ricoh expects to face increased competition in the various markets in which it operates. Currently, Ricoh's competitors include other large -4- manufacturers and distributors of office equipment as well as office superstores and consumer electronics chains. In addition, as digital and other new technology develops and as new office equipment products using these newly developed technologies gain increased market acceptance, Ricoh may find itself competing with new competitors that develop such new technologies, including computer software and hardware manufacturers and distributors. Accordingly, it is possible that new competitors or alliances among existing and new competitors may emerge and rapidly acquire significant market share. While Ricoh believes it is a leading manufacturer and distributor in the document imaging and management industry and it intends to maintain its position, no assurances can be made that it will continue to compete effectively in the future. Pricing pressures or loss of potential customers resulting from Ricoh's failure to compete effectively may adversely affect Ricoh's financial results and condition. RICOH IS SUBJECT TO THE RISKS OF INTERNATIONAL OPERATIONS AND THE RISKS OF OVERSEAS EXPANSION A substantial portion of Ricoh's manufacturing and marketing activity is conducted outside of Japan, including in the United States, Europe, and in developing and emerging markets such as China. There are a number of risks inherent in doing business in such overseas markets, including the following: . unexpected legal or regulatory changes; . unfavorable political or economical factors; . less developed infrastructure; . difficulties in recruiting and retaining personnel, and managing international operations; . fluctuations in foreign currency exchange rates; . lack of sufficient protection for intellectual property rights; and . potentially adverse tax consequences. Ricoh's inability to manage successfully the risks inherent in its international activities could adversely affect its business, financial condition and operating results. In addition, while Ricoh plans to continue to expand its business worldwide and increase overseas sales, because of the risks associated with conducting an international operation (including the risks listed above), there can be no assurances that Ricoh's overseas expansion will be successful or have a positive effect on Ricoh's financial results and condition. ECONOMIC TRENDS IN RICOH'S MAJOR MARKETS MAY ADVERSELY AFFECT RICOH'S SALES Demand for Ricoh's products are affected by cyclical changes in the economy of Ricoh's major markets, including Japan, the United States and Europe. Economic downturns and declines in consumption in Ricoh's major markets may adversely affect Ricoh's financial results and condition. -5- FOREIGN EXCHANGE FLUCTUATIONS AFFECT RICOH'S RESULTS Local currency-denominated financial results in each of the Company's subsidiaries around the world are translated into Japanese Yen by applying the average market rate during each financial period and recorded on Ricoh's consolidated profit and loss statement. Local currency-denominated assets and liabilities are translated into Japanese Yen by applying the market rate at the end of each financial period and recorded on Ricoh's consolidated balance sheets. Accordingly, the financial results, assets and liabilities are subject to foreign exchange fluctuations. In addition, operating profits and losses are highly sensitive to the appreciation in the value of Japanese Yen because the high volume of Ricoh's production and sales activities in the Americas, Europe and Other, such as China, result in a large proportion of revenues and costs denominated in local currencies. Although Ricoh engages in hedging transactions such as forward contracts with several financial institutions having credit ratings satisfactory to Ricoh to minimize the negative effects of short-term fluctuations in foreign exchange rates among major currencies such as the U.S. Dollar, Euro and Japanese Yen, mid-to-long-term volatile changes in the exchange rate levels make it difficult for Ricoh to execute planned procurement, production, logistics, and sales activities and may adversely affect Ricoh's financial results and condition. RISKS ASSOCIATED WITH RICOH'S EQUIPMENT FINANCING BUSINESS MAY ADVERSELY AFFECT RICOH'S FINANCIAL CONDITION Ricoh provides financing to some of its customers in connection with its equipment sales and leases. Ricoh evaluates the creditworthiness and the amount of credit extended to a customer prior to the financing arrangement and during the financing term on a regular basis. Depending on such evaluations, Ricoh makes adjustments to such extensions of credit as it deems necessary to minimize any potential risks of concentrating credit risk or non-payment of credit. Despite the application of these monitoring procedures, no assurances can be made that Ricoh will be able to fully collect on such extensions of credit due to unforeseeable defaults by its customers. In addition, these financing arrangements that Ricoh enters into with its customers result in long-term receivables bearing a fixed rate of interest. However, Ricoh finances these financing arrangements primarily with short-term borrowings subject to a variable interest rate. Although Ricoh engages in hedging activities, Ricoh is not able to fully hedge this interest rate mismatch. If Ricoh is unable to successfully manage these risks associated with its equipment financing business, Ricoh's financial results and condition may be adversely affected. RICOH IS SUBJECT TO GOVERNMENT REGULATION THAT CAN LIMIT ITS ACTIVITIES OR INCREASE ITS COST OF OPERATIONS Ricoh is subject to various governmental regulations and approval procedures in the countries in which it operates. For example, Ricoh may be required to obtain -6- approvals for its business and investment plans, be subject to export regulations and tariffs, as well as rules and regulations relating to commerce, antitrust, patent, consumer and business taxation, exchange control, and environmental and recycling laws. Ricoh has established the Corporate Social Responsibility Office to heighten awareness of the importance of corporate social responsibility. Through this office, Ricoh involves its employees in various activities designed to ensure compliance with applicable regulations as part of its overall risk management and compliance program. However, if Ricoh is unable to comply with any of these regulations or fails to obtain the requisite approvals, Ricoh's activities in such countries may be restricted. In addition, even if Ricoh is able to comply with these regulations, compliance can result in increased costs. In either event, Ricoh's financial results and condition may be adversely affected. RICOH MAY BE ADVERSELY AFFECTED BY ITS EMPLOYEE BENEFIT OBLIGATIONS With respect to its employee benefit obligations and plan assets, Ricoh accrues the cost of such benefits based on applicable accounting policies and funds such benefits in accordance with governmental regulations. Currently, there is no immediate and significant funding requirement; however, if returns from investment assets decrease due to unforeseeable market conditions, such as the fluctuations in the stock or bond markets, additional funding and accruals may be required. Such additional funding and accruals may adversely affect Ricoh's financial position and results of operation. RICOH IS DEPENDENT ON SECURING AND RETAINING SPECIALLY SKILLED PERSONNEL Ricoh believes that it can continue to remain competitive by securing and retaining additional personnel who are highly skilled in the fields of management and information technology. However, the number of skilled personnel is limited and the competition for attracting and retaining such personnel is intense, particularly in the information technology industry. Securing and retaining skilled personnel in the information technology industry is especially important for Ricoh to compete effectively with its competitors as expectations and market standards for office equipment become more technologically advanced. Ricoh cannot assure that it will be able to successfully secure and retain additional skilled personnel. RICOH'S OPERATIONS ARE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS Ricoh's operations are subject to many environmental laws and regulations governing, among other things, air emissions, wastewater discharges, the use and handling of hazardous substances, waste disposal, product recycling, and soil and ground-water contamination. Ricoh faces risks of environmental liability in our current and historical manufacturing activities. Costs associated with future additional environmental compliance or remediation obligations could adversely affect Ricoh's business, operating results, and financial condition. RICOH'S PERFORMANCE CAN BE AFFECTED BY ALLIANCES WITH OTHER ENTITIES Ricoh engages in alliances with other entities to create various products and services for customers' demand. Ricoh believes that an alliance is an effective method -7- for timely development of new technology and products using management resources of both parties. However, if Ricoh's interest differs from other parties' interests due to financial or other reasons, Ricoh may be unable to maintain the alliance. Failure to maintain an on-going alliance and failure to establish necessary alliance in the future may adversely affect Ricoh's financial position and results of operation. RICOH MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD SIGNIFICANTLY AFFECT ITS FINANCIAL CONDITION Ricoh may be held responsible for any defects that occur with respect to its products and services. Based on the defect, Ricoh may be liable for significant damages, which may adversely affect its financial results and condition. Furthermore, as Ricoh increasingly provides products and services utilizing sophisticated and complex technologies, such defects may occur more frequently. Such potential increase in defects, which could result in an increase in Ricoh's liability, may adversely affect its financial results and condition. In addition, negative publicity concerning these defects could make it more difficult for Ricoh to attract and maintain customers to purchase Ricoh products and services. As a result, Ricoh's financial results and condition may be adversely affected. RICOH'S BUSINESS DEPENDS ON PROTECTING ITS INTELLECTUAL PROPERTY RIGHTS Ricoh owns or licenses a number of intellectual property rights in the field of office equipment automation and, when Ricoh believes it is necessary or desirable, obtains additional licenses for the use of other parties' intellectual property rights. If Ricoh fails to protect, maintain or obtain such rights, its performance and ability to compete may be adversely affected. Ricoh has a program in place under which company employees are compensated for any valuable intellectual property rights arising out of any inventions developed by them during the course of their employment with Ricoh. While unlikely, management believes that there could arise instances in the future where Ricoh may become the subject of legal actions or proceedings where claims alleging inadequate compensation are asserted by company employees. RICOH MAY SUFFER LOSS AS A RESULT OF CATASTROPHIC DISASTER, INFORMATION TECHNOLOGY PROBLEMS OR INFECTIOUS DISEASES Several of Ricoh's manufacturing facilities in Japan could be subject to a catastrophic loss caused by earthquakes as such facilities are located in areas with above average seismic activity. If any of these facilities were to experience a catastrophic loss, Ricoh could experience disruptions in its operations and delays in its production and shipments. If such occurred, Ricoh is likely to record a decrease in revenue, and require large expenditures to repair or replace the damaged facility, which could affect Ricoh's financial results and condition. As Ricoh becomes increasingly dependent on information technology, software and hardware defects, computer viruses, as well as internal database problems ( E.G., leaks and falsifications or disappearance of information relating to our customers) pose a -8- greater risk to its operations. Although Ricoh has taken various precautionary measures, such as installing firewalls and anti-virus software to detect and eliminate computer viruses, Ricoh may not be able to completely prevent or mitigate the effects of such problems, which may affect Ricoh's performance. In addition, the Ricoh Group is continually expanding its worldwide operations to set in place a global supply chain of its products and services so that we can satisfy our local customer needs faster, more effectively and on a regular basis. As Ricoh expands our operations worldwide, additional risks, such as infectious diseases and epidemics, may adversely affect Ricoh's operations and financial positions. Item 4. Information on the Company -------------------------- A. History and Development of the Company The Company was originally incorporated as a joint stock corporation (KABUSHIKI KAISHA) on February 6, 1936 in accordance with Japanese law under the name Riken Kankoshi Co., Ltd. as a manufacturer and distributor of sensitized paper for use in copiers. Since its incorporation, Ricoh has expanded its business into related businesses in the office equipment field. It now manufactures and markets copiers, facsimile machines, MFPs, printers, optical drives and discs, personal computers and servers, network related software and other equipment, including semiconductors, metering instruments, educational equipment and cameras. Historical highlights --------------------- February 1936 Riken Kankoshi Co., Ltd. is formed in Kita-kyushu to manufacture and market sensitized paper. March 1938 The Company's name is changed to Riken Optical Co., Ltd., and starts manufacturing and selling optical devices and equipment. May 1949 The Company lists its securities on the Tokyo and Osaka Stock Exchanges. April 1954 The Company establishes an optical device and equipment plant in Ohmori, Ohta-ku, Tokyo (now known as the Ohmori plant). May 1955 The Company begins manufacturing and selling desktop copiers. April 1960 The Company starts operations at a paper plant in Numazu, Shizuoka, which integrates everything from raw to sensitized paper production (now known as the Numazu plant). March 1961 The Company establishes a sensitized paper plant in Ikeda, Osaka (now known as the Osaka plant). October 1961 The Company lists its securities on the First Sections of the Tokyo and Osaka Stock Exchanges. February 1963 The Company establishes Ricoh of America, Inc. (a subsidiary, now known as Ricoh Corporation). -9- April 1963 The Company changes its corporate name to Ricoh Company, Ltd. July 1967 The Company establishes Tohoku Ricoh Co., Ltd. (a subsidiary) in Shibata-gun, Miyagi. March 1971 The Company completes its manufacturing facility in Atsugi, Kanagawa (now known as the Atsugi plant), to which it transfers some of its office equipment production from the Ohmori plant. November 1971 The Company establishes Ricoh Nederland B.V. (a subsidiary, now known as Ricoh Europe B.V.). January 1973 The Company establishes Ricoh Electronics, Inc. (a subsidiary) in the United States. September 1973 The Company lists its securities on the Amsterdam Stock Exchange. December 1976 The Company forms Ricoh Leasing Co., Ltd. (a subsidiary). March 1977 The Company relocates its headquarters to Minato-ku, Tokyo. July 1978 The Company lists its securities on the Frankfurt Stock Exchange. December 1978 The Company establishes Ricoh Business Machines, Ltd. (a subsidiary, now known as Ricoh Hong Kong Ltd.). March 1981 The Company constructs the Electronic Technologies Development Center (now known as the Ikeda plant) to develop and manufacture electronic devices. October 1981 The Company lists its securities on the Paris Stock Exchange. May 1982 The Company establishes a copier manufacturing facility in Fukui (now known as the Fukui plant), which takes over some of the sensitized paper production from the Osaka plant. October 1983 The Company launches its information technology equipment facility in Hatano, Kanagawa (now known as the Hatano plant). December 1983 The Company establishes Ricoh UK Products Ltd. (a subsidiary). October 1985 The Company builds a copier manufacturing plant in Gotenba, Shizuoka (now known as the Gotenba plant), which takes over some of the Atsugi plant's production. April 1986 The Company opens a research and development facility in Yokohama, Kanagawa (now known as the Ricoh Research and Development Center), to which it transfers some of its research and development operations from the Ohmori plant. April 1987 The Company establishes Ricoh Industrie France S.A. (a subsidiary, now known as Ricoh Industrie France S.A.S.). April 1989 The Company sets up an electronic devices facility in Yashiro-cho, Kato-gun, Hyogo (now known as the Yashiro plant). -10- January 1991 The Company establishes Ricoh Asia Industry (Shenzhen) Ltd. (a subsidiary) in China. March 1995 Ricoh Corporation acquires Savin Corporation, an American office equipment sales company. September 1995 The Company acquires Gestetner Holdings PLC (now known as NRG Group PLC), a British office equipment sales company. January 1996 Ricoh Leasing Co., Ltd. lists its securities on the Second Section of the Tokyo Stock Exchange (currently listed on the First Section of the Tokyo Stock Exchange). December 1996 The Company establishes Ricoh Asia Pacific Pte. Ltd. (a subsidiary) in Singapore. March 1997 The Company establishes Ricoh Silicon Valley, Inc. (now known as Ricoh Innovations, Inc.) in the United States. August 1999 Ricoh Hong Kong Ltd. acquires Inchcape NRG Ltd., a Hong Kong-based office equipment sales company. March 2000 Tohoku Ricoh Co., Ltd. lists its securities on the Second Section of the Tokyo Stock Exchange. January 2001 Ricoh Corporation acquires Lanier Worldwide, Inc., an American office equipment sales company. October 2002 The Company establishes Ricoh China Co., Ltd. (a subsidiary). April 2003 Tohoku Ricoh Co., Ltd. becomes a wholly-owned subsidiary of the Company. Our registered office and head office are as follows: Address Telephone number --------------------------------------- ---------------- Registered Head 3-6 Naka Magome 1-chome, Ohta-ku, +81-3-3777-8111 office Tokyo 143-8555, Japan Executive office 15-5, Minami Aoyama 1-chome, Minato-ku, +81-3-3479-3111 Tokyo 107-8544, Japan Principal Capital Investments ----------------------------- Ricoh's capital expenditures for the fiscal years 2004, 2003 and 2002 were Yen 75.5 billion, Yen 73.9 billion and Yen 75.6 billion, respectively. Ricoh directs a significant portion of its capital expenditures towards digital and networking equipment, such as digital plain paper copiers ("PPCs"), multi-functional printers ("MFPs") and laser printers, and manufacturing facilities to maintain or enhance competitiveness in the industry. In fiscal year 2004, Ricoh also invested a significant amount of capital to upgrade its information systems for its back-office operations, such as procurement, accounting, and the management of intellectual property. With this upgrade in the information systems, -11- Ricoh began installing a new accounting system and a new intellectual property management system during the fiscal year 2003 to better track and manage its operations. Ricoh projects that for the fiscal year ending March 31, 2005 its capital expenditures will amount to approximately Yen 74.5 billion, principally for the following categories: digital and networking equipment, and new accounting and intellectual property management systems. B. Business overview Ricoh is a leading manufacturer of office automation equipment. Ricoh's products include copiers, printers, facsimile machines, optical drives and discs, and related supplies and services. Ricoh is also a prominent manufacturer of digital and advanced electronic devices. In recent years, Ricoh is rapidly building a solid presence worldwide as a comprehensive document solutions provider that helps its customers streamline their businesses and cut operating costs. PRODUCTS - -------- SALES BY PRODUCT
- -------------------------------------------------------------------------------------------- Millions of Yen (except for percentages) For the Year Ended March 31, - -------------------------------------------------------------------------------------------- 2002 2003 2004 ---------------------------------------------------------- OFFICE EQUIPMENT Imaging Solutions 934,180 55.8% 859,713 49.5% 803,574 45.1% Network Input/Output Systems 344,247 20.6 463,379 26.7 558,237 31.4 Network System Solutions 206,962 12.4 197,482 11.3 195,822 11.0 OTHER BUSINESSES 186,951 11.2 217,784 12.5 222,612 12.5 - -------------------------------------------------------------------------------------------- Total 1,672,340 100.0% 1,738,358 100.0% 1,780,245 100.0% - --------------------------------------------------------------------------------------------
OFFICE EQUIPMENT - ---------------- This segment consists of products that are widely used in the office environment, and is categorized as follows: (1) Imaging Solutions The primary function of products in this category is to produce copies or duplications of images that are already in existence. This product category consists of stand-alone equipment and related supplies and services. Products in this category can be distinguished from products in the Network Input/Output Systems category which can serve multiple functions with networking capabilities (E.G., MFPs that can serve as printers and scanners). -12- This category is further separated into two sub-categories: (i) Digital Imaging Solutions, which consist of all digital imaging solutions products, and (ii) Other Imaging Solutions, which consist of other imaging solutions products that are not included in Digital Imaging Solutions. The principal products in each of these sub-categories are as follows: Digital Imaging Solutions: Monochrome and color digital copiers, digital ------------------------- duplicators and facsimile machines. Other Imaging Solutions: Analog plain paper copiers ("PPCs"), diazo ----------------------- copiers, and thermal paper. In fiscal year 2004, the Imaging Solutions product category accounted for 45.1% of Ricoh's net sales. Ricoh has been a global leader in PPCs and a pioneer in the development of digital machines. Ricoh manufactures a wide range of PPCs and digital copiers with a variety of copying speeds and functions such as double-sided printing, sorting, reducing and enlarging, and zoom adjustment of copy sizes. PPCs use a drum or other medium coated with a photo conductive material on which an image of the original document is projected optically and developed by applying a dry powder form toner. In recent years, Ricoh has strengthened its digital PPC product lineup with new product offerings that range from standard digital PPC models to high-end digital PPC models. More specifically, the imagio Neo 752 series is a high-speed model designed for customers who require outputs of 75 copies per minute. This series is equipped with "HYBRID QSU" technology that Ricoh developed originally in the application of the next generation electric storage device "Capacitor", and realized the most efficient energy saving in this class. On the other hand, the Aficio 2105 (imagio Neo 1050 pro in Japan) is designed for customers who have high-volume copying needs. The Aficio 2105 delivers up to 105 copies per minute and has a durability of 1.5 times more than its predecessor for an even better resolution. As such, the Aficio 2105 is performing well in the overseas markets. Ricoh also supplies a comprehensive line of wide-format copiers and duplicators. These machines have also sold well for their digital capabilities. With respect to facsimile equipment, Ricoh marketed the world's first high-speed facsimile equipment in 1973 with a transmission speed of one minute per page. Since then, Ricoh has been manufacturing various high-speed facsimile machines, including compact, low-priced models that feature multiple functions (such as copying capabilities) and higher memory capacities. The market for facsimile machines continues to mature, with demand shifting to small and home offices seeking low-cost models. Corporate users tend to prefer multifunctional, networkable machines and printers. In addition, corporate users also are moving towards electronic forms of transmitting images using portable document formats that were not widely used or available in the past. -13- (2) Network Input/Output Systems The primary function of products in this category is to print or produce images using a network. This category includes products such as MFPs, laser printers and optical disks. This category is further separated into two sub-categories: (i) Printing Systems, which consist of all printer and related products and (ii) Other Input/Output Systems, which consist of other products that are not included in Printing Systems. The principal products in each of these sub-categories are as follows: Printing Systems: MFPs, laser printers, and related software. ---------------- Other Input/Output Systems: Optical discs and systems, and scanners. -------------------------- In fiscal year 2004, the Network Input/Output Systems product category accounted for 31.4% of Ricoh's net sales. Ricoh continues to strengthen its capabilities in color laser printers and mid- and high-volume or high-speed printers that can be connected to a network to meet its customer needs in the office environment. In fiscal 2004, Ricoh had the strong sales growth in these printer categories as it greatly broadened its product lineup in this category, reinforced its sales structure and expanded its marketing activities. In terms of MFPs, imagio Neo 352/452 and imagio Neo C385/C325, which were well received in Japan, are equipped with enhanced communications functions such as "Scan to e-mail" (the function which enables users to send scanned images directly to users without a mail server), "W-net fax function" (the function which enables users to fax through the internet and decrease communication costs), and the same is true for Aficio 2035/2045 and Aficio 1224C/1232C in overseas markets. Sales of laser printers are also on increasing, with the IPSiO NX85S and IPSiO CX7200 performing favorably in the domestic market, and the AP400/400N and Aficio CL3000 moving well overseas. These MFPs and laser printers are designed to provide information technology support for all types of office environment by delivering enhanced basic features (i.e., reduction, enlargements, etc.), simpler operation, reduced paper consumption through electronic storage, and better connectivity with document distribution and storage systems. As the office environment becomes more computer-networked to maximize efficiency, demand for digital black-and-white copiers and digital color copiers has been rapidly increasing. Ricoh offers a full line of PC-connective models that draw on our expertise in digital and color technologies to respond to customer demand, which also continues to shift towards increased printing speed, networking capabilities, decrease in the total costs of ownership, and enhancements to raise office productivity. Overseas, Ricoh has rapidly forged a solid position in digital copier sales by releasing many new models under the Aficio brand. In addition, Ricoh has placed significant focus on CD and DVD-related technologies for storing multimedia data in recent years. Ricoh helped establish the global standard for CD-RW drives and discs and is a major player in both of these areas worldwide. For the fiscal year 2004, Ricoh produced the MP5308D drive, which can -14- handle DVD-ROM, DVD-R, DVD-RW, DVD+R and DVD+RW. Ricoh also produced 8 times speed DVD+R media which is the fastest DVD recordable media. (3) Network System Solutions The primary function of products in this category is to assist in establishing a network environment. The principal products in this category include personal computers and servers, network systems, application software, and related services and support. For fiscal year 2004, this product category accounted for 11.0% of Ricoh's net sales. Although Ricoh has enjoyed steady growth in its document solutions software and support services, which allow customers to seamlessly manage electronic and paper-based information, in recent years Ricoh sales in personal computers and servers have decreased due to constrained corporate spending on information technology in Japan as a result of the uncertain economy condition. OTHER BUSINESSES - ---------------- This segment, which accounted for 12.5% of Ricoh's net sales in fiscal year 2004, includes electronic semiconductor devices, optical equipment, such as digital cameras, and measuring equipment. In addition, Ricoh includes its financing and logistics services in this segment. Ricoh is one of the pioneers of commercializing digital cameras, which have tremendous potential as "image capturing devices." Because of its potential as an input tool, Ricoh expects that sales in digital cameras will continuously grow. In addition, Ricoh offers a wide range of electronic devices used to process images, such as mobile and cellular phones. Ricoh also makes application specific integrated circuits (ASICs) and application specific standard products (ASSPs) that are often used in digital copiers, printers, personal computers and mobile phones. SALES AND DISTRIBUTION - ---------------------- Ricoh's distribution to end-user customers in Japan is conducted through three distribution channels: (1) direct sales by Ricoh to the end-user customer through approximately 50 subsidiaries and affiliates; (2) sales through independent office machine dealers; and (3) sales through independent stationery wholesalers, which in turn sell Ricoh's copiers to stationery retailers. Ricoh estimates that over one-half of its unit sales of copiers in Japan are through direct sales to the end-user customer, with the balance being divided between sales through independent office machine dealers and independent stationery wholesalers. These sales channels are coordinated by Ricoh's five regional headquarters located in Tohoku, Chubu, Kansai, Chugoku and Kyushu areas and the Company's three regional branch offices. Ricoh's overseas marketing activities can be distinguished from the marketing channels in Japan and can be classified into two classes: (1) sales of Ricoh brand name products by overseas sales subsidiaries, affiliates and independent dealers, and (2) sales -15- of products under brand names which Ricoh purchased by acquisition (e.g., "Savin" brand, "Gestetner" brand, "Lanier" brand). The successful acquisition of several office equipment sales companies in the 1990's in various locations around the world has enhanced Ricoh's own marketing channel in the overseas market. Ricoh has organized sales and distribution channels to accommodate four operating regions outside of Japan: (1) the Americas; (2) Europe, Africa, and the Middle East; (3) Asia and Oceania; and (4) China. Ricoh recognizes revenue for sales upon equipment delivery and installation to the end-user customers. A certain portion of Ricoh's sales through dealers are made on a trade-in basis, which are accounted for by Ricoh as discounted sales. Equipment sales revenue generated under sales-type leases accounts for approximately 15% of Ricoh's total sales revenues. Important information regarding the methods in which Ricoh recognizes revenue is also set forth in Item 5. Critical Accounting Policies and Note 2 to the Consolidated Financial Statements which are a part of this annual report. AFTER-SALES SERVICE - ------------------- Ricoh offers maintenance and repair services for all of its products. Ricoh believes that periodic and timely maintenance services are important for Ricoh to keep its market shares. As such, Ricoh provides repair and maintenance services to its end-user customers for its products. These maintenance services are furnished to its customers pursuant to maintenance service contracts normally entered into at the time the equipment is sold. In Japan, employees of Ricoh basically provide the repair and maintenance services. Ricoh's service network in Japan includes service centers operated by Ricoh and its affiliates and service outlets operated by other companies. Recently, Ricoh began building nationwide capabilities for the Customer Support System to enhance customer satisfaction and service efficiency. This system allows Ricoh to remotely monitor copiers in the field and provide immediate service. Ricoh's total number of sales and service personnel in Japan is approximately 23,000. Similar to Japan, Ricoh employees and contracted maintenance providers provide repair and maintenance services to end-user customers who own Ricoh products in the overseas market. Overseas, Ricoh provides services through its own service network and service outlets. Ricoh's total number of sales and service personnel overseas is approximately 21,000. Additional information regarding how Ricoh accounts for after-sales services is set forth in Item 5. Critical Accounting Policies and Note 2 to the Consolidated Financial Statements which are a part of this annual report. PRINCIPAL MARKETS - ----------------- Ricoh distributes its products and competes in the following four geographic areas: Japan, the Americas, Europe and Other. In the aggregate, Ricoh's sales expanded in fiscal year 2004. As noted below, for the fiscal year 2004, sales in Japan, the Americas, Europe and Other as a percentage of total sales was 51.3%, 18.3%, 22.6% and -16- 7.8%, respectively. The below table breaks down for each geographic area the total sales amount and percentage of such sales amount as compared against total net sales for the last three fiscal years. SALES BY GEOGRAPHIC AREA - -------------------------------------------------------------------------------- Millions of Yen (except for percentages to net sales) For the Year Ended March 31, - -------------------------------------------------------------------------------- 2002 2003 2004 ---------------------------------------------------------- JAPAN 902,655 54.0% 896,022 51.5% 914,060 51.3% THE AMERICAS 341,747 20.4 343,940 19.8 326,380 18.3 EUROPE 311,312 18.6 354,477 20.4 402,392 22.6 OTHER 116,626 7.0 143,919 8.3 137,413 7.8 - ------------------------------------------------------------------------------ Total 1,672,340 100.0% 1,738,358 100.0% 1,780,245 100.0% - ------------------------------------------------------------------------------ Note: Sales amounts set forth in the above table are based on the location of the purchaser of the product. For example, if the product is manufactured in Japan and sold to a purchaser located in the United States, such sale would be recorded as a sale in the Americas geographic segment. (1) Japan As the outlook for the Japanese economy remains unstable, many companies have limited their information technology spending. In order to succeed in such a severe environment, Ricoh strategically replaced its analog stand-alone equipment with digital networkable equipment, and its monochrome products with color products. Another strategy used by Ricoh was to help customers manage the total document volume more effectively and offer business solutions with more functional equipment and networking systems so as to increase efficiency in the office. As a result of these strategies, the sale of certain products, such as MFPs, color PPCs and color laser printers, increased despite the difficult economic conditions. (2) The Americas In fiscal year 2004, Ricoh further broadened and reinforced its sales network, especially in North America, against a background of a slowing U.S. economy and severe competition. The Company stepped up its sales efforts for new printing systems to match customer demand to replace analog equipment with networked digital products, color copiers and printers. The Company also strove to expand sales to major corporate accounts. Further, Ricoh continues to strengthen its marketing efforts to major corporate clients in this geographic segment by taking advantage of Ricoh's worldwide production and distribution network, and high-quality products. As a result of the above effort of Ricoh, net sales in the local currency increased by 2.1%. However, net sales denominated in the Japanese Yen decreased by 5.1% due to the appreciation of the Japanese Yen to the U.S. Dollar. -17- (3) Europe With economic conditions in Europe remaining relatively stable, sales of digital PPCs and printing systems increased as Ricoh continued in its efforts to introduce new products in such product lines. Ricoh also strengthened its sales network by continuously reinforcing its office equipment product offerings so that customers may fulfill their office equipment needs through Ricoh. Further, Ricoh maximized its business opportunity by increasing sales in networked digital PPCs and color models, especially color MFPs, since these products are able to satisfy many customer needs and bring about profit to Ricoh. All of these efforts helped Ricoh maintain its top share position in the European market for copiers and MFPs for fiscal year 2004. Ricoh intends to solidify this position with reinforcement to the above strategies. (4) Other In China and other Asian or Oceania markets, a continuing shift during fiscal year 2004 in business equipment from analog models to digital networked and color models led to increased sales of printing systems, while demand for optical discs business decreased. Because the Chinese market is expected to continue its expansion, Ricoh has placed significant importance on the Chinese market not only as a production site but also as a potential market to expand its sales share in the future. In line with this strategy, Ricoh established a new regional headquarters office in Shanghai to support and reinforce its operations in the promising Chinese market in the previous year. Ricoh integrated its production, sales, and services during fiscal year 2004 while focusing even more on customer needs in China to strengthen its revenues and earnings in this geographic segment. COMPETITION - ----------- Ricoh competes primarily in the office equipment industry which is highly competitive. In each of the product categories in the office equipment segment, Ricoh encounters intense competition. Ricoh expects competition in each of these product categories to increase in the future as existing competitors enhance and expand their product and service offerings. Increased competition may result in price reductions, reduced profitability and loss of market share. Ricoh cannot provide assurances that it will be able to compete successfully against existing or future competitors. Some of our customers and companies with which we have strategic business relationships with also are, or may become in the future, competitors of ours. The size and number of our competitors vary across our product categories, as do the resources allocated by our competitors to the markets we target. Our competitors may have greater financial, personnel, and other resources than we have in a particular market or overall. Competitors with greater financial resources may be able to offer lower prices, additional products or services or other incentives that we cannot match or offer. These competitors may be in a stronger position to respond quickly to new technologies and may be able to undertake more extensive marketing campaigns. They may also adopt more aggressive pricing policies and make more attractive offers to potential customers, -18- employees, and strategic partners. These competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties to increase their ability to gain market share. Despite the intense competition in the office equipment industry, Ricoh's management believes that we will be able to maintain and enhance our position in the world market because of our experience, expertise and technical capabilities as a leading provider of office equipment, and our dedication to meet our customers' needs. SEASONALITY - ----------- Especially in Japan, sales for the office equipment segment generally increase in March of each year due to the increase demand arising at the end of the fiscal year for most Japanese companies as many Japanese companies and government entities try to expend their allotted capital expenditure budget for the fiscal year. Approximately 13% of Ricoh's domestic sales in Japan are generated during the month of March each year due to this seasonality. However, the effect of this seasonality on a consolidated basis is minimal, as approximately 5% of Ricoh's total consolidated sales are generated during the month of March from domestic sales in Japan. SOURCES OF SUPPLY - ----------------- Ricoh procures raw materials, parts, and components to be used in the production of its products on a global basis. Generally, Ricoh maintains multiple suppliers for the most significant categories of raw materials, parts and components. In light of the fact that Japan produces very few of the raw materials Ricoh uses in its manufacturing process, most of the raw materials used by Ricoh come from outside of Japan. Ricoh monitors the availability of raw materials on a regular basis to ensure that it will not encounter any shortages. Ricoh has not experienced any significant difficulty in obtaining raw materials, parts and components and believes that it will be able to continue to obtain comparable raw materials, parts and components in sufficient quantities to meet its manufacturing needs in the future. Ricoh also believes that there is little risk of price volatility with respect to obtaining raw materials, parts and components that it uses in manufacturing its products. INTELLECTUAL PROPERTY - --------------------- Ricoh holds a large number of patents and trademark rights. While Ricoh considers such intellectual property rights to be valuable assets and important for its operations, it believes that its business is not dependent to any material extent upon any single patent or trademark right, or any related group of such rights it holds. Ricoh also has many licenses and technical assistance agreements covering a wide variety of products. Such agreements grant Ricoh the right to use certain Japanese and foreign patents or the right to receive certain technical information. However, Ricoh is not materially dependent on any single such agreement. -19- In addition, Ricoh has granted licenses and technical assistance to various companies located in and outside of Japan. In certain instances, Ricoh has entered into cross-licensing agreements with other major international electronics and electrical equipment manufacturers. None of these agreements are likely to materially affect Ricoh's business or profitability. See Item 5.C. Patents and Licenses. GOVERNMENT REGULATIONS - ---------------------- Ricoh's business activities are subject to various governmental regulations in the various countries in which it operates, including regulations relating to business and investment approvals, export regulations, tariffs, antitrust, intellectual property, consumer and business taxation, exchange controls, and environmental and recycling requirements. Ricoh is also subject to environmental regulations in the jurisdictions in which it operates, particularly in those in which it has manufacturing, research, or similar operations. Currently, Ricoh operates its business without having significant difficulty complying with such government regulations, and it hopes to do so in the future. C. Organizational structure As of March 31, 2004, the Ricoh Group is comprised of 360 subsidiaries and 21 affiliates located worldwide. Ricoh's research and development, manufacturing, sales, and service activities center on office equipment, optical equipment, and other devices. The Company is the parent of the Ricoh Group. The Company heads the research and development of Ricoh products with assistance from its subsidiaries. The Company and its subsidiaries and affiliates maintain an integrated domestic and international manufacturing and distribution structure. The following is a list of the principal subsidiaries and affiliates of Ricoh:
- ------------------------------------------------------------------------------------------------------------------ Proportion Country of of ownership Company Name Formation interest Main businesses - ------------------------------------------------------------------------------------------------------------------ (SUBSIDIARIES) - ------------------------------------------------------------------------------------------------------------------ Ricoh Optical Industries Co., Ltd. Japan 100.0 Manufacturing optical equipment - ------------------------------------------------------------------------------------------------------------------ Tohoku Ricoh Co., Ltd. Japan 100.0 Manufacturing office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Unitechno Co., Ltd. Japan 100.0 Manufacturing parts for office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Elemex Corporation Japan 55.8 Manufacturing and sales of office equipment and (55.7) minuteness equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Microelectronics Co., Ltd. Japan 100.0 Manufacturing parts for office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Keiki Co., Ltd. Japan 100.0 Manufacturing parts for office equipment
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- ------------------------------------------------------------------------------------------------------------------ Proportion Country of of ownership Company Name Formation interest Main businesses - ------------------------------------------------------------------------------------------------------------------ Ricoh Tohoku Co., Ltd. Japan 100.0 Sale of office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Chubu Co., Ltd. Japan 100.0 Sale of office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Kansai Co., Ltd. Japan 100.0 Sale of office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Chugoku Co., Ltd. Japan 100.0 Sale of office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Kyushu Co., Ltd. Japan 100.0 Sale of office equipment - ------------------------------------------------------------------------------------------------------------------ Hokkaido Ricoh Co., Ltd. Japan 97.8 Sale of office equipment - ------------------------------------------------------------------------------------------------------------------ Tokyo Ricoh Co., Ltd. Japan 100.0 Sale of office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Technosystems Co., Ltd. Japan 100.0 Maintenance, service and sale of office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Logistics System Co., Ltd. Japan 85.8 Logistics services and custom clearances (87.6) - ------------------------------------------------------------------------------------------------------------------ Ricoh Leasing Co., Ltd. Japan 51.0 General leasing (51.1) - ------------------------------------------------------------------------------------------------------------------ Ricoh Electronics, Inc. U.S.A. 100.0 Manufacturing office equipment and related supplies - ------------------------------------------------------------------------------------------------------------------ Ricoh UK Products Ltd. U.K. 100.0 Manufacturing office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Industrie France S.A.S. France 100.0 Manufacturing office equipment and related supplies - ------------------------------------------------------------------------------------------------------------------ Ricoh Asia Industry (Shenzhen) Ltd. China 91.0 Manufacturing office equipment and related (100.0) supplies - ------------------------------------------------------------------------------------------------------------------ Shanghai Ricoh Facsimile Co., Ltd. China 94.5 Manufacturing and sale of office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Corporation U.S.A. 100.0 Sale of office equipment - ------------------------------------------------------------------------------------------------------------------ Lanier Worldwide, Inc. U.S.A. 100.0 Sale of office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Europe B.V. Netherlands 100.0 Sale of office equipment - ------------------------------------------------------------------------------------------------------------------ NRG Group PLC U.K. 100.0 Sale of office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Asia Industry Ltd. Hong Kong, 90.0 Sale of office equipment China - ------------------------------------------------------------------------------------------------------------------ Ricoh Asia Pacific Pte, Ltd. Singapore 100.0 Sale of office equipment - ------------------------------------------------------------------------------------------------------------------ Ricoh Finance Nederland B.V. Netherlands 100.0 Corporate finance - ------------------------------------------------------------------------------------------------------------------ And 332other subsidiaries - ------------------------------------------------------------------------------------------------------------------ (AFFILIATES) - ------------------------------------------------------------------------------------------------------------------ Coca-Cola West Japan Co., Ltd. Japan 21.8 Manufacturing and sale of soft drink (22.1) - ------------------------------------------------------------------------------------------------------------------ Sindo Ricoh Co., Ltd. Korea 20.0 Manufacturing and sale of office equipment - ------------------------------------------------------------------------------------------------------------------ And 19 other affiliates - ------------------------------------------------------------------------------------------------------------------
Notes: 1. Proportion of ownership interest includes indirect ownership. 2. Figures in parentheses indicate portion of voting power if different from portion of ownership interest. -21- 3. Ricoh Leasing Co., Ltd. is the only subsidiary of Ricoh that is a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X. D. Property, plants and equipment Ricoh manufactures its products primarily in fifteen plants in Japan and six plants overseas. Ricoh owns all of the buildings and the land on which its plants are located, with the exception of certain leases of land and floor space of certain by its subsidiaries. None of these leased land and floor spaces have major encumbrances on them. The following table gives certain information as of March 31, 2004 regarding the Company's and its subsidiaries' principal production and other facilities. With the exception of GR Advanced Materials Ltd., the below production and other facilities have floor space exceeding 10,000 square meters.
- ----------------------------------------------------------------------------------------------------------------------- Principal activities and products Name (Location) Floor space manufactured - ------------------------------------------------ ----------------- ------------------------------------------------ (in thousands of square meters) Japan: Ricoh Company, Ltd. Ohmori Plant (Tokyo) 44 Parts relating to copiers Atsugi Plant (Kanagawa) 68 Office equipment and other products Numazu Plant (Shizuoka) 76 Paper and toner Ikeda Plant (Osaka) 17 Electronic devices Hatano Plant (Kanagawa) 15 Printed circuit boards and electronic components Fukui Plant (Fukui) 34 Papers and toner Gotenba Plant (Shizuoka) 70 Copiers and data processing systems Yashiro Plant (Hyogo) 31 Electronic devices Aoyama Head Office (Tokyo) 9 Marketing of office equipment and head office Research & Development Center 17 Research and development ("R&D") (Kanagawa) System Center (Tokyo) 10 Information system center, marketing of office equipment and other business Ginza Office (Tokyo) 11 Marketing of office equipment and other business Shin-Yokohama office (Kanagawa) 40 Marketing of office equipment and other business, related services and R&D Subsidiaries: Ricoh Optical Industries Co., Ltd. (Iwate) 18 Photographic equipment
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- ----------------------------------------------------------------------------------------------------------------------- Principal activities and products Name (Location) Floor space manufactured - ------------------------------------------------ ----------------- ------------------------------------------------ (in thousands of square meters) Tohoku Ricoh Co., Ltd. (Miyagi) 55 Office equipment and parts relating to copiers Hasama Ricoh , Inc. (Miyagi) 14 Parts relating to copiers and data processing equipment Ricoh Unitechno Co., Ltd. (Saitama) 18 Facsimile and copiers Ricoh Elemex Corporation. (Aichi) 47 Office equipment and measuring instruments Ricoh Microelectronics Co., Ltd. (Tottori) 11 Printed circuit boards Ricoh Keiki Co., Ltd. (Saga) 10 Parts relating to copiers and data processing systems Overseas: Ricoh Electronics, Inc. 119 Copiers, parts relating to copiers, toner and (Irvine, Santa Ana and Tustin, California and thermal paper Lawrenceville, Georgia, U.S.A.) Ricoh UK Products Ltd. 41 Copiers, parts relating to copiers and toner (Telford, United Kingdom) Ricoh Industries France S.A.S. (Colmar, 42 Copiers, facsimile equipment, parts relating to France) copiers and thermal paper Ricoh Asia Industry (Shenzhen) Ltd. 42 Copiers, parts relating to copiers, and toner (Shenzhen, China) Shanghai Ricoh Facsimile Co., Ltd. 17 Facsimile (Shanghai, China) GR Advanced Materials Ltd. 4 Supplies relating to duplicators (Scotland, United Kingdom) - -----------------------------------------------------------------------------------------------------------------------
Ricoh considers its manufacturing facilities to be well maintained and believes its plant capacity is adequate for its current needs, though successive investment in manufacturing facilities is being made for its long-term success. -23- Item 5. Operating and Financial Review and Prospects -------------------------------------------- OVERVIEW Ricoh is engaged primarily in the development, manufacturing, sales and servicing of office automation equipment, as well as digital cameras, advanced electronic devices and measuring equipment. Ricoh supports its office equipment business by offering customers various "solution" systems that work with personal computers and servers, and related product support and after-purchase services to assist customers in fully utilizing the Ricoh product that they purchase. Ricoh's support services include assisting customers in setting up their information technology environment or network administration. Ricoh also offers various supplies and peripheral products to be used with its products and systems. Ricoh's operating segments consist of Office Equipment, which includes Imaging Solutions, Network Input/Output Systems and Network System Solutions, and Other Businesses, which include optical equipment, such as digital cameras, electronic semiconductor devices and measuring equipment, as well as financing and logistics services. Ricoh distributes its products and competes in the following four geographic areas: Japan, the Americas, Europe and Other, which includes China, Asia and Oceania. For additional details on Ricoh's business, see Item 4.B. Information on the Company - Business overview. Because of the global nature of Ricoh's operations, Ricoh's results of operations and financial conditions are affected both by economic and political developments in Japan and the rest of the world, as well as by demand and competition in its lines of business. Although the economies of Japan and the United States began to exhibit some upswing momentum in the second half of fiscal year 2004, prospects for the business climate in which Ricoh operates remain unpredictable as a result of the continuing appreciation of the Japanese Yen against the U.S. Dollar, and also due to repercussions of the Iraq war, turmoil in the Middle East and other factors adversely affecting international stability. Management believes that it will still take some time for the Japanese economy to make a full recovery, due to such factors as the continued high rate of unemployment and the unlikelihood of an increase in income on an individual basis. In addition, the level of competition in our operating environment has increased significantly. The two most significant trends in the office equipment market are the shift in customers' demand toward color products from monochrome products and the movement toward digital networking systems from standalone devices. As these trends have accelerated, the level of competition has increased significantly in the market for color products and digital networking systems. Historically, Ricoh's revenues have come mainly from the manufacturing and retail of equipment (such as copiers and printers), while the key factor to achieving revenue growth in the current environment is the expansion of products and services for increased digitization, coloring and volume. To achieve sustained growth in the current environment, Ricoh's goal is to broaden its revenue and earnings base by increasing the total copying or printing volume of its customers (which Ricoh refers to as "Building -24- Total Document Volume") and the amount of revenue per copy or printed page. To attain this goal, Ricoh's strategies include (1) replacing monochrome products with color models at prices comparable to those of monochrome models, (2) expanding sales of high-speed models, and (3) deploying printing solutions so that customers can optimize the total output costs of their copiers and printers. In fiscal year 2004, net sales of MFPs overall increased by 29.4% as compared to fiscal year 2003. A 76.9% increase in net sales of MFPs with color capabilities in fiscal year 2004 as compared to fiscal year 2003 especially contributed to the 29.4% increase in net sales of overall MFPs as compared to fiscal year 2003. In contrast, sales of other imaging systems products (e.g., analog PPCs) for fiscal year 2004 decreased by 15.2% compared to fiscal year 2003. In this challenging environment, Ricoh strives to remain competitive and achieve sustained growth by placing a high priority on creating new customer values and managing its operations in a highly efficient manner. To this end, Ricoh continues to reinforce its technological strengths by making capital investments and investments in research and development to generate new values for its customers with Ricoh's products and services. At the same time, Ricoh is achieving steady progress in increased operating efficiency through cost-cutting measures across its business units, including the reduction of product costs and the streamlining of its business structure, as well as supply chain management. Ricoh is also pursuing increased efficiency in the use of financial resources. In fiscal year 2004, Ricoh reduced interest-bearing debt by Yen 51.8 billion, while increasing cash and cash equivalents at fiscal year-end 2004 by Yen 13.7 billion from the prior fiscal year-end to Yen 203.0 billion. Ricoh's consolidated net sales increased by 2.4% to Yen 1,780.2 billion for the fiscal year ended March 31, 2004, from Yen 1,738.3 billion for the fiscal year ended March 31, 2003, due primarily to the increase in net sales of higher-margin value-added digital-based Network Input/Output products, which was offset in part by a decline in sales of Imaging Solutions products, as well as to the positive effect in fiscal 2004 of the appreciation of the Euro relative to the Japanese Yen, which was partially offset by the depreciation of the U.S. Dollar relative to the Japanese Yen. Ricoh's operating income increased 12.2%, while operating income as a percentage of net sales increased from 7.7% to 8.4%, reflecting primarily Ricoh's ability to keep the rate of increase in selling, general and administrative expenses lower than the rate of increase in gross profit, as well as a one-time net gain of Yen 8.3 billion which was recognized in connection with the transfer of the substitutional portion of the Company and certain subsidiaries' employee pension fund liabilities to the Japanese government during fiscal year 2004. Excluding the effect of such transfer, Ricoh's operating income would have increased by 6.0%, while operating income as a percentage of net sales would have increased by 0.3 percentage point during fiscal year 2004. CRITICAL ACCOUNTING POLICIES The preparation of the consolidated financial statements of Ricoh in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of -25- the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. By their nature, these estimates and assumptions are subject to an inherent degree of uncertainty, and are based on Ricoh's historical experience, terms of existing contracts, Ricoh's observance of trends in the industry, information provided by its customers and information available from other outside sources, as appropriate. For a summary of the significant accounting policies, including the critical accounting policies discussed below, please see Note 2 to the Consolidated Financial Statements. Revenue Recognition ------------------- Ricoh believes that revenue recognition is critical for its financial statements because net income is directly affected by the timing of revenue recognition. Ricoh generates revenue principally through the sale of equipment, supplies and related services under separate contractual arrangements for each. Generally, Ricoh recognizes revenue when (1) it has a firm contract, (2) the product has been shipped to and accepted by the customer or the service has been provided, (3) the sales price is fixed or determinable and (4) amounts are reasonably assured of collection. Most equipment sales require that Ricoh install the product. As such, revenue is recognized at the time of delivery and installation at the customer location. Equipment revenues are based on established prices by product type and model and are net of discounts and trade-in allowances. A sales return is accepted only when the equipment is defective and does not meet Ricoh's product performance specifications. Other than installation, there are no customer acceptance clauses in the sales contract. Service revenues result primarily from maintenance contracts that are normally entered into at the time the equipment is sold. Standard service fee prices are established depending on equipment classification and include a cost value for the estimated services to be performed based on historical experience plus a profit margin thereon. As a matter of policy, Ricoh does not discount such prices. On a monthly basis, maintenance service revenues are earned and recognized by Ricoh and billed to the customer in accordance with the contract and include a fixed monthly fee plus a variable amount based on usage. The length of the contract ranges up to five years; however, most contracts can be cancelled at any time by the customer upon a short notice period. Ricoh enters into contractual arrangements with multiple elements, which may include any combination of products, equipment, installation and maintenance. Ricoh allocates revenue to each element based on its relative fair value if such element meets the criteria for treatment as a separate unit of accounting as prescribed in the Emerging Issues Task Force Issue 00-21("EITF 00-21"), "Revenue Arrangements with Multiple Deliverables". Pursuant to EITF 00-21, the delivered item in a multiple element arrangement should be considered a separate unit of accounting if all of the following criteria are met: (1) a delivered item has value to customers on a stand-alone basis, (2) there is objective and reliable evidence of fair value of an undelivered item, and (3) the delivery of the undelivered item must be probable and controlled by Ricoh if the arrangement includes the right of return. The price charged when the element is sold -26- separately generally determines fair value. Otherwise, revenue is deferred until the undelivered elements are fulfilled as a single unit of accounting. Allowance for Doubtful Receivables ---------------------------------- Ricoh performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer's current creditworthiness, as determined by Ricoh's review of their current credit information. Ricoh continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon its historical experience and any specific customer collection issues that Ricoh has identified. While such credit losses have historically been within Ricoh's expectations and the provisions established, Ricoh cannot guarantee that it will continue to experience the same credit loss rates that it has in the past. Changes in the underlying financial condition of our customers could result in a material impact on Ricoh's consolidated results of operation and financial position. Pension Accounting ------------------ Ricoh believes that pension accounting is critical for its financial statements because assumptions used to estimate pension benefit obligations and pension expenses can have a significant effect on its operating results and financial condition. The determination of Ricoh's benefit obligation, net periodic expense and, in fiscal year 2004 the gain on the transfer of the substitutional portion with respect to our pension liability is dependent upon our selection of certain assumptions used by actuaries and management in calculating such amounts. Those assumptions are described in Note 11 to the Consolidated Financial Statements and include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation. In accordance with accounting principles generally accepted in the United States of America, actual results that differ from Ricoh's assumptions are accumulated and amortized over future periods and therefore, generally affect Ricoh's recognized expense and recorded obligation in such future periods. While Ricoh believes that its assumptions are appropriate, significant differences in its actual experience or significant changes in its assumptions may materially affect Ricoh's pension obligation and future expense. In preparing its financial statements for fiscal year 2004, Ricoh estimated a discount rate of 2.9% and an expected long-term rate of return of 2.5% on plan assets. In estimating the discount rate, Ricoh determined which of its long-term risk free debt securities have the same maturity period as the remaining service period, and matched this period with the remaining life expectancy of Ricoh's pension plan participants. In addition, Ricoh also took into account estimates with respect to future changes that are expected by management in the interest rates on its debt securities when determining the discount rate. Ricoh established the expected long-term rate of return on plan assets based on management's expectations in respect of the long-term returns of various plan asset categories in which it invests. Management developed expectations with respect to -27- each plan asset category based on actual historical returns and its current expectations for future returns. Pursuant to the Contributed Benefit Pension Plan Law, Ricoh received from the Minister of Health, Labor and Welfare, effective January 1, 2003, an exemption from its obligation to contribute to the substitutional portion of its Employee Pension Fund ("EPF") for future employee services. In January 2004, Ricoh received from the Japanese government an exemption from its obligation to contribute to the substitutional portion of its EPF relating to past employee services. The transfer to the Japanese government of the substitutional portion of the EPF was completed on March 16, 2004. With respect to the accounting treatment of this transfer under accounting principles generally accepted in the United States of America, Ricoh accounted for the transfer in accordance with Emerging Issues Task Force Issue No. 03-02 "Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities" ("EITF 03-02"). In returning the substitutional portion of its employee pension fund liabilities, management exercised judgment and developed estimates, such as the discount rate and expected long-term rate of return, which judgment and estimates could materially affect Ricoh's results of operations and financial conditions. Impairment of Long-Lived Assets and Goodwill -------------------------------------------- Ricoh believes that impairment of long-lived assets and goodwill is critical for its financial statements because Ricoh has significant amounts of property, goodwill, and other intangible assets, the recoverability of which or lack thereof, could significantly affect its results of operations. Ricoh periodically reviews the carrying value of its long-lived assets and goodwill for continued appropriateness. This review is based upon Ricoh's projections of anticipated future cashflows and estimated fair value of the reporting units for which goodwill is assigned. While Ricoh believes that its estimates of future cashflows are reasonable, different assumptions regarding such cashflows could materially affect Ricoh's evaluations. Ricoh reviews long-lived assets and acquired intangible assets with a definite life for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. The recoverability of assets to be held and used is assessed by comparing the carrying amount of an asset or asset group to the expected future undiscounted net cashflows of the asset or group of assets. If an asset or group of assets is considered to be impaired, the impairment charge to be recognized is measured as the amount by which the carrying amount of the asset or group of assets exceeds fair value. Long-lived assets meeting the criteria to be considered as held for sale are reported at the lower of their carrying amount or fair value less costs to sell. -28- Impairment of Securities ------------------------ Individual securities classified as available-for-sale securities are marked down to their then fair value to reflect any declines in market values determined to be other than temporary. These impairment losses are charged against earnings at the time that a decline has been determined to be other than temporary based primarily on the financial condition of the issuer and the extent and length of time of the decline. Investments whose market values have declined below cost and where such decline extend for nine months or more are automatically marked-down to their then fair values. Realizability of Deferred Tax Assets ------------------------------------ Ricoh records a valuation allowance to reduce Ricoh's deferred tax assets to an amount that is more likely than not to be recoverable. Ricoh considers future market conditions, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which Ricoh operates, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event Ricoh were to determine that Ricoh would not be able to recover any portion of Ricoh's net deferred tax assets in the future, the unrecoverable portion of the deferred tax assets would be charged to earnings during the period in which such determination is made. Likewise, if Ricoh were to later determine that it is more likely than not that the net deferred tax assets would be recoverable, the previously recovered valuation allowance would be reversed. In order to recover its deferred tax assets, Ricoh must be able to generate sufficient taxable income in the tax jurisdictions in which the deferred tax assets are located. -29- A. Operating results The following table sets forth selected consolidated financial data, including data expressed as a percentage of total consolidated net sales for the periods indicated, and the change in each consolidated financial line item between the indicated fiscal years:
Millions of Yen (except percentages) Thousands in Year Ended March 31, U.S. Dollars % Change 2002 2003 2004 2004 2003 2004 - ------------------------------------------------------------------------------------------------------------------------------- Net Sales 1,672,340 100.0% 1,738,358 100.0% 1,780,245 100.0% $17,117,740 3.9 2.4 Cost of Sales 972,394 58.1% 993,009 57.1% 1,014,619 57.0% 9,755,952 2.1 2.2 - ------------------------------------------------------------------------------------------------------------------------------- Gross Profit 699,946 41.9% 745,349 42.9% 765,626 43.0% 7,361,788 6.5 2.7 Selling, General and Administrative Expenses 570,251 34.1% 611,695 35.2% 623,935 35.0% 5,999,375 7.3 2.0 Transfer of the substitutional portion of the Employee's Pension Fund: Settlement loss -- -- 48,657 467,856 Subsidy from government -- -- (56,972) (547,808) - ------------------------------------------------------------------------------------------------------------------------------- Operating income 129,695 7.8% 133,654 7.7% 150,006 8.4% 1,442,365 3.1 12.2 - ------------------------------------------------------------------------------------------------------------------------------- Other (Income) Expenses: Interest and dividend income (4,753) (3,772) (1,925) (18,510) Interest expense 8,233 6,853 5,290 50,865 Foreign currency exchange (gain) loss, net 5,732 566 6,136 59,000 Other, net 6,533 6,537 (2,558) (24,596) - ------------------------------------------------------------------------------------------------------------------------------- Total 15,745 1.0% 10,184 0.6% 6,943 0.4% 66,759 (35.3) (31.8) - ------------------------------------------------------------------------------------------------------------------------------- Income before Income Taxes, Minority Interests and Equity in earnings of Affiliates and Cumulative Effect of Accounting Change 113,950 6.8% 123,470 7.1% 143,063 8.0% 1,375,606 8.4 15.9 - ------------------------------------------------------------------------------------------------------------------------------- Provisions for Income Taxes: 51,147 3.0% 51,984 3.0% 56,641 3.2% 544,625 1.6 9.0 - ------------------------------------------------------------------------------------------------------------------------------- Income before Minority Interests and Equity in Earnings of Affiliates and Cumulative Effect of Accounting Change 62,803 71,486 86,422 830,981 Minority Interests 3,080 1,376 4,094 39,365 Equity in Earnings of Affiliates 1,891 2,403 2,065 19,855 - ------------------------------------------------------------------------------------------------------------------------------- Income Before Cumulative Effect of Accounting Change 61,614 3.7% 72,513 4.2% 84,393 4.7% 811,471 17.7 16.4 - ------------------------------------------------------------------------------------------------------------------------------- Cumulative Effect of Accounting Change, Net of tax -- -- 7,373 0.5% 70,894 -- -- - ------------------------------------------------------------------------------------------------------------------------------- Net Income 61,614 3.7% 72,513 4.2% 91,766 5.2% 882,365 17.7 26.6 - ------------------------------------------------------------------------------------------------------------------------------- Reference: Exchange Rates* US$ 1 Yen 125.10 Yen 121.96 Yen 113.09 Yen(3.14) Yen(8.87) EURO 1 Yen 110.60 Yen 121.00 Yen 132.65 Yen10.40 Yen11.65
*These rates are the annual average exchange rate of the daily average TTM rates published by The Bank of Tokyo Mitsubishi, Ltd. These rates are used when consolidating the financial results of Ricoh's overseas subsidiaries with those of the Company. - -------------------------------------------------------------------------------- -30- SALES BY PRODUCT - --------------------------------------------------------------------------------
Millions of Yen (except percentages) % Change - ------------------------------------------------------------------------------------------ Thousands in ----------- 2002 2003 2004 U.S. Dollars 2003 2004 - ----------------------------------------------------------------------------------------------------------------------- OFFICE EQUIPMENT Imaging Solutions 934,180 55.8% 859,713 49.5% 803,574 45.1% $ 7,726,673 (8.0) (6.5) Network Input/Output Systems 344,247 20.6 463,379 26.7 558,237 31.4 5,367,663 34.6 20.5 Network System Solutions 206,962 12.4 197,482 11.3 195,822 11.0 1,882,904 (4.6) (0.8) OTHER BUSINESSES 186,951 11.2 217,784 12.5 222,612 12.5 2,140,500 16.5 2.2 - ----------------------------------------------------------------------------------------------------------------------- Total 1,672,340 100.0% 1,738,358 100.0% 1,780,245 100.0% $17,117,740 3.9 2.4 - -----------------------------------------------------------------------------------------------------------------------
FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003 NET SALES. Consolidated net sales of Ricoh for the fiscal year ended March 31, 2004 increased by 2.4% (or Yen 41.8 billion) to Yen 1,780.2 billion from Yen 1,738.3 billion for the fiscal year ended March 31, 2003. This was the 10th consecutive year in which Ricoh recorded revenue growth. The increase in net sales was primarily due to an increase in net sales in the Office Equipment segment and favorable foreign currency rates. The increase in net sales in the Office Equipment segment resulted from an increase in net sales in the Network Input/Output Systems category which was partially offset by a decrease in net sales in the Imaging Solutions category. As a percentage of net sales, sales in the Network Input/Output Systems category accounted for 31.4% of consolidated net sales, up 4.7 percentage points from the previous fiscal year. As many of Ricoh's customers are medium to large institutions that have increasing needs for improving operations by expanding their digital color networking capacity, printing systems in the Network Input/Output System product category which have networking and color capabilities, were in high demand during fiscal year 2004. In the fiscal year ended March 31, 2004, net sales of MFPs overall increased by 29.4% as compared to the fiscal year ended March 31, 2003. A 76.9% increase in net sales of MFPs with color capabilities in fiscal year 2004 as compared to fiscal year 2003 especially contributed to the 29.4% increase in net sales of overall MFPs as compared to fiscal year 2003. As a percentage of net sales, sales from the Imaging Solutions category accounted for 45.1% of consolidated net sales, down 4.4 percentage points from the previous fiscal year. While the decrease in net sales in the Imaging Solutions category reflected the shift in customer demand towards products that have networking capabilities, digital PPC products performed well in the overseas markets and sales of color PPC products continued to increase in Japan and the overseas market. Sales of the other products (e.g., -31- analog PPC) in the Imaging Solutions category decreased by 15.2% in the fiscal year ended March 31, 2004 compared to the fiscal year ended March 31, 2003, reflecting the recent trend away from analog-type equipment in favor of products with networking capabilities, such as MFPs and laser printers. With respect to the Other Input/Output systems, net sales in this category decreased 10.1%, due primarily to decreased demand of optical disc, especially in China, Asia and Oceania. Overall, an increase in net sales of higher-margin, value-added digital-based office equipment in the Network Input/Output System product category more than offset a decrease in net sales of some products in the Imaging Solutions product category (e.g., analog PPCs and facsimile machines). As a result, net sales in the Office Equipment segment accounted for a 1.8% increase in net sales before giving effect to foreign currency fluctuations. The appreciation of the Euro in relation to the Japanese Yen also contributed to the increase in net sales for the fiscal year ended March 31, 2004, more than offsetting the decrease in U.S. Dollar-denominated net sales when converted to Japanese Yen resulting from the depreciation of the U.S. Dollar in relation to the Japanese Yen. In the Other Business segment, where sales increased 2.2% as compared to the fiscal year ended March 31, 2003, optical equipment, leasing and other business performed favorably. On the other hand, sales of measuring equipment decreased due to sluggish market demand. COST OF SALES. Consolidated cost of sales for the fiscal year ended March 31, 2004 increased by 2.2% (or Yen 21.6 billion) to Yen 1,014.6 billion from Yen 993.0 billion for the fiscal year ended March 31, 2003. This increase was due primarily to the increase in net sales and to the appreciation of the Euro against the Japanese Yen that resulted in higher Japanese Yen equivalents of Euro-denominated cost of sales. As a percentage of net sales, however, cost of sales decreased slightly due to the elimination of costs associated with correcting the quality of Ricoh's measuring equipment, depreciation of the U.S. Dollar against the Japanese Yen, and various cost-cutting measures taken by Ricoh. The most significant factor contributing to the reduction in cost of sales as a percentage of net sales was Ricoh's resolution of quality problems relating to its measuring equipment expense during the fiscal year ended March 31, 2003. The elimination of this cost accounted for approximately Yen 8.0 billion of the cost of sales in fiscal year ended March 31, 2003. Ricoh did not incur any additional costs relating to this problem during the fiscal year ended March 31, 2004. The various cost-cutting measures undertaken by Ricoh during the fiscal year ended March 31, 2004 included the following: shortening the length of time in which products are designed by standardizing various product parts thereby allowing for the elimination of the cost of separately designing each product part when designing new products; increased utilization of standardized product components thereby increasing production efficiency; shifting production towards generic products that can be sold in various countries; making efforts to manage its supply chain by establishing a production process in which products are assembled once an order is placed at a local factory, thereby reducing the costs of inventory and distribution; procuring materials from suppliers at lower costs; and providing employee training programs and opportunities to its -32- employees so that they obtain more experience and become more productive, thereby allowing Ricoh to minimize production line inefficiencies. GROSS PROFIT. Consolidated gross profit for the fiscal year ended March 31, 2004 increased by 2.7% to Yen 765.6 billion from Yen 745.3 billion for the fiscal year 2003. Gross margin increased by 0.1 percentage point from 42.9% of net sales for the fiscal year ended March 31, 2003 to 43.0% of net sales for the fiscal year ended March 31, 2004. Ricoh's gross margin increased as a result of the shift to higher-margin products and the cost-cutting efforts described above. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general and administrative expenses for the fiscal year ended March 31, 2004 increased by 2.0% (or Yen 12.2 billion) to Yen 623.9 billion from Yen 611.6 billion for the fiscal year ended March 31, 2003. This increase was primarily due to the following: (1) the appreciation of the Euro against the Japanese Yen that resulted in higher Japanese Yen equivalents of Euro-denominated expenses, which was partially offset by the depreciation of the U.S. Dollar against the Japanese Yen, (2) an increase in pension costs reflecting a Yen 5.9 billion loss resulting from the liquidation of a defined benefit plan that served as a supplemental plan for certain qualified employees, (3) a one-time advertising cost incurred in sponsoring the " '04 Ricoh Major League Baseball Opening Series" held in Tokyo in March 2004, (4) various advertising costs associated with the new release of ink-jet printers that use Ricoh's unique gel-jet technology in an effort to cultivate a market for ink-jet printers intended for business usage, and (5) strategic spending on research and development and back-office information systems development continuing from the previous fiscal year. Research and development expenses for the fiscal year ended March 31, 2004 increased by 10.7% (or Yen 8.9 billion) to Yen 92.5 billion from Yen 83.5 billion for the fiscal year ended March 31, 2003. For additional details as to expenditures on research and development activities, see Item 5.C. TRANSFER TO THE JAPANESE GOVERNMENT OF THE SUBSTITUTIONAL PORTION OF THE EMPLOYEE'S PENSION FUND. Ricoh completed its transfer to the Japanese government of the substitutional portion of the EPF pursuant to the Contributed Benefit Pension Plan Law during fiscal year 2004. As set forth under the heading "Pension Information" below, Ricoh accounted for the transfer in accordance with EITF 03-2. In applying EITF 03-2, Ricoh recognized a one-time gain of Yen 56.9 billion as a subsidy from the Japanese government. In addition, Ricoh recognized a one-time net loss of Yen 48.6 billion for the transfer of such substitutional portion of the EPF in accordance with EITF 03-2. OPERATING INCOME. Consolidated operating income for the fiscal year ended March 31, 2004 increased by 12.2% (or Yen 16.3 billion) to Yen 150.0 billion from Yen 133.6 billion for the fiscal year ended March 31, 2003. This increase was mainly due to (1) the higher rate of increase in gross profit relative to selling, general and administrative expenses between the fiscal years ended March 31, 2003 and 2004, and (2) net gain of Yen 8.3 billion on the transfer of the substitutional portion of the EPF to the Japanese government, which consisted of the subsidy from the government and the recognized net loss related to the transfer of the substitutional portion of the EPF to the Japanese government. Excluding the net effect of the transfer to the Japanese government of the substitutional portion of the EPF, operating income would have increased by 6.0%. -33- INTEREST AND DIVIDEND INCOME. Consolidated interest and dividend income for the fiscal year ended March 31, 2004 decreased by Yen 1.8 billion to Yen 1.9 billion from Yen 3.7 billion for the fiscal year ended March 31, 2003. This decrease in consolidated interest and dividend income resulted primarily from lower interest rates and lower dividend income from Japanese companies whose performance has been adversely affected by difficult economic conditions in Japan. As dividend income that Ricoh received during fiscal year 2004 was based upon the financial results for the fiscal year 2003, dividend income did not increase despite improved economic conditions in Japan during the latter half of fiscal year 2004. INTEREST EXPENSE. Consolidated interest expense for the fiscal year ended March 31, 2004 decreased by Yen 1.5 billion to Yen 5.2 billion from Yen 6.8 billion for the fiscal year ended March 31, 2003. This decrease in consolidated interest expense resulted primarily from the decrease in the amount of Ricoh's interest-bearing debt outstanding for the fiscal year ended March 31, 2004 as compared to the fiscal year ended March 31, 2003. Ricoh was able to decrease its outstanding interest-bearing debt for fiscal year 2004 as it continued to utilize its group cash management systems in Japan, the United States and Europe as an alternative to external borrowings. As a result, Ricoh's interest-bearing debt as of March 31, 2004 decreased by Yen 51.8 billion to Yen 432.7 billion from Yen 484.6 billion as of March 31, 2003. FOREIGN CURRENCY EXCHANGE (GAIN) LOSS, NET. Consolidated foreign currency exchange loss, net included in other (income) expenses for the fiscal year ended March 31, 2004 increased by Yen 5.5 billion to a loss of Yen 6.1 billion from a loss of Yen 0.5 billion for the fiscal year ended March 31, 2003. This increase was primarily due to foreign exchange losses resulting from the appreciation of the Japanese Yen relative to the U.S. Dollar. While Ricoh uses foreign exchange currency forward contracts to manage the effects of foreign currency exchange risks, the U.S. Dollar depreciated relative to the Japanese Yen more rapidly than Ricoh expected throughout the fiscal year ended March 31, 2004 and Ricoh's hedging activities, which are short-term in nature, were not able to sufficiently cover such losses. The most significant monetary assets that caused the gain or loss were foreign currency denominated receivables. For additional information on Ricoh's foreign exchange hedging activities, see Item 11. OTHER, NET. Consolidated other, net included in other (income) expenses was income of Yen 2.5 billion for the fiscal year ended March 31, 2004 as compared to an expense of Yen 6.5 billion for the fiscal year ended March 31, 2003. A gain was recognized for the fiscal year ended March 31, 2004 primarily due to a realization of gains resulting from employee pension contributions by Ricoh of equity securities for the fiscal year ended March 31, 2004, while a loss was recognized for the fiscal year ended March 31, 2003 primarily due to the valuation loss of investment securities. TOTAL PROVISIONS FOR INCOME TAXES. Total consolidated provisions for income taxes for the fiscal year ended March 31, 2004 increased by 9.0% (or Yen 4.6 billion) to Yen 56.6 billion from Yen 51.9 billion for fiscal year ended March 31, 2003. This lower percentage increase in provisions for income taxes as compared to the percentage increase in income before income taxes, minority interests and equity in earnings of affiliates was primarily due to a decrease in the effective tax rate. -34- The effective tax rate decreased by 2.5 percentage points to 39.6% for the fiscal year ended March 31, 2004 from 42.1% for the previous fiscal year. This 2.5 percentage points decrease in the effective tax rate was attributable to a tax credit being applied in Japan to (1) the increase in research and development expense and (2) investment in information technologies used by Ricoh. As a result, the effective tax rate was lower than the Japanese statutory tax rate. See Note 8 to the Consolidated Financial Statements. MINORITY INTERESTS. Consolidated minority interests for the fiscal year ended March 31, 2004 increased by Yen 2.7 billion to Yen 4.0 billion from Yen 1.3 billion for the fiscal year ended March 31, 2003. This increase primarily reflected an improvement in the business performance of Ricoh Elemex Corporation as it resolved the quality problems it faced with respect to its measuring equipment. EQUITY IN EARNINGS OF AFFILIATES. Consolidated equity in earnings of affiliates for the fiscal year ended March 31, 2004 decreased by Yen 0.3 billion to Yen 2.0 billion from Yen 2.4 billion for the fiscal year ended March 31, 2003. This decrease was primarily due to the conversion of Shanghai Ricoh Facsimile Co., Ltd. from an affiliate to a subsidiary in fiscal year 2004 through the purchase of the outstanding stock of such entity not already owned by Ricoh. As a result, Ricoh consolidated its interest in Shanghai Ricoh Facsimile Co., Ltd. for fiscal year 2004 rather than using the equity method as in the fiscal year ended March 31, 2003. CUMULATIVE EFFECT OF ACCOUNTING CHANGE. The cumulative effect of accounting change represents gains on marketable securities transferred to a pension trust in fiscal year 2000. In connection with a similar transfer made in fiscal year 2004, Ricoh changed its method of accounting for such transfers to reflect the realized gain upon transfer to the pension trust. For additional detail as to the accounting change that resulted in a recognition of gain, see Note 5 to the Consolidated Financial Statements. OPERATING SEGMENTS
- ---------------------------------------------------------------------------------------------- Millions of Yen (except for percentages) ---------------------------------------- Thousands in % Change 2003 2004 U.S. Dollars - ---------------------------------------------------------------------------------------------- OFFICE EQUIPMENT Net sales 1,520,574 100.0% 1,557,633 100.0% $14,977,240 2.4 Operating expenses 1,329,776 87.5 1,353,304 86.9 13,012,538 1.8 Operating income 190,798 12.5% 204,329 13.1% $ 1,964,702 7.1 - ---------------------------------------------------------------------------------------------- OTHER BUSINESSES Net sales 220,539 100.0% 225,074 100.0% $ 2,164,173 2.1 Operating expenses 222,772 101.0 220,391 97.9 2,119,144 (1.1) Operating income (2,233) (1.0%) 4,683 2.1% $ 45,029 -- - ---------------------------------------------------------------------------------------------- CORPORATE AND ELIMINATION Net sales (2,755) (2,462) $ (23,673) Operating expenses 52,156 56,544 543,693 Operating income (54,911) (59,006) $(567,366) - ---------------------------------------------------------------------------------------------- CONSOLIDATED Net sales 1,738,358 100.0% 1,780,245 100.0% $17,117,740 2.4 Operating expenses 1,604,704 92.3 1,630,239 91.6 15,675,375 1.6 Operating income 133,654 7.7% 150,006 8.4% $ 1,442,365 12.2 - ----------------------------------------------------------------------------------------------
-35- Office Equipment Sales in the Office Equipment segment for the fiscal year ended March 31, 2004 increased by 2.4% (or Yen 37.0 billion) to Yen 1,557.6 billion from Yen 1,520.5 billion for the fiscal year ended March 31, 2003. This increase was primarily due to a boost in sales of high-margin, value-added digital-based products in the Printing Systems as printers with various functions, from input/output to sharing and administration as well as color capabilities, were introduced in a wide range of models from standard models to high-speed digital models. In fiscal year 2004, domestic and overseas sales of color PPC and MFPs grew, and the retail volume for laser printers increased, particularly in terms of color models. Sales continued to increase for support services, software, and other solutions aimed at satisfying the diverse needs of customers. However, sales from the optical disc business decreased, as compared to a gain during the previous fiscal year period. The increase in sales of Network Input/Output Systems products was partly offset by a decrease in sales of Imaging Solutions products in both Japan and the overseas markets. These sales results were consistent with Ricoh's efforts to support the shift in customers' demand to digital networking and color-based products from monochrome analog-based stand-alone products. This trend, which has been continuing in the last five years, is also reflected in Ricoh's sales results: as a percentage of total sales, the percentage of sales of Imaging Solutions decreased 16.9 percentage points from 62.0% to 45.1% in the past five years; conversely, the percentage of sales of Input/Output Systems increased 19.4 percentage points from 12.0% to 31.4% in the past five years. Ricoh forecasts that this trend will continue for at least the next few years based on its understanding of customers' demand. Sales in the Imaging Solutions product category for the fiscal year ended March 31, 2004 decreased by 6.5% (or Yen 56.1 billion) to Yen 803.5 billion from Yen 859.7 billion for the fiscal year ended March 31, 2003. In Digital Imaging Solutions, Ricoh strengthened its product lineup from standard models to high-speed digital models, in addition to introducing new color PPC products. Digital PPC products performed well in the overseas market and sales of color PPC products increased in both Japan and overseas. In Other Imaging Solutions, the decrease in sales reflected the shift from analog-type equipment to digital-type equipment and MFPs. In contrast to the above product lines that historically have been Ricoh's core business, the MFP and laser printer product lines under the Network Input/Output Systems product category have seen an increase in their sales volume in both Japan and overseas. This trend is especially noticeable from the increase in sales of color MFPs and color laser printers for the fiscal year ended March 31, 2004. To respond to this trend, Ricoh introduced new MFPs products, such as Imagio Neo 352/452 and Imagio Neo C385/C325 in Japan, and Aficio 2035/2045 and Aficio 1224C/1232C overseas. Ricoh also introduced new laser printer models, IPSiO NX85S and IPSiO CX7200 in the domestic market, and AP400/400N and Aficio CL3000 in the overseas market. All of these new products performed well in each of the markets where they were introduced. During the fiscal year ended March 31, 2004, Ricoh also continued its efforts to strengthen its sales in the Network Systems Solutions category of the solutions business relating to its office equipment products so as to assist its customers in optimizing their total printing costs. Such network system solutions include support services, document -36- management applications and related software. These continuing efforts by Ricoh have led to an increase in domestic and overseas sales of its solutions products. Despite this increase in sales in the solutions business, sales of personal computers and servers, which are also included in the Network System Solutions category, continued to decline in Japan for the fiscal year ended March 31, 2004, reflecting sluggish information technology spending. As a result, overall sales within the Network System Solutions product category decreased for the fiscal year ended March 31, 2004 as compared to the fiscal year ended March 31, 2003. On the whole, the increase in sales in the Network Input/Output Systems product category exceeded the decrease in sales in the Imaging Solutions product category and the net sales in the Office Equipment segment increased by 2.4% for the year ended March 31, 2004 as compared to the fiscal year ended March 31, 2003. Excluding the exchange rate fluctuations of the U.S. Dollar and the Euro to the Japanese Yen, sales in the Office Equipment segment would have increased by 1.8% (or Yen 27.6 billion) for the fiscal year ended March 31, 2004 as compared to the fiscal year ended March 31, 2003. Ricoh was able to lower operating expenses in the Office Equipment segment for the fiscal year ended March 31, 2004 by engaging in various cost reduction activities, such as streamlining its supply chain management. On the other hand, Ricoh increased strategic expenditures in its research and development activities and invested in enhancing its back-office information systems. As a result, operating expenses in the Office Equipment segment for the fiscal year ended March 31, 2004 increased by 1.8% (or Yen 23.5 billion) to Yen 1,353.3 billion from Yen 1,329.7 billion for the fiscal year ended March 31, 2003. As a result of the above factors, operating income for the Office Equipment segment for the fiscal year ended March 31, 2004 increased by 7.1% (or Yen 13.5 billion) to Yen 204.3 billion from Yen 190.7 billion for the fiscal year ended March 31, 2003. The operating income as a percentage of net sales for the fiscal year ended March 31, 2004 rose by 0.6 percentage point to 13.1% from 12.5% as compared to the fiscal year ended March 31, 2003, due primarily to the depreciation of the Japanese Yen relative to the Euro and an increase in the sale of higher-margin value-added products, which favorably affected profitability. Other Business Sales in the Other Business segment for the fiscal year ended March 31, 2004 increased by 2.1% (or Yen 4.5 billion) to Yen 225.0 billion from Yen 220.5 billion for the fiscal year ended March 31, 2003. This increase in sales was due primarily to the favorable performance of optical equipment and leasing activities despite the fact that sales of measuring equipment became stagnant due to the sluggish market for such equipment as it entered a period of low demand. The increase in sales in the Other Business segment was also helped by the fact that no additional expenses were incurred to resolve the quality problems in measuring equipment, as compared to the fiscal year ended March 31, 2003. -37- GEOGRAPHIC SEGMENTS
- ---------------------------------------------------------------------------------------------- Millions of Yen (except for percentages) ---------------------------------------- Thousands in % Change 2003 2004 U.S. Dollars - ---------------------------------------------------------------------------------------------- JAPAN Net sales 1,274,906 100.0% 1,313,197 100.0% $ 12,626,894 3.0 Operating expenses 1,188,760 93.2 1,215,875 92.6 11,691,106 2.3 Operating income 86,146 6.8% 97,322 7.4% $ 953,788 13.0 - ---------------------------------------------------------------------------------------------- THE AMERICAS Net sales 339,555 100.0% 320,753 100.0% $ 3,084,163 (5.5) Operating expenses 325,228 95.8 305,284 95.2 2,935,423 (6.1) Operating income 14,327 4.2% 15,469 4.8% $ 148,740 8.0 - ---------------------------------------------------------------------------------------------- EUROPE Net sales 355,962 100.0% 404,416 100.0% $ 3,888,615 13.6 Operating expenses 337,693 94.9 382,383 94.6 3,676,759 13.2 Operating income 18,269 5.1% 22,033 5.4% $ 211,856 20.6 - ---------------------------------------------------------------------------------------------- OTHER Net sales 169,834 100.0% 193,341 100.0% $ 1,859,048 13.8 Operating expenses 159,864 94.1 182,870 94.6 1,758,365 14.4 Operating income 9,970 5.9% 10,471 5.4% $ 100,683 5.0 - ---------------------------------------------------------------------------------------------- CORPORATE AND ELIMINATION Net sales (401,899) (451,462) ($4,340,980) Operating expenses (406,841) (456,173) (4,386,278) Operating income 4,942 4,711 $ 45,298 - ---------------------------------------------------------------------------------------------- CONSOLIDATED Net sales 1,738,358 100.0% 1,780,245 100.0% $ 17,117,740 2.4 Operating expenses 1,604,704 92.3 1,630,239 91.6 15,675,375 1.6 Operating income 133,654 7.7% 150,006 8.4% $ 1,442,365 12.2 - ----------------------------------------------------------------------------------------------
Japan Sales in Japan for the fiscal year ended March 31, 2004 increased by 3.0% (or Yen 38.2 billion) to Yen 1,313.1 billion from Yen 1,274.9 billion for the fiscal year ended March 31, 2003. Sales to other Ricoh companies located outside of this geographic segment increased by 9.5% (or Yen 30.4 billion) between the fiscal years ended March 31, 2004 and 2003, due primarily to the depreciation of the Japanese Yen against the Euro and increased exports of products from Japan. In terms of sales to external customers, Ricoh recorded an increase in sales of its Printing Systems, such as MFPs and laser printers. This increase reflects the results of Ricoh's strategic promotion activities and marketing strategy in the Office Equipment segment, which focused on responding to the change in customer demand from stand-alone monochrome products to networkable color products. In addition, sales of solution business products such as support services, document management applications and other software increased in this geographic segment. The increase in sales of MFPs, laser printers and solution business products is a trend that has continued in fiscal year 2004. Meanwhile, sales in analog equipment decreased as such equipment was replaced with MFPs and color equipment, and sales of personal computers and servers declined as a result of restrained spending on information technology equipment in Japan. In the Other Business segment, sales for measuring equipment decreased due to the sluggish market for such equipment, although leasing and other businesses performed favorably compared to the previous fiscal year. -38- Operating expenses in this geographic segment for the fiscal year ended March 31, 2004 increased by 2.3% (or Yen 27.1 billion) to Yen 1,215.8 billion from Yen 1,188.7 billion for the fiscal year ended March 31, 2003. This increase in operating expenses was primarily due to an increase in sales volume, especially in exports to foreign countries. Even though net sales in this segment increased by 3.0% as compared to the previous year, operating expense increased by only 2.3% as compared to the previous year. This was primarily due to (1) the increase in sales of value-added high-margin products, such as MFPs and products with color capabilities, (2) no additional expenses being incurred during fiscal year 2004 to resolve the quality problems that arose with respect to measuring equipment during the fiscal year ended March 31, 2003, and (3) the net gain of Yen 8.3 billion recognized from the transfer to the Japanese government of the substitutional portion of the EPF in respect of this geographic segment for the fiscal year ended March 31, 2004. Because the increase in sales was greater than the increase in operating expenses, operating income in Japan for the fiscal year ended March 31, 2004 increased by 13.0% (or Yen 11.1 billion) to Yen 97.3 billion from Yen 86.1 billion for the fiscal year ended March 31, 2003. Excluding net gains recognized from the transfer to the Japanese government of the substitutional portion of the EPF, operating income in Japan would have increased by 3.3%. The Americas Sales in the Americas for the fiscal year ended March 31, 2004 decreased by 5.5% (or Yen 18.8 billion) to Yen 320.7 billion from Yen 339.5 billion for the fiscal year ended March 31, 2003, primarily due to the appreciation of the Japanese Yen against the U.S. Dollar. Despite repercussions from the Iraq war, turmoil in the Middle East, and severe competition in the Americas, Ricoh enhanced its existing sales channels and devoted significant effort to the retail of MFPs, color PPCs and color laser printer as these products are responsive to customers' changing needs for networking, coloration, and high speed products. In addition, Ricoh focused on marketing and promotional efforts towards major corporate clients for the fiscal year ended March 31, 2004. Nevertheless, the decrease in net sales due to the appreciation of the Japanese Yen against the U.S. Dollar exceeded the increase in net sales in the local currency. Without foreign currency fluctuations, net sales in the Americas would have increased by 1.9%. Although sales in the Americas decreased as mentioned above, operating expenses in this geographic segment for the fiscal year ended March 31, 2004 decreased by a greater percentage due to (1) a greater percentage of sales being derived from higher-margin value-added digital-based office equipment such as MFPs, color PPCs and color laser printers, which share similar parts thereby allowing Ricoh to achieve cost efficiencies, and (2) on-going cost-cutting efforts through the management of the supply chain and other activities. Europe Sales in Europe for the fiscal year ended March 31, 2004 increased by 13.6% (or Yen 48.4 billion) to Yen 404.4 billion from Yen 355.9 billion for the fiscal year ended March 31, -39- 2003, due primarily to the depreciation of the Japanese Yen against the Euro and an increase in sales of Printing Systems, such as MFPs and laser printers, reflecting Ricoh's efforts to strengthen its sales networks and continuously reinforce its brand power. In Europe, sales of products with color capability increased greatly compared to the previous fiscal year. Continuing the trend from previous fiscal years, Ricoh extended in fiscal year 2004 its number one ranking in terms of market share in the sales of copiers and MFPs in Europe. Despite the increase in sales in this geographic segment, as noted above, operating expenses in this geographic segment for the fiscal year ended March 31, 2004 increased by a lower percentage as compared to the percentage increase in sales, due to (1) a greater portion of its sales being derived from higher-margin value-added digital-based office equipment, especially with color capabilities, (2) Ricoh' ability to relocate its production facilities for those products closer to its customers, thereby eliminating costs associated with transporting such finished products, and (3) the depreciation of the Japanese Yen against the Euro. Other Sales in the Other geographic segment, which includes China, Asia and Oceania for the fiscal year ended March 31, 2004 increased by 13.8% (or Yen 23.5 billion) to Yen 193.3 billion from Yen 169.8 billion for the fiscal year ended March 31, 2003. Sales of Printing Systems increased, reflecting a full-fledged shift to digital, networkable and color products from stand-alone, analog and monochrome equipment in this geographic segment, while demand for optical discs and semiconductor sales decreased. The increase in sales of Printing Systems exceeded the decrease in sales of optical discs and semiconductors. Ricoh Asia Industry (Shenzhen), Ltd., a manufacturing subsidiary in China which mainly manufactures low-end digital PPCs and MFPs, continued to contribute to increased sales in this geographic segment. This subsidiary also provides Ricoh with access to lower labor costs in China. The products manufactured by this subsidiary have been exported to marketing operations in Japan, the U.S. and Europe. Ricoh maintained a high production level at this subsidiary for the fiscal year ended March 31, 2004 to respond to an increase in demand for digital PPCs and MFPs in the various markets around the world. FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002 NET SALES. Consolidated net sales for the fiscal year ended March 31, 2003 increased by 3.9% (or Yen 66.0 billion) to Yen 1,738.3 billion from Yen 1,672.3 billion for the fiscal year ended March 31, 2002. The U.S. Dollar depreciated in relation to the Japanese Yen for the fiscal year ended March 31, 2003 compared to the fiscal year ended March 31, 2002, resulted in a decrease in U.S. Dollar-denominated net sales. The increase in net sales resulting from the appreciation of the Euro was greater than the decrease in net sales resulting from the depreciation of the U.S. Dollar. Accordingly, net sales for the fiscal year ended March 31, 2003 increased compared to the net sales for the -40- fiscal year ended March 31, 2002. Excluding the appreciation of the Euro and the depreciation of the U.S. Dollar, net sales would have increased by 2.7%. An increase in net sales in the Office Equipment segment, which resulted primarily from a boost in net sales in the Network Input/Output Systems product category, also contributed to the increase in consolidated net sales. More specifically, in the Network Input/Output Systems product category, Ricoh launched new networkable MFPs and laser printers to meet customer needs during fiscal year 2003. Sale of higher-margin value-added digital-based equipment especially contributed to the increase in net sales in this product category. This increase in net sales principally in the Network Input/Output Systems product category was offset by a decrease in domestic sales of products in the Imaging Solutions product category due to Japan's prolonged recession. The decrease in sales in the Imaging Solutions product category was primarily due to the shift in customer needs in Japan towards products that are included in the Network Input/Output systems category, such as MFPs and laser printers machines. All in all, net sales in the Office Equipment segment resulting from an increase in net sales of higher-margin value-added digital-based office equipment in the Network Input/Output Systems product category offset by the domestic decrease in net sale in the Imaging Solutions product category, accounted for a 2.4% increase in net sales. In particular, Ricoh's introduction of new MFPs and laser printers, which are higher-margin value-added digital-based office equipment products, in the Network Input/Output Systems category contributed to the increase in net sales for the fiscal year ended March 31, 2003 when compared to the fiscal year ended March 31, 2002. Printers with color printing capabilities in both of these Network Input/Output Systems product lines especially contributed to the increase in net sales, as customers demand for color printers increased. Sales of MFPs increased by 31.1% and sales of laser printers increased by 44.7% for the fiscal year ended March 31, 2003 as compared to the fiscal year ended March 31, 2002. Sales in the digital PPC product line in the overseas market increased by 4.2% as customer needs for digital printing equipment increased. However, during the fiscal year ended March 31, 2003, sales in the analog PPC product line decreased by 23.4% as compared to the fiscal year ended March 31, 2002 as customer needs shifted towards digital equipment. Sales also decreased in the facsimile machine product line by 16.4% for the fiscal year ended March 31, 2003 as compared to the fiscal year ended March 31, 2002 as alternative methods to facsimile transmission, such as scanning and emailing documents, became more widespread. COST OF SALES. Consolidated cost of sales for the fiscal year ended March 31, 2003 increased by 2.1% (or Yen 20.6 billion) to Yen 993.0 billion from Yen 972.3 billion for the fiscal year ended March 31, 2002. This increase was due primarily to an increase in net sales and the appreciation of the Euro to the Japanese Yen resulting in higher Japanese Yen equivalents of Euro-denominated cost of sales. These increases were offset by various cost-cutting measures taken by Ricoh as discussed below. As a percentage of net sales, cost of sales decreased by 1.0% to 57.1% for the fiscal year ended March 31, 2003 from 58.1% for the fiscal year ended March 31, 2002. Cost of sales increased by only 2.1% even though net sales increased by 3.9% for the same periods, primarily due to various cost-cutting measures taken by Ricoh. These cost- -41- cutting measures included the following: (1) procuring materials from suppliers at lower costs, and (2) providing employee training programs and opportunities to its employees so that they obtain more experience and become more productive, thereby allowing Ricoh to minimize and eliminate production line inefficiencies. The increase in sales of higher-margin value-added digital-based products also allowed Ricoh to take advantage of production efficiencies that result from using standardized equipment parts or standardized production specifications, thereby attaining higher recovery of fixed costs. GROSS PROFIT. Consolidated gross profit for the fiscal year ended March 31, 2003 increased by 6.5% (or Yen 45.4 billion) to Yen 745.3 billion from Yen 699.9 billion for the fiscal year ended March 31, 2002. As a percentage of net sales, gross profit increased by 1.0% to 42.9% for the fiscal year ended March 31, 2003 from 41.9% for the fiscal year ended March 31, 2002. This increase in gross profit as a percentage of net sales was primarily due to the various cost-cutting measures taken by Ricoh and the increase in net sales of the higher-margin value-added digital-based products (notably MFPs and laser printers) in both Japan and abroad, as discussed above, while the company incurred additional costs to correct quality problems on some of its measuring equipment. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general and administrative expenses for the fiscal year ended March 31, 2003 increased by 7.3% (or Yen 41.4 billion) to Yen 611.6 billion from Yen 570.2 billion for the fiscal year ended March 31, 2002, due primarily to the following reasons: (1) the appreciation of the Euro to the Japanese Yen that resulted in higher Japanese Yen equivalents of Euro-denominated expenses and (2) strategic spending on research and development and back-office information systems development. Research and development expenses for the fiscal year ended March 31, 2003 increased by 3.4% (or Yen 2.7 billion) to Yen 83.5 billion from Yen 80.7 billion for the fiscal year ended March 31, 2002. For additional detail as to expenditures on research and development activities, see Item 5.C. OPERATING INCOME. Consolidated operating income for the fiscal year ended March 31, 2003 increased by 3.1% (or Yen 3.9 billion) to Yen 133.6 billion from Yen 129.6 billion for the fiscal year ended March 31, 2002. Despite the fact that the percentage increase in selling, general and administrative expenses between the fiscal years ended March 31, 2002 and 2003 was greater than the percentage increase in gross profit for the same fiscal years, Ricoh's operating income increased by 3.1% due to the fact that the total gross profit amount was higher than the amount for selling, general and administrative expenses. INTEREST AND DIVIDEND INCOME. Consolidated interest and dividend income for the fiscal year ended March 31, 2003 decreased by Yen 0.9 billion to Yen 3.7 billion from Yen 4.7 billion for the fiscal year ended March 31, 2002. This decrease in consolidated interest and dividend income resulted primarily from lower interest rates and difficult economic conditions in Japan. -42- INTEREST EXPENSE. Consolidated interest expense for the fiscal year ended March 31, 2003 decreased by Yen 1.3 billion to Yen 6.8 billion from Yen 8.2 billion for the fiscal year ended March 31, 2002. This decrease in consolidated interest expense resulted primarily from the decrease in the amount of Ricoh's interest-bearing debt outstanding for the fiscal year ended March 31, 2003 as compared to the fiscal year ended March 31, 2002. Ricoh was able to decrease outstanding interest-bearing debt for the fiscal year 2003 as it used its cash management systems in Japan, the United States and Europe as an alternative method of obtaining funds. As a result, Ricoh's interest-bearing debt as of March 31, 2003 decreased by Yen 76.7 billion to Yen 484.6 billion from Yen 561.4 billion for the fiscal year ended March 31, 2002. FOREIGN CURRENCY EXCHANGE (GAIN) LOSS, NET. Consolidated foreign currency exchange loss, net included in other (income) expenses for the fiscal year ended March 31, 2003 decreased by Yen 5.1 billion to a loss of Yen 0.5 billion from a loss of Yen 5.7 billion for the fiscal year ended March 31, 2002. This decrease was primarily due to foreign exchange gains resulting from the depreciation of the Japanese Yen relative to the Euro. OTHER, NET. Consolidated other, net included in other (income) expenses for the fiscal year ended March 31, 2003 did not change significantly from the other, net for the fiscal year ended March 31, 2002. Consolidated other, net for the fiscal year ended March 31, 2003 mainly consisted of valuation loss of investment securities. TOTAL OTHER (INCOME) EXPENSES. Consolidated total other expenses, net for the fiscal year ended March 31, 2003 decreased by 35.3% (or Yen 5.5 billion) to Yen 10.1 billion from Yen 15.7 billion for the fiscal year ended March 31, 2002. This significant decrease in total other expenses, net was due primarily to the significant decrease in foreign currency exchange losses and the decrease in interest expense as discussed above. INCOME BEFORE INCOME TAXES, MINORITY INTERESTS AND EQUITY IN EARNINGS OF AFFILIATES. Consolidated income before income taxes, minority interests and equity in earnings of affiliates for the fiscal year ended March 31, 2003 increased by 8.4% (or Yen 9.5 billion) to Yen 123.4 billion from Yen 113.9 billion for the fiscal year ended March 31, 2002, even though operating income increased by only 3.1% for the same periods. This higher percentage increase of income before income taxes, minority interests and equity in earnings of affiliates was attributable to the 35.3% decrease in other expenses, net during the same period. TOTAL PROVISIONS FOR INCOME TAXES. Total consolidated provisions for income taxes for the fiscal year ended March 31, 2003 increased by 1.6% (or Yen 0.8 billion) to Yen 51.9 billion from Yen 51.1 billion for the fiscal year ended March 31, 2002. This lower percentage increase in provisions for income taxes as compared to the percentage increase in income before income taxes, minority interests and equity in earnings of affiliates was primarily due to a decrease in the effective tax rate. The actual effective tax rate decreased by 2.8% to 42.1% for the fiscal year ended March 31, 2003 from 44.9% for the previous fiscal year. This 2.8% decrease in the effective tax rate was attributable to (1) a tax credit being applied for increased research -43- and development expense and (2) tax benefits previously not recognized with respect to net operating losses of certain consolidated subsidiaries. As a result, the effective tax rate is almost the same as the statutory tax rate. MINORITY INTERESTS. Consolidated minority interests for the fiscal year ended March 31, 2003 decreased by Yen 1.7 billion to Yen 1.3 billion from Yen 3.0 billion for the fiscal year ended March 31, 2002. This decrease was primarily attributable to the losses generated by Ricoh's manufacturing affiliates in Japan to resolve quality problems in its measuring equipment. EQUITY IN EARNINGS OF AFFILIATES. Consolidated equity in earnings of affiliates for the fiscal year ended March 31, 2003 increased by Yen 0.5 billion to Yen 2.4 billion from Yen 1.8 billion for the fiscal year ended March 31, 2002. This increase was primarily due to the increase in net income of Ricoh's foreign affiliates. OPERATING SEGMENTS - ------------------------------------------------------------------------------- Millions of Yen (except for percentages) ---------------------------------------- 2002 2003 % Change - ------------------------------------------------------------------------------- OFFICE EQUIPMENT Net sales 1,485,389 100.0% 1,520,574 100.0% 2.4 Operating expenses 1,304,079 87.8 1,329,776 87.5 2.0 Operating income 181,310 12.2% 190,798 12.5% 5.2 - ------------------------------------------------------------------------------- OTHER BUSINESSES Net sales 190,815 100.0% 220,539 100.0% 15.6 Operating expenses 187,424 98.2 222,772 101.0 18.9 Operating income 3,391 1.8% (2,233) (1.0%) -- - ------------------------------------------------------------------------------- CORPORATE AND ELIMINATION Net sales (3,864) (2,755) Operating expenses 51,142 52,156 Operating income (55,006) (54,911) - ------------------------------------------------------------------------------- CONSOLIDATED Net sales 1,672,340 100.0% 1,738,358 100.0% 3.9 Operating expenses 1,542,645 92.2 1,604,704 92.3 4.0 Operating income 129,695 7.8% 133,654 7.7% 3.1 - ------------------------------------------------------------------------------- Office Equipment Sales in the Office Equipment segment for the fiscal year ended March 31, 2003 increased by 2.4% (or Yen 35.1 billion) to Yen 1,520.5 billion from Yen 1,485.3 billion for the fiscal year ended March 31, 2002. This increase was primarily due to (i) a boost in sales of Printing Systems as printers with increased printing speed, network capabilities and color printing capabilities were introduced and (ii) an increase in sales of Other Input/Output Systems mainly due to the increase in sales of DVDs in the United States and CD-R/RW shipments in other regions. This increase in sales of Network Input/Output Systems products was partly offset by a decrease in sales of Imaging Solutions products, as domestic sales of Digital Imaging Solutions products decreased, and sales of Other Imaging Solutions products decreased both in Japan and the overseas markets. These sales results are consistent with Ricoh's effort to support the shift in -44- customers' demand to digital networking and color-based products from monochrome analog-based stand-alone products. Sales in the Imaging Solutions product category for the fiscal year ended March 31, 2003 decreased by 8.0% (or Yen 74.4 billion) to Yen 859.7 billion from Yen 934.1 billion for the fiscal year ended March 31, 2002. In Digital Imaging Solutions, Ricoh strengthened its product lineup with new digital PPC offerings, which included both low-end models and high-end models. Despite the introduction of new digital PPC products, sales of digital PPC products decreased domestically due to the depressed Japanese economy and the shift towards MFPs included in the Network Input/Output Systems product category. Sales of digital PPC products increased, however, in Europe and the other regions. In Other Imaging Solutions, sales decreased reflecting the trend from analog-type equipment to digital-type equipment and MFPs. The profit margin of such analog-based office equipment has decreased over the past years in line with the decrease in sales of this equipment as analog-based equipment are being replaced by digital-based equipment. In contrast to the above product lines that have been Ricoh's core business, the MFP and laser printer product lines under the Network Input/Output Systems product category have seen an increase in its sales volume in both Japan and the overseas markets in recent years. During the fiscal year ended March 31, 2003, Ricoh focused on the sale of color products in these product lines resulting in the replacement of monochrome products in many of our customers' offices. This sales strategy led to increased sales in this product category. For the fiscal year ended March 31, 2003, Ricoh also strengthened its sales of various Network System Solutions products relating to its office equipment products to assist its customers in optimizing their total printing costs. Such network system solutions included support services, document management applications and related software. Sales in these Network System Solutions products increased both in Japan and the overseas market. In contrast, sales of personal computers and servers, which also fall within the Network System Solutions product category, continued to decline in Japan for the fiscal year ended March 31, 2003 as compared to the fiscal year ended March 31, 2002, due to sluggish information technology spending in Japan. As a result, sales within the Network System Solutions product category decreased for the fiscal year ended March 31, 2003 as compared to the fiscal year ended March 31, 2002. Overall, the increase in sales in the Network Input/Output Systems product category exceeded the decrease in sales in the Imaging Solutions product category and the Network System Solutions product category. Excluding the exchange rate fluctuations of the U.S. Dollar and the Euro, sales in the Office Equipment segment would have increased by 1.1% (or Yen 16.0 billion) for the fiscal year ended March 31, 2003 as compared to the fiscal year ended March 31, 2002. With respect to operating expenses, Ricoh was able to lower operating expenses for the fiscal year ended March 31, 2003 as production of various digital-based office equipment was shifted to factories located in China where production costs are lower -45- than other locations. Ricoh's productivity for its production lines in China also increased due to the application of continuous cost-cutting efforts. On the other hand, Ricoh increased strategic expenditures in research and development activities and back-office information systems development. As a result, operating expenses in the Office Equipment segment for the fiscal year ended March 31, 2003 increased by 2.0% (or Yen 25.6 billion) to Yen 1,329.7 billion from Yen 1,304.0 billion for the fiscal year ended March 31, 2002. As a result of the above factors, operating income within the Office Equipment segment for the fiscal year ended March 31, 2003 increased by 5.2% (or Yen 9.4 billion) to Yen 190.7 billion from Yen 181.3 billion for the fiscal year ended March 31, 2002. The operating income as a percentage of net sales for the fiscal year ended March 31, 2003 rose by 0.3 percentage point to 12.5% from 12.2% as compared to the fiscal year ended March 31, 2002, due primarily to the depreciation of the Japanese Yen to the Euro, which favorably affected profitability. Other Business Sales within the Other Business segment for the fiscal year ended March 31, 2003 increased by 15.6% (or Yen 29.7 billion) to Yen 220.5 billion from Yen 190.8 billion for the fiscal year ended March 31, 2002. As a percentage of total sales, sales to unaffiliated customers within the Other Business segment increased by 1.3% from 11.2% for the fiscal year ended March 31, 2002 to 12.5% for the fiscal year ended March 31, 2003. This increase in sales was due primarily to the recovery in demand for semiconductors in the domestic market and a buoyant increase in demand in the overseas markets. The steady performance of the leasing business also contributed to the increase in sales in this segment. At the same time, however, Ricoh incurred additional expense to resolve quality problems in its measuring equipment, which shortened the life of such equipment. As a result, operating income within the Other Business segment for the fiscal year ended March 31, 2003 decreased by Yen 5.6 billion to Yen 2.2 billion net loss from Yen 3.3 billion for the fiscal year ended March 31, 2002. -46- GEOGRAPHIC SEGMENTS - -------------------------------------------------------------------------------- Millions of Yen (except for percentages) - --------------------------------------------------------------------- % Change 2002 2003 -------- ----------------------------------------- JAPAN Net sales 1,248,691 100.0% 1,274,906 100.0% 2.1 Operating expenses 1,142,522 91.5 1,188,760 93.2 4.0 Operating income 106,169 8.5% 86,146 6.8% (18.9) - -------------------------------------------------------------------------------- THE AMERICAS Net sales 346,953 100.0% 339,555 100.0% (2.1) Operating expenses 335,521 96.7 325,228 95.8 (3.1) Operating income 11,432 3.3% 14,327 4.2% 25.3 - -------------------------------------------------------------------------------- EUROPE Net sales 313,351 100.0% 355,962 100.0% 13.6 Operating expenses 301,152 96.1 337,693 94.9 12.1 Operating income 12,199 3.9% 18,269 5.1% 49.8 - -------------------------------------------------------------------------------- OTHER Net sales 146,947 100.0% 169,834 100.0% 15.6 Operating expenses 139,874 95.2 159,864 94.1 14.3 Operating income 7,073 4.8% 9,970 5.9% 41.0 - -------------------------------------------------------------------------------- CORPORATE AND ELIMINATION Net sales (383,602) (401,899) Operating expenses (376,424) (406,841) Operating income (7,178) 4,942 - -------------------------------------------------------------------------------- CONSOLIDATED Net sales 1,672,340 100.0% 1,738,358 100.0% 3.9 Operating expenses 1,542,645 92.2 1,604,704 92.3 4.0 Operating income 129,695 7.8% 133,654 7.7% 3.1 - -------------------------------------------------------------------------------- Japan Sales in Japan for the fiscal year ended March 31, 2003 increased by 2.1% (or Yen 26.2 billion) to Yen 1,274.9 billion from Yen 1,248.6 billion for the fiscal year ended March 31, 2002. Sales to external customers in this geographic segment increased by 1.6% (or Yen 15.3 billion) between the fiscal year ended March 31, 2003 and 2002, due primarily to the depreciation of the Japanese Yen relative to the Euro and higher exports of products manufactured in Japan. Despite the continuing recession in Japan, Ricoh recorded an increase in sales of its Printing Systems such as MFPs and laser printers, which reflects the shift in customer demand from stand-alone monochrome products to networkable color products and extended marketing efforts of such products undertaken by Ricoh. In addition, sales in the Network System Solutions business such as support services, document management applications and software also increased. On the other hand, sales declined for analog PPCs, facsimile machines, and personal computers and servers, as a result of restrained spending on information technology equipment. In the Other Business segment, the demand for semiconductors in Japan increased due to the recovery in demand in the businesses that use Ricoh's semiconductors, while the demand for measuring equipment decreased due primarily to a low demand cycle for such equipment. In addition to the increase in sales to external customers in Japan, intersegment sales increased by 3.5% (or Yen 10.8 billion) for the fiscal year ended March 31, 2003 as compared to the fiscal year ended March 31, 2002 in Japan. Intersegment sales of office equipment rose amid strong exports and the appreciation of the Euro relative to the Japanese Yen. Export of high-speed PPCs, MFPs and laser printers, which are mostly -47- manufactured in Japan, increased, as demand for such equipment increased in foreign countries. Operating expenses in this geographic segment for the fiscal year ended March 31, 2003 increased by 4.0% (or Yen 46.2 billion) to Yen 1,188.7 billion from Yen 1,142.5 billion for the fiscal year ended March 31, 2002. This increase in operating expenses was primarily due to an increase in sales volume. In addition, Ricoh incurred additional expenses to resolve the quality problems that arose with respect to its measuring equipment and to comply with changes in the laws and regulations of Japan affecting social insurance premiums. Although Ricoh took various cost-cutting measures to lower its expenses, such cost-cutting measures did not offset the additional expense incurred by Ricoh in this geographic segment. The cost-cutting measures taken by Ricoh included the following: (1) reduction of expenses incurred in connection with the procurement of materials from its suppliers, and (2) minimizing and eliminating inefficiencies in its production lines as employees became more productive through enhanced training and as they gained more experience. As a result of the increase in operating expenses in excess of the increase in sales described above, operating income in Japan for the fiscal year ended March 31, 2003 decreased by 18.9% (or Yen 20.0 billion) to Yen 86.1 billion from Yen 106.1 billion for the fiscal year ended March 31, 2002. As a percentage of sales, operating income in Japan declined for the fiscal year ended March 31, 2003 by 1.7% as compared to the fiscal year ended March 31, 2002. The Americas Sales in the Americas for the fiscal year ended March 31, 2002 decreased by 2.1% (or Yen 7.3 billion) to Yen 339.5 billion from Yen 346.9 billion for the fiscal year ended March 31, 2002, primarily due to the appreciation of the Japanese Yen to the U.S. Dollar. Despite the economic slowdown in the United States and severe competition in the Americas, Ricoh expanded its existing sales channels to major corporate clients through Lanier Worldwide, Inc. ("Lanier"), especially in North America, for the fiscal year ended March 31, 2003. Through such expanded marketing channels, Ricoh increased sales of its new printing systems to match customer demand that shifted from analog-based products to networked digital PPC and color models. As a result of such stepped up sales efforts, sales of digital PPCs and MFPs increased in this geographic segment for the fiscal year ended March 31, 2003. Though sales in the Americas decreased, as mentioned above, operating expenses in this geographic segment for the fiscal year ended March 31, 2003 decreased by a greater percentage as compared to the percentage decrease in sales, due to the fact that a greater portion of the higher-margin value-added digital-based office equipment was sold to wholesalers. This sales strategy was used by Lanier to increase the sale of digital-based office equipment. The greater percentage decrease in operating expenses was also due to the appreciation of the Japanese Yen relative to the U.S. Dollar. -48- As a result, operating income in the Americas for the fiscal year ended March 31, 2003 increased by 25.3% (or Yen 2.8 billion) to Yen 14.3 billion from Yen 11.4 billion for the fiscal year ended March 31, 2002. Europe Sales in Europe for the fiscal year ended March 31, 2003 increased by 13.6% (or Yen 42.6 billion) to Yen 355.9 billion from Yen 313.3 billion for the fiscal year ended March 31, 2002, due primarily to the depreciation of the Japanese Yen to the Euro and an increase in sales of higher-margin digital-based office equipment, such as digital PPC and MFPs, as customer demand for such products increased in Europe. Continuing the trend from previous fiscal years, Ricoh was ranked number one in terms of market share in sales of digital PPCs and MFPs in Europe. Despite the increase in sales in this geographic segment, as noted above, operating expenses in this geographic segment for the fiscal year ended March 31, 2002 increased by a lower percentage amount as compared to the percentage increase in sales, as Ricoh was able to relocate its production facilities for higher-margin value-added digital-based office equipment closer to its customers, thereby eliminating costs associated with transporting such finished products. As a result, operating income in this segment for the fiscal year ended March 31, 2003 increased by 49.8% (or Yen 6.0 billion) to Yen 18.2 billion from Yen 12.1 billion for the fiscal year ended March 31, 2002. Other Sales in the Other geographic segment, which includes countries such as China, for the fiscal year ended March 31, 2003 increased by 15.6% (or Yen 22.8 billion) to Yen 169.8 billion from Yen 146.9 billion for the fiscal year ended March 31, 2002, due primarily to a full-fledged shift to digital, networkable and color products from stand-alone, analog and monochrome equipment in this geographic segment. Demand for optical discs also continued to improve in response to the strong demand in such products, while semiconductor sales remained solid. Ricoh Asia Industry (Shenzhen), Ltd., a manufacturing subsidiary in China which mainly manufactures low-end digital PPCs and MFPs, continued to contribute to increased sales in this geographic segment. This subsidiary also provides Ricoh with access to lower labor costs in China. The products manufactured by this subsidiary have been exported to marketing operations in Japan, the U.S. and Europe, and its sales volume has increased annually. Ricoh also established a regional headquarters in China during the fiscal year ended March 31, 2003 to focus on integrating manufacturing, sales and services, and to support strategic growth in the promising Chinese market. As a result, operating income in the Other geographic segment for the fiscal year ended March 31, 2003 increased by 41.0% (or Yen 2.8 billion) to Yen 9.9 billion from Yen 7.0 billion for the fiscal year ended March 31, 2002. -49- PENSION INFORMATION Ricoh, like many large corporations in Japan, has an Employee Pension Fund ("EPF"), which is a defined benefit pension fund established under the Japanese Welfare Pension Insurance Law ("JWPIL"). This fund is composed of (i) a substitutional portion based on the pay-related part of the old-age pension benefits prescribed by JWPIL (similar to social security benefits in the United States) and (ii) a corporate portion based on a contributory defined benefit pension arrangement established by Ricoh. The fund assets of the EPF are invested and managed as a single portfolio for the entire EPF and are not statutorily attributed to the substitutional and corporate portions. The substitutional portion represented 39% of the total projected benefit obligation of Ricoh's EPF as of March 31, 2003. On June 15, 2001, the JWPIL was amended to permit an employer to elect to separate the substitutional portion from the EPF and transfer the substitutional portion to the Japanese government. Upon completion of the separation and transfer, the employer and the EPF are released from paying the substitutional portion of the benefits to EPF beneficiaries. Pursuant to the Contributed Benefit Pension Plan Law, Ricoh received from the Minister of Health, Labor and Welfare, effective January 1, 2003, an exemption from its obligation to contribute to the substitutional portion of its EPF for future employee services. In January 2004, Ricoh received from the Japanese government an exemption from its obligation to contribute to the substitutional portion of its EPF relating to past employee services. The transfer to the Japanese government of the substitutional portion of the EPF was completed on March 16, 2004. With respect to the accounting treatment of this transfer under accounting principles generally accepted in the United States of America, Ricoh accounted for the transfer in accordance with Emerging Issues Task Force Issue No. 03-02 "ACCOUNTING FOR THE TRANSFER TO THE JAPANESE GOVERNMENT OF THE SUBSTITUTIONAL PORTION OF EMPLOYEE PENSION FUND LIABILITIES" ("EITF 03-02"). As specified in EITF 03-02, the entire separation process and transfer is to be accounted for at the time of completion of the transfer to the government of the substitutional portion of the benefit obligation and related plan assets in accordance with Statement of Financial Accounting Standards No. 88 "EMPLOYERS' ACCOUNTING FOR SETTLEMENTS AND CURTAILMENTS OF DEFINED BENEFIT PENSION PLANS AND FOR TERMINATION BENEFITS". As a result of the transfer in March 2004, Ricoh recognized as a subsidy from the Japanese government the difference between the fair value of the obligation deemed "settled" with the Japanese government and the assets required to be transferred to the government. The subsidy that Ricoh recognized amounted to Yen 56.9 billion. In addition, Ricoh recognized as a settlement loss the amount calculated as the ratio of the obligation settled to the total EPF obligation immediately prior to settlement, both of which exclude the effect of future salary progression relating to the substitutional portion, times the net unrecognized gain/loss immediately prior to settlement, which amounted to Yen 48.6 billion. In addition, during the fiscal year ended March 31, 2004, the Company modified its pension plan system from a seniority-based system wherein benefits increase relative to the number of years of employment to a performance-based system in which benefits -50- reflect the individual employee's performance. By implementing this new pension plan system, Ricoh believes that it can limit future retirement benefit expenses. While the Company has implemented a pension plan system that limits future retirement benefit expenses, Ricoh believes that changing to a performance-based system in which each employee's performance rather than seniority is evaluated will maintain employee morale and motivation. Employees of the Company who retired or left the Company prior to the implementation of this new pension plan system will still receive benefits based on the previous seniority-based system. B. Liquidity and capital resources Cashflows - --------- The following summarizes our cashflows for each of the three fiscal years ended March 31, 2002, 2003 and 2004, as reported in our Consolidated Statements of Cashflows in the accompanying Consolidated Financial Statements.
(Billions of Japanese Yen) For the year ended March 31, ---------------------------- 2002 2003 2004 ----- ----- ----- Net cash provided by operating activities 105.1 185.7 154.9 Net cash used in investing activities (81.4) (98.1) (63.3) Net cash (used in) provided by financing activities 36.2 (67.1) (74.8) Increase in cash and cash equivalents 62.4 19.0 13.7 Cash and cash equivalents at beginning of year 107.7 170.1 189.2 Cash and cash equivalents at end of year 170.1 189.2 203.0
Operating Cashflows For fiscal year 2004, net cash provided by operating activities consisted primarily of net income of Yen 91.7 billion, depreciation and amortization of Yen 76.9 billion and an increase in trade payables of Yen 21.3 billion, which was offset by an increase in trade receivables of Yen 11.3 billion, an increase in finance receivables of Yen 32.6 billion, as well as a decrease in accrued income taxes and other of Yen 5.9 billion. As compared to fiscal year 2003, net cash provided from operating activities decreased because (1) the increase in net sales in the United States and Japan during the fourth quarter as compared to such period during fiscal year 2003 resulted in an increase in Ricoh's trade receivables for fiscal year 2004 and (2) the decrease in demand for optical discs resulted in an increase in the volume of such products being held as inventory. For fiscal year 2003, net cash provided by operating activities consisted primarily of net income of Yen 72.5 billion, depreciation and amortization of Yen 76.5 billion and a decrease in trade receivables of Yen 22.1 billion, which was offset in part by an increase in -51- finance receivables of Yen 33.1 billion. As compared to fiscal year 2002, net cash provided from operating activities increased for fiscal year 2003 because (1) the decrease in net sales during the fourth quarter as compared to such period during fiscal year 2002 resulted in a decrease in Ricoh's trade receivables for fiscal year 2003 and (2) the decrease in inventory held by Lanier and Ricoh's efforts to streamline its supply chain by establishing a production process by which products are assembled once an order is placed at a local factory resulted in decreases in inventory. For fiscal year 2002, net cash provided from operating activities consisted primarily of net income of Yen 61.6 billion, depreciation and amortization of Yen 73.7 billion and a decrease in inventories of Yen 21.1 billion, which was offset by an increase in trade receivables of Yen 20.0 billion, a decrease in trade payables of Yen 19.5 billion, an increase in finance receivables of Yen 13.6 billion and a decrease in accrued income taxes and accrued expenses of Yen 13.5 billion. Investing Cashflows For fiscal year 2004, net cash used in investing activities consisted mainly of Yen 75.4 billion of expenditures for property, plant and equipment and Yen 35.5 billion in payments for purchase of available-for-sale securities, as well as Yen 8.0 billion of other, net. Ricoh realized Yen 45.4 billion from sales of available-for-sale securities that were held by the Company and certain subsidiaries and Yen 9.9 billion from a decrease in time deposits. As compared to fiscal year 2003, net cash used in investing activities decreased for fiscal year 2004 because Ricoh disposed of certain of its available-for-sale securities that were not performing as expected and did not make alternative investments. For fiscal year 2003, net cash used in investing activities consisted primarily of Yen 71.9 billion of expenditures for property, plant and equipment and Yen 52.2 billion in payments for purchases of available-for-sale securities. Ricoh realized Yen 24.5 billion in sales of available-for-sale securities that were held by the Company and certain subsidiaries as a result of repayments of such securities, and Yen 0.9 billion from a decrease in time deposits due to such time deposits reaching maturity. Net cash used in investing activities for fiscal year 2003 increased from fiscal year 2002 as Ricoh purchased additional available-for-sale securities by taking advantage of favorable market conditions. These additional purchases were funded in part by the cash provided by the sale of certain available-for-sale securities. For fiscal year 2002, net cash used in investing activities consisted primarily of Yen 75.2 billion of expenditures for property, plant and equipment, Yen 21.0 billion of other, net, and Yen 10.0 billion in payments for purchases of available-for-sale securities. Ricoh realized Yen 24.5 billion in sales of available-for-sale securities that were held by the Company and certain subsidiaries, and Yen 0.7 billion in proceeds from sales of property, plant and equipment. -52- Financing Cashflows For fiscal year 2004, net cash used in financing activities consisted primarily of Yen 31.5 billion spent for the repayment of long-term loans, Yen 23.9 billion used for the repayment of long-term debt securities, Yen 10.7 billion used to reduce short-term borrowings and Yen 11.4 billion used for the purchase of treasury stock. Ricoh has not sought authorization for additional share repurchases during fiscal year 2005, although it may decide to do so in the future. Ricoh received Yen 13.3 billion as proceeds from long-term loans and Yen 1.0 billion from the issuance of long-term debt securities. During fiscal year 2004, Ricoh focused on reducing its long-term borrowings provided by external parties as its group cash management system developed. As compared to fiscal year 2003, net cash used in financing activities increased for fiscal year 2004 as Ricoh continued to reduce its external borrowings, which resulted in lower proceeds being received from borrowings. For fiscal year 2003, net cash used in financing activities consisted primarily of Yen 73.3 billion used to reduce short-term borrowings, Yen 23.1 billion spent for the repayment of long-term loans, Yen 17.2 billion used for the purchase of treasury stock, and Yen 11.7 billion used for the repayment of long-term debt securities. Ricoh received Yen 58.1 billion as proceeds from long-term loans and Yen 11.0 billion from the issuance of long-term debt securities. As previously discussed, Ricoh used significant amounts of cash during fiscal year 2003 to repay both short-term and long-term borrowings provided by external parties as it continued to use its group cash management system to satisfy its cash management needs. Long-term debt securities noted above were issued by Ricoh Leasing Co., Ltd., which issued such securities as part of its ordinary fund-raising activities as a finance company. Ricoh Leasing Co., Ltd. issued such securities during fiscal year 2003 to take advantage of favorable market conditions. As compared to fiscal year 2002, Ricoh used significant amounts of cash during fiscal year 2003 to reduce its external borrowings as it fully utilized its group cash management system as a means to satisfy its cash needs previously fulfilled by external parties. For fiscal year 2002, net cash provided by financing activities primarily resulted from Yen 103.5 billion received as proceeds from the issuance of long-term debt securities and Yen 71.0 billion received as proceeds from long-term loans. During fiscal year 2002, Ricoh used Yen 79.6 billion to repay its long-term loans, Yen 39.4 billion to reduce short-term borrowings and Yen 10.0 billion to repay its long-term securities. During fiscal year 2002, Ricoh issued corporate bonds in a relatively large amount so as to take advantage of the favorable interest rates as it forecasted that interest rates generally would rise during subsequent fiscal years. Cash and Asset-Liability Management It is Ricoh's policy to ensure adequate financing and liquidity for its operations and growth, and to maintain the strength of its balance sheet. Pursuant to this policy, Ricoh has in recent years tried to achieve greater efficiencies in the utilization of cash balances held by its subsidiaries. One method that Ricoh has implemented to achieve greater efficiency is to build up its cash management system in each of its geographic -53- segments. With finance companies located within each geographic segment as the center of this cash management system, Ricoh has established a group pooling-of-funds arrangement in which cash resources are lent and borrowed from one group company to another group company. As a result of this pooling-of-funds arrangement, Ricoh has succeeded in reducing the occurrence of excess accumulation of cash in one group company and the unnecessary borrowing from third party institutions by another group company. As such, the pooling-of-funds arrangement has reduced interest expenses and related costs which were previously paid to third parties. For the fiscal years ended March 31, 2003 and 2004, Ricoh managed to reduce interest-bearing debt by Yen 76.7 billion and Yen 51.8 billion, respectively, on a consolidated basis. Ricoh also enters into various derivative financial instrument contracts in the normal course of business and in connection with the management of its assets and liabilities. Ricoh enters into foreign exchange contracts and foreign currency options to hedge against the potentially adverse impacts of foreign currency fluctuations on assets and liabilities denominated in foreign currencies. Ricoh enters into interest rate swap agreements to hedge against the potential adverse impacts of fair value or cashflow fluctuations on the interests in its outstanding debt. Ricoh uses derivative instruments to reduce risk and protect market value of assets and liabilities in conformity with Ricoh's policy. Ricoh does not use derivative financial instruments for trading or speculative purposes, nor is it a party to leveraged derivatives. Detailed discussion of these derivative contracts is provided in Item. 11. Quantitative and Qualitative Disclosures About Market Risk. Ricoh also engages in securitization activities through its domestic leasing affiliate. For a discussion of such activities, please see Item 5.E. Off-balance sheet arrangements below. Sources of Funding Ricoh's principal sources of funding are a combination of cash and cash equivalents on hand, various lines of credit and the issuance of commercial paper and medium-term notes. In assessing its liquidity and capital resources needs, Ricoh places importance on the net income figure in the income statement, balances of cash and cash equivalents in the balance sheet and operating cashflows in the cashflow statements. Lines of credit and short-term and medium-term borrowings were as follows as of March 31, 2004: (Billions of Japanese Yen) Average ------- Amount Outstanding Interest Rate(%) Amount Available ------------------ ---------------- ---------------- Bank borrowings 22.1 1.7 319.5 Commercial paper 129.5 0.8 182.7 Medium-term notes 16.0 0.3 131.9 -54- As of March 31, 2004, Ricoh had Yen 203.0 billion in cash and cash equivalents and Yen 802.0 billion in aggregate borrowing facilities. Of the Yen 802.0 billion in aggregate borrowing facilities, Yen 634.2 billion was available to be borrowed by Ricoh as of the fiscal year ended March 31, 2004. The Company has no committed lines of credit with financial institutions. Ricoh Leasing Co., Ltd., however, has a Yen 77.0 billion committed credit line with several banks having credit ratings satisfactory to Ricoh, which amount is included in the Yen 802.0 billion figure for aggregate borrowing facilities. Under such borrowing facilities, the Company and its subsidiaries are able to borrow from financial institutions at local market-based interest rates. Such local market-based interest rates ranged from 0% to 8.25% during the fiscal year ended March 31, 2004. Almost all of such borrowings from financial institutions and outstanding securities are unsecured. The Company, Ricoh Leasing Co., Ltd. and certain overseas subsidiaries raise capital by issuing commercial paper and medium-term notes. Ricoh Leasing Co., Ltd. and certain foreign subsidiaries of the Company issue commercial paper to meet their short-term funding requirements. Of the Yen 634.2 billion available under the borrowing facilities as of March 31, 2004, capacity available under commercial paper programs and medium-term note programs consisted of Yen 182.7 billion and Yen 131.9 billion, respectively. Utilization of such capacity depends on Ricoh's financing needs, investor demand and market conditions, as well as the ratings outlook for Ricoh's securities, as discussed below. Interest rates for commercial paper and medium-term notes issued by the Company and its subsidiaries ranged from 0.009% to 1.380% and 0.152% to 1.000%, respectively during the fiscal year ended March 31, 2004. In recent years, Ricoh has decreased its outstanding interest-bearing debt by using its cash management systems in Japan, the United States and Europe. Accordingly, Ricoh recorded a decrease in cashflows from financing activities in the past five years except in fiscal year ended March 31, 2002 when the Company issued corporate debt securities as noted above and recorded an increase in cash cashflow from financing activities. The Company obtains ratings from the following major rating agencies: Standard & Poor's Rating Services, a division of McGraw-Hill Companies, Inc. ("S&P"), Moody's Investors Services ("Moody's"), and another local rating agency in Japan. As of March 31, 2004, the long-term and short-term credit ratings for both the Company. were A and A1, respectively, by S&P, and A2 and P-1, respectively by Moody's. On December 10, 2003, the Company's long-term credit ratings was upgraded to A2 from A3 by Moody's mainly due to the Company's stable profitability and financial conditions during the past several years. A downgrade in short-term debt ratings by any of these major rating agencies generally increases the commercial paper issuing costs and narrows access to the commercial paper markets. While the outlook of the Company's long-term debt is rated "Stable" by both S&P and Moody's, a change in such rating could affect the funding capacity of Ricoh and its subsidiaries thereby affecting liquidity and the ability to finance growth or capital expenditures. As is customary in Japan, substantially all of the bank borrowings are subject to general agreements with each bank which provide, among other things, that the bank may -55- request additional security for loans if there is reasonable and probable cause for the necessity of such additional security and the bank may treat any security furnished as well as cash deposited in such bank as security for all present and future indebtedness. The Company has never been requested to submit such additional security. In some cases, the Company's long-term debt securities contain customary covenants, including a "limitation on liens" covenant. The Company was in compliance with the covenants in its bank agreements and securities at March 31, 2004. The Company is not subject to any covenants limiting its ability to incur additional indebtedness. For additional detail regarding these securities, see Note 10 to the Consolidated Financial Statements. Cash Requirements and Commitments Ricoh believes that its cash and cash equivalents and funds expected to be generated from its operations are sufficient to meet its cash requirements at least through fiscal year 2005. Even if there were a decrease in cashflow from operations as a result of fluctuations in customer demands from one year to another, Ricoh believes current funds on hand along with funds available under existing borrowing facilities would be sufficient to finance its foreseeable operations. In addition, Ricoh believes that it is able to secure adequate resources to fund ongoing operating requirements and investments related to the expansion of existing businesses and the development of new projects through its access to the financial and capital markets. As the Japanese and U.S. economies begin to exhibit some upswing momentum, the interest rates for long-term debt are expected to rise. Though it is possible that the rise in interest rates will affect Ricoh's ability to maintain liquidity, Ricoh believes that the effect of such increase will not significantly affect Ricoh's liquidity mainly because Ricoh has sufficient amounts of cash and cash equivalents on hand as well as a continuous cashflow generated from its operating activity. Ricoh expects that its capital expenditures for fiscal year 2005 will amount to approximately Yen 74.5 billion, principally for the following categories: digital and networking equipment and new accounting and intellectual property management systems. In addition, Ricoh is obligated to repay long-term debt in the aggregate principal amount of Yen 81.9 billion during fiscal year 2005, and in the aggregate principal amount of Yen 231.6 billion during fiscal years 2006 through 2008. The Company and certain of its subsidiaries have various employee pension plans covering all of their employees. As described in Note 11 to the Consolidated Financial Statements, the unfunded portion of these employee pension plans amounted to Yen 97.0 billion, as of March 31, 2004. The unfunded portion decreased significantly by Yen 189.9 billion during fiscal year 2004 as compared to fiscal year 2003 due to the transfer of the substitutional portion of the EPF to the government as described in Section A. above. However, out of this unfunded amount, Yen 78.8 billion was recorded as a liability on the consolidated balance sheet of Ricoh, as of March 31, 2004, after the Company introduced its cash balance plan. A cash balance plan is a form of a defined contribution pension plan provided for in the Contributed Benefit Pension Law. In a cash balance plan, -56- contributed amounts are managed on an individual basis but the Company guarantees a fixed rate yield. The Company and certain of its subsidiaries have contributed to this new plan in conformity with Japanese governmental regulations. Although Ricoh does not expect its cash funding requirements to increase significantly in the medium- or short-term, Ricoh's cash funding requirements may be affected by possible changes in interest rates, actual returns on plan assets and governmental regulations on a long-term basis. The amount of the benefit liability for domestic pension plans accounted for approximately 79.0% of the total benefit liability as of the fiscal year ended March 31, 2004, and the percentage of the benefit liability for domestic pension plans to the total benefit liability decreased by 9.0 percentage points compared to the fiscal year ended March 31, 2003. The amount contributed for domestic pension plans for the fiscal years ended March 31, 2004, 2003 and 2002 were Yen 13.2 billion, Yen 11.7 billion and Yen 11.4 billion, respectively. Ricoh believes that its free cashflow (from operating and investing activities) together with existing lines of credit and borrowing facilities provide sufficient means to satisfy its liquidity needs and future obligations as described above. C. Research and development, patents and licenses Research and Development - ------------------------ Since its formation, Ricoh has devoted its resources to research and development ("R&D") activities. As such, Ricoh has established a tradition of technological innovation and product development. It is this tradition and Ricoh's continuing emphasis on the importance of R&D activities that allows Ricoh to produce competitive and high quality products. Many of Ricoh's R&D activities are conducted by the Research and Development Group and the Software R&D Group that have their main R&D facility in Kanagawa, Japan (the "Center"). The Center's activities include research and development in connection with optics, new materials, mechatronics, computer simulation and environmental technologies. Ricoh also conducts various specialized and peripheral R&D activities at its other facilities located throughout Japan. In addition to the R&D facilities in Japan, Ricoh Innovations, Inc., located in the United States and founded in March 1997, conducts market research to assist in the marketing of information technologies for the digitally networked office. Ricoh Innovations, Inc. also conducts extensive research and makes strategic investments in promising new business fields. Most recently in February 2004, Ricoh established Ricoh Software Research Center (Beijing) Co., Ltd. in an effort to further establish its global R&D infrastructure. Ricoh Software Research Center (Beijing) Co., Ltd. will focus on employing and educating talented young researchers, cooperating with other research organizations, conducting research in China to foresee the needs of the Chinese market and providing consultation services. In fiscal year 2004, Ricoh spent Yen 67.7 billion in R&D activities related to the Office Equipment segment. Some of the more significant R&D achievements for the -57- Office Equipment segment for fiscal year 2004 include the following: the development of Ricoh's own energy-saving technology "HYBRID QSU" utilizing the next-generation battery device "Capacitor" and installing such new technology in Office Equipment products; the development of an "organic photoconductor unit" to increase the durability of copiers and printers and technology to control the writing position to obtain higher image quality for copiers using the tandem method; the development of methods to manufacture oil-less full-color toner that enables the encapsulated toner to produce the same image quality, energy-savings and cost savings as polymerized toner, and the development of technology that eliminates the process of flattening and smoothing the surface of the OPC aluminum body, thereby decreasing both manufacturing costs and the burden on the environment; the development of the world's first DVD+R DL (Double Layer) in the optical disc drive field, which has a recording capacity of 1.8 times the existing DVD using a double layer recording technology on a single side of a disk, and the development and production of HBCD-R (Hybrid CD-R) that has characteristics of both a CD-ROM and CD-R. In fiscal year 2004, Ricoh spent Yen 8.8 billion in R&D activities relating to the Other Business segment. In the Other Business segment, Ricoh's R&D activities included designing ASIC (Application Specific Integrated Circuit) and ASSP (Application Specific Standard Product) for purposes of imaging, audio and communication, the development of the technology to utilize EDA (Electronic Design Automation), and the development of digital camera technology as an ICD (Image Capturing Device) and development of its application technology. One of the R&D activities that produced results during fiscal year 2004 was the technological development to install the voltage regulator IC to a SON1612 package (1.6mm x 1.6mm x MAX0.6mm in size) and the success in decreasing the equipment square footage by 40% and equipment height by 45% when compared to the previous model. In addition, Ricoh also engages in the development of its fundamental research fields, which focus on research and development activities that can be applied to various products. For fiscal year 2004, Ricoh spent Yen 15.9 billion in R&D activities in its fundamental research fields. Such R&D activities include R&D in nanotechnology, micro-machining, photonics technology, and technology to create the next generation of office system and office solutions. Ricoh's total research and development expenses for the fiscal years 2002, 2003 and 2004 were Yen 80.7 billion, Yen 83.5 billion and Yen 92.5 billion, respectively. For a summary of Ricoh's research and development expenditures during each of the last three fiscal years, see Note 19 to the Consolidated Financial Statements. Patents and Licenses - -------------------- Ricoh owns approximately 19,000 patents on a worldwide basis, and has a large number of licenses under various agreements with Japanese and foreign companies. Although patents and licenses are important to Ricoh, it does not believe that the expiration of any single patent or group of related patents or of any license agreements will materially affect its business. -58- The following table lists some of the important patent and licensing agreement which the Company is currently a party to:
- ------------------------------------------------------------------------------------------------------------------------------- Counterparty Country Summary of the Contract Contract Term - ------------------------------------------------------------------------------------------------------------------------------- Xerox Corporation USA Cross license patent agreement relating to the October 7, 1980 to expiration date of digital photography area (reciprocal agreement) the patent subject to the agreement - ------------------------------------------------------------------------------------------------------------------------------- International Comprehensive cross license patent agreement Business Machines USA relating to the information processing technology April 1, 1999 to expiration date of Corporation area (reciprocal agreement) the patent subject to the agreement - ------------------------------------------------------------------------------------------------------------------------------- Lemelson Medical, USA Patent licensing agreement relating to computer March 31, 1993 to expiration date of Education & Research image analysis and other products (the Company as the patent subject to the agreement Foundation Limited the licensee) Partnership - ------------------------------------------------------------------------------------------------------------------------------- Texas Instruments USA Comprehensive cross license agreement relating to October 11, 1996 to October 10, 2006 Incorporated copiers, etc. (reciprocal agreement) - ------------------------------------------------------------------------------------------------------------------------------- Sharp Corporation Japan Patent licensing agreement relating to facsimile April 1, 1997 to March 31, 2002 with machines (the Company as licensor) automatic renewal every 5 years thereafter - ------------------------------------------------------------------------------------------------------------------------------- Canon Inc. Japan Patent licensing agreement relating to office October 1, 1998 to expiration date of equipment (reciprocal agreement) the patent subject to the agreement - ------------------------------------------------------------------------------------------------------------------------------- Brother Industries, Ltd. Japan Patent licensing agreement relating to digital December 20, 1999 to December 19, 2005 photography (reciprocal agreement) - -------------------------------------------------------------------------------------------------------------------------------
D. Trend Information See "Overview" above and "Cautionary Statement with Respect to Forward-Looking Statements" elsewhere in this Annual Report. E. Off-balance sheet arrangements As disclosed in Note 4 to the Consolidated Financial Statements, Ricoh, through its domestic leasing affiliate, periodically has sold small amounts of lease receivables through securitization. The total amount of lease receivables sold during the fiscal years ended March 31, 2002 equaled Yen 25.0 billion, and no lease receivables were sold during the fiscal year ended March 31, 2003 and 2004. For the past three fiscal years, securitization averaged approximately 0.65% of Ricoh's total funding. Securitization involves the creation of SPEs to hold the pooled assets. The SPEs are designed to place the pooled assets beyond the reach of Ricoh and its creditors in the event of bankruptcy and when structured in this manner (and subject to certain other conditions), the pooled assets are removed from Ricoh's consolidated balance sheets. The SPEs are also designed so that investors have no recourse to Ricoh in the event of any failure of -59- payment on the pooled assets. Therefore, when securitizing assets in this manner, Ricoh does not have any exposed assets or contingent liabilities other than those recognized as subordinated residual interests on Ricoh's consolidated balance sheets. As of March 31, 2004, Ricoh had two such SPEs that held assets it had sold in securitizations totaling Yen 47.9 billion. Ricoh does not dispose of troubled leases, loans or other problem assets by means of nonconsolidated SPEs. None of our officers, directors or employees hold any equity interests in our SPEs or receives any direct or indirect compensation from the SPEs. The SPEs do not own shares or equity interests in Ricoh or any of Ricoh's affiliates, and there are no agreements in place to do so. F. Contractual Obligations The following table sets forth Ricoh's contractual obligations as of March 31, 2004.
- ------------------------------------------------------------------------------------------------------ Millions of yen Payments due by period ----------------------------------------------------------- Total Less than 1 More than 5 CONTRACTUAL OBLIGATION year 1-3 years 3-5 years years - ------------------------------------------------------------------------------------------------------ Long-term Debt Obligations 357,771 81,017 200,512 55,794 20,448 - ------------------------------------------------------------------------------------------------------ Capital (Finance) Lease Obligations 3,141 926 1,269 262 684 - ------------------------------------------------------------------------------------------------------ Purchase Obligations 895 895 -- -- -- - ------------------------------------------------------------------------------------------------------ Other Long-term Liabilities Reflected on -- -- -- -- -- Ricoh's Balance Sheet under US GAAP - ------------------------------------------------------------------------------------------------------ TOTAL 361,807 82,838 201,781 56,056 21,132 - ------------------------------------------------------------------------------------------------------
Ricoh also had operating lease commitments with rental payments totaling Yen 51.7 billion for the fiscal year ended March 31, 2004. Ricoh is unable to disclose additional details with respect to its operating lease obligations because Ricoh's material operating leases consist primarily of leases that may be cancelled with short notice. In addition to the above, Ricoh acts as a guarantor for some of its employees' housing loans. As of March 31, 2004, the total amount of such guarantees was Yen 283 million. G. New Accounting Standards No new accounting standards were issued during fiscal year 2004 which had a material impact on Ricoh's financial statements for the fiscal year ended March 31, 2004. No new accounting standards are expected to have a material impact on Ricoh's financial statements for the fiscal year 2005. -60- Item 6. Directors, Senior Management and Employees ------------------------------------------ A. Directors and senior management Directors and Corporate Auditors of the Company as of June 25, 2004 were as follows:
Name Current Position (Date of Birth) (Function/Business area) Date Business Experience - ---------------------- ------------------------------------ --------- ------------------------------------- Masamitsu Sakurai President, Apr. 1966 Joined the Company (January 8, 1942) Chief Executive Officer and Apr. 1990 General Manager of Procurement Chief Operating Officer Division June 1992 Director June 1994 Managing Director Apr. 1996 President (Current) June 2000 Chief Operating Officer (Current) June 2003 Chief Executive Officer (Current) Principal business activities and other principal directorships performed outside Ricoh: Vice Chairperson of Japan Association of Corporate Executives President of Japan Business Machine and Information System Industries Association Representative of Asahi Insurance Company Corporate Auditor of San-Ai Oil Co., Ltd. Director of Millea Holdings, Inc. - ---------------------- ------------------------------------ --------- ------------------------------------- Tatsuo Hirakawa Deputy President Apr. 1960 Joined the Company (November 17, 1937) (Corporate Strategy and Personnel) Jan. 1982 Deputy General Manager of Accounting and Management Division June 1983 Director June 1990 Managing Director June 1994 Executive Managing Director June 2000 Executive Vice President (Current) Oct. 2001 Deputy president (Current) Principal business activities and other principal directorships performed outside Ricoh: Corporate Auditor of Coca-Cola West Japan Co., Ltd. - ---------------------- ------------------------------------ --------- ------------------------------------- Koichi Endo Executive Managing Director Apr. 1966 Joined the Company (February 16, 1944) (Corporate Planning, and Corporate Oct. 1990 General Manager of Component Communication) Division (Restructuring by Supply Chain June 1992 Director Management) June 1997 Managing Director (Legal, Intellectual Property and Apr. 1998 General Manager of Production Public Relation) Business Group June 2000 Executive Managing Director (Current) June 2000 Executive Vice President (Current) Principal business activities and other principal directorships performed outside Ricoh: Director of Sindo Ricoh Co., Ltd. Director of San-Ai Plant Construction Co., Ltd.
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Name Current Position (Date of Birth) (Function/Business area) Date Business Experience - ---------------------- ------------------------------------ --------- ------------------------------------- Masayuki Matsumoto Executive Managing Director Apr. 1970 Joined the Company (December 10, 1944) (Domestic Sales Strategy) July 1993 General Manager of General Manager (Corporate Social Responsibility Staff Office in Tokyo Branch and Corporate Citizenship June 1994 Director Promotion ) Oct. 1998 Managing Director Oct. 1998 General Manager of Marketing Group June 2000 Executive Vice President (Current) June 2002 Executive Managing Director (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Katsumi Yoshida Executive Managing Director Apr. 1967 Joined the Company (August 20, 1944) (International Marketing Apr. 1989 General Manager of Product Division Business) Feb. 1996 Chairman of Ricoh Electronics, Inc. (General Manager of Apr. 2000 President of Ricoh Corporation International Business Group) Apr. 2001 Executive Vice President (Current) June 2002 Managing Director Jan. 2003 Chairman of Ricoh Corporation Oct. 2003 General Manager of International Marketing Group Oct. 2003 Chairman of Ricoh China Co., Ltd. (Current) Apr. 2004 General Manager of International Business Group (Current) June 2004 Executive Managing Director (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Makoto Hashimoto Managing Director Nov. 1972 Joined the Company (August 26, 1945) (Customer Satisfaction and Apr. 1993 General Manager of PPC Division of Quality Control) Imaging System Business Group (Production and Procurement) June 1994 Director (General Manager of Customer Apr. 1998 General Manager of Imaging System Satisfaction Management Business Group Division) June 1998 Managing Director (Current) June 2000 Executive Vice President (Current) Oct. 2000 President of MultiMedia Products Company June 2003 General Manager of Customer Satisfaction Management (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Kiyoshi Sakai Managing Director Apr. 1970 Joined the Company (December 25, 1945) (Research and Development) Jan. 1996 General Manger of Corporate Planning (Corporate Environment) Division (General Manager of Research June 1996 Director and Development Group) Apr. 1999 General Manager of Research and (General Manager of Group Development Group (Current) technology planning) June 2000 Senior Vice President June 2002 Executive Vice President (Current) June 2002 Managing Director (Current)
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Name Current Position (Date of Birth) (Function/Business area) Date Business Experience - ---------------------- ------------------------------------ --------- ------------------------------------- Takashi Nakamura Managing Director Apr. 1972 Joined the Company (September 2, 1946) (Strategy of Production Apr. 2000 President of Ricoh UK Products Ltd. Technology) Jan. 1995 President of Ricoh Europe B.V. June 1998 Director June 2000 Senior Vice President Apr. 2002 Group Senior Vice President (Current) June 2002 President of Ricoh Elemex Corporation (Current) June 2004 Managing Director (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Shiroh Kondoh Managing Director Apr. 1973 Joined the Company (October 7, 1949) (Imaging System Business) Apr. 1998 Manager of Printing Division of (Planning, Development and Imaging System Business Group Design of Imaging System) June 2000 Senior Vice President (Gel jet Business) Oct. 2000 General Manager of Imaging System (General Manger of Imaging Business Group (Current) System Business Group) June 2002 Executive Vice President (Current) June 2003 Managing Director (Current) Principal business activities and other principal directorships performed outside Ricoh: Director of Sindo Ricoh Co., Ltd. - ---------------------- ------------------------------------ --------- ------------------------------------- Kazuo Togashi Managing Director Apr. 1972 Joined the Company (November 28, 1949) (Sales in Europe) Apr. 1998 President of Ricoh Europe B.V. June 2000 Group Senior Vice President Apr. 2002 Chairman of said company (Current) Apr. 2002 Chairman of NRG Group PLC (Current) June 2002 Executive Vice President (Current) June 2003 Managing Director (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Kazunori Azuma Managing Director Apr. 1971 Joined the Company (February 11, 1949) (Domestic Sales Business) Oct. 1994 President of Hokkaido Ricoh Co., Ltd. (General Manager of June 2000 Senior Vice President Marketing Group) Oct. 2000 Group Senior Vice President Oct. 2000 President of Ricoh Technosystems Co., Ltd. June 2003 Executive Vice President (Current) Managing Director (Current) Oct. 2003 Chairman of Ricoh Technosystems Co., Ltd. Deputy General Manager of Marketing Group Nov. 2003 General Manager of Marketing Group (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Yuji Inoue Managing Director Apr. 1971 Joined the Company (April 4, 1948) (Finance Solution) Apr. 1998 General Manger of Finance and Accounting Division Apr. 2000 President of Ricoh Leasing Co., Ltd. (Current) June 2000 Group Senior Vice President (Current) June 2004 Managing Director (Current)
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Name Current Position (Date of Birth) (Function/Business area) Date Business Experience - ---------------------- ------------------------------------ --------- ------------------------------------- Zenji Miura Managing Director Apr. 1976 Joined the Company (January 5, 1950) (Management Control, Internal Jan. 1993 President of Ricoh France S.A. Control, Finance and Aug. 1993 Chairman of Ricoh France S.A. Accounting and Investor Oct. 2000 Senior Vice President Relation) Oct. 2000 General Manager of Finance and (General Manager of Accounting Division (Current) Accounting Division) June 2003 Executive Vice President (Current) June 2004 Managing Director (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Nobuo Mii Director Apr. 1955 Joined the Nippon Hoso Kyokai (Japan (July 4, 1931) (Technical of Information and Broadcasting Corporation) Communication) Jan. 1969 Joined IBM Japan Ltd. Jan. 1969 Joined IBM Corporation Mar. 1977 Director of IBM Japan Ltd. Apr. 1990 Vice President of IBM Japan Ltd. Oct. 1997 Managing Partner of IGNITE Group (Current) June 2000 Director of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Hisaaki Koga Corporate Auditor Apr. 1967 Joined the Company (April 5, 1943) Oct. 1991 Deputy General Manager of Personnel Division Jan. 1996 General Manger of Sendai Branch in Marketing Division Apr. 1998 General Manager of General Manager Staff Office in Marketing Group June 1998 Corporate Auditor of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Hideyuki Takamatsu Corporate Auditor Apr. 1966 Joined the Company (May 21, 1942) July 1987 General Manger of Accounting Department in Finance and Accounting Division Dec. 1997 Executive Managing Director of San-Ai Co., Ltd. June 2000 Corporate Auditor of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Kohji Tomizawa Corporate Auditor Apr. 1971 Joined the Company (May 25, 1946) July 1988 President of Ricoh Finance Ltd. June 1997 Managing Director of Ricoh Logistics System Co., Ltd. July 2001 Director of Tokyo Ricoh Co., Ltd. June 2004 Corporate Auditor of the Company (Current)
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Name Current Position (Date of Birth) (Function/Business area) Date Business Experience - ---------------------- ------------------------------------ --------- ------------------------------------- Kenji Matsuishi Corporate Auditor Apr. 1965 Graduated from the National Legal (July 24, 1937) Training and Research Institute. Apr. 1965 Legal registration as a Japanese attorney Apr. 1965 Joined Takano & Higuchi Legal Services Feb. 1972 General Manager of Matsuishi Legal Services (Current) June 1994 Corporate Auditor of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Takehiko Wada Corporate Auditor Apr. 1958 Joined San-Ai Oil Co., Ltd. (October 24, 1935) June 1985 Director of said company June 1990 Managing Director of said company July 1994 Executive Managing Director of said company July 1999 President of said company (Current) June 2001 Corporate Auditor of the Company (Current)
Directors and Corporate Auditors are elected at a general meeting of shareholders for two and three years terms, respectively, and may serve any number of consecutive terms. The Board of Directors has appointed from among its members a Chairman, a President, and one or more Vice Presidents, Executive Managing Directors and Managing Directors, in accordance with Japanese commercial law. As of June 25, 2004, the Company maintains an executive officer system and under such system there are 43 such officers each with one of the following roles: . Executive officers: Oversee operations under the authority granted from the president and report to the president. . Group executive officers: Assist the president with the management of Ricoh Group. Executive Officers of the Company as of June 25, 2004 were as follows:
Name Current Position (Date of Birth) (Function/Business area) Date Business Experience - ---------------------- ------------------------------------ --------- ------------------------------------- Masamitsu Sakurai President, See above for his business experience and other Chief Executive Officer and information. Chief Operating Officer - ---------------------- ------------------------------------ --------- ------------------------------------- Tatsuo Hirakawa Executive Vice President See above for his business experience and other (Corporate Strategy and information. Personnel)
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Current Position Name (Function/Business area) Date Business Experience - ---------------------- ------------------------------------ --------- ------------------------------------- Koichi Endo Executive Vice President See above for his business experience and other (Corporate Planning, and information. Corporate Communication) (Restructuring) (Legal, Intellectual Property and Public Relation) (General Manger of Management Transparency Promotion) - ---------------------- ------------------------------------ --------- ------------------------------------- Masayuki Matsumoto Executive Vice President See above for his business experience and other (Domestic Sales Strategy) information. (Corporate Social Responsibility and Corporate Citizenship Promotion) - ---------------------- ------------------------------------ --------- ------------------------------------- Katsumi Yoshida Executive Vice President See above for his business experience and other (General Manger of International information. Business Group) (Chairman of Ricoh China Co., Ltd.) - ---------------------- ------------------------------------ --------- ------------------------------------- Makoto Hashimoto Executive Vice President See above for his business experience and other (General Manager of Customer information. Satisfaction Management Division) - ---------------------- ------------------------------------ --------- ------------------------------------- Kiyoshi Sakai Executive Vice President See above for his business experience and other (General Manager of Research and information. Development Group) (General Manager of Group Technology Planning) (Corporate Environment) - ---------------------- ------------------------------------ --------- ------------------------------------- Shiroh Kondoh Executive Vice President See above for his business experience and other (General Manger of Imaging information. System Business Group) - ---------------------- ------------------------------------ --------- ------------------------------------- Kazuo Togashi Executive Vice President See above for his business experience and other (Chairman of Ricoh Europe B.V.) information. (Chairman of NRG Group PLC) - ---------------------- ------------------------------------ --------- ------------------------------------- Kazunori Azuma Executive Vice President See above for his business experience and other (General Manager of Marketing information. Group) (Chairman of Ricoh Technosystems Co., Ltd.)
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Current Position Name (Function/Business area) Date Business Experience - ---------------------- ------------------------------------ --------- ------------------------------------- Zenji Miura Executive Vice President See above for his business experience and other (General Manager of Accounting information. Division) (Management Control, Internal Control and Investor Relation) - ---------------------- ------------------------------------ --------- ------------------------------------- Terumoto Nonaka Executive Vice President Jan. 1988 Joined the Company (October 28, 1947) (President of Electronic Devices Oct. 2000 President of Electronic Devices Company) Company (Current) June 2002 Executive Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Tadatoshi Sakamaki Executive Vice President Apr. 1967 Joined the Company (April 23, 1942) (President of Personal June 2000 Senior Vice President of the Company MultiMedia Products Company) Apr. 2002 General Manager of Marketing Center of Personal MultiMedia Products Company June 2003 President of Personal MultiMedia Products Company (Current) June 2003 Executive Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Etsuo Kobayashi Executive Vice President Apr. 1970 Joined the Company (July 4, 1947) (General Manager of Personnel Apr. 1998 General Manager of Personnel Division Division) (Current) June 2000 Senior Vice President of the Company June 2003 Executive Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Hiroshi Tategami Executive Vice President Apr. 1962 Joined the Company (March 31, 1941) (General Manager of Production June 2000 Senior Vice President of the Company Business Group) Oct. 2000 General Manager of RS Products Division June 2003 General Manager of Production Business Group (Current) June 2003 Executive Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Haruo Nakamura Executive Vice President Aug. 2000 Joined the Company (April 29, 1952) (General Manager of Gel Jet Leader of the Alpha taskforce Business Group) Apr. 2004 Executive Vice President of the Company (Current) Apr. 2004 General Manger of the Gel Jet Business Group (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Kenji Hatanaka Executive Vice President Apr. 1969 Joined the Company (July 1, 1946) (General Manager of Tokyo Branch) June 2000 Senior Vice President of the Company (General Manager of Kanto Branch) June 2003 General Manager of Tokyo Branch (Current) June 2003 General Manager of Kanto Branch (Current) June 2004 Executive Vice President of the Company (Current)
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Current Position Name (Function/Business area) Date Business Experience - ---------------------- ------------------------------------ --------- ------------------------------------- Hideko Kunii Executive Vice President May 1982 Joined the Company (December 13, 1947) (General Manager of Software Oct. 1999 General Manager of Software Research Research and Development) Center (Chairman of Ricoh Software June 2000 Senior Vice President of the Company Research Center (Beijing) Co., Oct. 2000 Deputy General Manager of P&S Products Ltd.) Division June 2002 Chairman of Ricoh Software Technology (Shanghai) Co., Ltd. Oct. 2002 General Manager of Software Research and Development (Current) Feb. 2004 Chairman of Ricoh Software Research Center (Beijing) Co., Ltd. (Current) June 2004 Executive Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Hiroshi Kobayashi Executive Vice President Apr. 1974 Joined the Company (July 2, 1948) (General Manager of Corporate Apr. 2002 General Manager of Corporate Planning Planning Division) Division (Current) June 2002 Senior Vice President of the Company (Current) Apr. 2003 General Manager of Corporate Communication Center June 2004 Executive Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Susumu Ichioka Executive Vice President Apr. 1971 Joined the Company (April 23, 1948) (Chairman of Ricoh Corporation) Oct. 2003 Group Senior Vice President of the Company June 2004 Executive Vice President of the Company (Current) June 2004 Chairman of Ricoh Corporation (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Masami Yoneyama Senior Vice President Mar. 1961 Joined the Company (March 25, 1942) June 2000 Senior Vice President of the Company (China and Direct Sales Business) Oct. 2000 Group Senior Vice President Oct. 2000 Chairman of Ricoh Hong Kong Ltd. Oct. 2000 Chairman of Ricoh Electronic Technology Ltd. (China) Jan. 2003 Vice Chairman and President of Ricoh China Co., Ltd. June 2004 Senior Vice President (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Kunio Taniguchi Senior Vice President Apr. 1972 Joined the Company (December 18, 1948) (General Manager of Osaka Branch) June 2000 Senior Vice President of the Company (Current) (President of Ricoh Kansai Co., June 2003 General Manager of Osaka Branch Ltd) (Current) June 2003 President of Ricoh Kansai Co., Ltd. (Current)
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Current Position Name (Function/Business area) Date Business Experience - ---------------------- ------------------------------------ --------- ------------------------------------- Hiroshi Tsuruga Senior Vice President Apr. 1971 Joined the Company (November 18, 1948) (General Manger of Apr. 1999 General Manger of Information/ Information/Technology and Technology and Service Division Service Division) (Current) June 2002 Senior Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Kiyoto Nagasawa Senior Vice President Apr. 1973 Joined the Company (August 16, 1948) (General Manger of C&F Business Apr. 2001 General Manger of C&F Business Division 2) Division 2 (Current) May 2002 Director of Ricoh Creative Development Co., Ltd. (Current) June 2002 Senior Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Yutaka Ebi Senior Vice President Apr. 1972 Joined the Company (October 20, 1949) (General Manger of Imaging Apr. 2001 General Manger of Imaging Technology Technology Division) Division (Current) June 2002 Senior Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Hiroo Matsuda Senior Vice President Apr. 1972 Joined the Company (April 19, 1948) (General Manger of Solution Apr. 2002 General Manger of Major Accounts Partner Marketing Division) Marketing Division June 2002 Senior Vice President of the Company (Current) Apr. 2004 General Manger of Solution Partner Marketing Division (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Hiroshi Adachi Senior Vice President Apr. 1968 Joined the Company (January 8, 1946) (President of Thermal Media Oct. 2000 President of Thermal Media Company Company) (Current) (Chairman of Ricoh Electronic Nov. 2001 Chairman of Ricoh Electronic Technology (Beijing) Co., Ltd.) Technology (Beijing) Co., Ltd. (Current) (Chairman of Ricoh International June 2002 Senior Vice President of the Company (Shanghai) Co., Ltd.) (Current) June 2004 Chairman of Ricoh International (Shanghai) Co., Ltd. (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Kouji Sawa Senior Vice President Apr. 1971 Joined the Company (June 5, 1948) (General Manager of Production Apr. 1998 General Manger of Imaging System Component Strategic Center) Production Division (General Manager of Optical Apr. 2000 General Manager of Production Strategic Component Development Division) Center (Current) July 2001 General Manager of Optical Component Development Division (Current) June 2002 Senior Vice President of the Company (Current)
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Current Position Name (Function/Business area) Date Business Experience - ---------------------- ------------------------------------ --------- ------------------------------------- Yoshimasa Matsuura Senior Vice President Apr. 1971 Joined the Company (June 23, 1947) May 1999 General Manger of Supply Chain Management Planning Division Apr. 2004 General Manger of Imaging Business Strategy Center (Current) June 2004 Senior Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Sadahiro Arikawa Senior Vice President Apr. 1971 Joined the Company (March 31, 1949) (General Manger of Major Accounts Dec. 2001 President of Ricoh Kyusyu Co., Ltd. Marketing Division) Apr. 2004 General Manger of Major Accounts Marketing Division (Current) June 2004 Senior Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Norio Tanaka Senior Vice President Feb. 1978 Joined the Company (March 22, 1948) (Deputy General Manger of Apr. 2004 General Manger of Products Center International Business Group) (Current) (General Manger of Products Center) Apr. 2004 Deputy General Manager of Image Business Strategy Center (Current) (Deputy General Manager of Image June 2004 Senior Vice President of the Company Business Strategy Center) (Current) June 2004 Deputy General Manger of International Business Group (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Takashi Nakamura Group Senior Vice President See above for his business experience and other (President of Ricoh Elemex information. Corporation) - ---------------------- ------------------------------------ --------- ------------------------------------- Yuji Inoue Group Senior Vice President See above for his business experience and other (President of Ricoh Leasing Co., information. Ltd.) - ---------------------- ------------------------------------ --------- ------------------------------------- Peter E. Hart Group Senior Vice President Mar. 1997 President of Ricoh Silicon Valley, (February 27, 1941) (Chairman and President of Ricoh Inc. (now Ricoh Innovations, Inc.) Innovations, Inc.) Feb. 2000 Chairman and President of Ricoh Silicon Valley, Inc. (now Ricoh Innovations, Inc.) (Current) June 2000 Group Senior Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Bernard Decugis Group Senior Vice President Aug. 1993 President of Ricoh France S.A. (October 23, 1942) (President of Ricoh France S.A.) (Current) Apr. 2001 Group Senior Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Yoichi Shirahata Group Senior Vice President Mar. 1962 Joined the Company (December 20, 1943) (President of Tohoku Ricoh Co., June 2002 Group Senior Vice President of the Ltd.) Company (Current) June 2002 President of Tohoku Ricoh Co., Ltd. (Current)
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Current Position Name (Function/Business area) Date Business Experience - ---------------------- ------------------------------------ --------- ------------------------------------- Norihisa Goto Group Senior Vice President Apr. 1972 Joined the Company (March 8, 1949) (President of Lanier Worldwide, Oct. 1997 President of Ricoh Deutschland GmbH Inc. ) Mar. 2001 Chairman of Lanier Worldwide, Inc. Jan. 2003 President of Lanier Worldwide, Inc. (Current) June 2003 Group Senior Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Syunsuke Nakanishi Group Senior Vice President Apr. 1972 Joined the Company (October 12, 1948) (President of Ricoh Electronics May 1999 General Manger of Product Strategic Inc.) Center July 2001 President of Ricoh Electronics Inc. (Current) June 2004 Group Senior Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Shiro Sasaki Group Senior Vice President Apr. 1972 Joined the Company (December 23, 1949) (President of NRG Group PLC) Apr. 2000 President of Gestetner Holdings PLC Apr. 2002 President of NRG Group PLC (Current) June 2004 Group Senior Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Mitsuhiko Ikuno Group Senior Vice President May 1975 Joined the Company (March 26, 1953) (President of Shanghai Ricoh June 2000 President of Ricoh Asia Industry, Facsimile Co., Ltd.) Ltd. (Current) (President of Ricoh Asia Industry, June 2004 President of Shanghai Ricoh Facsimile Ltd.) Co., Ltd. (Current) Group Senior Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Kenichi Kanemaru Group Senior Vice President Apr. 1973 Joined the Company (November 19, 1952) (President of Ricoh UK Products Apr. 1998 General Manger of Product Strategic Ltd.) Center June 1999 President of Ricoh UK Products Ltd. (Current) June 2004 Group Senior Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Yoshihiro Niimura Group Senior Vice President Apr. 1975 Joined the Company (May 22, 1951) (President of Ricoh China Co., June 2004 President of Ricoh China Co., Ltd. Ltd.) (Current) (Chairman and President of Ricoh June 2004 Chairman and President of Ricoh Electronic Technology Ltd. China) Electronic Technology Ltd. China (Current) June 2004 Group Senior Vice President of the Company (Current) - ---------------------- ------------------------------------ --------- ------------------------------------- Michel De Bosschere Group Senior Vice President 1990 Managing Director of Nashua/tec (June 16, 1948) Benelux (President of NRG Benelux B.V.) 2000 President of NRG Group Benelux June 2004 Group Senior Vice President of the Company (Current)
-71- There are no family relationships between any Director, Corporate Auditor or Executive Officer and any other Director, Corporate Auditor or Executive Officer of the Company. There are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any person named above was selected as a Director, Corporate Auditor, or an Executive Officer. B. Compensation The aggregate remuneration, including bonuses but excluding retirement allowances, paid by the Company for the fiscal year ended March 31, 2004 to all Directors, Corporate Auditors and Executive Officers of the Company who served during the fiscal year ended March 31, 2004 was Yen 1,089 million. In accordance with customary Japanese business practice, annual bonuses are paid to the Directors and Corporate Auditors of the Company out of the profit of the Company available for dividends, as such profit is determined in accordance with the Japanese Commercial Code. Such bonuses are approved at the annual shareholders meeting customarily held in June of each year. Bonuses so paid are not deductible by the Company for tax purposes. Included in the figure for aggregate remuneration set forth above is a total of Yen 183 million in bonuses paid to Directors and Corporate Auditors as a group in their capacity as such (excluding bonuses for their services as employees) in respect of the fiscal year 2004, as approved by the Company's shareholders at the General Meeting of Shareholders held on June 26, 2003. In accordance with customary Japanese business practice, when a Director or Corporate Auditor retires, a proposal to pay a lump-sum retirement allowance is submitted to the shareholders for their approval. After shareholders' approval is obtained, the amount of the retirement allowance for a Director or Corporate Auditor is fixed by the Board of Directors or Board of Corporate Auditors and generally reflects his remuneration and position at the time of retirement, the length of his service as a Director or Corporate Auditor and his contribution to the Company's performance. C. Board practices Under the Japanese Commercial Code, all Directors and Corporate Auditors shall be elected at the General Meeting of Shareholders. In general, under the Articles of Incorporation of the Company, the terms of office of Directors shall expire at the conclusion of the Ordinary General Meeting of Shareholders held with respect to the last closing of accounts within two years after their assumption of office, and the terms of office of Corporate Auditors shall expire at the conclusion of the Ordinary General Meeting of Shareholders held with respect to the last closing of accounts within four years after their assumption of office. However, both the Directors and Corporate Auditors may serve any number of consecutive terms. From among the Directors, the Board of Directors shall elect one or more Representative Directors. Each of the Representative Directors has the statutory authority to represent the Company in the conduct of its affairs. -72- The Corporate Auditors of the Company are not required to be and are not certified public accountants. However, at least one of the Corporate Auditors must be a person who has not been a Director, general manager, or employee of the Company or any of its subsidiaries during the five-year period immediately prior to his assumption of office as a Corporate Auditor. The Corporate Auditors may not at the same time be Directors, managers, or employees of the Company or any of its subsidiaries. Each Corporate Auditor has the statutory duty to examine the financial statements and business reports to be submitted by the Board of Directors at the General Meeting of Shareholders and also to supervise the administration by the Directors of the Company's affairs. Corporate Auditors are entitled and obligated to participate in meetings of the Board of Directors but are not entitled to vote. Under the "Law concerning Special Measures to the Commercial Code with respect to Audit," the Board of Corporate Auditors has a statutory duty to prepare and submit its audit report to the Board of Directors each year. A Corporate Auditor may note his opinion in the audit report if it is different from the opinion of the Board of Corporate Auditors that is expressed in the audit report. The Board of Corporate Auditors is empowered to establish audit principles, the method of examination by the Corporate Auditors of the Company's affairs and financial position, and other matters concerning the performance of the Corporate Auditors' duties. The Company does not have an audit committee. There are no Director's service contracts with Ricoh providing for benefits upon termination of service. D. Employees The table below provides information about employees. - -------------------------------------------------------------------------------- As of March 31, 2002 2003 2004 ------ --------------- ------ Categorized by Operating Segment Office Equipment 65,359 66,422 65,878 Other 7,582 6,899 6,152 Headquarters 1,268 1,286 1,107 Total 74,209 74,607 73,137 Categorized by Geographic Location Domestic 39,988 39,482 38,772 Overseas 34,221 35,125 34,365 Total 74,209 74,607 73,137 - -------------------------------------------------------------------------------- Ricoh believes it is one of the few companies with a base in Japan with a large labor force which is not unionized. There has been no significant labor dispute in the fiscal year 2004 and Ricoh knows of no efforts to organize a union. Ricoh generally believes its employee relations to be good. -73- E. Share ownership The following table lists the number of Common Stock owned by each Director, Corporate Auditors and Executive Officers of the Company as of June 25, 2004. None of the Company's Directors, Corporate Auditors or Executive Officers is a beneficial owner of more than 1% of the Company's Common Stock. Collectively, the Directors, Corporate Auditors and Executive Officers beneficially own approximately 0.02% of the total Company Common Stock issued. Name Position Number of Shares - ------------------ ---------------------------------- ---------------- Masamitsu Sakurai President, Chief Executive Officer 7,000 and Chief Operating Officer Tatsuo Hirakawa Deputy President 16,379 Koichi Endo Executive Managing Director 12,747 Masayuki Matsumoto Executive Managing Director 4,000 Katsumi Yoshida Executive Managing Director 5,100 Makoto Hashimoto Managing Director 10,000 Kiyoshi Sakai Managing Director 4,000 Takashi Nakamura Managing Director 5,693 Shiroh Kondoh Managing Director 4,000 Kazuo Togashi Managing Director 3,000 Kazunori Azuma Managing Director 4,000 Yuji Inoue Managing Director 10,000 Zenji Miura Managing Director 2,000 Hisaaki Koga Corporate Auditor 5,253 Hideyuki Takamatsu Corporate Auditor 3,000 Kenji Matsuishi Corporate Auditor 2,000 Koji Tomizawa Corporate Auditor 1,000 Terumoto Nonaka Executive Vice President 7,050 Tadatoshi Sakamaki Executive Vice President 6,211 Etsuo Kobayashi Executive Vice President 7,000 Hiroshi Tategami Executive Vice President 5,000 Kenji Hatanaka Executive Vice President 3,000 Hideko Kunii Executive Vice President 5,000 Hiroshi Kobayashi Executive Vice President 1,000 Masami Yoneyama Senior Vice President 11,000 Hiroshi Tsuruga Senior Vice President 2,000 Kiyoto Nagasawa Senior Vice President 3,000 Yutaka Ebi Senior Vice President 2,000 Hiroshi Adachi Senior Vice President 7,000 Kouji Sawa Senior Vice President 3,000 Yoshimasa Matsuura Senior Vice President 3,000 Sadahiro Arikawa Senior Vice President 1,000 Norio Tanaka Senior Vice President 105 Yoichi Shirahata Group Senior Vice President 9,496 ------- Total 175,034 ======= -74- All shares of Common Stock of the Company carry the same voting rights. No options to purchase securities from the Company or any of its subsidiaries were outstanding on June 25, 2004. Item 7. Major Shareholders and Related Party Transactions ------------------------------------------------- A. Major shareholders Major shareholders that are beneficial owners of 5% or more of the Common Stock as of March 31, 2004 are as follows:
Number of Percentage of Shares Owned Outstanding Title of Class Name (in thousands) Shares Owned - -------------- ------------------------------------ -------------- ------------- Common Stock The Master Trust Bank of Japan, Ltd. 85,575 11.58% Common Stock Japan Trustee Services Bank, Ltd. 73,282 9.92%
The Mitsubishi Trust and Banking Corporation, the second largest shareholder of Ricoh as of March 31, 2002, transferred its shares in Ricoh to The Master Trust Bank of Japan, Ltd. during the fiscal year 2003. As a result, The Master Trust Bank of Japan, Ltd. was Ricoh's second largest shareholder as of March 31, 2003. The Master Trust Bank of Japan, Ltd. is a joint venture managed by the Mitsubishi Trust and Banking Corporation, Nippon Life Insurance Company, UFJ Trust Bank Limited, Meiji Yasuda Life Insurance Company and Deutsche Bank. The number of Ricoh shares held by The Master Trust Bank of Japan, Ltd. may increase in the future. As of March 31, 2004, Nippon Life Insurance Company and UFJ Trust Bank Limited have not transferred shares in Ricoh to The Master Trust Bank of Japan, Ltd., and it is possible that these two entities will transfer their shares in Ricoh to The Master Trust Bank of Japan, Ltd. in the future. In addition, Meiji Yasuda Life Insurance Company and Deutsche Bank may transfer their shares in Ricoh to the Master Trust Bank of Japan, Ltd. in the future. With respect to significant changes in percentage ownership, the percentage of ownership held by The Master Trust Bank of Japan, Ltd. increased from 8.78% to 11.58% during fiscal year 2004, and the percentage of ownership held by Japan Trustee Services Bank, Ltd. increased from 8.75% to 9.84% during fiscal year 2003. In addition, during the fiscal year 2002, the percentage ownership held by The Mitsubishi Trust and Banking Corporation increased from 3.65% to 6.20% and the percentage ownership held by Nippon Life Insurance Company decreased from 5.52% to 4.47%. -75- As far as is known to the Company, there has not been any significant change in the percentage ownership held by any major shareholders during the past three years except as described above. The major shareholders do not have different voting rights. American Depositary Receipts ("ADRs") evidencing American Depositary Shares are issued by The Bank of New York. The normal trading unit is 5 American Depositary Shares. As of March 31, 2004, 331,043 American Depositary Shares were held of record by 3 institutional registered holders in the United States of America. As far as is known to the Company as of this date, it is not directly or indirectly owned or controlled by any other corporation or by the Japanese or any foreign government. As far as is known to the Company as of this date, there is no arrangement, the operation of which may at a subsequent date result in a change in control of the Company. B. Related party transactions Ricoh sells or purchases products, materials, supplies and services to or from affiliated companies on normal commercial terms and conditions. See Note 6 to the Consolidated Financial Statements. No Directors, Corporate Auditors or Executive Officers were indebted to the Company or its subsidiaries at any time during the latest three fiscal years. Neither the Company nor its subsidiaries expect to make any loans to Directors, Corporate Auditors or Executive Officers in the future. C. Interest of experts and counsel Not applicable. Item 8. Financial Information --------------------- A. Consolidated statements and other information See Item 18. Financial Statements and pages F-1 through F-46. Legal or arbitration proceedings -------------------------------- There are no material pending legal or arbitration proceedings to which Ricoh is a party. Dividend Policy --------------- Ricoh endeavors to provide stable dividends to its shareholders by boosting profitability. At the same time, Ricoh undertakes to increase retained earnings to reinforce its corporate structure and to cultivate new businesses. Ricoh uses such retained earnings to strengthen its core businesses and invest in new fields with medium- -76- and long-term perspectives. See Item 10(b) "Dividends" for important information on the Company's dividend payment procedure and restrictions. B. Significant changes No significant changes have occurred since the date of the Consolidated Financial Statements included in this report. Item 9. The Offer and Listing --------------------- A. Offer and listing details The primary market for the Company's Common Stock is the Tokyo Stock Exchange (the "TSE") in the form of original Common Stock. The Company's Common Stock has been listed on the TSE since 1949, and in Japan it is also listed on the Osaka Stock Exchange, the Nagoya Stock Exchange, the Fukuoka Stock Exchange and the Sapporo Stock Exchange. In addition, the Company's Common Stock is listed outside of Japan on the following stock exchanges: Amsterdam, Frankfurt and Paris. In the United States, the Company's American Depositary Shares are traded on the Over-the-Counter Market in the form of ADRs and are issued and exchanged by The Bank of New York, as depositary. The following table sets forth for the periods indicated the reported high and low sales prices of the Company's Common Stock on the TSE and the reported high and low sales prices per share of the Company's ADSs at Over-the-Counter Market. -77-
Over-the-Counter Market Price Tokyo Stock Exchange Price Per American Depositary Share Per Share of Common Stock (5 shares of Common Stock) (Japanese Yen) (U.S. Dollars) -------------------------- ----------------------------- High Low High Low ----- ----- ------ ----- Annual highs and lows - --------------------- Fiscal Year 2000 2,525 1,078 111.79 44.28 Fiscal Year 2001 2,495 1,627 113.46 75.85 Fiscal Year 2002 2,735 1,563 108.00 77.50 Fiscal Year 2003 2,470 1,637 95.75 62.50 Fiscal Year 2004 2,365 1,607 104.50 68.55 Quarterly highs and lows - ------------------------ Fiscal Year 2003 1st quarter 2,470 1,961 95.75 84.00 2nd quarter 2,265 1,904 91.67 81.50 3rd quarter 2,205 1,867 88.00 80.30 4th quarter 1,998 1,637 82.00 62.50 Fiscal Year 2004 1st quarter 2,035 1,607 83.75 68.55 2nd quarter 2,330 1,945 96.75 81.99 3rd quarter 2,160 1,805 99.25 83.47 4th quarter 2,365 1,885 104.50 90.50 Monthly highs and lows - ---------------------- December 2003 2,155 1,805 99.25 83.47 January 2004 2,110 1,931 98.75 93.50 February 2004 2,230 1,885 98.00 90.50 March 2004 2,365 2,085 104.50 96.00 April 2004 2,345 2,045 107.50 97.50 May 2004 2,260 2,090 100.50 93.50
Notes: (1) Price per share of Common Stock are as reported by the TSE. (2) Price per ADSs are based upon one ADS representing 5 shares of Common Stock and are as reported by Over-the-Counter Market Bulletin Board(R). B. Plan of distribution Not applicable. -78- C. Markets See Item 9.A. for a list of the stock exchanges on which the securities are listed. See Item 10.B. for certain information relating to the Common Stock of the Company. D. Selling shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the issue Not applicable. Item 10. Additional Information ---------------------- A. Share Capital Not applicable. B. Memorandum and articles of association ORGANIZATION Ricoh Company, Ltd. was incorporated in Japan under the Commercial Code of Japan. It is registered in the Commercial Register (SHOGYO TOKIBO) maintained by the Tokyo Legal Affairs Bureau of the Ministry of Justice. OBJECTIVES AND PURPOSES Article 3 of the Articles of Incorporation of the Company provides that its purpose is to engage in the following business activities: 1. Manufacture, sale and installation work and electrical communication work of optical, office, audio, electric and measuring equipment, other general machinery and equipment and accessories and supplies therefor. 2. Manufacture and sale of photographic sensitive materials and duplicating papers. 3. Manufacture and sale of various raw materials for photographic sensitive materials, and various chemical materials for chemical industries. 4. Manufacture, processing and sale of papers, pulps textiles, general merchandise and by-products thereof. 5. Investment in, or sale of the products of, other companies. -79- 6. Import and Export of the goods described in any of the foregoing items and other goods of every kind and description. 7. Brokerage business for casualty insurance and the insurance brokerage under the Automobile Liability Security Law of Japan. 8. Direct marketing through the Internet, facsimile, telephone, etc. 9. Any and all business incidental or relating to any of the foregoing items. DIRECTORS Under the Commercial Code, the Board of Directors has executive powers and duties to manage the affairs of the Company and each Representative Director, who is elected from among the Directors by the Board of Directors, has the statutory authority to represent the Company in all respects. Under the Commercial Code, the Directors must refrain from engaging in any business competing with the Company unless approved by the Board of Directors and any Director who has a material interest in the subject matter of a resolution to be taken by the Board of Directors cannot vote in such resolution. The total amount of remuneration to Directors and to Corporate Auditors is subject to approval at the General Meeting of Shareholders. Within such authorized amounts the Board of Directors and the Board of Corporate Auditors respectively determine the compensation to each Director and Corporate Auditor. Except as stated below, neither the Commercial Code nor the Company's Articles of Incorporation make a special provision as to the Director's or Corporate Auditor's power to vote in connection with their compensation, borrowing powers exercisable by a Representative Director (or a Director who is given power by a Representative Director to exercise such powers), their retirement age or requirement to hold any shares of capital stock of the Company. The Commercial Code specifically requires the resolution of the Board of Directors for a corporation to acquire or dispose of material assets; to borrow substantial amount of money; to employ or discharge from employment important employees, such as executive officers; and to establish, change or abolish a material corporate organization such as a branch office. The Regulations of the Board of Directors of the Company require a resolution of the Board of Directors for the Company's borrowing or lending of a significant amount of money or giving of a guarantee in a large amount. Set forth below is certain information relating to the Common Stock of the Company, including brief summaries of certain provisions of the Company's Articles of Incorporation and Share Handling Regulations, as currently in effect, and of the Commercial Code of Japan relating to a joint stock company (KABUSHIKI KAISHA) and certain related legislation. GENERAL The presently authorized capital stock of the Company is 993,000,000 shares. Under the Commercial Code shares are transferable by delivery of share certificates, but in order to assert shareholders' rights against the Company, the transferee must generally have his name registered in the Company's register of shareholders. Shareholders are -80- required to file their names, addresses and seals with The Chuo Mitsui Trust & Banking Co., Ltd., the transfer agent for the Company's Common Stock, and shareholders not resident in Japan are required to file a mailing address in Japan or appoint a resident proxy in Japan. These requirements do not apply to the holders of ADRs. The central clearing system of share certificates under the Law Concerning Central Clearing of Share Certificates and Other Securities of Japan applies to the shares of Common Stock of the Company. Pursuant to this system a holder of shares of Common Stock is able to choose, at his discretion, to participate in this system and all certificates of shares of Common Stock elected to be put into this system are deposited with the central clearing system and all such shares are registered in the name of the clearing house in the Company's register of shareholders. Each participating shareholder is in turn registered in the register of beneficial shareholders and treated the same way as shareholders registered in the Company's register of shareholders. DIVIDENDS The Articles of Incorporation of the Company provide that the accounts shall be closed on March 31 of each year and that dividends, if any, shall be paid to the shareholders of record as of the end of such fiscal period. After the close of the fiscal period, the Board of Directors prepares, among other things, a proposed allocation of profits for dividends and other purposes; this proposal is submitted to the Corporate Auditors of the Company and to independent certified public accountants and then submitted for approval to the ordinary general meeting of shareholders, which is normally held in June of each year. In addition to provisions for dividends, if any, and for the legal reserve and other reserves, the allocation of profits customarily includes bonuses to Directors and Corporate Auditors. In addition to a distribution of annual dividends, the Board of Directors of the Company may by its resolution declare a cash distribution pursuant to Article 293-5 of the Commercial Code (an "interim dividend") to shareholders who are registered in the Company's register of shareholders at the end of each September 30, subject to the limitations described below. The Commercial Code provides that, until the aggregate amount of the Company's legal reserve and additional paid-in capital is at least one-quarter of the Company's stated capital, the Company may not make any distribution of profits by way of dividends in cash unless it has set aside in its legal reserve an amount equal to at least one-tenth of any amount paid out as an appropriation of retained earnings (including any payment by way of annual dividend and bonuses to Directors and Corporate Auditors) or equal to one-tenth of any interim dividend. The Commercial Code permits the Company to distribute profits by way of dividends out of the excess of its net assets, on a non-consolidated basis, over the aggregate of (i) its stated capital, (ii) its additional paid-in capital, (iii) its accumulated legal reserve, (iv) the legal reserve to be set aside in respect of the dividends concerned and any other proposed payment by way of appropriation of retained earnings, (v) the excess, if any, of unamortized expenses incurred in preparation for commencement of business and in connection with research and development over the aggregate of the amounts referred to in (ii), (iii) and (iv) above, and (vi) the increased amount of net assets in its balance sheet due to the assignment of market value to certain -81- assets when the aggregate market value so assigned exceeds the aggregate acquisition value of such assets. In the case of interim dividends, the net assets are calculated by reference to the balance sheet as at the end of the last fiscal year of the Company, and adjustments are made to such net assets to reflect (1) a subsequent decrease due to (a) a payment by way of an appropriation of retained earnings and the related transfer to legal reserve, (b) a transfer of retained earnings to stated capital, (c) the allocation of the aggregate purchase price of shares determined by a resolution of the ordinary general meeting of shareholders or by a resolution of the Board of Directors authorizing the Company to acquire its shares, and (d) other amounts as provided for by enforcement regulations of the Ministry of Justice ("Enforcement Regulations"), and (2) a subsequent increase due to (a) a reduction of paid-in capital or legal reserve, (b) a reduction of stated capital and (c) other amounts as provided for by Enforcement Regulations. Interim dividends may not be paid where there is a risk that at the end of the fiscal year net assets might be less than the aggregate of the amounts referred to in (i), (ii), (iii), (iv), (v) and (vi) above. The Commercial Code, currently in effect, does not provide for "stock dividends." However, under the Commercial Code, the shareholders may by resolution transfer any amount which is distributable as dividends to stated capital and the Board of Directors may by resolution issue additional shares by way of a stock split, thus the same effect as a stock dividend can be achieved. In Japan, the "ex-dividend" date and the record date for dividends precede the date of determination of the amount of the dividend to be paid. TRANSFER OF CAPITAL SURPLUS AND LEGAL RESERVE TO STATED CAPITAL AND STOCK SPLITS (FREE SHARE DISTRIBUTIONS) When the Company issues new shares of Common Stock, the entire amount of the issue price of such new shares is required to be accounted for as stated capital, although the Company may account for an amount not exceeding one-half of such issue price as capital surplus. The Board of Directors may transfer the whole or any part of capital surplus and legal reserve to stated capital and grant to shareholders additional shares of Common Stock free of charge by way of a stock split with reference to the whole or any part of the amount of capital surplus and legal reserve so transferred to stated capital. GENERAL MEETING OF SHAREHOLDERS The ordinary general meeting of shareholders to settle accounts of the Company for each fiscal period is normally held in June each year in Ota-ku, Tokyo, Japan. In addition, the Company may hold an extraordinary general meeting of shareholders whenever necessary by giving at least two weeks' advance notice to shareholders. Notice of a shareholders' meeting setting forth the place, time and purpose thereof, must be mailed to each shareholder having voting rights (or, in the case of a non-resident shareholder, to his resident proxy or mailing address in Japan) at least two weeks prior to -82- the date set for the meeting. Such notice may also be furnished to shareholders by electronic means with such shareholders' consent. Any shareholder holding at least 300 voting shares or 1% of the total number of outstanding voting shares for six months or more may propose a matter to be considered at a general meeting of shareholders by submitting a written request to a Representative Director at least eight weeks prior to the date set for such meeting. Such request may be submitted by electronic means with the Company's consent. VOTING RIGHTS A shareholder is entitled to one vote per share subject to the limitations on voting rights set forth in the following paragraph below and in the sections entitled "'Unit' share system" through "Voting rights of a holder of shares representing less than one unit" below. Except as otherwise provided by law or by the Company's Articles of Incorporation, a resolution can be adopted at a general meeting of shareholders by a majority of the shares having voting rights represented at the meeting. Special resolutions provided for in Article 343 of the Commercial Code shall be adopted by the vote of the shareholders not less than two-thirds (2/3) of those present at a meeting whereby one-third (1/3) of voting rights of all of the shareholders shall constitute a quorum. The Commercial Code and the Company's Articles of Incorporation provide, however, that the quorum for the election of Directors and Corporate Auditors shall not be less than one-third of the total number of outstanding shares having voting rights. The Company's shareholders are not entitled to cumulative voting in the election of Directors. A corporate shareholder, more than one-quarter of whose outstanding voting shares are directly or indirectly owned by the Company, may not exercise its voting rights in respect of the shares of the Company. The Company has no voting rights with respect to its own Common Stock. Shareholders may exercise their voting rights through proxies provided that the proxies are also shareholders holding voting rights. The Company's shareholders also may cast their votes in writing. The Commercial Code provides that in order to amend the Articles of Incorporation and in certain other instances, including an increase in the total number of shares authorized to be issued, a reduction of the stated capital, the removal of a Director or Corporate Auditor, dissolution, merger (with an exception of a merger with a company of significantly small business) or consolidation of a corporation, the transfer of the whole or an important part of the business, the taking over of the whole of the business of any other corporation (with an exception of a merger with a company of significantly small business), any offering of new shares at a "specially favorable" price (or any offering of convertible bonds or debentures with "specially favorable" conversion conditions or of bonds or debentures with warrants or rights to subscribe for new shares with "specially favorable" conditions) to persons other than shareholders, the quorum shall be one-third of the total number of shares having voting rights outstanding and the approval of the holders of at least two-thirds of the shares having voting rights represented at the meeting is required (the "special shareholders resolution"). -83- SUBSCRIPTION RIGHTS Holders of the Company's Common Stock have no preemptive rights under its Articles of Incorporation. Authorized but unissued shares may be issued at such times and upon such terms as the Board of Directors determines, subject to the limitations as to the offering of new shares at a "specially favorable" price mentioned above. The Board of Directors may, however, determine that shareholders shall be given subscription rights regarding a particular issue of new shares, in which case such rights must be given on uniform terms to all shareholders as at a record date of which not less than two weeks' public notice must be given. Each of the shareholders to whom such rights are given must also be given notice of the expiry thereof at least two weeks prior to the date on which such rights expire. Rights to subscribe for new shares may be made generally transferable by the Board of Directors. Whether the Company will make subscription rights generally transferable in future rights offerings will depend upon the circumstances at the time of such offerings. If subscription rights are not made generally transferable, transfers by a non-resident of Japan or a corporation organized under the laws of a foreign country or whose principal office is located in a foreign country will be enforceable against the Company and third parties if the Company's consent to each such transfer is obtained. When such consent is necessary in the future for the transfer of subscription rights, the Company intends to consent, on request, to all such transfers by such a non-resident or foreign corporation. DILUTION In the future it is possible that market conditions and other factors might make a rights, offering to shareholders substantially below the market price of shares of Common Stock desirable. If the number of shares offered in a rights offering is substantial in relation to the number of shares outstanding and the market price exceeds the subscription price at the time of the offering, a shareholder who does not exercise and is unable otherwise to realize the full value of his subscription rights would suffer economic dilution of his equity interest in the Company. LIQUIDATION RIGHTS In the event of a liquidation of the Company, the assets remaining after payment of all debts and liquidation expenses and taxes will be distributed among the shareholders in proportion to the respective numbers of shares held. LIABILITY TO FURTHER CALLS OR ASSESSMENTS All the Company's presently outstanding shares of Common Stock including shares represented by the American Depository Shares are fully paid and non-assessable. -84- TRANSFER AGENT The Chuo Mitsui Trust and Banking Co., Ltd. is the transfer agent for the Company's Common Stock; as such transfer agent, it keeps the Company's register of shareholders and register of the lost share certificates in its office at 7-1,Kyobashi 1-chome, Chuo-ku, Tokyo, Japan, and makes transfer of record ownership upon presentation of the certificates representing the transferred shares. RECORD DATE March 31 is the record date for the Company's year-end dividends. The shareholders who are registered as the holders of 1,000 shares or more in the Company's register of shareholders at the end of each March 31 are also entitled to exercise shareholders' rights at the ordinary general meeting of shareholders with respect to the fiscal period ending on such March 31. September 30 is the record date for interim dividends. In addition, the Company may set a record date for determining the shareholders entitled to other rights and for other purposes by giving at least two weeks' public notice. The price of the shares generally goes ex-dividend or ex-rights on Japanese stock exchanges on the third business day prior to a record date (or if the record date is not a business day, the fourth business day prior thereto), for the purpose of dividends or rights offerings. REPURCHASE BY THE COMPANY OF ITS COMMON STOCK The Company may repurchase shares (i) through the Tokyo Stock Exchange or other stock exchange on which the shares are listed or by way of tender offer, if authorized by an ordinary resolution of an ordinary general meeting of shareholders or by a resolution of the Board of Directors, (ii) from a specific party, if authorized by a special resolution of an ordinary general meeting of shareholders, or (iii) from the Company's own subsidiary, if authorized by a resolution of the Board of Directors. When a repurchase is made by the Company from a specified party pursuant to an authorization by a special resolution of an ordinary general meeting of shareholders as noted above, shareholders may make a demand to a Representative Director, five days or more prior to the relevant shareholders' meeting, that the Company also repurchase the shares held by that shareholder. Repurchase of shares pursuant to an authorization of the ordinary general meeting of shareholders must satisfy certain requirements, including the requirement that the total amount of the repurchase price may not exceed the amount of the retained earnings available for annual dividend payments after taking into account any reduction, if any, of the stated capital, additional paid-in capital or legal reserve (if such reduction of the stated capital, additional paid-in capital or legal reserve has been authorized pursuant to a resolution of the relevant ordinary general meeting of shareholders), minus the amount to be paid by way of appropriation of retained earnings for the relevant fiscal year and the amount to be transferred to stated capital. Repurchase of shares pursuant to an authorization of the Board of Directors must satisfy certain -85- requirements, including the requirement that the total amount of the repurchase price may not exceed the amount of the retained earnings available for interim dividend payments minus the amount of interim dividends, if paid. If it is anticipated that the net assets on the balance sheet as at the end of the relevant fiscal year will be less than the aggregate amount of the stated capital, additional paid-in capital and other items as described in (i) through (vi) in "Dividends" above, the Company may not repurchase shares. The Company may hold its own shares so repurchased without restriction. The Company may cancel its own shares that it holds by a resolution of the Board of Directors. The Company may otherwise dispose of its own shares by a resolution of the Board of Directors. "UNIT" SHARE SYSTEM (TANGENKABU SEIDO) Pursuant to the Commercial Code the Company has adopted 1,000 shares as one unit of shares. TRANSFERABILITY OF SHARES REPRESENTING LESS THAN ONE UNIT As adopted in the Company's Articles of Incorporation, the Company will not issue certificates for shares representing less than one unit. Since the transfer of shares normally requires delivery of the certificates therefor, fractions of a unit for which no share certificates are issued are not transferable. Shares representing less than one unit for which share certificates have been issued continue to be transferable. RIGHT OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT TO REQUIRE THE COMPANY TO PURCHASE SUCH SHARES A holder of shares representing less than one unit may at any time require the Company to purchase such shares at their last reported sale price on the Tokyo Stock Exchange on the day when such request is made less applicable brokerage commission. The usual securities transfer tax is applicable to such transactions. RIGHT OF THE HOLDER OF SHARES TO DEMAND THE PURCHASE OF SHARES REPRESENTING LESS THAN ONE UNIT As adopted in the Company's Articles of Incorporation and set forth in the Share Handling Regulations, a holder of shares of less-than-one-unit may request the Company to sell additional shares so that their less-than-one-unit can share constitute one unit of shares. OTHER RIGHTS OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT A holder of shares representing less than one unit has certain rights in respect of such shares, including the following: (i) the right to receive dividends (including interim dividends), (ii) the right to receive shares and/or cash by way of a stock split or upon consolidation or subdivision of shares or upon a capital decrease or merger of the Company, (iii) the right to be allotted subscription rights with respect to new shares, convertible bonds and bonds with warrants to subscribe for shares when such rights are -86- granted to shareholders, (iv) the right to participate in the distribution of surplus assets in the event of the liquidation of the Company, (v) the right to request to inspect certain corporate documents, including minutes of the Board of Directors meeting, (vi) the right to file a derivative action on behalf of the Company and (vii) the right to file an action seeking to invalidate certain events, including issuance of new shares and corporate merger. Other rights, including voting rights, cannot be exercised with respect to shares representing less than one unit. VOTING RIGHTS OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT A holder of shares representing less than one unit cannot exercise any voting rights with respect to such shares. A holder of shares representing one or more whole units will have one vote for each such unit, except as stated in "Voting rights" above. C. Material contracts All contracts entered into by Ricoh or any member of the Ricoh Group during the two years preceding this report were entered into in the ordinary course of business. D. Exchange controls The Foreign Exchange and Foreign Trade Law of Japan, as amended, and the cabinet orders and ministerial ordinances thereunder (the "Exchange Law") govern certain matters relating to the issuance of equity-related securities by the Company and the acquisition and holding of shares of Common Stock or ADSs representing such shares by "exchange non-residents" and by "foreign investors" as hereinafter defined. The Exchange Law currently in effect does not affect the right of an exchange non-resident to purchase or sell an ADS outside Japan. "Exchange non-residents" are defined under the Exchange Law as individuals who are not resident in Japan and corporations whose principal offices are located outside Japan. Generally branches and other offices of Japanese corporations located outside Japan are regarded as exchange non-residents, but branches and other offices located within Japan of non-resident corporations are regarded as residents of Japan. "Foreign investors" are defined to be (i) individuals not resident in Japan, (ii) corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan, and (iii) corporations of which (a) 50% or more of the shares are held by (i) and/or (ii) above, (b) a majority of officers consists of non-resident individuals or (c) a majority of the officers having the power of representation consists of non-resident individuals. Dividends and Proceeds of Sales Under the Exchange Law, dividends paid on, and the proceeds of sales in Japan of, shares of Common Stock held by exchange non-residents in general may be converted into any foreign currency and repatriated abroad. The acquisition of shares of Common Stock by exchange non-resident shareholders by way of stock splits is not subject to any requirements under the Exchange Law. -87- Acquisition of Shares Under the Exchange Law, acquisition of shares of a Japanese company listed on any Japanese stock exchange or traded on the over-the-counter market in Japan ("listed shares") by an exchange non-resident from a resident of Japan is generally not subject to a prior filing requirement. In case a foreign investor acquires listed shares (whether from a resident of Japan or an exchange non-resident, from another foreign investor or from or through a designated securities company) and as a result of such acquisition the number of shares held directly or indirectly by such foreign investor would become 10% or more of the total outstanding shares of the company, the foreign investor is required to make a subsequent report on such acquisition to the Minister of Finance and other Ministers having jurisdiction over the business of the subject company (the "Competent Ministers"). In certain exceptional cases, a prior filing is required and the Competent Ministers may recommend the modification or abandonment of the proposed acquisition and, if the foreign investor does not accept the recommendation, order its modification or prohibition. The deposit of shares of Common Stock by an exchange non-resident of Japan, the issuance of ADRs in exchange therefor and the withdrawal of the underlying shares of Common Stock by an exchange non-resident upon surrender of ADRs are not subject to any requirements under the Exchange Law, except where as a result of such deposit or withdrawal the aggregate number of shares of Common Stock held by the Depositary (or its nominee) or the holder surrendering ADRs, as the case may be, would be 10% or more of the total outstanding shares of Common Stock, in which event a subsequent reporting may be required as described above. E. Taxation JAPANESE TAXATION Generally, a non-resident of Japan or a non-Japanese corporation is subject to Japanese withholding tax on dividends paid by a Japanese corporation. Generally, stock splits are not subject to Japanese income tax. According to the Income Tax Law of Japan, the rate of Japanese national withholding tax applicable to dividends paid on listed shares issued by the Company to non-residents of Japan or non-Japanese corporations is (i) 7% for the period from January 1, 2004 to March 31, 2008, and (ii) 15% thereafter, except for dividends paid to any individual shareholder who holds 5% or more of the outstanding total of the shares issued by the Company, for which the applicable rate is 20%. Under the new income tax convention between the U.S. and Japan (the "Convention") ratified in March 2004, the maximum rate of Japanese withholding tax that may be imposed on dividends paid to a U.S. resident or corporation not having a "permanent establishment" (as defined therein) in Japan is generally 10%. This 10% withholding tax rate is applicable to dividends declared on or after July 1, 2004. The 15% withholding tax rate under the old income tax convention is still applicable to dividends declared before July 1, 2004. If the tax rate under the domestic tax law is lower than that under the Convention, the domestic tax rate is still applicable. -88- Gains derived by a non-resident of Japan or a non-Japanese corporation from the sale of Common Stock or ADRs outside Japan, or from the sale of Common Stock within Japan by a non-resident of Japan or by a non-Japanese corporation not having a permanent establishment in Japan, are in general not subject to Japanese income or corporation tax. Japanese inheritance or gift tax at progressive rates may be payable by an individual who has acquired Common Stock or ADRs as a legatee, heir or donee. For purposes of the Convention and the U.S. Internal Revenue Code of 1986, as amended (the "Code"), U.S. holders of ADRs will be treated as the owners of the Common Stock underlying the American Depositary Shares evidenced by the ADRs. U.S. TAXATION This summary describes the material U.S. federal income tax consequences for a U.S. holder (as defined below) of owning and disposing of shares of Common Stock or American Depositary Shares evidenced by the ADRs. This summary applies to you only if you hold shares of Common Stock or American Depositary Shares as capital assets for U.S. federal income tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as: . a dealer in securities or currencies; . a trader in securities that elects to use a mark-to-market method of accounting for securities holdings; . a bank; . a life insurance company; . a tax-exempt organization; . a person that holds shares of Common Stock or American Depositary Shares that are a hedge or that are hedged against interest rate or currency risks; . a person that is subject to the alternative minimum tax; . a person that holds shares of Common Stock or American Depositary Shares as part of a straddle or conversion transaction for tax purposes; . a person whose functional currency for U.S. federal income tax purposes is not the U.S. Dollar; or . a person that actually or constructively owns or is deemed to own 10% or more of any class of our stock. This summary is based on laws, treaties, and regulatory interpretations in effect on the date hereof, all of which are subject to change, possibly on a retroactive basis. Moreover, this summary assumes that the Company will not be treated as a passive foreign investment company (a "PFIC") for U.S. federal income tax purposes. See the summary below under the heading "PFIC Rules." Please consult your own tax advisers concerning the U.S. federal, state, local, and other tax consequences of purchasing, owning, and disposing of shares of Common Stock or American Depositary Shares in your particular circumstances. -89- For purposes of this summary, you are a "U.S. holder" if you are a beneficial owner of a share of Common Stock or an American Depositary Share that is for U.S. federal income tax purposes: (i) a citizen or a resident of the United States, (ii) a corporation or a partnership (including an entity treated as a corporation or a partnership for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia (unless, in the case of a partnership, Treasury regulations are adopted that provide otherwise), (iii) an estate whose income is subject to U.S. federal income tax regardless of its source, or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. Certain trusts not described in clause (iv) above in existence on August 20, 1996 that elect to be treated as a United States person will also be a U.S. holder for purposes of this discussion. In general, if you hold ADRs evidencing American Depositary Shares, you will be treated as the owner of the shares of Common Stock represented by those American Depositary Shares for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an American Depositary Share for the shares of Common Stock represented by that American Depositary Share. DIVIDENDS The gross amount of cash dividends paid out of the Company's current or accumulated earnings and profits, as determined for U.S. federal income tax purposes, that a U.S. holder receives (prior to deduction of Japanese taxes) generally will be subject to U.S. federal income taxation as foreign source ordinary dividend income. However, in certain circumstances, all or a portion of the cash dividends paid by the Company may be treated as U.S. source dividend income. You should consult your tax advisers regarding the U.S. federal income tax consequences of all or a portion of the cash dividends paid by the Company being treated as U.S. source dividend income. Dividends paid in Japanese Yen will be included in your income in a U.S. Dollar amount calculated by reference to the exchange rate in effect on the date of your (or, in the case of American Depositary Shares, the depositary's) receipt of the dividend, regardless of whether the payment is in fact converted into U.S. Dollars. If such a dividend is converted into U.S. Dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. You should consult your own tax adviser regarding the treatment of any foreign currency gain or loss realized with respect to any Japanese Yen received by you (or, in the case of American Depositary Shares, the depositary) that are converted into U.S. Dollars on a date subsequent to receipt. Dividends paid by the Company generally will not be eligible for the dividends-received deduction allowed to corporations that are U.S. holders. Notwithstanding the foregoing, pursuant to recently enacted legislation, certain dividends received by individual U.S. holders that constitute "qualified dividend income" will be subject to a reduced maximum marginal U.S. federal income tax rate. Qualified dividend income generally includes, among other dividends, dividends received during -90- the taxable year from "qualified foreign corporations." In general, the term "qualified foreign corporation" includes a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States which the U.S. Treasury Department determines to be satisfactory, and which includes an exchange of information program. In addition, a foreign corporation is treated as a qualified foreign corporation with respect to any dividend paid by the corporation with respect to stock of the corporation that is readily tradable on an established securities market in the United States. Notwithstanding this previous rule, dividends received from a foreign corporation that was a foreign investment company (as defined in section 1246(b) of the Code), a passive foreign investment company (as defined in section 1297 of the Code), or a foreign personal holding company (as defined in section 552 of the Code) in either the taxable year of the corporation in which the dividend was paid or the preceding taxable year will not constitute qualified dividend income. In addition, the term qualified dividend income will not include, among other dividends, any (i) dividends on any share of stock which is held by a taxpayer for 60 days or less during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividends (as measured under section 246(c) of the Code) or (ii) dividends to the extent that the taxpayer is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respects to positions in substantially similar or related property. Moreover, special rules apply in determining a taxpayer's foreign tax credit limitation under section 904 of the Code in the case of qualified dividend income. Individual U.S. holders should consult their own tax advisors to determine whether or not amounts received as dividends from the Company will constitute qualified dividend income subject to a reduced maximum marginal U.S. federal income tax rate and, in such case, the effect, if any, on the individual U.S. holder's foreign tax credit. In addition to the foregoing, you should consult your own tax advisers to determine whether any rules limit your ability to make effective use of foreign tax credits, including the possible adverse impact of failing to take advantage of benefits under the income tax treaty between the United States and Japan. If no such rules apply, you generally may claim a credit against your U.S. federal income tax liability for Japanese taxes withheld from dividends on shares of Common Stock or American Depositary Shares, so long as you have owned the shares of Common Stock or American Depositary Shares (and not entered into specified kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, you may, at your election, deduct such Japanese taxes in computing your taxable income, subject to generally applicable limitations under U.S. federal income tax law. The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend, in part, on a U.S. holder's particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes. -91- SALES AND OTHER DISPOSITIONS A U.S. holder will recognize gain or loss on the sale or other disposition of shares of Common Stock or American Depositary Shares evidenced by ADRs in an amount equal to the difference between the U.S. Holder's adjusted tax basis in such shares of Common Stock or American Depositary Shares (in U.S. Dollars) and the amount realized on the disposition (in U.S. Dollars, generally determined at the spot rate on the date of disposition if the amount realized is denominated in a foreign currency). For U.S. federal income tax purposes, gain or loss realized by a U.S. holder on a sale or other disposition of shares of Common Stock or American Depositary Shares will be capital gain or loss, and will be long-term capital gain or loss if the shares of Common Stock or American Depositary Shares were held for more than one year. Such gain or loss generally will be treated as U.S. source gain or loss for U.S. foreign tax credit purposes. Your ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at a reduced maximum marginal U.S. federal income tax rate. PFIC RULES The Company believes that it will not be treated as a PFIC for U.S. federal income tax purposes. However, that is a factual determination made annually and therefore may be subject to change. If the Company was treated as a PFIC, a U.S. holder of shares of Common Stock or American Depositary Shares evidenced by ADRs would be subject to certain adverse U.S. federal income tax consequences. U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING RULES Payments in respect of the shares of Common Stock or American Depositary Shares that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (i) is a corporation or other exempt recipient or (ii) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred (and certain other conditions are met). F. Dividends and paying agents Not applicable. G. Statement by experts Not applicable. H. Documents on display The Company is subject to the informational requirements of the Securities and Exchange Act of 1934, as amended. In accordance with these requirements, the Company files reports and other information with the U.S. Securities and Exchange Commission (the "SEC"). These materials, including this annual report and exhibits -92- thereto, may be inspected and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the materials may be obtained from the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the Public Reference Room by calling the SEC in the U.S. at 1-800-SEC-0330. The documents filed via the Electronic Data Gathering, Analysis, and Retrieval system is also available for inspection on the SEC's website (http://www.sec.gov). I. Subsidiary information Not Applicable. Item 11. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Ricoh is exposed to market risks primarily from changes in foreign currency exchange rates and interest rates, which affect outstanding debt and certain assets and liabilities denominated in foreign currencies. To a lesser extent, Ricoh is also exposed to equity price risk. In order to manage these risks that arise in the normal course of business, Ricoh enters into various hedging transactions pursuant to its policies and procedures covering such areas as counterparty exposure and hedging practices. Ricoh does not hold or issue derivative financial instruments for trading purposes or to generate income. Ricoh regularly assesses these market risks based on the policies and procedures established to protect against adverse effects of these risks and other potential exposures, primarily by reference to the market value of the financial instruments. As a result of the latest assessment, Ricoh does not anticipate any material losses in these areas for the fiscal year 2004, and there are no material quantitative changes in market risk exposure at March 31, 2004 when compared to March 31, 2003. In the normal course of business, Ricoh also faces risks that are either non-financial or nonquantifiable. Such risks principally include credit risk and legal risk, and are not represented in the following tables. FOREIGN CURRENCY RISK In the ordinary course of business, Ricoh uses foreign exchange forward contracts to manage the effects of foreign currency exchange risk on monetary assets and liabilities denominated in foreign currencies. The contracts with respect to the operating activities generally have maturities of less than six months, while the contracts with respect to the financing activities have the same maturities as the underlying assets and liabilities. The table below provides information about Ricoh's material derivative financial instruments that are sensitive to foreign currency exchange rates. The below table relating to foreign exchange forward contracts presents the notional amounts, weighted average exchange rates and estimated fair value. These notional amounts generally are used to calculate the contractual payments to be exchanged under the contracts. -93- Foreign Exchange Forward Contracts (Year ended March 31, 2004) - ------------------------------------------------------------------------------ Year Ended March 31, 2004 -------------------------------------------------------------------- Contract amounts Estimated fair value Average contractual rates (Millions of yen) (Millions of yen) - ------------------------------------------------------------------------------ US$/Yen 110.35 8,662 367 EUR/Yen 131.46 45,959 1,044 - ------------------------------------------------------------------------------ INTEREST RATE RISK In the ordinary course of business, Ricoh enters into interest rate swap agreements to reduce interest rate risk and to modify the interest rate characteristics of its outstanding debt. These agreements primarily involve the exchange of fixed and floating rate interest payments over the life of the agreement without the exchange of the underlying principal amounts. The below table provides information about Ricoh's major derivative and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the table presents principal cash flows by expected maturity date, related weighted average interest rates and estimated fair value. For interest rate swaps, the table presents notional amounts by expected maturity date, weighted average interest rates. Notional amounts are generally used to calculate the contractual payments to be exchanged under the contract.
- --------------------------------------------------------------------------------------------------------------------------- LONG-TERM INDEBTEDNESS Year ended march 31, 2004 - --------------------------------------------------------------------------------------------------------------------------- Millions of yen ---------------------------------------------------------------------------- Expected maturity date (Excluding Capital Lease ------------------------------------------------------------------ Obligations and SFAS No. 133 Average Fair fair value adjustment) pay rate Total 2005 2006 2007 2008 2009 Thereafter Value - --------------------------------------------------------------------------------------------------------------------------- Bonds 1.39% 140,000 10,000 40,000 45,000 10,000 25,000 10,000 143,028 Medium-Term Notes 0.28 16,000 12,000 3,000 -- -- -- 1,000 15,981 Loans 1.42 201,771 59,017 87,004 25,508 19,753 1,041 9,448 201,721 - --------------------------------------------------------------------------------------------------------------------------- Total 357,771 81,017 130,004 70,508 29,753 26,041 20,448 360,730 - ---------------------------------------------------------------------------------------------------------------------------
-94-
- --------------------------------------------------------------------------------------------------------------------------- INTEREST RATE SWAPS Year ended march 31, 2004 - --------------------------------------------------------------------------------------------------------------------------- Millions of yen ----------------------------------------------------------------------- Expected maturity date -------------------------------------------------------------- Notional Average Average amounts receive pay Fair (Millions) Type of swap rate rate Total 2005 2006 2007 2008 2009 Thereafter Value - --------------------------------------------------------------------------------------------------------------------------- Receive floating Yen 87,000 /Pay fixed 0.19% 0.30% 87,000 2,000 52,000 22,000 10,000 -- 1,000 2,190 Receive fixed 60,000 /Pay floating 2.20 0.11 60,000 17,000 18,000 1,000 4,000 2,000 18,000 (34) - --------------------------------------------------------------------------------------------------------------------------- Receive floating US$ 20 /Pay floating 7.36% 1.89% 2,114 2,114 -- -- -- -- -- 110 - ---------------------------------------------------------------------------------------------------------------------------
CREDIT RISK Ricoh is also exposed to credit-related losses in the event of nonperformance by counterparties to the financial instrument; however, credit risk arising from the nonperformance of counterparties to meet the terms of financial instrument contracts is generally limited to the amounts by which the counterparties' obligations exceed the obligations of Ricoh. It is Ricoh's policy to only enter into financial instrument contracts with a diversified group of financial institutions having credit ratings satisfactory to Ricoh to minimize the concentration of credit risk. Therefore, Ricoh does not expect to incur material credit losses on its financial instruments. DEBT/EQUITY PRICE RISK Ricoh has a relatively small portion of marketable securities which are subject to equity price risk arising from changes in their market prices. Marketable securities consist of a diversified pool of Japanese equity securities. Ricoh's overall investment policy is to invest in highly-liquid, low risk investments. The table below provides information about contractual maturities for available-for-sale securities and the fair values for market risk sensitive securities as of March 31, 2004. Millions of Japanese Yen For the Year ended March 31, 2004 --------------------------------- Cost Fair Value ------- ---------- Debt Securities Due within one year 45,139 45,123 Due after one year through five years -- -- Equity Securities 5,053 13,100 Investment Trusts* 1,175 1,667 ------ ------ Total 51,367 59,890 ------ ------ *Investment trusts consist of investments in marketable debt and equity securities. -95- Item 12. Description of Securities Other Than Equity Securities ------------------------------------------------------ Not applicable. PART II Item 13. Defaults, Dividend Arrearages and Delinquencies ----------------------------------------------- None. Item 14. Material Modifications to the Rights of Security Holders and Use of ------------------------------------------------------------------- Proceeds -------- None. Item 15. Controls and Procedures ----------------------- Within the 90-day period prior to the filing of this report, Ricoh performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures under the supervision and with the participation of Ricoh's management, including the Chief Executive Officer and the Deputy President (Corporate Planning, Investors Relations, Accounting and Personnel) (I.E., the principal financial officer of the Company). Based on that evaluation, Ricoh's management, including the Chief Executive Officer and Deputy President (Corporate Planning, Investors Relations, Accounting and Personnel), concluded that its disclosure controls and procedures were effective as of the date of such evaluation. No significant changes in Ricoh's internal controls or in other factors have occurred that could significantly affect these controls subsequent to the date the Chief Executive Officer and Deputy President (Corporate Planning, Investors Relations, Accounting and Personnel) completed their evaluation. Item 16. [RESERVED] Item16.A. Audit Committee Financial Expert -------------------------------- The Board of Directors of the Company has determined that it does not have an "audit committee financial expert" as defined in Item 16A of Form 20-F serving on the Board of Corporate Auditors. The Company is considering the issues related to and the ramifications of such a designation. In Japan, there are limited numbers of qualified persons who meet all of the criteria established by the SEC for financial experts to be designated by issuers. Accordingly, it is taking some time for the Company to identify such a qualified person. Although the Board of Directors is satisfied that that members of the Board of Corporate Auditors possess the appropriate skills and experience, as a group, to carry out their duties as members of the Board of Corporate Auditors, the Company will continue to strive to identify potential candidates that might qualify for this position. The Board of -96- Corporate Auditors will keep under active review the financial expert matter during the 2005 fiscal year as part of their overall risk management and compliance program. Item16.B. Code of Ethics -------------- Ricoh has adopted a code of ethics that applies to its employees, including the President, Chief Executive Officer, Chief Operating Officer, and the senior management of accounting and finance. Such code of ethics of Ricoh is provided hereto as Exhibit 11. Item16.C. Principal Accountant Fees and Services -------------------------------------- The aggregate fees for professional services rendered to the Company by KPMG for the years ended March 31, 2003 and 2004, were: Millions of Yen Year Ended March 31, ---------------------- Type of Fees 2003 2004 - ------------------ ---- ---- Audit Fees 610 689 Audit-related Fees 7 3 Tax Fees 36 33 All Other Fees 15 16 --- --- TOTAL 668 741 Audit Fees consist of fees for the annual audit of the Company's consolidated financial statements, and statutory and subsidiary audits, assistance with the review of documents filed with the SEC, consents, comfort letters and other assistance that are normally provided by our independent accountants. Audit-related Fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements or that are traditionally performed by the independent accountants and include employee benefit plan audits, due diligence related to mergers and acquisitions, accounting consultations and audits in connection with acquisitions, attest services that are not required by statute or regulations, consultation concerning financial accounting and reporting standards, internal control reviews and assistance with internal control reporting requirements, review of the effectiveness of the internal audit function. Tax Fees consist of fees for tax compliance, tax advice and tax planning services, including preparation of original and amended tax returns, claims for refund and tax payment-planning services, assistance with tax audits and appeals, tax advice related to mergers and acquisitions, transfer pricing documentation, expatriates' tax assistance and compliance. All Other Fees consists of fees for all other services not included in any of the other categories noted above, including services rendered for financial and non-financial information systems implementation and design services. -97- AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES In accordance with Japanese law, the Company's independent accountants (KAIKEI KANSANIN) ("Accounting Auditors") are appointed by the shareholders at the Ordinary General Meeting of Shareholders with the consent of the Company's Board of Corporate Auditors. In addition, the Board of Corporate Auditors may, by its resolution, request the Company's Board of Directors to submit a proposal as to the appointment of Accounting Auditors at the Ordinary General Meeting of Shareholders. Subsequent to the appointment of the Accounting Auditors, the Board of Corporate Auditors is responsible, among other matters, for the oversight of the Accounting Auditors, subject to the requirements of Japanese law. No proposal was submitted to discharge KPMG as the Company's Accounting Auditors at the most recent Ordinary General Meeting of Shareholders held on June 25, 2004. The Board of Corporate Auditors has adopted policies and procedures to pre-approve all audit and permissible non-audit services provided by the Accounting Auditor ("Pre-approval Policies"). Under the Pre-approval Policies, proposed services either (i) may be pre-approved by the Board of Corporate Auditors without specific consideration on a case-by-case basis if such services do not exceed pre-approved fee levels ("general pre-approval"), or (ii) require the specific pre-approval of the Board of Corporate Auditors ("specific pre-approval"). The Board of Corporate Auditors may delegate its specific pre-approval authority to one or more of its independent members who shall be designated by the Board of Corporate Auditors. Under the Pre-approval Policies, the Accounting Auditors are not allowed to perform any non-audit services which may impair the auditors independence under the rules of the SEC. The appendices to the Pre-approval Policies set out the audit, audit-related, tax and other service, including those described above, that have received the general pre-approval of the Board of Corporate Auditors. The term of any general pre-approval is twelve months from the date of pre-approval, unless the Board of Corporate Auditors specifically provides for a different period and sets forth such different period in the relevant appendix to the Pre-approval Policies. The Board of Corporate Auditors will annually review the Pre-approval Policies and revise the list of services that it has provided general pre-approval. Requests or applications to provide services that require specific pre-approval by the Board of Corporate Auditors will be submitted to the Board of Corporate Auditors by the Chief Officer of a company or division to which services are provided, accompanied by a draft engagement letter from the Accounting Auditor. During fiscal year 2004, none of the services provided to the Company by KPMG were approved by the Board of Corporate Auditors pursuant to the de minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. -98- Item16.D. Exemptions from the Listing Standards for Audit Committees ---------------------------------------------------------- Not applicable. Item16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers ---------------------------------------------------------------------- Not applicable. PART III Item 17. Financial Statements -------------------- Not applicable. Item 18. Financial Statements -------------------- See Consolidated Financial Statements and Schedule attached hereto. Item 19. Exhibits -------- Documents filed as exhibits to this annual report: 1.1 Articles of Incorporation, as amended (English translation) 1.2 Share Handling Regulations, as amended (English translation) 1.3 Regulations of the Board of Directors, as amended (English translation) 1.4 Regulation of the Board of Corporate Auditors, as amended (English translation) 8.1 List of Significant Subsidiaries (See "Organizational structure" in Item 4.C. of this Form 20-F) 11 Code of Ethics (English translation) 12.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a) 12.2 Certification Pursuant to Rule 13a-14(a)/15d-14(a) 13.(a)(1) Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code 13.(a)(2) Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code -99- SIGNATURES ---------- Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Company hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. RICOH COMPANY, LTD. (Registrant) By: /s/ Zenji Miura ------------------------------- Zenji Miura Managing Director, Executive Vice President and General Manager of the Finance and Accounting Division Date: June 28, 2004 - -------------------------------------------------------------------------------- RICOH COMPANY, LTD. Consolidated Financial Statements and Schedule For the years ended March 31, 2002, 2003 and 2004 With Report of Independent Registered Public Accounting Firm Thereon - -------------------------------------------------------------------------------- RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page - -------------------------------------------------------------------------------- Report of Independent Registered Public Accounting Firm .....................F-2 Consolidated Balance Sheets as of March 31, 2003 and 2004 ............F-3 to F-4 Consolidated Statements of Income for the years ended March 31, 2002, 2003 and 2004 ............................................F-5 Consolidated Statements of Shareholders' Investment for the years ended March 31, 2002, 2003 and 2004 ............................................F-6 Consolidated Statements of Cash Flows for the years ended March 31, 2002, 2003 and 2004 ............................................F-7 Notes to Consolidated Financial Statements ..........................F-8 to F-45 Schedule: II. Valuation and Qualifying Accounts and Reserves .....................F-46 All schedules not listed have been omitted because they are not applicable, or the required information has been otherwise supplied in the consolidated financial statements or the notes thereto. - -------------------------------------------------------------------------------- F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Ricoh Company, Ltd.: We have audited the consolidated financial statements of Ricoh Company, Ltd. (a Japanese corporation) and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ricoh Company, Ltd. and subsidiaries as of March 31, 2003 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Notes 2 and 5 to the consolidated financial statements, the Company and its subsidiaries changed their accounting policy with respect to the recognition of unrealized gains and losses as realized in the statements of income on transfers of marketable equity securities to its employee retirement benefit trust. As discussed in Note 2 to the consolidated financial statements, the Company and its subsidiaries adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," effective April 1, 2002, and the provisions of Statement of Financial Accounting Standards No.133, "Accounting for Derivative Instruments and Hedging Activities," effective April 1, 2001. The accompanying consolidated financial statements as of and for the year ended March 31, 2004 have been translated into United States dollars solely for the convenience of the reader. We have recomputed the translation and, in our opinion, the consolidated financial statements, expressed in yen, have been translated into dollars on the basis set forth in Note 2 to the consolidated financial statements. Tokyo, Japan April 28, 2004 F-2 RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2003 AND 2004
Thousands of Millions of Yen U.S. Dollars --------------------- ------------ A S S E T S 2003 2004 2004 - -------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 189,243 203,039 $ 1,952,298 Time deposits 11,087 962 9,250 Marketable securities 107 45,124 433,885 Trade receivables- Notes 76,022 76,499 735,567 Accounts 359,769 362,784 3,488,308 Less- Allowance for doubtful receivables (17,849) (17,039) (163,837) Inventories- Finished goods 102,164 100,154 963,019 Work in process and raw materials 43,887 45,215 434,760 Deferred income taxes and other 58,083 55,079 529,606 - -------------------------------------------------------------------------------------- Total current assets 822,513 871,817 8,382,856 - -------------------------------------------------------------------------------------- Property, Plant and Equipment, at cost: Land 42,990 43,423 417,529 Buildings 204,606 200,844 1,931,192 Machinery and equipment 660,458 653,467 6,283,337 Construction in progress 6,540 10,629 102,202 - -------------------------------------------------------------------------------------- 914,594 908,363 8,734,260 Less- Accumulated depreciation (665,842) (669,651) (6,438,953) - -------------------------------------------------------------------------------------- 248,752 238,712 2,295,307 - -------------------------------------------------------------------------------------- Investments and Other Assets: Finance receivables 476,293 514,047 4,942,760 Investment securities 71,973 21,871 210,298 Investments in and advances to affiliates 45,791 46,967 451,606 Goodwill 28,109 25,298 243,250 Other intangible assets 40,020 43,233 415,702 Lease deposits and other 151,471 90,848 873,538 - -------------------------------------------------------------------------------------- 813,657 742,264 7,137,154 - -------------------------------------------------------------------------------------- 1,884,922 1,852,793 $17,815,317 ======================================================================================
F-3
Thousands of Millions of Yen U.S. Dollars --------------------- ------------ LIABILITIES AND SHAREHOLDERS' INVESTMENT 2003 2004 2004 - -------------------------------------------------------------------------------------- Current Liabilities: Short-term borrowings 84,478 68,952 $ 663,000 Current maturities of long-term indebtedness 54,235 82,210 790,481 Trade payables- Notes 32,943 29,937 287,856 Accounts 247,855 267,735 2,574,375 Accrued income taxes 42,393 25,050 240,865 Accrued expenses and other 126,679 133,544 1,284,077 - -------------------------------------------------------------------------------------- Total current liabilities 588,583 607,428 5,840,654 - -------------------------------------------------------------------------------------- Long-term Liabilities: Long-term indebtedness 345,902 281,570 2,707,404 Accrued pension and severance costs 209,011 83,492 802,808 Deferred income taxes 30,653 36,295 348,990 - -------------------------------------------------------------------------------------- 585,566 401,357 3,859,202 - -------------------------------------------------------------------------------------- Minority Interests 53,259 48,877 469,971 - -------------------------------------------------------------------------------------- Commitments and Contingent Liabilities (Note 16) Shareholders' Investment: Common stock; Authorized - 993,000,000 shares in 2003 and 2004 Issued and outstanding - 744,912,078 shares and 742,608,635 shares in 2003 and 744,912,078 shares and 738,894,891 shares in 2004 135,364 135,364 1,301,577 Additional paid-in capital 186,521 186,599 1,794,221 Retained earnings 434,748 515,372 4,955,500 Accumulated other comprehensive income (loss) (94,733) (30,272) (291,077) Treasury stock at cost; 2,303,443 shares in 2003 and 6,017,187 shares in 2004 (4,386) (11,932) (114,731) - -------------------------------------------------------------------------------------- Total shareholders' investment 657,514 795,131 7,645,490 - -------------------------------------------------------------------------------------- 1,884,922 1,852,793 $17,815,317 ======================================================================================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE BALANCE SHEETS. F-4 RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED MARCH 31, 2002, 2003 AND 2004
Thousands of Millions of Yen U.S. Dollars --------------------------------- ------------ 2002 2003 2004 2004 - ----------------------------------------------------------------------------------------------------------------------- Net Sales 1,672,340 1,738,358 1,780,245 $17,117,740 Cost of Sales 972,394 993,009 1,014,619 9,755,952 - ----------------------------------------------------------------------------------------------------------------------- Gross profit 699,946 745,349 765,626 7,361,788 Selling, General and Administrative Expenses 570,251 611,695 623,935 5,999,375 Transfer to the government of the substitutional portion of Employees' Pension Fund: Settlement loss -- -- 48,657 467,856 Subsidy from government -- -- (56,972) (547,808) - ----------------------------------------------------------------------------------------------------------------------- Operating income 129,695 133,654 150,006 1,442,365 - ----------------------------------------------------------------------------------------------------------------------- Other (Income) Expenses: Interest and dividend income (4,753) (3,772) (1,925) (18,510) Interest expense 8,233 6,853 5,290 50,865 Foreign currency exchange (gain) loss, net 5,732 566 6,136 59,000 Other, net 6,533 6,537 (2,558) (24,596) - ----------------------------------------------------------------------------------------------------------------------- Total 15,745 10,184 6,943 66,759 - ----------------------------------------------------------------------------------------------------------------------- Income before Income Taxes, Minority Interests, Equity in Earnings of Affiliates and Cumulative Effect of Accounting Change 113,950 123,470 143,063 1,375,606 Provision for Income Taxes: Current 52,365 63,183 53,303 512,529 Deferred (1,218) (11,199) 3,338 32,096 - ----------------------------------------------------------------------------------------------------------------------- Total 51,147 51,984 56,641 544,625 - ----------------------------------------------------------------------------------------------------------------------- Income before Minority Interests, Equity in Earnings of Affiliates and Cumulative Effect of Accounting Change 62,803 71,486 86,422 830,981 Minority Interests 3,080 1,376 4,094 39,365 Equity in Earnings of Affiliates 1,891 2,403 2,065 19,855 - ----------------------------------------------------------------------------------------------------------------------- Income before Cumulative Effect of Accounting Change 61,614 72,513 84,393 811,471 Cumulative Effect of Accounting Change, net of tax -- -- 7,373 70,894 - ----------------------------------------------------------------------------------------------------------------------- Net Income 61,614 72,513 91,766 $ 882,365 =======================================================================================================================
Yen U.S. Dollars ------------------------ ------------ Per Share of Common Stock: - ---------------------------------------------------------------------------------------------------- Basic: Income before cumulative effect of accounting change 88.27 99.79 113.69 $1.09 Cumulative effect of accounting change -- -- 9.94 0.10 Net income 88.27 99.79 123.63 1.19 Diluted: Income before cumulative effect of accounting change 82.46 96.81 113.69 1.09 Cumulative effect of accounting change -- -- 9.94 0.10 Net income 82.46 96.81 123.63 1.19 ==================================================================================================== Cash dividends per share 12.00 14.00 15.00 $0.14 ==================================================================================================== Per American Depositary Share, each representing 5 shares of common stock: - ---------------------------------------------------------------------------------------------------- Basic: Income before cumulative effect of accounting change 441.35 498.95 568.45 $5.46 Cumulative effect of accounting change -- -- 49.70 0.48 Net income 441.35 498.95 618.15 5.94 Diluted: Income before cumulative effect of accounting change 412.30 484.05 568.45 5.46 Cumulative effect of accounting change -- -- 49.70 0.48 Net income 412.30 484.05 618.15 5.94 ==================================================================================================== Cash dividends per share 60.00 70.00 75.00 $0.72 ====================================================================================================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS. F-5 RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT FOR THE YEARS ENDED MARCH 31, 2002, 2003 AND 2004
Thousands of Millions of Yen U.S. Dollars --------------------------- ------------ 2002 2003 2004 2004 - ---------------------------------------------------------------------------------------------------------- Common Stock: Beginning balance 103,434 120,461 135,364 $1,301,577 Conversion of convertible bonds; 34,522,672 shares in 2002 and 24,633,822 shares in 2003 17,027 14,903 -- -- - ---------------------------------------------------------------------------------------------------------- Ending balance 120,461 135,364 135,364 $1,301,577 ========================================================================================================== Additional Paid-in Capital: Beginning balance 154,635 171,628 186,521 $1,793,471 Conversion of convertible bonds 16,993 14,893 -- -- Issuance of treasury stock in exchange for subsidiary's stock -- -- 78 750 - ---------------------------------------------------------------------------------------------------------- Ending balance 171,628 186,521 186,599 $1,794,221 ========================================================================================================== Retained Earnings: Beginning balance 332,447 385,741 434,748 $4,180,269 Net income for the year 61,614 72,513 91,766 882,365 Dividends declared and approved (8,320) (10,178) (11,142) (107,134) Retirement of treasury stock; 7,000,000 shares in 2003 -- (13,328) -- -- - ---------------------------------------------------------------------------------------------------------- Ending balance 385,741 434,748 515,372 $4,955,500 ========================================================================================================== Accumulated other comprehensive income (loss): Beginning balance (33,788) (44,376) (94,733) $ (910,894) Foreign currency translation adjustments 6,516 1,007 (5,393) (51,856) Unrealized gains (losses) on securities, net of reclassification adjustment (766) (1,984) (4,556) (43,808) Unrealized gains (losses) on derivatives, net of reclassification adjustment (207) 29 154 1,481 Minimum pension liability adjustments (16,131) (49,409) 74,256 714,000 - ---------------------------------------------------------------------------------------------------------- Ending balance (44,376) (94,733) (30,272) $ (291,077) ========================================================================================================== Treasury stock: Beginning balance -- (434) (4,386) $ (42,173) Purchase of treasury stock; 446,928 shares in 2002, 9,111,925 shares in 2003 and 5,731,150 shares in 2004 (1,083) (17,280) (11,411) (109,721) Sales of treasury stock; 269,000 shares in 2002 and 6,873 shares in 2004 649 -- 13 125 Retirement of treasury stock; 7,000,000 shares in 2003 -- 13,328 -- -- Issuance of treasury stock in exchange for subsidiary's stock; 2,010,533 shares in 2004 -- -- 3,852 37,038 - ---------------------------------------------------------------------------------------------------------- Ending balance (434) (4,386) (11,932) $ (114,731) ========================================================================================================== Comprehensive income: Net income for the year 61,614 72,513 91,766 $ 882,365 Other comprehensive income (loss) for the year, net of tax (10,588) (50,357) 64,461 619,817 - ---------------------------------------------------------------------------------------------------------- Total comprehensive income for the year 51,026 22,156 156,227 $1,502,182 ==========================================================================================================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS. F-6 RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 2002, 2003 AND 2004
Thousands of Millions of Yen U.S. Dollars --------------------------- ------------ 2002 2003 2004 2004 - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income 61,614 72,513 91,766 $ 882,365 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 73,782 76,551 76,968 740,077 Equity in earnings of affiliates, net of dividends received (1,260) (1,167) (1,001) (9,625) Deferred income taxes (1,218) (9,289) 3,338 32,096 Losses on disposals and sales of property, plant and equipment 1,665 1,975 2,035 19,567 Cumulative effect of accounting change, net of tax -- -- (7,373) (70,894) Changes in assets and liabilities, net of effects from acquisition- (Increase) decrease in trade receivables (20,006) 22,176 (11,367) (109,298) (Increase) decrease in inventories 21,194 14,983 (4,317) (41,509) Increase in finance receivables (13,620) (33,109) (32,650) (313,942) (Decrease) increase in trade payables (19,535) 5,632 21,316 204,962 (Decrease) increase in accrued income taxes and accrued expenses and other (13,592) 11,173 (5,913) (56,856) (Decrease) increase in accrued pension and severance costs 8,374 7,806 (609) (5,856) Other, net 7,740 16,498 22,718 218,442 - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 105,138 185,742 154,911 1,489,529 - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of property, plant and equipment 756 245 190 1,827 Expenditures for property, plant and equipment (75,231) (71,984) (75,432) (725,308) Payments for purchases of available-for-sale securities (10,025) (52,219) (35,518) (341,519) Proceeds from sales of available-for-sale securities 24,568 24,513 45,464 437,154 (Increase) decrease in time deposits (477) 944 9,915 95,336 Other, net (21,012) 302 (8,002) (76,942) - ---------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (81,421) (98,199) (63,383) (609,452) - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term loans 71,075 58,194 13,349 128,356 Repayment of long-term loans (79,640) (23,133) (31,509) (302,971) Decrease in short-term borrowings, net (39,414) (73,393) (10,728) (103,154) Proceeds from issuance of long-term debt securities 103,500 11,000 1,000 9,615 Repayment of long-term debt securities (10,000) (11,723) (23,910) (229,904) Dividend payments (8,322) (10,176) (11,136) (107,077) Payment for purchase of treasury stock (1,054) (17,281) (11,411) (109,721) Other, net 90 (631) (490) (4,711) - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 36,235 (67,143) (74,835) (719,567) - ---------------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 2,474 (1,329) (2,897) (27,856) - ---------------------------------------------------------------------------------------------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 62,426 19,071 13,796 132,654 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 107,746 170,172 189,243 1,819,644 - ---------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR 170,172 189,243 203,039 $1,952,298 ====================================================================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: CASH PAID DURING THE YEAR FOR- Interest 9,418 7,300 6,479 $ 62,298 Income taxes 53,129 52,154 66,914 643,404 ======================================================================================================================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS. F-7 RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS Ricoh Company, Ltd. (the "Company") was established in 1936 and is headquartered in Tokyo, Japan. The Company and its consolidated subsidiaries ("Ricoh" as a consolidated group) is a world-wide supplier of office automation equipment, including copiers, facsimile machines, data processing systems, printers and related supplies. Ricoh is also well known for its state-of-the-art electronic devices, digital photographic equipment and other products. Ricoh distributes its products primarily through domestic (Japanese) and foreign sales subsidiaries. Overseas, Ricoh owns and distributes not only Ricoh brand products but also other brands, such as Gestetner, Lanier and Savin. Ricoh manufactures its products primarily in 15 plants in Japan and 6 plants overseas, which are located in the United States, United Kingdom, France and China. 2. SIGNIFICANT ACCOUNTING AND REPORTING POLICIES The accompanying consolidated financial statements of Ricoh have been prepared in conformity with accounting principles generally accepted in the United States of America. Significant accounting and reporting policies are summarized below: (A) BASIS OF PRESENTATION The accompanying consolidated financial statements for the three years ended March 31, 2004 are presented in Japanese yen, the functional currency of the Company and its domestic subsidiaries. The translation of Japanese yen into U.S. Dollar equivalents for the year ended March 31, 2004 is included solely for the convenience of readers outside Japan and has been made using the exchange rate of Yen 104 to US$1, the approximate rate of exchange prevailing at the Federal Reserve Bank of New York on March 31, 2004. The books of the Company and its domestic subsidiaries are maintained in conformity with Japanese accounting principles and practices, while foreign subsidiaries maintain their books in conformity with the standards of their country of domicile. The accompanying consolidated financial statements reflect necessary adjustments, not recorded in the books, to present them in conformity with accounting principles generally accepted in the United States of America. (B) PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Ricoh. Investments in entities in which Ricoh has the ability to exercise significant influence over the entities' operating and financial policies (generally 20 to 50 percent ownership) are accounted for on an equity basis. All significant intercompany balances and transactions have been eliminated in consolidation. F-8 The accounts of certain consolidated subsidiaries have been included on the basis of fiscal periods ended within three months prior to March 31. (C) REVENUE RECOGNITION Ricoh generates revenue principally through the sale of equipment, supplies and related services under separate contractual arrangements for each. Generally, Ricoh recognizes revenue when (1) it has a firm contract, (2) the product has been shipped to and accepted by the customer or the service has been provided, (3) the sales price is fixed or determinable and (4) amounts are reasonably assured of collection. Most equipment sales require that Ricoh install the product. As such, revenue is recognized at the time of delivery and installation at the customer location. Equipment revenues are based on established prices by product type and model and are net of discounts and trade-in allowances. A sales return is accepted only when the equipment is defective and does not meet Ricoh's product performance specifications. Other than installation, there are no customer acceptance clauses in the sales contract. Service revenues result primarily from maintenance contracts that are normally entered into at the time the equipment is sold. Standard service fee prices are established depending on equipment classification and include a cost value for the estimated services to be performed based on historical experience plus a profit margin thereon. As a matter of policy, Ricoh does not discount such prices. On a monthly basis, maintenance service revenues are earned and recognized by Ricoh and billed to the customer in accordance with the contract and include a fixed monthly fee plus a variable amount based on usage. The length of the contract ranges up to five-years, however, most contracts are cancelable at any time by the customer upon a short notice period. Ricoh enters into arrangements with multiple elements, which may include any combination of products, equipment, installation and maintenance. Ricoh allocates revenue to each element based on its relative fair value if such element meets the criteria for treatment as a separate unit of accounting as prescribed in the Emerging Issues Task Force Issue 00-21("EITF 00-21"), "Revenue Arrangements with Multiple Deliverables". Pursuant to EITF 00-21, the delivered item in a multiple element arrangement should be considered a separate unit of accounting if all of the following criteria are met: 1) a delivered item has value to customers on a stand-alone basis, 2) there is objective and reliable evidence of fair value of an undelivered item, and 3) the delivery of the undelivered item must be probable and controlled by Ricoh if the arrangement includes the right of return. The price charged when the element is sold separately generally determines fair value. Otherwise, revenue is deferred until the undelivered elements are fulfilled as a single unit of accounting. EITF 00-21 was effective for revenue arrangements entered into after June 30, 2003. EITF 00-21 did not have a material effect on Ricoh's financial position or results of operations. (D) FOREIGN CURRENCY TRANSLATION For foreign operations with functional currencies other than the Japanese yen, assets and liabilities are translated at the exchange rates in effect at each fiscal year-end, and income and expenses are translated at the average rates of exchange prevailing during each fiscal year. The resulting translation adjustments are included as a part of accumulated other comprehensive income (loss) in shareholders' investment. All foreign currency transaction gains and losses are included in other income and expense in the period incurred. F-9 (E) CASH EQUIVALENTS Cash and cash equivalents include highly liquid investments with maturities of three months or less at the date of purchase such as time deposits and short-term investment securities which are available-for sale at any time, present insignificant risk of changes in value due to being readily convertible into cash and have an original maturity of three months or less, such as money management funds and free financial funds. (F) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES As discussed further in Note 15, Ricoh manages its exposure to certain market risks, primarily foreign currency and interest rate risks, through the use of derivative instruments. As a matter of policy, Ricoh does not enter into derivative contracts for trading or speculative purposes. On April 1, 2001 Ricoh adopted Statement of Financial Accounting Standards ("SFAS") No.133 "Accounting for Derivative Instruments and Hedging Activities", and SFAS No.138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" which require that all derivative instruments be recorded on the balance sheet at their respective fair values. In accordance with the transition provisions of SFAS 133, Ricoh recorded a cumulative effect adjustment, net of tax, resulting in a decrease in net income of Yen 66 million and a decrease in other comprehensive income (loss) of Yen 1,864 million at April 1, 2001. In accordance with SFAS 133, Ricoh, when it enters into a derivative contract, makes a determination as to whether or not for accounting purposes the derivative is part of a hedging relationship. In general, a derivative may be designated as either (1) a hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment ("fair value hedge"), (2) a hedge of the variability of the expected cash flows associated with an existing asset or liability or a forecasted transaction ("cash flow hedge"), or (3) a foreign currency fair value or cash flow hedge ("foreign currency hedge"). Ricoh formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value, cash flow, or foreign currency hedges to specific assets and liabilities on the consolidated balance sheet or to specific firm commitments or forecasted transactions. For derivative contracts that are designated and qualify as fair value hedges including foreign currency fair value hedges, the derivative instrument is marked-to-market with gains and losses recognized in current period earnings to offset the respective losses and gains recognized on the underlying exposure. For derivative contracts that are designated and qualify as cash flow hedges including foreign currency cash flow hedges, the effective portion of gains and losses on these contracts is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period the hedged item or transaction affects earnings. Any hedge ineffectiveness on cash flow hedges is immediately recognized in earnings. For all derivative instruments that are not designated as part of a hedging relationship and for designated derivative instruments that do not qualify for hedge accounting, the contracts are recorded at fair value with the gain or loss recognized in current period earnings. In accordance with the transitional provisions of SFAS 133, gains and losses on qualifying hedges of existing assets or liabilities at April 1, 2001, were included in the carrying amounts of those assets or liabilities and were ultimately recognized in income as part of those carrying amounts. Gains and losses related to qualifying hedges of firm commitments and anticipated transactions were deferred and recognized in income, or as adjustments of carrying amounts, when the hedged transaction occurred. F-10 (G) ALLOWANCE FOR DOUBTFUL TRADE RECEIVABLES AND FINANCE RECEIVABLES Ricoh records allowances for doubtful receivables that are based upon historical experience and specific customer collection issues. The estimated amount of probable credit losses in its existing receivables is determined from write-off history adjusted to reflect current economic conditions and specific allowances for receivables including nonperforming leases, impaired loans or other accounts of which Ricoh has concluded it will be unable to collect all amounts due according to original terms of the lease or loan agreement. Account balances net of expected recovery from available collateral are charged-off against the allowances when collection is considered remote. (H) SECURITIES Ricoh conforms with SFAS No.115, "Accounting for Certain Investments in Debt and Equity Securities" which requires all investments in debt and marketable equity securities to be classified as either held-to-maturity, trading, or available-for-sale securities. As of March 31, 2003 and 2004, all of Ricoh's investments in debt and marketable equity securities are classified as available-for-sale securities. Those available-for-sale securities are reported at fair value with unrealized gains and losses, net of related taxes, excluded from earnings and reported in accumulated other comprehensive income (loss). Available-for-sale securities, which mature or are expected to be sold in one year, are classified as current assets. Individual securities classified as available-for-sale securities are reduced to their then fair value for any declines in market value determined to be other than temporary. These impairment losses are charged against earnings at the time that a decline has been determined to be other than temporary based primarily on the financial condition of the issuer and the extent and length of time of the decline. Investments whose market values have declined below cost that extends for nine months are automatically written-down to their then fair value in all cases. The cost of the securities sold is computed based on the average cost of each security held at the time of sale. Non-marketable equity securities owned by Ricoh primarily relate to less than 20% owned companies and are stated at cost. As discussed further in Note 5, Ricoh changed its accounting policy with respect to the recognition of unrealized gains and losses as realized in the statements of income on transfers of marketable equity securities. In relation to this change, Ricoh has recognized in its fiscal 2004 consolidated statement of income a cumulative effect of accounting change, net of tax, of Yen 7,373 million ($70,894 thousand). (I) INVENTORIES Inventories are mainly stated at the lower of average cost or net realizable values. Inventory costs include raw materials, labor and manufacturing overheads. (J) PROPERTY, PLANT AND EQUIPMENT For the Company and its domestic subsidiaries, depreciation of property, plant and equipment is computed principally by using the declining-balance method over the estimated useful lives. Most of the foreign subsidiaries have adopted the straight-line method for computing depreciation, which currently accounts F-11 for approximately 41% of the consolidated depreciation expense. The depreciation period generally ranges from 5 years to 50 years for buildings and 2 years to 12 years for machinery and equipment. Effective rates of depreciation for the years ended March 31, 2002, 2003 and 2004 are summarized below: 2002 2003 2004 - -------------------------------------------------------------------------------- Buildings 8.3% 8.1% 8.1% Machinery and equipment 40.6 41.0 42.9 ================================================================================ Certain leased buildings, machinery and equipment are accounted for as capital leases in conformity with SFAS No.13, "Accounting for Leases." The aggregate cost included in property, plant and equipment and related accumulated depreciation as of March 31, 2003 and 2004 were as follows: Thousands of Millions of Yen U.S. Dollars --------------- ------------ 2003 2004 2004 - -------------------------------------------------------------------------------- Aggregate cost 7,339 7,151 $68,760 Accumulated depreciation 4,036 4,504 43,308 ================================================================================ The related future minimum lease payments and the present value of the net minimum lease payments as of March 31, 2004 were Yen 3,456 million ($33,231 thousand) and Yen 3,141 million ($30,202 thousand), respectively. Ordinary maintenance and repairs are charged to expense as incurred. Major replacements and improvements are capitalized. When properties are retired or otherwise disposed of, the property and related accumulated depreciation accounts are relieved of the applicable amounts, and any differences are included in earnings. (K) GOODWILL AND OTHER INTANGIBLE ASSETS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.141, "Business Combinations", and SFAS No.142, "Goodwill and Other Intangible Assets". SFAS 141 requires the use of only the purchase method of accounting for business combinations and refines the definition of intangible assets acquired in a purchase business combination. SFAS 142 eliminates the amortization of goodwill and instead requires annual impairment testing thereof. SFAS 142 also requires acquired intangible assets with a definite useful life to be amortized over their respective estimated useful lives and reviewed for impairment in accordance with SFAS 144. Any acquired intangible asset determined to have an indefinite useful life is not amortized, but instead is tested for impairment based on its fair value until its life would be determined to no longer be indefinite. Ricoh adopted the provisions of SFAS 141 and SFAS 142 as of April 1, 2002. Goodwill acquired in business combinations completed before July 1, 2001, was amortized until March 31, 2002. In connection with the transitional impairment evaluation, SFAS 142 required Ricoh to perform an assessment of whether there was an indication that goodwill was impaired as of April 1, 2002. To accomplish this, Ricoh (1) identified its reporting units, (2) determined the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units, and (3) determined the fair value of each reporting unit. Ricoh completed the transitional assessment by September 30, 2002, and determined there was no indication that goodwill had been impaired as of April 1, 2002. F-12 Ricoh also completed the annual assessment for the years ended March 31, 2003 and 2004 and determined that no goodwill impairment charge was necessary. Prior to the adoption of SFAS 142, Ricoh classified the cost in excess of fair value of the net assets of companies acquired in purchase transactions as goodwill, and the goodwill was being amortized on a straight-line method over the estimated periods benefited, not to exceed 20 years. (L) PENSION AND RETIREMENT ALLOWANCES PLANS The measurement of pension costs and liabilities is determined in accordance with SFAS No.87, "Employers' Accounting for Pensions." Under SFAS 87, changes in the amount of either the projected benefit obligation or plan assets resulting from actual results different from that assumed and from changes in assumptions can result in gains and losses not yet recognized in the consolidated financial statements. Amortization of an unrecognized net gain or loss is included as a component of the net periodic benefit plan cost for a year if, as of the beginning of the year, that unrecognized net gain or loss exceeds 10 percent of the greater of (1) the projected benefit obligation or (2) the fair value of that plan's assets. In such case, the amount of amortization recognized is the resulting excess divided by the average remaining service period of active employees expected to receive benefits under the plan. The expected long-term rate of return on plan assets used for pension accounting is determined based on the historical long-term rate of return on plan assets. The discount rate is determined based on the rates of return of high-quality fixed-income investments currently available and expected to be available during the period to maturity of the pension benefits. In December 2003, the FASB issued SFAS No.132 (revised), "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS 132 (revised) prescribes employers' disclosures about pension plans and other postretirement benefit plans; it does not change the measurement or recognition of those plans. The Statement retains and revises the disclosure requirements contained in the original SFAS 132. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. The Statement generally is effective for fiscal years ending after December 15, 2003. Ricoh's disclosures in Note 11 incorporate the requirements of SFAS 132 (revised). (M) INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (N) RESEARCH AND DEVELOPMENT EXPENSES AND ADVERTISING COSTS Research and development expenses and advertising costs are expensed as incurred. (O) SHIPPING AND HANDLING COSTS Shipping and handling costs, which mainly include transportation to customers, are included in selling, general and administrative expenses on the consolidated statements of income. F-13 (P) IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS In August 2001, the FASB issued SFAS No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 develops a single accounting model, based on the framework established in SFAS No.121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" for long-lived assets to be disposed of by sale, and broadens the scope of what constitutes a business to be disposed of that should be reported as a discontinued operation. The new standard was adopted on April 1, 2002, and did not have a material effect on Ricoh's consolidated financial position or results of operations. SFAS 144 requires that long-lived assets and acquired intangible assets with a definite life are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. Recoverability of assets to be held and used is assessed by comparing the carrying amount of an asset or asset group to the expected future undiscounted net cash flows of the asset or group of assets. If an asset or group of assets is considered to be impaired, the impairment charge to be recognized is measured as the amount by which the carrying amount of the asset or group of assets exceeds fair value. Long-lived assets meeting the criteria to be considered as held for sale are reported at the lower of their carrying amount or fair value less costs to sell. Prior to the adoption of SFAS 144, Ricoh accounted for long-lived assets in accordance with SFAS 121. (Q) EARNINGS PER SHARE Basic net income per common share is calculated by dividing net income by the weighted-average number of shares outstanding during the period. The calculation of diluted net income per common share is similar to the calculation of basic net income per share, except that the weighted-average number of shares outstanding includes the additional dilution from potential common stock equivalents such as convertible bonds. Ricoh has no dilutive securities outstanding at March 31, 2004 and therefore there is no difference between basic and diluted net income per share. (R) NON-CASH TRANSACTIONS The following non-cash transactions have been excluded from the consolidated statements of cash flows: Thousands of Millions of Yen U.S. Dollars ----------------------- ------------ 2002 2003 2004 2004 - -------------------------------------------------------------------------------- Conversion of convertible bonds 35,620 32,905 -- $ -- Capital lease obligations incurred 445 1,697 75 721 Retirement of treasury stock -- 13,328 -- -- Issuance of treasury stock in exchange for subsidiary's stock -- -- 3,930 37,788 Transfer of marketable equity securities to employee retirement benefit trust -- -- 3,648 35,077 ================================================================================ F-14 (S) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, including impairment losses of long-lived assets and the disclosures of fair value of financial instruments and contingent assets and liabilities, to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. The Company has identified four areas where it believes assumptions and estimates are particularly critical to the consolidated financial statements. These are determination of the allowance for doubtful receivables, impairment on long-lived assets and goodwill, realizability of deferred tax assets and pension accounting. 3. ACQUISITION In December 2002, Ricoh acquired the remaining outstanding shares of Shanghai Ricoh Facsimile Co., Ltd. ("Shanghai Ricoh") for Yen 1,745 million. The acquisition of the remaining 45% interest in Shanghai Ricoh was accounted for using the purchase method of accounting and resulted in goodwill of Yen 778 million. In April 2003, the Company acquired all of the minority interests of its existing consolidated subsidiary, Tohoku Ricoh Co., Ltd. ("Tohoku Ricoh") through the issuance of 2,010,533 shares of treasury stock in exchange for all the outstanding shares of Tohoku Ricoh's common stock not then owned by Ricoh. The cost of acquired minority interests was Yen 5,579 million ($53,644 thousand) determined based on the fair value of the treasury shares issued. The Company has used the purchase method of accounting to record the transactions in conformity with SFAS 141 and accordingly, has allocated the purchase price based on estimated fair values of acquired net assets. 4. FINANCE RECEIVABLES Finance receivables as of March 31, 2003 and 2004 are comprised primarily of lease receivables and installment loans. Ricoh's products are leased to domestic customers primarily through Ricoh Leasing Company, Ltd., a majority-owned domestic subsidiary and to overseas customers primarily through certain overseas subsidiaries. These leases are qualified and are accounted for as sales-type leases in conformity with SFAS 13. Sales revenue from sales-type leases is recognized at the inception of the leases. Information pertaining to Ricoh's lease receivables as of March 31, 2003 and 2004 is as follows: Thousands of Millions of Yen U.S. Dollars ----------------- ------------ 2003 2004 2004 - -------------------------------------------------------------------------------- Minimum lease payments receivable 486,165 522,056 $5,019,769 Estimated non-guaranteed residual value 2,209 2,432 23,385 Unearned income (49,039) (47,492) (456,654) Allowance for doubtful receivables (13,573) (14,404) (138,500) - -------------------------------------------------------------------------------- Net lease receivables 425,762 462,592 $4,448,000 ================================================================================ F-15 As of March 31, 2004, the minimum lease payments receivable due in each of the next five years and thereafter are as follows: Thousands of Years ending March 31 Millions of Yen U.S. Dollars - -------------------------------------------------------------------------------- 2005 168,931 $1,624,337 2006 139,060 1,337,115 2007 110,989 1,067,202 2008 69,129 664,702 2009 27,135 260,913 2010 and thereafter 6,812 65,500 - -------------------------------------------------------------------------------- Total 522,056 $5,019,769 ================================================================================ Ricoh Leasing Company, Ltd. has also extended certain other types of loans as part of its business activity, which are primarily residential housing loans to individuals in Japan secured by the underlying real estate properties. Loan terms range from 15 years to 30 years with monthly repayments. The total balance of these loans, net of allowance for doubtful receivables, as of March 31, 2003 and 2004 was Yen 50,531 million and Yen 51,455 million ($494,760 thousand), respectively. Loan activity for the years ended March 31, 2002, 2003 and 2004 is as follow: Thousands of Millions of Yen U.S. Dollars ----------------------- ------------ 2002 2003 2004 2004 - -------------------------------------------------------------------------------- Extension of new loans 8,638 11,559 13,686 $131,596 Repayment of outstanding loans 7,554 9,993 12,706 122,173 ================================================================================ Ricoh sold finance lease receivables with a pretax gain of Yen 225 million in the year ended March 31, 2002 through securitization transactions. Servicing assets or liabilities related to securitization transactions initiated were not recorded, because the servicing fees adequately compensate Ricoh. Ricoh's retained interests are subordinate to the investor's interests. Their value is subject to credit and interest rate risk on the sold financial assets. The investors and Special Purpose Entities that hold the lease receivables have limited recourse to Ricoh's other assets for failure of debtors to pay. Ricoh recognizes gains or losses attributable to the change in the fair value of the retained interests, which are recorded at estimated fair value and accounted for as "trading" securities. Ricoh determines the value of the retained interests by discounting the future cash flows. Those cash flows are estimated based on credit losses and other information as available and are discounted at a rate which Ricoh believes is commensurate with the risk free rate plus a risk premium. F-16 Key economic assumptions used in measuring the fair value of retained interests related to securitization transactions completed during the years ended March 31, 2003 and 2004 were as follows: 2003 2004 - -------------------------------------------------------------------------------- Expected credit losses 0.75% - 1.35% 0.75% - 1.35% Discount rate 0.89% - 3.00% 0.90% - 3.00% ================================================================================ The impacts of 10% and 20% adverse changes to the key economic assumptions on the fair value of retained interests as of March 31, 2004 are presented below. Thousands of Millions of Yen U.S. Dollars --------------- ------------ 2004 2004 - -------------------------------------------------------------------------------- Carrying value of retained interests (included in lease deposits and 7,226 $69,481 other in the consolidated balance sheet) Expected credit losses: +10% 51 490 +20% 102 981 Discount rate: +10% 16 154 +20% 32 308 ================================================================================ The hypothetical scenario does not reflect expected market conditions and should not be used as a prediction of future performance. As the figures indicate, changes in fair value may not be linear. Also, in the above table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. The following table summarizes certain cash flows received from and paid to the Special Purpose Entities for all securitization activity for the years ended March 31, 2002, 2003 and 2004: Thousands of Millions of Yen U.S. Dollars ---------------------- ------------ 2002 2003 2004 2004 - -------------------------------------------------------------------------------- Proceeds from new securitization 25,000 -- -- $ -- Servicing fees received 39 37 25 240 Repurchases of delinquent or ineligible assets 5,138 5,750 4,643 44,644 ================================================================================ F-17 Amounts of delinquencies, net credit losses, and components of all receivables managed and securitized as of March 31, 2003 and 2004, and for the years then ended, are as follows:
Millions of Yen ------------------------------------------------------------------------------------------- 2003 2004 -------------------------------------------- -------------------------------------------- Principal Principal amount of amount of Total principal receivables Total principal receivables amount of 4 months or Net credit amount of 4 months or Net credit receivables more past due losses receivables more past due losses - ------------------------------------------------------------------------------------------------------------------------------ Principal amount outstanding 504,252 1,175 3,893 524,981 1,025 3,284 Less: Receivables securitized (64,917) (47,985) ------- ------- Receivables held in portfolio 439,335 476,996 ==============================================================================================================================
Thousands of U.S. dollars -------------------------------------------- 2004 -------------------------------------------- Principal amount of Total principal receivables amount of 4 months or Net credit receivables more past due losses - -------------------------------------------------------------------------------- Principal amount outstanding $5,047,894 $9,856 $31,577 Less: receivables securitized (461,394) ---------- Receivables held in portfolio $4,586,500 ================================================================================ 5. SECURITIES Marketable securities and investment securities as of March 31, 2003 and 2004 consist of the following: Thousands of Millions of Yen U.S. Dollars --------------- ------------ 2003 2004 2004 - -------------------------------------------------------------------------------- Marketable securities: Available-for-sale securities 107 45,124 $433,885 - -------------------------------------------------------------------------------- Investment securities: Available-for-sale securities 64,602 14,766 $141,981 Non-marketable equity securities 7,371 7,105 68,317 - -------------------------------------------------------------------------------- 71,973 21,871 $210,298 ================================================================================ The current and noncurrent security types of available-for-sale securities, and the respective cost, gross unrealized holding gains, gross unrealized holding losses and fair value as of March 31, 2003 and 2004 are as follows: F-18
Millions of Yen ------------------------------------------------------------------------------------- 2003 2004 ----------------------------------------- ----------------------------------------- Gross Gross Gross Gross unrealized unrealized unrealized unrealized holding holding Fair holding holding Fair Cost gains losses value Cost gains losses value - ------------------------------------------------------------------------------------------------------------ Current: Corporate debt securities 107 -- -- 107 45,139 6 22 45,123 Other -- -- -- -- 1 -- -- 1 - ------------------------------------------------------------------------------------------------------------ 107 -- -- 107 45,140 6 22 45,124 - ------------------------------------------------------------------------------------------------------------ Non-current: Equity securities 6,328 5,148 519 10,957 5,053 8,080 33 13,100 Corporate debt securities 45,020 5 195 44,830 -- -- -- -- Other 9,459 10 654 8,815 1,174 492 -- 1,666 - ------------------------------------------------------------------------------------------------------------ 60,807 5,163 1,368 64,602 6,227 8,572 33 14,766 ============================================================================================================ Thousands of U.S. Dollars --------------------------------------------- 2004 --------------------------------------------- Gross Gross unrealized unrealized holding holding Fair Cost gains losses value - -------------------------------------------------------------------- Current: Corporate debt securities $434,029 $ 58 $212 $433,875 Other 10 -- -- 10 - -------------------------------------------------------------------- $434,039 $ 58 $212 $433,885 - -------------------------------------------------------------------- Non-current: Equity securities $ 48,587 $77,692 $317 $125,962 Corporate debt securities -- -- -- -- Other 11,288 4,731 -- 16,019 - -------------------------------------------------------------------- $ 59,875 $82,423 $317 $141,981 ====================================================================
Other non-current securities mainly include investment trusts consisting of investment in marketable debt and equity securities. Gross unrealized holding losses on available-for-sale securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2004 were as follows:
Millions of Yen ------------------------------------------------- Less than 12 months 12 months or longer ----------------------- ----------------------- Gross Gross unrealized unrealized holding holding Fair value losses Fair value losses - -------------------------------------------------------------------------------------- 2004: Current: Available-for-sale: Corporate debt securities 45,123 22 -- -- - -------------------------------------------------------------------------------------- 45,123 22 -- -- - -------------------------------------------------------------------------------------- Noncurrent: Available-for-sale: Equity securities 13,100 33 -- -- - -------------------------------------------------------------------------------------- 13,100 33 -- -- ======================================================================================
Thousands of U.S. Dollars ------------------------------------------------- Less than 12 months 12 months or longer ----------------------- ----------------------- Gross Gross unrealized unrealized holding holding Fair value losses Fair value losses - -------------------------------------------------------------------------------------- 2004: Current: Available-for-sale: Corporate debt securities $433,875 $212 -- -- - -------------------------------------------------------------------------------------- $433,875 $212 -- -- - -------------------------------------------------------------------------------------- Noncurrent: Available-for-sale: Equity securities $125,962 $317 -- -- - -------------------------------------------------------------------------------------- $125,962 $317 -- -- ======================================================================================
F-19 The contractual maturities of debt securities classified as available-for-sale as of March 31, 2004, regardless of their balance sheet classification, are as follows: Millions of Yen Thousands of U.S. Dollars ------------------- ------------------------- Cost Fair value Cost Fair value - -------------------------------------------------------------------------------- Due within one year 45,139 45,123 $434,029 $433,875 ================================================================================ Proceeds from the sales of available-for-sale securities were Yen 24,568 million, Yen 24,513 million and Yen 45,464 million ($437,154 thousand) for the years ended March 31, 2002, 2003 and 2004, respectively. There were no significant realized gains or losses of available-for-sale securities for the three years ended March 31, 2004 except for the following contributed marketable equity securities to the Company's employee benefit trust. The loss on securities of Yen 2,260 million for the year ended March 31, 2003 was charged to other expense for declines in market value of available-for-sale securities where the decline was determined to be other than temporary. In March 2000, the Company contributed certain marketable equity securities, not including those of its subsidiaries and affiliated companies, to its employee retirement benefit trust (the "Trust") fully administered and controlled by an independent bank trustee, with no cash proceeds thereon (the "2000 Transfer"). The 2000 Transfer of the available-for-sale securities was accounted for as a sale in accordance with SFAS No.125, "Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities" and accordingly the recorded pension liability was reduced by the fair market value amount of the transferred securities. The fair value of these securities at the time of transfer was Yen 20,760 million. The net unrealized gains on these available-for-sale securities amounting to Yen 13,095 million were initially included in "Accumulated other comprehensive income (loss)" on the consolidated balance sheets with the expectation of being reflected in realized gains in the statements of income upon the future sale of the transferred securities by the trustee. In March 2004, the Company contributed certain additional marketable equity securities, not including those of its subsidiaries and affiliated companies to the Trust, with no cash proceeds thereon (the "2004 Transfer"). The fair value and net unrealized gains on these available-for-sale securities at the time of transfer was Yen 3,648 million ($35,077 thousand) and Yen 2,658 million ($25,558 thousand), respectively. In connection with the 2004 Transfer, Ricoh has changed its accounting policy with respect to the recognition of unrealized gains and losses as realized in the statements of income on transfers of such marketable equity securities. Ricoh has concluded that it is preferable to recognize in the statements of income unrealized gains or losses associated with marketable equity securities transferred to the Trust when Ricoh has effectively given up the economic rewards of ownership, that is, when the assets are no longer considered corporate assets and when the Trust has the irrevocable and unrestricted right to realize those benefits as and when it chooses. This generally occurs at the time the assets are transferred to the Trust and not upon future sale of the assets by the trustee. Accordingly, Ricoh has recognized realized gains in the consolidated statement of income on the transfer of marketable equity securities to the Trust for fiscal 2004 of Yen 2,658 million ($25,558 thousand). In addition, Ricoh has recognized in its fiscal 2004 consolidated statement of income a cumulative effect of accounting change, net of tax, of Yen 7,373 million ($70,894 thousand) associated with the 2000 Transfer. F-20 6. INVESTMENTS IN AND ADVANCES TO AFFILIATES The investments in and advances to affiliates primarily relate to 20% to 50% owned companies. Included in these companies is COCA-COLA WEST JAPAN COMPANY, LIMITED, a 21.8% owned affiliate. The common stock of this company is publicly traded. The carrying value of the investment in this company was equal to its underlying book value and amounted to Yen 36,728 million ($353,154 thousand) as of March 31, 2004. The quoted market value of Ricoh's investment in this company was Yen 45,900 million ($441,346 thousand) as of March 31, 2004. Ricoh's equity in the underlying net book values of the other 20% to 50% owned companies is approximately equal to their individual carrying values. Summarized financial information for all affiliates as of March 31, 2003 and 2004 and for the years ended March 31, 2002, 2003 and 2004 is as follows: Thousands of Millions of Yen U.S. Dollars ----------------- ------------ FINANCIAL POSITION 2003 2004 2004 - -------------------------------------------------------------------------------- Assets- Current assets 124,156 104,916 $1,008,808 Other assets 139,357 155,081 1,491,163 - -------------------------------------------------------------------------------- 263,513 259,997 $2,499,971 - -------------------------------------------------------------------------------- Liabilities and shareholders' investment- Current liabilities 40,954 37,954 $ 364,942 Other liabilities 13,176 12,170 117,019 Shareholders' investment 209,383 209,873 2,018,010 - -------------------------------------------------------------------------------- 263,513 259,997 $2,499,971 ================================================================================ Thousands of Millions of Yen U.S. Dollars --------------------------- ------------ OPERATIONS 2002 2003 2004 2004 - -------------------------------------------------------------------------------- Sales 288,992 338,035 317,512 $3,053,000 Costs and expenses 277,950 327,139 307,665 2,958,317 - -------------------------------------------------------------------------------- Net income 11,042 10,896 9,847 $ 94,683 ================================================================================ The significant transactions of Ricoh with these affiliates for the years ended March 31, 2002, 2003 and 2004, and the related account balances at March 31, 2003 and 2004 are summarized as follows: Thousands of Millions of Yen U.S. Dollars -------------------------- ------------ 2002 2003 2004 2004 - -------------------------------------------------------------------------------- Transactions- Sales 25,413 26,510 19,534 $187,827 Purchases 15,584 19,808 18,714 179,942 Dividend income 1,133 1,236 1,064 10,231 ================================================================================ F-21 Unrealized profits regarding the above transactions were eliminated in the consolidated financial statements. Thousands of Millions of Yen U.S. Dollars --------------- ------------ 2003 2004 2004 - -------------------------------------------------------------------------------- Account balances- Receivables 6,434 3,530 $33,942 Payables 1,604 2,217 21,317 ================================================================================ As of March 31, 2004, consolidated retained earnings included undistributed earnings of 20% to 50% owned companies accounted for by the equity method in the amount of Yen 41,070 million ($394,904 thousand). 7. GOODWILL AND OTHER INTANGIBLE ASSETS The information for intangible assets subject to amortization and for intangible assets not subject to amortization is as follow:
Millions of Yen ------------------------------------------------------------------------------------------- 2003 2004 ------------------------------------------------------------------------------------------- Gross carrying Accumulated Net carrying Gross carrying Accumulated Net carrying amount amortization amount amount amortization amount - --------------------------------------------------------------------------------------------------------------------------- Other intangible assets subject to amortization: Software 31,764 (12,763) 19,001 44,844 (20,286) 24,558 Trade name and customer base 13,463 (3,217) 10,246 12,699 (4,382) 8,317 Other 13,633 (4,192) 9,441 13,733 (4,802) 8,931 -------------------------------------------- -------------------------------------------- Total 58,860 (20,172) 38,688 71,276 (29,470) 41,806 Other intangible assets not subject to amortization 1,332 1,427 ------ ------ Total other intangible assets 40,020 43,233 ===========================================================================================================================
Thousands of U.S. Dollars -------------------------------------------- 2004 -------------------------------------------- Gross carrying Accumulated Net carrying amount amortization amount - -------------------------------------------------------------------------------- Other intangible assets subject to amortization: Software $431,192 $(195,057) $236,135 Trade name and customer base 122,106 (42,135) 79,971 Other 132,048 (46,173) 85,875 -------------------------------------------- Total 685,346 (283,365) 401,981 Other intangible assets not subject to amortization 13,721 ---------- Total other intangible assets $415,702 ================================================================================ Gross carrying amount of software was increased for the year ended March 31, 2004 mainly due to back-office information systems development. F-22 The aggregate amortization expense of other intangible assets subject to amortization for the year ended March 31, 2003 and 2004 were Yen 6,993 million and Yen 9,284 million ($89,269 thousand). The future amortization expense for each of the five years relating to intangible assets currently recorded in the consolidated balance sheets is estimated to be the following at March 31, 2004: Thousands of Years ending March 31 Millions of Yen U.S. Dollars - -------------------------------------------------------------------------------- 2005 11,369 $109,317 2006 8,556 82,269 2007 5,919 56,913 2008 4,174 40,135 2009 2,632 25,308 ================================================================================ The changes in the carrying amounts of goodwill for the year ended March 31, 2003 and 2004, were as follows: Thousands of Millions of Yen U.S. Dollars ----------------- ------------ 2003 2004 2004 - -------------------------------------------------------------------------------- Balance at beginning of year 29,687 28,109 $270,279 Goodwill acquired during the year 1,176 383 3,683 Foreign exchange impact (2,754) (3,194) (30,712) - -------------------------------------------------------------------------------- Balance at end of year 28,109 25,298 $243,250 ================================================================================ As of March 31, 2004, all carrying value of goodwill was allocated to office equipment segment. The following table reconciles previously reported net income and net income per share for the year ended March 31, 2002, as if the provisions of SFAS 142 had been in effect. Millions of Yen --------------- 2002 - -------------------------------------------------------------------------------- Net income: Reported net income 61,614 Goodwill amortization 2,514 - -------------------------------------------------------------------------------- Adjusted net income 64,128 ================================================================================ Yen --------------- Net income per share: Reported net income per share - basic 88.27 Goodwill amortization 3.60 - -------------------------------------------------------------------------------- Adjusted net income per share - basic 91.87 - -------------------------------------------------------------------------------- Reported net income per share - diluted 82.46 Goodwill amortization 3.34 - -------------------------------------------------------------------------------- Adjusted net income per share - diluted 85.80 ================================================================================ F-23 8. INCOME TAXES Income before income taxes, minority interests, equity in earnings of affiliates and cumulative effect of accounting change and provision for income taxes for the years ended March 31, 2002, 2003 and 2004 are as follows:
Thousands of Millions of Yen U.S. Dollars --------------------------- ------------ 2002 2003 2004 2004 - ----------------------------------------------------------------------------------------------- Income before income taxes, minority interests, equity in earnings of affiliates and cumulative effect of accounting change Domestic 95,723 84,946 98,162 $ 943,865 Foreign 18,227 38,524 44,901 431,741 - ----------------------------------------------------------------------------------------------- 113,950 123,470 143,063 $1,375,606 =============================================================================================== Provision for income taxes- Current: Domestic 43,564 50,103 38,908 $374,115 Foreign 8,801 13,080 14,395 138,414 - ----------------------------------------------------------------------------------------------- 52,365 63,183 53,303 512,529 - ----------------------------------------------------------------------------------------------- Deferred: Domestic (3,524) (9,043) 1,951 18,760 Foreign 2,306 (2,156) 1,387 13,336 - ----------------------------------------------------------------------------------------------- (1,218) (11,199) 3,338 32,096 - ----------------------------------------------------------------------------------------------- Consolidated provision for income taxes 51,147 51,984 56,641 $ 544,625 ===============================================================================================
Total income taxes are allocated as follows:
Thousands of Millions of Yen U.S. Dollars --------------------------- ------------ 2002 2003 2004 2004 - ----------------------------------------------------------------------------------------------- Provision for income taxes 51,147 51,984 56,641 $ 544,625 Shareholders' investment: Foreign currency translation adjustments 2,062 (826) (1,334) (12,827) Unrealized gains (losses) on securities (582) (1,130) (3,617) (34,779) Unrealized losses on derivatives (146) (9) 109 1,048 Minimum pension liability adjustment (11,760) (30,811) 49,733 478,202 Cumulative effect of accounting change -- -- 5,722 55,019 - ----------------------------------------------------------------------------------------------- 40,721 19,208 107,254 $1,031,288 ===============================================================================================
F-24 The Company and its domestic subsidiaries are subject to a National Corporate tax of 30%, an inhabitant tax of approximately 6% and a deductible Enterprise tax approximately 10%, which in the aggregate resulted in the normal statutory tax rate of approximately 42%. The normal statutory tax rate differs from the effective tax rate for the years ended March 31, 2002, 2003 and 2004 as a result of the following: 2002 2003 2004 - -------------------------------------------------------------------------------- Normal statutory tax rate 42% 42% 42% Nondeductible expenses 1 1 1 Tax benefits not recognized on operating losses of certain consolidated subsidiaries 3 3 2 Utilization of net operating loss carryforward not previously recognized (0) (4) (1) Tax credit for increased research and development expense (0) (1) (3) Effect of change in enacted tax rate -- 2 1 Other, net (1) (1) (2) - -------------------------------------------------------------------------------- Effective tax rate 45% 42% 40% ================================================================================ Nondeductible expenses include directors' bonuses and entertainment expenses. Based on an enacted change in the Japanese tax laws in March, 2003, the normal statutory tax rate was reduced to approximately 40% effective April 1, 2004, and such rate has been used in calculating the future expected tax effects of temporary differences and carryforwards expected to be settled or realized on or after April 1,2004. The tax effects of temporary differences and carryforwards giving rise to the consolidated deferred income tax assets and liabilities as of March 31, 2003 and 2004 are as follows:
Thousands of Millions of Yen U.S. Dollars ----------------- ------------ 2003 2004 2004 - ---------------------------------------------------------------------------------------- Assets: Accrued expenses 26,184 22,165 $ 213,125 Property, plant and equipment 4,014 3,316 31,884 Accrued pension and severance costs 84,230 31,372 301,654 Net operating loss carryforwards 13,839 10,778 103,635 Other 31,460 29,655 285,144 - ---------------------------------------------------------------------------------------- 159,727 97,286 935,442 Less- Valuation allowance (9,193) (9,010) (86,634) - ---------------------------------------------------------------------------------------- 150,534 88,276 $ 848,808 ======================================================================================== Liabilities: Sales-type leases (7,112) (6,853) $ (65,894) Undistributed earnings of foreign subsidiaries and affiliates (12,801) (15,602) (150,019) Net unrealized holding gains on available-for-sale securities (8,957) (4,390) (42,212) Other (11,361) (9,969) (95,856) - ---------------------------------------------------------------------------------------- (40,231) (36,814) $(353,981) ======================================================================================== Net deferred tax assets 110,303 51,462 $ 494,827 ========================================================================================
F-25 Net deferred tax assets as of March 31, 2003 and 2004 are included in the consolidated balance sheets as follows:
Thousands of Millions of Yen U.S. Dollars ----------------- ------------ 2003 2004 2004 - ----------------------------------------------------------------------------------- Deferred income taxes and other (Current Assets) 41,993 41,213 $ 396,279 Lease deposits and other (Non-current Assets) 99,204 47,122 453,096 Accrued expenses and other (Current Liabilities) (241) (578) (5,558) Deferred income taxes (Long-Term Liabilities) (30,653) (36,295) (348,990) - ----------------------------------------------------------------------------------- 110,303 51,462 $ 494,827 ===================================================================================
The net changes in the total valuation allowance for the years ended March 31, 2002, 2003 and 2004 was an increase of Yen 2,897 million, decreases of Yen 2,107 million and Yen 183 million ($1,760 thousand), respectively. The valuation allowance primarily relates to valuation allowance for deferred tax assets associated with net operating loss carryforwards incurred by certain subsidiaries. Ricoh has performed an analysis for each of these subsidiaries to assess their ability to realize such deferred tax assets, taking into consideration projections for future taxable income, historical performance, tax planning strategies market conditions and other factors, as appropriate. Considering these factors, management believes it is more likely than not that these subsidiaries will realize their respective deferred tax assets (principally net operating loss carry forwards) net of existing valuation allowance. In assessing the realizability of deferred tax assets, Ricoh considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Ricoh considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, Ricoh believes it is more likely than not that the benefits of these deductible differences, net of the existing valuation allowance will be realized. The amount of the deferred tax asset considered realizable, however, would be reduced if estimates of future taxable income during the carryforward period are reduced. As of March 31, 2004, certain subsidiaries had net operating losses carried forward for income tax purposes of approximately Yen 28,155 million ($270,721 thousand) which were available to reduce future income taxes, if any. Approximately Yen 19,417 million ($186,702 thousand) of the operating losses expire within a five-year period while the remainder principally have an indefinite carryforward period. F-26 9. SHORT-TERM BORROWINGS Short-term borrowings as of March 31, 2003 and 2004 consist of the following:
Weighted average Thousands of interest rate Millions of Yen U.S. Dollars ---------------- --------------- ------------ 2003 2004 2003 2004 2004 - -------------------------------------------------------------------------------------- Borrowings, principally from banks 1.8% 1.7% 28,258 19,359 $186,144 Commercial paper 0.9 0.8 56,220 49,593 476,856 - -------------------------------------------------------------------------------------- 84,478 68,952 $663,000 ======================================================================================
The Company and certain of its subsidiaries enter into the contracts with financial institutions regarding lines of credit and overdrawing. Those same financial institution hold the issuing programs of commercial paper and medium-term notes. Unused lines of credit amounted to Yen 613,884 million and Yen 634,273 million ($6,098,779 thousand) as of March 31, 2003 and 2004, respectively, of which Yen 234,704 million and Yen 182,764 million ($1,757,346 thousand) related to commercial paper and Yen 144,280 million and Yen 131,966 million ($1,268,904 thousand) related to medium-term notes programs at prevailing interest rates. F-27 10. LONG-TERM INDEBTEDNESS Long-term indebtedness as of March 31, 2003 and 2004 consists of the followings:
Thousands of Millions of Yen U.S. Dollars ----------------- ------------ 2003 2004 2004 - ------------------------------------------------------------------------------------------------------------- Bonds- 2.075%, straight bonds, payable in yen, due April 2005 40,000 40,000 $ 384,615 0.87%, straight bonds, payable in yen, due March 2007 35,000 35,000 336,538 1.34%, straight bonds, payable in yen, due March 2009 25,000 25,000 240,385 0.9%, straight bonds, payable in yen, due June 2003 issued by a consolidated subsidiary 5,000 -- -- 1.1%, straight bonds, payable in yen, due February 2004 issued by a consolidated subsidiary 9,910 -- -- 1.17%, straight bonds, payable in yen, due June 2004 issued by a consolidated subsidiary 10,000 10,000 96,154 0.73%, straight bonds, payable in yen, due June 2006 issued by a consolidated subsidiary 10,000 10,000 96,154 0.7%, straight bonds, payable in yen, due June 2007 issued by a consolidated subsidiary 10,000 10,000 96,154 2.1%, straight bonds, payable in yen, due October 2009 issued by a consolidated subsidiary 10,000 10,000 96,154 Medium-term notes, 0.28% weighted average, due through 2015 issued by a consolidated subsidiary 24,000 16,000 153,846 - ------------------------------------------------------------------------------------------------------------- Total bonds 178,910 156,000 1,500,000 - ------------------------------------------------------------------------------------------------------------- Unsecured loans- Banks and insurance companies, 1.42% weighted average, due through 2011 210,042 200,361 1,926,548 - ------------------------------------------------------------------------------------------------------------- Secured loans- Banks, insurance companies and other financial institution, 1.25% weighted average, due through 2013 2,553 1,410 13,558 - ------------------------------------------------------------------------------------------------------------- Capital lease obligations (see Note 2(j)) 4,237 3,141 30,202 - ------------------------------------------------------------------------------------------------------------- Total 395,742 360,912 3,470,308 SFAS 133 fair value adjustment 4,395 2,868 27,577 Less- Current maturities included in current liabilities (54,235) (82,210) (790,481) - ------------------------------------------------------------------------------------------------------------- 345,902 281,570 $2,707,404 =============================================================================================================
F-28 Secured loans are collateralized by land, buildings and lease receivables with a book value of Yen 3,468 million ($33,346 thousand) as of March 31, 2004. All bonds outstanding as of March 31, 2004 are redeemable at the option of Ricoh at 100% of the principal amounts under certain conditions as provided in the applicable agreements. Bonds are subject to certain covenants such as restrictions on certain additional secured indebtedness, as defined in the agreements. Ricoh presently is in compliance with such covenants as of March 31, 2004. Certain loan agreements provide, among other things, that the lender may request the Company to submit proposals for appropriations of earnings (including payment of dividends) to the lender for its review and approval prior to presentation to the shareholders. The Company has never been requested to submit such proposals for approval. In addition, as is customary in Japan, substantially all of the bank borrowings are subject to general agreements with each bank which provide, among other things, that the banks may request additional security for these loans if there is reasonable and probable cause and may treat any security furnished to the banks as well as cash deposited as security for all present and future indebtedness. The Company has never been requested to submit such additional security. The aggregate annual maturities of long-term indebtedness subsequent to March 31, 2004 are as follows: Thousands of Years ending March 31 Millions of Yen U.S. Dollars - -------------------------------------------------------------------------------- 2005 81,943 $ 787,914 2006 130,745 1,257,164 2007 71,036 683,038 2008 29,887 287,375 2009 26,169 251,625 2010 and thereafter 21,132 203,192 - -------------------------------------------------------------------------------- Total 360,912 $3,470,308 ================================================================================ F-29 11. PENSION AND RETIREMENT ALLOWANCE PLANS The Company and certain of its subsidiaries have various trusted contributory and noncontributory employees' pension fund plans covering substantially all of their employees. Under the plans, employees are entitled to lump-sum payments at the time of termination or retirement, or to pension payments. Under the terms of the domestic employee's pension fund ("EPF") plan, the government mandated welfare pension insurance benefit was included and commingled with the primary corporate benefit provided by Ricoh. These contributory and non contributory plans are funded in conformity with governmental regulations which basically require an employer to contribute the unfunded benefit over 20 years. As noted above, the domestic EPF plan was composed of (1) a corporate defined benefit portion established by Ricoh and (2) a substitutional portion based on benefits prescribed by the government (similar to social security benefits in the United States). Ricoh had been exempted from contributing to the Japanese Pension Insurance ("JPI") program that would otherwise have been required if it had not elected to fund the government substitutional portion of the benefit through an EPF arrangement. The plan assets of the EPF were invested and managed as a single portfolio for the entire EPF and were not separately attributed to the substitutional and corporate portions. In June 2001, Contributed Benefit Pension Plan Law was newly enacted and permits an employer to elect to transfer the entire substitutional portion benefit obligation from the EPF to the government together with a specified amount of plan assets pursuant to a government formula. After such transfer, the employer would be required to make periodic contributions to JPI, and the Japanese government would be responsible for all benefit payments. The corporate portion of the EPF would continue to exist exclusively as a corporate defined benefit pension plan. Pursuant to the new law, Ricoh received an approval of exemption from the Minister of Health, Labor and Welfare, effective January 1, 2003, from the obligation for benefits related to future employee service with respect to the substitutional portion of its EPF. Ricoh received government approval of exemption from the obligation for benefits related to past employee service in January 2004 with respect to the substitutional portion of its domestic contributory plan. The transfer to the government was completed on March 16, 2004. Ricoh accounted for the transfer in accordance with EITF Issue No. 03-2 "Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities" ("EITF 03-2"). As specified in EITF 03-2, the entire separation process is to be accounted for at the time of completion of the transfer to the government of the substitutional portion of the benefit obligation and related plan assets as a settlement in accordance with SFAS No. 88 "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits". As a result of the transfer, Ricoh recognized as a subsidy from the Japanese government equal to the difference between the fair value of the obligation deemed "settled" with the Japanese government and the assets required to be transferred to the government. The subsidy that Ricoh recognized amounted to Yen 56,972 million ($547,808 thousand). In addition, Ricoh recognized as a settlement loss equal to the amount calculated as the ratio of the obligation settled to the total EPF obligation immediately prior to settlement, both of which exclude the effect of future salary progression relating to the substitutional portion, times the net unrecognized gain/loss immediately prior to settlement, which amounted to Yen 48,657 million ($467,856 thousand). These gain and loss were included in operating income. In addition to EPF plan, the Company had maintained a defined benefit plan for certain qualified employees. Effective January 1, 2004, the Company liquidated this plan and recorded a settlement loss of Yen 5,958 million ($57,288 thousand) which was included in selling, general and administrative expenses in the consolidated statement of income. F-30 The changes in the benefit obligation and plan assets of the pension plans for the years ended March 31, 2003 and 2004 are as follows:
Thousands of Millions of Yen U.S. Dollars ------------------- ------------ 2003 2004 2004 - ---------------------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year 452,562 522,275 $ 5,021,875 Service cost 16,943 15,694 150,904 Interest cost 14,292 12,719 122,298 Plan participants' contributions 1,105 171 1,644 Amendments (10,924) (53,563) (515,029) Actuarial loss (benefit) 64,852 (7,420) (71,346) Settlement (2,009) (164,522) (1,581,943) Benefits paid (13,197) (15,378) (147,865) Foreign exchange impact (1,349) (1,972) (18,961) - ---------------------------------------------------------------------------------------------- Benefit obligation at end of year 522,275 308,004 $ 2,961,577 ============================================================================================== Change in plan assets: Fair value of plan assets at beginning of year 268,377 235,346 $ 2,262,942 Actual return on plan assets (36,838) 43,980 422,885 Employer contribution 14,281 16,472 158,385 Plan participants' contributions 1,105 171 1,644 Settlement (1,636) (72,812) (700,115) Benefits paid (9,246) (10,960) (105,385) Foreign exchange impact (697) (1,221) (11,741) - ---------------------------------------------------------------------------------------------- Fair value of plan assets at end of year 235,346 210,976 $ 2,028,615 ============================================================================================== Funded status (286,929) (97,028) $ (932,962) Unrecognized net actuarial loss 245,632 111,528 1,072,385 Unrecognized prior service cost (10,081) (61,599) (592,298) Unrecognized net asset at transition, net of amortization (2,414) (1,435) (13,798) - ---------------------------------------------------------------------------------------------- Net amount recognized (53,792) (48,534) $ (466,673) ============================================================================================== Amounts recognized in the balance sheets consist of: Prepaid benefit cost 61 -- $ -- Accrued benefit liability (207,948) (78,851) (758,183) Intangible assets 199 92 885 Accumulated other comprehensive income, gross of tax 153,896 30,225 290,625 - ---------------------------------------------------------------------------------------------- Net amount recognized (53,792) (48,534) $ (466,673) ============================================================================================== Accumulated benefit obligations 444,477 283,548 $ 2,726,423 ==============================================================================================
F-31 Weighted-average assumptions used to determine benefit obligations at March 31, 2003 and 2004 were as follows: 2003 2004 - -------------------------------------------------------------------------------- Discount rate 2.6% 2.9% Rate of compensation increase 3.4% 3.4% ================================================================================ Weighted-average assumptions used to determine the net periodic benefit cost for the years ended March 31, 2002, 2003 and 2004 were as follows: 2002 2003 2004 - -------------------------------------------------------------------------------- Discount rate 2.9% 3.3% 2.6% Rate of compensation increase 3.2% 3.4% 3.4% Expected long-term return on plan assets 4.8% 3.6% 2.5% ================================================================================ The net periodic benefit costs of the pension plans for the three years ended March 31, 2004 consisted of the following components: Thousands of Millions of Yen U.S. Dollars ------------------------- ------------ 2002 2003 2004 2004 - -------------------------------------------------------------------------------- Service cost 15,636 16,943 15,694 $150,904 Interest cost 13,693 14,292 12,719 122,298 Expected return on plan assets (13,031) (9,763) (5,872) (56,462) Net amortization 4,707 5,081 10,805 103,894 Settlement loss (benefit) 183 (35) (2,537) (24,394) - -------------------------------------------------------------------------------- Total net periodic pension cost 21,188 26,518 30,809 $296,240 ================================================================================ In accordance with the provisions of SFAS 87, Ricoh has recorded an adjustment for minimum pension liability at March 31, 2003 and 2004. This liability represents the excess of the accumulated benefit obligations over the fair value of plan assets and severance costs already recognized before recording the minimum pension liability. This excess is primarily attributable to a substantial reduction in the discount rate used in pension calculation and loss on plan assets. A corresponding amount was recognized as an intangible asset to the extent of the unrecognized prior service cost, and the balance was recorded as a component of accumulated other comprehensive income (loss), net of tax. The projected benefit obligations, accumulated benefit obligations, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were Yen 453,956 million, Yen 387,481 million and Yen 218,058 million, respectively, as of March 31, 2003 and Yen 240,470 million ($2,312,212 thousand), Yen 229,387 million ($2,205,644 thousand) and Yen 194,654 million ($1,871,673 thousand), respectively, as of March 31, 2004. F-32 Ricoh's domestic benefit plan asset allocation at March 31, 2003 and 2004 are as follows: 2003 2004 - -------------------------------------------------------------------------------- Equity securities 55.6% 52.8% Debt securities 24.5% 2.4% Life insurance company general accounts 17.9% 20.0% Other 2.0% 24.8% - -------------------------------------------------------------------------------- Total 100.0% 100.0% ================================================================================ The total fair value of plan assets for domestic plan as of March 31, 2004 was Yen 159,989 million ($1,538,356 thousand). Common stock and bonds of the Company and certain of its domestic subsidiaries included in plan asset were immaterial at March 31, 2003 and 2004. Ricoh's investment policies and strategies for the pension benefits do not use target allocations for the individual asset categories. Ricoh's investment goals are to maximize returns subject to specific risk management policies. Its risk management policies permit investments in mutual funds and debt and equity securities and prohibit direct investment in derivative financial instruments. Ricoh addresses diversification by the use of mutual fund investments whose underlying investments are in domestic and international fixed income securities and domestic and international equity securities. These mutual funds are readily marketable and can be sold to fund benefit payment obligations as they become payable. As discussed in Note 5, Ricoh contributed certain marketable equity securities to an employee retirement benefit trust. The securities held in this trust are qualified as plan assets under SFAS 87. Ricoh uses a December 31 measurement date for the domestic pension plan. Ricoh expects to contribute Yen 8,240 million ($79,231 thousand) to the domestic pension plan in 2004. Employees of certain domestic subsidiaries not covered by the EPF plan and directors of the Company are primarily covered by unfunded retirement allowances plans. The payments to directors are subject to shareholders' approval. F-33 12. SHAREHOLDERS' INVESTMENT The Japanese Commercial Code provides that an amount equal to at least 10% of cash dividends and other distributions from retained earnings paid by the Company and its domestic subsidiaries be appropriated as a legal reserve. No further appropriation is required when the total amount of the legal reserve and additional paid-in capital equals 25% of common stock. Legal reserves included in retained earnings as of March 31, 2003 and 2004 were Yen 16,903 million and Yen 16,894 million ($162,442 thousand), respectively, and are restricted from being used as dividends. Semiannual cash dividends are approved by the shareholders after the end of each fiscal period or are declared by the Board of Directors after the end of each interim six-month period. Such dividends are payable to shareholders of record at the end of each such fiscal or interim six-month period. At the general meeting to be held on June 25, 2004, the shareholders will be asked to approve the declaration of a cash dividend (Yen 10 per share) on the common stock totaling Yen 7,389 million ($71,048 thousand), which will be paid to shareholders of record as of March 31, 2004. The declaration of this dividend has not been reflected in the consolidated financial statements as of March 31, 2004. The Japanese Commercial Code provides that at least one-half of the proceeds from shares issued is included in common stock. In conformity therewith, the Company has divided the principal amount of bonds converted into common stock between common stock and additional paid-in capital. The amount of retained earnings legally available for dividend distribution is that recorded in the Company's non-consolidated books and amounted to Yen 308,412 million ($2,965,500 thousand) as of March 31, 2004. The Japanese Commercial Code allows the Company to purchase treasury stock for any reason at any time by the resolution of the Board of Directors. On June 27, 2002, the shareholders of the Company approved to purchase treasury stock up to 8 million shares for a maximum total cost of Yen 20,000 million during the period up to the resolution of next Ordinary General Shareholders' Meeting which was held on June 26, 2003. In accordance with this approval, the Company repurchased 8 million shares and retired 7 million shares during the year ended March 31, 2003. The retirement of common stock reduced retained earnings during the year ended March 31, 2003 by Yen 13,328 million. F-34 13. OTHER COMPREHENSIVE INCOME (LOSS) Tax effects allocated to each component of other comprehensive income (loss) are as follows:
Millions of Yen --------------------------------- Before-tax Tax Net-of-tax amount expense amount - --------------------------------------------------------------------------------------------------- 2002: Foreign currency translation adjustments 8,578 (2,062) 6,516 Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year (4,212) 1,781 (2,431) Less- Reclassification adjustment for (gains) losses realized in net income 2,864 (1,199) 1,665 Net unrealized gains (losses) (1,348) 582 (766) Unrealized losses on derivatives: Cumulative effect of accounting change (3,206) 1,342 (1,864) Unrealized holding gains (losses) arising during the year 2,061 (871) 1,190 Less- Reclassification adjustment for (gains) losses realized in net income 792 (325) 467 Net unrealized gains (losses) (353) 146 (207) Minimum pension liability adjustment (27,891) 11,760 (16,131) - --------------------------------------------------------------------------------------------------- Other comprehensive income (loss) (21,014) 10,426 (10,588) =================================================================================================== 2003: Foreign currency translation adjustments 181 826 1,007 Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year (5,348) 2,065 (3,283) Less- Reclassification adjustment for (gains) losses realized in net income 2,234 (935) 1,299 Net unrealized gains (losses) (3,114) 1,130 (1,984) Unrealized losses on derivatives: Unrealized holding gains (losses) arising during the year (634) 277 (357) Less- Reclassification adjustment for (gains) losses realized in net income 654 (268) 386 Net unrealized gains (losses) 20 9 29 Minimum pension liability adjustment (80,220) 30,811 (49,409) - --------------------------------------------------------------------------------------------------- Other comprehensive income (loss) (83,133) 32,776 (50,357) ===================================================================================================
F-35
Millions of Yen --------------------------------- Before-tax Tax Net-of-tax amount expense amount - --------------------------------------------------------------------------------------------------- 2004: Foreign currency translation adjustments (6,727) 1,334 (5,393) Unrealized gains (losses) on securities: Cumulative effect of accounting change (13,095) 5,722 (7,373) Unrealized holding gains (losses) arising during the year 7,688 (3,227) 4,461 Less- Reclassification adjustment for (gains) losses realized in net income (2,766) 1,122 (1,644) Net unrealized gains (losses) (8,173) 3,617 (4,556) Unrealized losses on derivatives: Unrealized holding gains (losses) arising during the year (105) 42 (63) Less- Reclassification adjustment for (gains) losses realized in net income 368 (151) 217 Net unrealized gains (losses) 263 (109) 154 Minimum pension liability adjustment 123,989 (49,733) 74,256 - --------------------------------------------------------------------------------------------------- Other comprehensive income (loss) 109,352 (44,891) 64,461 ===================================================================================================
Thousands of U.S. Dollars --------------------------------- 2004: Foreign currency translation adjustments $ (64,683) $ 12,827 $(51,856) Unrealized gains (losses) on securities: Cumulative effect of accounting change (125,913) 55,019 (70,894) Unrealized holding gains (losses) arising during the year 73,923 (31,029) 42,894 Less- Reclassification adjustment for (gains) losses realized in net income (26,596) 10,788 (15,808) Net unrealized gains (losses) (78,587) 34,779 (43,808) Unrealized losses on derivatives: Unrealized holding gains (losses) arising during the year (1,010) 404 (606) Less- Reclassification adjustment for (gains) losses realized in net income 3,539 (1,452) 2,087 Net unrealized gains (losses) 2,529 (1,048) 1,481 Minimum pension liability adjustment 1,192,202 (478,202) 714,000 - --------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) $1,051,461 $(431,644) $619,817 ===============================================================================================================
F-36 Changes in accumulated other comprehensive income (loss) are as follows:
Millions of Yen -------------------------------------------------------------------------- Total Foreign Accumulated currency Unrealized Unrealized Minimum other translation gains on losses on pension liability comprehensive adjustments securities derivatives adjustment income (loss) - ------------------------------------------------------------------------------------------------------ 2002: Beginning balance (21,541) 11,332 -- (23,579) (33,788) Cumulative effect of accounting change -- -- (1,864) -- (1,864) Change during the year 6,516 (766) 1,657 (16,131) (8,724) - ------------------------------------------------------------------------------------------------------ Ending balance (15,025) 10,566 (207) (39,710) (44,376) ====================================================================================================== 2003: Beginning balance (15,025) 10,566 (207) (39,710) (44,376) Change during the year 1,007 (1,984) 29 (49,409) (50,357) - ------------------------------------------------------------------------------------------------------ Ending balance (14,018) 8,582 (178) (89,119) (94,733) ====================================================================================================== 2004: Beginning balance (14,018) 8,582 (178) (89,119) (94,733) Cumulative effect of accounting change -- (7,373) -- -- (7,373) Change during the year (5,393) 2,817 154 74,256 71,834 - ------------------------------------------------------------------------------------------------------ Ending balance (19,411) 4,026 (24) (14,863) (30,272) ======================================================================================================
Thousands of U.S. Dollars -------------------------------------------------------------------------- 2004: Beginning balance $(134,788) $ 82,519 $(1,712) $(856,913) $(910,894) Cumulative effect of accounting change -- (70,894) -- -- (70,894) Change during the year (51,856) 27,086 1,481 714,000 690,711 - ------------------------------------------------------------------------------------------------------ Ending balance $(186,644) $ 38,711 $ (231) $(142,913) $(291,077) ======================================================================================================
F-37 14.PER SHARE DATA Dividends per share shown in the consolidated statements of income are computed based on dividends paid for the year. A reconciliation of the numerator and the denominators of the basic and diluted per share computations for income before cumulative effect of accounting change, cumulative effect of accounting change, net of tax and net income is as follows: Thousands of shares --------------------------- 2002 2003 2004 - ------------------------------------------------------------------------- Weighted average common shares outstanding 698,025 726,660 742,293 Effect of dilutive securities: Convertible bonds- 1.8%, payable in yen, due March 2002 997 -- -- 1.5%, payable in yen, due March 2002 28,195 -- -- 0.35%, payable in yen, due March 2003 24,699 23,250 -- - ------------------------------------------------------------------------- Diluted common shares outstanding 751,916 749,910 742,293 =========================================================================
Thousands of Millions of Yen U.S. Dollars ------------------------ ------------ 2002 2003 2004 2004 - --------------------------------------------------------------------------------------- Income before cumulative effect of accounting change applicable to common shareholders 61,614 72,513 84,393 $811,471 Effect of dilutive securities: Convertible bonds- 1.8%, payable in yen, due March 2002 10 -- -- -- 1.5%, payable in yen, due March 2002 258 -- -- -- 0.35%, payable in yen, due March 2003 119 86 -- -- - --------------------------------------------------------------------------------------- Diluted income before cumulative effect of accounting change 62,001 72,599 84,393 $811,471 ======================================================================================= Cumulative effect of accounting change, net of tax -- -- 7,373 $ 70,894 ======================================================================================= Net income applicable to common shareholders 61,614 72,513 91,766 $882,365 Effect of dilutive securities: Convertible bonds- 1.8%, payable in yen, due March 2002 10 -- -- -- 1.5%, payable in yen, due March 2002 258 -- -- -- 0.35%, payable in yen, due March 2003 119 86 -- -- - --------------------------------------------------------------------------------------- Diluted net income 62,001 72,599 91,766 $882,365 =======================================================================================
Yen U.S. Dollars ---------------------- ------------ 2002 2003 2004 2004 - -------------------------------------------------------------------------------- Earnings per share: Basic Income before cumulative effect of accounting change 88.27 99.79 113.69 $1.09 Cumulative effect of accounting change, net of tax -- -- 9.94 0.10 Net income 88.27 99.79 123.63 1.19 Diluted: Income before cumulative effect of accounting change 82.46 96.81 113.69 1.09 Cumulative effect of accounting change, net of tax -- -- 9.94 0.10 Net income 82.46 96.81 123.63 1.19 ================================================================================ F-38 15. DERIVATIVE FINANCIAL INSTRUMENTS RISK MANAGEMENT POLICY Ricoh enters into various derivative financial instrument contracts in the normal course of business in connection with the management of its assets and liabilities. Ricoh uses derivative instruments to reduce risk and protect market value of assets and liabilities in conformity with the Ricoh's policy. Ricoh does not use derivative financial instruments for trading or speculative purposes, nor is it a party to leveraged derivatives. All derivative instruments are exposed to credit risk arising from the inability of counterparties to meet the terms of the derivative contracts. However, Ricoh does not expect any counterparties to fail to meet their obligations because these counterparties are financial institutions with satisfactory credit ratings. Ricoh utilizes a number of counterparties to minimize the concentration of credit risk. FOREIGN EXCHANGE RISK MANAGEMENT Ricoh conducts business on a global basis and holds assets and liabilities denominated in foreign currencies. Ricoh enters into foreign exchange contracts and foreign currency options to hedge against the potentially adverse impacts of foreign currency fluctuations on these assets and liabilities denominated in foreign currencies. INTEREST RATE RISK MANAGEMENT Ricoh enters into interest rate swap agreements to hedge against the potential adverse impacts of changes in fair value or cash flow fluctuations on interest of its outstanding debt. FAIR VALUE HEDGES Changes in the fair value of derivative instruments and the related hedged items designated and qualifying as fair value hedges are included in other (income) expenses on the consolidated statements of income. There is no hedging ineffectiveness nor are net gains or losses excluded from the assessment of hedge effectiveness for the years ended March 31, 2002, 2003 and 2004 as the critical terms of the interest rate swap match the terms of the hedged debt obligations. CASH FLOW HEDGES Changes in the fair value of derivative instruments designated and qualifying as cash flow hedges are included in accumulated other comprehensive income (loss) on the consolidated balance sheets. These amounts are reclassified into earnings as interest on the hedged loans is paid. There is no hedging ineffectiveness nor are net gains or losses excluded from the assessment of hedge effectiveness for the years ended March 31, 2002, 2003 and 2004 as the critical terms of the interest rate swap match the terms of the hedged debt obligations. Ricoh expects that it will reclassify into earnings through other (income) expenses during the next 12 months approximately Yen 12 million ($115 thousand) of the balance of accumulated other comprehensive loss as of March 31, 2004. F-39 UNDESIGNATED DERIVATIVE INSTRUMENTS Derivative instruments not designated as hedging instruments are held to reduce the risk relating to the variability in exchange rates on assets and liabilities denominated in foreign currencies. Changes in the fair value of these instruments are included in other (income) expenses on the consolidated statement of income. 16. COMMITMENTS AND CONTINGENT LIABILITIES As of March 31, 2004, Ricoh had outstanding contractual commitments for acquisition or construction of plant, equipment and other assets aggregating Yen 895 million ($8,606 thousand). As of March 31, 2004, Ricoh was also contingently liable as guarantor for employees' housing loans of Yen 283 million ($2,721 thousand), all of which were issued before January 1, 2003. Ricoh made rental payments totaling Yen 46,426 million, Yen 50,218 million and Yen 51,723 million ($497,337 thousand) for the years ended March 31, 2002, 2003 and 2004, respectively, under operating lease agreements for office space and machinery and equipment, which are primarily cancelable and renewable. As of March 31, 2004, the Company and certain of its subsidiaries were parties to litigation involving routine matters, such as patent rights. In the opinion of management, the ultimate liability, if any, resulting from such litigation will not materially affect the consolidated financial position or the results of operations of Ricoh. 17. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (A) CASH AND CASH EQUIVALENTS, TIME DEPOSITS, TRADE RECEIVABLES, SHORT-TERM BORROWINGS, CURRENT MATURITIES OF LONG-TERM INDEBTEDNESS, TRADE PAYABLES AND ACCRUED EXPENSES The carrying amounts approximate fair values because of the short maturities of these instruments. (B) MARKETABLE SECURITIES AND INVESTMENT SECURITIES The fair value of the marketable securities and investment securities is principally based on quoted market price. (C) INSTALLMENT LOANS The fair value of installment loans is based on the present value of future cash flows using the current rate for similar instruments of comparable maturity. (D) LONG-TERM INDEBTEDNESS The fair value of each of the long-term indebtedness instruments is based on the quoted price in the most active market or the present value of future cash flows associated with each instrument discounted using the current borrowing rate for similar instruments of comparable maturity. F-40 (E) INTEREST RATE SWAP AGREEMENTS The fair value of interest rate swap agreements is estimated by obtaining quotes from brokers. (F) FOREIGN CURRENCY CONTRACTS AND FOREIGN CURRENCY OPTIONS The fair value of foreign currency contracts and foreign currency options is estimated by obtaining quotes from brokers. The estimated fair value of the financial instruments as of March 31, 2003 and 2004 is summarized as follows:
Millions of Yen Thousands of U.S. Dollars ---------------------------------------------- ------------------------- 2003 2004 2004 --------------------- ---------------------- ------------------------- Carrying Estimated Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Amount Fair Value - ----------------------------------------------------------------------------------------------------------------- Marketable securities and Investment 72,080 72,080 66,995 66,995 $ 644,183 $ 644,183 securities Installment loans 50,531 50,783 51,455 51,626 494,760 496,404 Long-term indebtedness (345,902) (351,305) (281,570) (284,528) (2,707,404) (2,735,846) Interest rate swap agreements, net 3,985 3,985 2,266 2,266 21,788 21,788 Foreign currency contracts, net (594) (594) 1,876 1,876 18,038 18,038 Foreign currency options, net (466) (466) (145) (145) (1,394) (1,394) =================================================================================================================
Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 18. SEGMENT INFORMATION The operating segments presented below are the segments of Ricoh for which separate financial information is available and for which a measure of profit or loss is evaluated regularly by Ricoh's management in deciding how to allocate resources and in assessing performance. The accounting policies of the segments are substantially the same as those described in the summary of significant accounting policies, as discussed in Note 2. Ricoh's operating segments are comprised of office equipment, including copiers and related supplies, communications and information systems, and others, including optical equipment and electronic devices. The following tables present certain information regarding Ricoh's operating segments and operations by geographic areas for the years ended March 31, 2002, 2003 and 2004. F-41 (A) OPERATING SEGMENT INFORMATION
Thousands of Millions of Yen U.S. Dollars --------------------------------- ------------ 2002 2003 2004 2004 - ----------------------------------------------------------------------------------------------------- Sales- Office equipment 1,485,389 1,520,574 1,557,633 $14,977,240 Other 190,815 220,539 225,074 2,164,173 Intersegment transaction (3,864) (2,755) (2,462) (23,673) - ----------------------------------------------------------------------------------------------------- Consolidated 1,672,340 1,738,358 1,780,245 $17,117,740 ===================================================================================================== Operating Expenses- Office equipment 1,304,079 1,329,776 1,353,304 $13,012,538 Other 187,424 222,772 220,391 2,119,144 Intersegment transaction (3,893) (2,726) (2,494) (23,980) Unallocated expense 55,035 54,882 59,038 567,673 - ----------------------------------------------------------------------------------------------------- Consolidated 1,542,645 1,604,704 1,630,239 $15,675,375 ===================================================================================================== Operating Income- Office equipment 181,310 190,798 204,329 $ 1,964,702 Other 3,391 (2,233) 4,683 45,029 Elimination (55,006) (54,911) (59,006) (567,366) - ----------------------------------------------------------------------------------------------------- Consolidated 129,695 133,654 150,006 $ 1,442,365 ===================================================================================================== Other Expenses (15,745) (10,184) (6,943) $ (66,759) ===================================================================================================== Income before Income Taxes, Minority Interests, Equity in Earnings of Affiliates and Cumulative Effect of Accounting Change 113,950 123,470 143,063 $ 1,375,606 =====================================================================================================
Thousands of Millions of Yen U.S. Dollars --------------------------------- ------------ 2002 2003 2004 2004 - ---------------------------------------------------------------------------------- Total Assets- Office equipment 1,219,723 1,198,706 1,220,747 $11,737,952 Other 185,158 176,296 182,532 1,755,115 Elimination (6,991) (6,908) (8,047) (77,375) Corporate assets 435,038 516,828 457,561 4,399,625 - ---------------------------------------------------------------------------------- Consolidated 1,832,928 1,884,922 1,852,793 $17,815,317 ================================================================================== Expenditure for segment assets- Office equipment 68,513 65,720 65,366 $ 628,519 Other 5,633 7,213 8,712 83,769 Corporate assets 1,530 1,023 1,429 13,741 - ---------------------------------------------------------------------------------- Consolidated 75,676 73,956 75,507 $ 726,029 ================================================================================== Depreciation- Office equipment 64,426 60,687 57,956 $ 557,269 Other 7,448 6,917 7,774 74,750 Corporate assets 1,908 1,954 1,954 18,789 - ---------------------------------------------------------------------------------- Consolidated 73,782 69,558 67,684 $ 650,808 ==================================================================================
F-42 Unallocated expense represents expenses for corporate headquarters. Intersegment sales are not separated by operating segment because they are immaterial. Corporate assets consist primarily of cash and cash equivalents and marketable securities maintained for general corporate purposes. (B) GEOGRAPHIC INFORMATION Sales which are attributed to countries based on location of customers and long-lived assets for the years ended March 31, 2002, 2003 and 2004 are as follows: Thousands of Millions of Yen U.S. Dollars --------------------------------- ------------ 2002 2003 2004 2004 - -------------------------------------------------------------------------------- Sales- Japan 902,655 896,022 914,060 $ 8,789,038 The Americas 341,747 343,940 326,380 3,138,269 Europe 311,312 354,477 402,392 3,869,154 Other 116,626 143,919 137,413 1,321,279 - -------------------------------------------------------------------------------- Consolidated 1,672,340 1,738,358 1,780,245 $17,117,740 ================================================================================ Long-Lived Assets- Japan 257,752 251,214 248,277 $ 2,387,279 The Americas 77,269 71,850 62,617 602,086 Europe 38,320 34,062 31,000 298,077 Other 12,897 11,742 10,093 97,048 - -------------------------------------------------------------------------------- Consolidated 386,238 368,868 351,987 $ 3,384,490 ================================================================================ Ricoh's long-lived assets consist property, plant and equipment, goodwill, other intangible assets and lease deposits and other. (C) ADDITIONAL INFORMATION The following information shows net sales and operating income recognized by geographic origin for the years ended March 31, 2002, 2003 and 2004. In addition to the disclosure requirements under SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information", Ricoh discloses this information as supplemental information in light of the disclosure requirements of the Japanese Securities and Exchange Law, which a Japanese public company is subject to. F-43
Thousands of Millions of Yen U.S. Dollars --------------------------------- ------------ 2002 2003 2004 2004 - ----------------------------------------------------------------------------------------------------- Sales- Japan External customers 938,946 954,310 962,127 $ 9,251,221 Intersegment 309,745 320,596 351,070 3,375,673 - ----------------------------------------------------------------------------------------------------- Total 1,248,691 1,274,906 1,313,197 12,626,894 - ----------------------------------------------------------------------------------------------------- The Americas External customers 338,016 333,935 315,504 3,033,692 Intersegment 8,937 5,620 5,249 50,471 - ----------------------------------------------------------------------------------------------------- Total 346,953 339,555 320,753 3,084,163 - ----------------------------------------------------------------------------------------------------- Europe External customers 309,086 352,943 400,646 3,852,365 Intersegment 4,265 3,019 3,770 36,250 - ----------------------------------------------------------------------------------------------------- Total 313,351 355,962 404,416 3,888,615 - ----------------------------------------------------------------------------------------------------- Other External customers 86,292 97,170 101,968 980,461 Intersegment 60,655 72,664 91,373 878,587 - ----------------------------------------------------------------------------------------------------- Total 146,947 169,834 193,341 1,859,048 - ----------------------------------------------------------------------------------------------------- Elimination of intersegment sales (383,602) (401,899) (451,462) (4,340,980) - ----------------------------------------------------------------------------------------------------- Consolidated 1,672,340 1,738,358 1,780,245 $17,117,740 ===================================================================================================== Operating Expenses- Japan 1,142,522 1,188,760 1,215,875 $11,691,106 The Americas 335,521 325,228 305,284 2,935,423 Europe 301,152 337,693 382,383 3,676,759 Other 139,874 159,864 182,870 1,758,365 - ----------------------------------------------------------------------------------------------------- Elimination of intersegment sales (376,424) (406,841) (456,173) (4,386,278) - ----------------------------------------------------------------------------------------------------- Consolidated 1,542,645 1,604,704 1,630,239 $15,675,375 ===================================================================================================== Operating Income- Japan 106,169 86,146 97,322 $ 935,788 The Americas 11,432 14,327 15,469 148,740 Europe 12,199 18,269 22,033 211,856 Other 7,073 9,970 10,471 100,683 - ----------------------------------------------------------------------------------------------------- Elimination of intersegment profit (7,178) 4,942 4,711 45,298 - ----------------------------------------------------------------------------------------------------- Consolidated 129,695 133,654 150,006 $ 1,442,365 - ----------------------------------------------------------------------------------------------------- Other Expenses (15,745) (10,184) (6,943) $ (66,759) - ----------------------------------------------------------------------------------------------------- Income before Income Taxes, Minority Interests, Equity in Earnings of Affiliates and Cumulative Effect of Accounting Change 113,950 123,470 143,063 $ 1,375,606 ===================================================================================================== Total Assets- Japan 1,084,387 1,064,857 1,071,297 $10,300,933 The Americas 228,743 201,359 188,644 1,813,885 Europe 172,408 174,541 188,184 1,809,461 Other 61,549 70,458 63,701 612,509 Elimination (149,197) (143,121) (116,594) (1,121,096) Corporate assets 435,038 516,828 457,561 4,399,625 - ----------------------------------------------------------------------------------------------------- Consolidated 1,832,928 1,884,922 1,852,793 $17,815,317 =====================================================================================================
F-44 Intersegment sales between geographic areas are made at cost plus profit. Operating income by geographic area is sales less expense related to the area's operating revenue. No single customer accounted for 10% or more of the total revenues for the periods ended as of March 31, 2002, 2003 and 2004. 19. SUPPLEMENTARY INFORMATION TO THE STATEMENT OF INCOME The following amounts were charged to selling, general and administrative expenses for the years ended March 31, 2002, 2003 and 2004: Thousands of Millions of Yen U.S. Dollars ------------------------ ------------ 2002 2003 2004 2004 - -------------------------------------------------------------------------------- Research and development costs 80,799 83,551 92,515 $889,567 Advertising costs 16,868 16,958 17,950 172,596 Shipping and handling costs 13,332 12,582 12,352 118,769 ================================================================================ F-45 RICOH COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES SCHEDULE II. - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE THREE YEARS ENDED MARCH 31, 2004
(Millions of Yen) Additions ----------------------- Balance at Charged to Charged to Deduction Balance at end beginning of costs and other from Translation of Description period expenses accounts reserves(2)(3) adjustment period - ---------------------------------------------------------------------------------------------------------------------------------- For the year ended March 31, 2002: Allowance for doubtful receivables(1)- Trade receivables 17,043 2,706 28 1,793 959 18,943 Finance receivables 12,604 4,223 -- 3,325 69 13,571 Deferred tax asset valuation allowance 8,403 2,369 1,154 1,444 818 11,300 For the year ended March 31, 2003: Allowance for doubtful receivables(1)- Trade receivables 18,943 1,000 -- 1,674 (420) 17,849 Finance receivables 13,571 4,147 -- 3,412 (78) 14,228 Deferred tax asset valuation allowance 11,300 3,312 -- 4,920 (499) 9,193 For the year ended March 31, 2004: Allowance for doubtful receivables(1)- Trade receivables 17,849 1,933 9 2,179 (573) 17,039 Finance receivables 14,228 3,920 -- 2,823 (86) 15,239 Deferred tax asset valuation allowance 9,193 2,280 -- 2,133 (330) 9,010 - ----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) See Note 2(g) to Consolidated Financial Statements. (2) Receivables - Write-offs. (3) Deferred tax - Realization of tax benefits F-46
EX-1 2 rex011.txt ARTICLES OF INCORPORATION, AS AMENDED (ENGLISH TRANSLATION) Exhibit 1.1 Articles of Incorporation (English Translation) (Translation) ARTICLES OF INCORPORATION OF RICOH COMPANY, LTD. (As amended on June 25, 2004) CHAPTER I. GENERAL PROVISIONS (Trade Name) Article 1. The name of the Company is Kabushiki Kaisha Ricoh and is written RICOH COMPANY, LTD. in English. (Location of Head Office) Article 2. The head office of the Company is to be located in Ohta-ku, Tokyo. (Objectives) Article 3. The objectives of the Company are to engage in the following businesses: 1. Manufacture, sale, installation work and electrical communication work of optical, office, audio, electric and measuring equipment, other general machinery and equipment and accessories and supplies therefor; 2. Manufacture and sale of photographic sensitive materials and duplicating papers; 3. Manufacture and sale of various raw materials for photographic sensitive materials, and various chemical materials for chemical industries; 4. Manufacture, processing and sale of papers, pulps, textiles, general merchandise and by-products thereof; 5. Investment in, or sale of the products of, other companies; 6. Import and export of the goods described in any of the foregoing items and other goods of every kind and description; 7. Brokerage business for casualty insurance and the insurance brokerage business under the Automobile Liability Security Law of Japan; 8. Direct marketing through the Internet, facsimile and telephone, etc.; and 9. Any and all business incidental or relating to any of the foregoing items. (Public Notices) Article 4. Public notices of the Company shall appear in the Nihon Keizai Shimbun published in Tokyo. CHAPTER II. SHARES (Total Number of Shares to be Issued and Types of Share Certificates) Article 5. The total number of shares to be issued by the Company is nine hundred and ninety-three million (993,000,000) shares. If any shares are cancelled, the number of shares so cancelled shall be deducted from the total number of shares to be issued. 2. The types of share certificates to be issued by the Company shall be subject to the Share Handling Regulations established by the Board of Directors. (Purchase of the Company's Own Shares) Article 6. The Company may purchase its own shares by a resolution of the Board of Directors pursuant to Paragraph 1, Item 2 of Article 211-3 of the Commercial Code of Japan. (Number of Shares Constituting One Unit and Non-Issuance of Certificates for Less-Than-One-Unit Shares) Article 7. The number of shares constituting one unit of shares of the Company shall be one thousand (1,000) shares. 2. The Company shall not issue any certificates for shares constituting less than one unit of shares (hereinafter referred to as "less-than-one-unit shares"), unless otherwise provided for in the Share Handling Regulations. (Sale of Shares Constituting Less-Than-One-Unit Shares to Constitute One Unit) Article 8. A shareholder (including the beneficial shareholder; the same applies hereinafter) who holds less-than-one-unit shares of the Company, may request that the Company sell such number of shares as may, together with such number of less-than-one-unit shares, constitute one unit of shares, in accordance with the Share Handling Regulations. (Transfer Agent) Article 9. The Company shall have a transfer agent for its shares. 2. The transfer agent and its business office shall be determined by resolution of the Board of Directors and public notice shall be given thereof. 3. The register of shareholders (including the register of beneficial shareholders; the same applies hereinafter) and the register of the lost share certificates of the Company shall be kept at the business office of the transfer agent. All business pertaining to the shares of the Company, such as the registration of a transfer of shares and the purchase and sale of less-than-one-unit shares, shall be handled by the transfer agent and not by the Company. (Share Handling Regulations) Article 10. The registration of a transfer of shares, the registration of the lost share certificates, the purchase and sale of less-than-one-unit shares by the Company, and other business pertaining to the shares of the Company shall be subject to the Share Handling Regulations established by the Board of Directors. (Record Date) Article 11. The Company shall deem the shareholders (including the beneficial shareholders; the same applies hereinafter) appearing or recorded in the final register of shareholders as of the accounts closing date for each business year to be the shareholders entitled to exercise the shareholders' rights at the ordinary general meeting of shareholders concerning such business year. 2. In addition to the preceding paragraph, whenever necessary, upon giving prior public notice in accordance with the resolution of the Board of Directors, the Company may deem the shareholders or registered pledgees appearing or recorded in the register of shareholders as of a certain fixed date to be the shareholders or registered pledgees entitled to exercise their rights. CHAPTER III. GENERAL MEETING OF SHAREHOLDERS (Calling of Meeting) Article 12. The ordinary general meeting of shareholders shall be called in June each year and an extraordinary general meeting of shareholders shall be called as the necessity arises. 2. A general meeting of shareholders shall be called by the President in accordance with the resolution of the Board of Directors. 3. In the event that the President is unable to act, one of the other directors shall call such meeting in the order determined in advance by resolution of the Board of Directors. (Exercise of Voting Rights by Proxy) Article 13. A shareholder may exercise his voting rights by proxy who shall be another shareholder of the Company entitled to vote. 2. Such shareholder or proxy shall submit a power of attorney to the Company. (Chairman) Article 14. The President shall preside over a general meeting of shareholders. In the event that the President is unable to act, one of the other directors shall act in his place in the order determined in advance by resolution of the Board of Directors. (Method of Adopting Resolutions) Article 15. Except as otherwise provided for in laws, ordinances or these Articles of Incorporation, resolutions at a general meeting of shareholders shall be adopted by a majority of the votes of the shareholders present thereat. 2. Special resolutions provided for in Article 343 of the Commercial Code shall be adopted by the vote of the shareholders not less than two-thirds (2/3) of those present at the meeting whereby one-third (1/3) of voting rights of all the shareholders shall constitute a quorum. (Minutes) Article 16. The proceedings in outline and the resultant actions taken at a general meeting of shareholders shall be entered in the minutes, which shall bear the names and seals of the chairman of the meeting and the directors present and shall be kept by the Company. CHAPTER IV. DIRECTORS AND BOARD OF DIRECTORS (Number) Article 17. The Company shall have not more than thirty (30) directors. (Election) Article 18. Directors shall be elected at a general meeting of shareholders. 2. Resolutions for the election under the preceding paragraph shall be adopted by a majority of the votes of the shareholders present who hold not less than one-third (1/3) of the voting rights of all the shareholders. 3. Cumulative voting shall not be used for the adoption of resolutions for the election of directors. (Term of Office) Article 19. The term of office of directors shall be until the close of the ordinary general meeting of shareholders relating to the last accounts closing date occurring within two (2) years after their assumption of office; provided, however, that the term of office of a director elected to fill a vacancy or by reason of an increase in the number of directors shall be for the remaining balance of the term of office of the other directors currently in office. (Filling of Vacancy) Article 20. In the event of any vacancy occurring in the office of directors, no election to fill such vacancy may be held, if the number of the remaining directors is not short of the statutory number. (Directors with Specific Titles; Representative Directors) Article 21. One (1) Chairman, one (1) President, and one (1) or more Executive Vice Presidents, Executive Managing Directors and Managing Directors may be appointed from among the directors by resolution of the Board of Directors. 2. One (1) or more representative directors shall be appointed by resolution of the Board of Directors. (Calling of Meetings of Board of Directors; Chairman; Resolutions) Article 22. The Board of Directors shall decide important matters concerning the execution of business and affairs of the Company as well as such matters as are provided for in laws and ordinances. 2. A meeting of the Board of Directors shall be called and presided over by the Chairman. In case the office of the Chairman is vacant or in case the Chairman is unable to act, one of the other directors shall act in his place in the order determined in advance by resolution of the Board of Directors. 3. Notice of a meeting of the Board of Directors shall be dispatched to each director and each statutory auditor three (3) days before the date of the meeting; provided, however, that such meeting may be held without going through the procedure for calling if so agreed by all the directors and the statutory auditors. 4. Resolutions at a meeting of the Board of Directors shall be adopted by a majority of the directors present who shall constitute a majority of the total number of directors. (Remuneration) Article 23. Remuneration of directors shall be determined by resolution at a general meeting of shareholders. CHAPTER V. STATUTORY AUDITORS AND BOARD OF STATUTORY AUDITORS (Number) Article 24. The Company shall have not more than five (5) statutory auditors. (Election) Article 25. Statutory auditors shall be elected at a general meeting of shareholders. 2. Resolutions for the election under the preceding paragraph shall be adopted by a majority of the votes of the shareholders present who hold not less than one-third (1/3) of the voting rights of all the shareholders. (Term of Office) Article 26. The term of office of statutory auditors shall be until the close of the ordinary general meeting of shareholders relating to the last accounts closing date occurring within four (4) years after their assumption of office; provided, however, that the term of office of a statutory auditor elected to fill a vacancy shall be for the remaining balance of the term of office of the retired statutory auditor. (Filling of Vacancy) Article 27. In the event of any vacancy occurring in the office of statutory auditors, no election to fill such vacancy may be held, if the number of the remaining statutory auditors is not short of the statutory number. (Calling of Meetings of Board of Statutory Auditors; Resolutions) Article 28. The Board of Statutory Auditors shall decide matters concerning the audit policy, the methods for investigating the state of the business and property and the execution of other duties of statutory auditors as well as such matters as are provided for in laws and ordinances. 2. A meeting of the Board of Statutory Auditors shall be called by each statutory auditor. 3. Notice of a meeting of the Board of Statutory Auditors shall be dispatched to each statutory auditor three (3) days before the date of the meeting; provided, however, that such meeting may be held without going through the procedure for calling if so agreed by all the statutory auditors. 4. Except as otherwise provided for in laws or ordinances, resolutions at a meeting of the Board of Statutory Auditors shall be adopted by a majority of the statutory auditors. (Full-Time Statutory Auditor) Article 29. The statutory auditors shall appoint a full-time statutory auditor or auditors from among their number. (Remuneration) Article 30. Remuneration of statutory auditors shall be determined by resolution at a general meeting of shareholders. CHAPTER VI. ACCOUNTS (Business Year; Accounts Closing Date) Article 31. The business year of the Company shall be from April 1 of each year to March 31 of the following year and the last day of each business year shall be the accounts closing date. (Dividends) Article 32. Dividends shall be paid to the shareholders and registered pledgees appearing or recorded in the final register of shareholders as of March 31 of each year. (Interim Dividends) Article 33. The Company may, by resolution of the Board of Directors, make cash distribution as provided for in Article 293-5 of the Commercial Code of Japan ("interim dividends") to the shareholders or registered pledgees appearing or recorded in the final register of shareholders as of September 30 of each year. (Period of Limitations) Article 34. The Company shall be relieved from the obligation to pay any dividend or interim dividend if such any dividend or interim dividend remains unreceived after the lapse of three (3) full years from the date on which the same became due and payable. ------------------ EX-2 3 rex012.txt SHARE HANDLING REGURATIONS, AS AMENDED (ENGLISH TRANSLATION) Exhibit 1.2 (Translation) SHARE HANDLING REGULATIONS OF RICOH COMPANY, LTD. CHAPTER I. GENERAL PROVISIONS (Purpose) Article 1. Pursuant to Articles 5 and 8 of the Articles of Incorporation, the types of share certificates of the Company, handling procedures and fees related to the handling of share certificates shall be governed by these Regulations; provided, however, that in addition to these Regulations, handling procedures with respect to the beneficial owners of the shares shall be governed by the rules provided by Japan Securities Depository Center Inc. (hereinafter referred to as the "Center"). (Transfer Agent) Article 2. The transfer agent of the Company, its handling office and forwarding offices are as follows: Transfer Agent: The Chuo Mitsui Trust and Banking Company, Limited 33-1, Shiba 3-chome Minato-ku, Tokyo Handling Office: The Chuo Mitsui Trust and Banking Company, Limited (Head Office) 33-1, Shiba 3-chome Minato-ku, Tokyo Forwarding Offices: All branch offices in Japan of The Chuo Mitsui Trust and Banking Company, Limited and the head office and all branches offices in Japan of the Japan Securities Agents Limited (Types of Share Certificates) Article 3. The share certificates to be issued by the Company shall be in the following seven (7) denominations: one (1) share, five (5) shares, ten (10) shares, fifty (50) shares, one-hundred (100) shares, five-hundred (500) shares, and one-thousand (1,000) shares; provided, however, that share certificates representing any number of 1 shares less than one-hundred (100) shares may be issued by stating the number of shares issued. 2. The shareholders shall not request the issuance of share certificates representing a number of shares constituting less than one unit as set forth in Article 6 of the Articles of Incorporation (hereinafter referred to as "Less-Than-One-Unit Share Certificates"), except as provided in Articles 21, 22 and 26 hereof. (Method of Request, Notification and Application) Article 4. The procedures to submit a request, notification or application with respect to the businesses delegated to the transfer agent by the Company shall be submitted to the transfer agent. 2. Any request, notification or application to be made under these Regulations shall be in the form prescribed by the Company and shall be affixed with the registered seal, which seal impression has been registered with the Company in accordance with the provisions of Article 14 hereof. 3. In the case that any request, notification or application hereunder is made or given by a proxy, a document evidencing the power of the proxy must be presented. In the event that any request, notification or application requires the consent of a curator or assistant, a document evidencing such consent must be presented. CHAPTER II. REGISTRATION OF TRANSFER, ETC. (Registration of Transfer) Article 5. In the case of an application to register a transfer of shares, an application together with the share certificates shall be submitted. 2. In the case of an application to register a transfer of shares for the reasons other than an assignment, a document evidencing the acquisition thereof shall be submitted in addition to the application and the share certificates; provided, however, that in case that the share certificates have not been issued, submission of the share certificates thereof shall not be required. (Registration of Transfer pursuant to Specific Procedures under the Statutes) Article 6. In the event that a specific procedure is required by the statutes to register a transfer of shares, an application together with the share certificates and a document evidencing the completion of such procedure shall be submitted. (Registration in the Register of Beneficial Owners) Article 7. Registering or recording in the Register of Beneficial Owners shall be made based upon the notice from the Center relating to the beneficial owners and the beneficial ownership card. 2 (Beneficial Ownership Card) Article 8. Beneficial owners shall submit a beneficial ownership card through a participant. (Aggregation) Article 9. In the event that a shareholder registered or recorded in the Register of Shareholders is recognized to be identical to a beneficial owner registered or recorded in the Register of Beneficial Owners based on the address and the name of such shareholder, the number of shares held by such shareholder shall be aggregated for the purpose of exercising shareholder's rights. CHAPTER III. REGISTRATION OF PLEDGE AND INDICATION OF TRUST PROPERTY (Registration or Cancellation of Pledge) Article 10. In the case of an application for registration, alteration or cancellation of a pledge on shares, an application therefor shall be submitted under the joint signatures of the pledgor and the pledgee together with the share certificates. (Indication or Cancellation of Trust Property) Article 11. In the case of an application for indication or cancellation of trust property on shares, the trustor or the trustee shall submit an application together with the share certificates. CHAPTER IV. NON-POSSESSION OF SHARE CERTIFICATES (Requests of Non-Possession of Share Certificates) Article 12. In the case of a request for the non-possession of share certificates, such request shall be submitted with the share certificates; provided, however, that in the case that the share certificates have not been issued, submission of the share certificates shall not be required. (Application for Delivery of Non-Possession Share Certificates) Article 13. In the case that a shareholder, who has made a request for non-possession of share certificates, requests for issuance or return of the share certificates, such shareholder shall be required to submit an application to that effect; provided, however, that in the case the share certificates are treated as not having been issued, such shareholder may not apply for issuance of Less-Than-One-Unit Share Certificates. CHAPTER V. VARIOUS NOTIFICATIONS (Notification of Name, Address and Seal Impression of Shareholder, Etc.) 3 Article 14. Shareholders, Beneficial Owners and registered pledgees or their statutory representatives shall provide a notification of their names, addresses and seal impressions; provided, however, that foreigners may substitute the seal impression with a specimen of their signature. 2. The same procedures shall apply when there are any changes in the items notified under the preceding paragraph. (Notification of Addresses where Shareholders Residing Abroad, etc. Receive Notices) Article 15. In addition to the requirements provided for in the preceding Article, Shareholders, Beneficial Owners and registered pledgees or their statutory representatives residing abroad shall appoint resident standing proxies in Japan or provide notification of the addresses in Japan where they shall receive notices. 2. The provisions in the preceding Article shall apply MUTATIS MUTANDIS to resident standing proxies. (Representative of a Corporation) Article 16. In the case that a Shareholder or Beneficial Owner is a corporation, notification of one (1) representative of such corporation shall be provided to the Company. 2. When the representative has changed, a notification together with a certified excerpt from the commercial register shall be submitted. (Representative of Joint-owners of Shares) Article 17. Shareholders or Beneficial Owners who own shares jointly shall appoint one (1) representative and provide notification thereof with the signatures of all of the joint shareholders. The same procedure shall apply in the case of a change in such representative. (Change in Entries of the Register of Shareholders, the Register of Beneficial Owners and Share Certificates due to a Change in Surname or Given Name, Etc.) Article 18. When a change is to be made in the entries in the Register of Shareholders, the Register of Beneficial Owners or on share certificates for any of the following reasons, a notification thereof shall be submitted together with the share certificates and a document evidencing such fact; provided, however, that submission of the share certificates shall not be required if such share certificates have not been issued or in the case of a change in the entries in the Register of Beneficial Owners: 1. Change in the surname or given name; 4 2. Appointment, change or discharge of statutory representatives such as a person with parental authority or a guardian, etc.; 3. Change in the trade name or corporate name; and 4. Change in the organization of a legal entity. (Exception for Various Notifications by Beneficial Owners) Article 19. In the case of a notification by a Beneficial Owner set forth in this Chapter, such notification shall be made through a participant; provided, however, that in the case of only a change in the seal impression of the Beneficial Owner, such notification need not be made through a participant. CHAPTER VI. RE-ISSUANCE OF SHARE CERTIFICATES (Re-issuance of Share Certificates due to Split or Consolidation) Article 20. In the case of an application for the issuance of new share certificates due to the consolidation of share certificates, an application thereof shall be submitted together with the share certificates. 2. Issuance of Less-Than-One-Unit Share Certificates due to a split or a consolidation of share certificates may not be made. (Re-issuance due to Defacement or Mutilation) Article 21. In the case of an application for the issuance of new share certificates due to defacement or mutilation, an application thereof shall be submitted together with the share certificates; provided, however, that when it is difficult to ascertain whether such share certificates are genuine, the provisions set forth in Chapter 7 shall apply. (Re-issuance due to Filled Columns) Article 22. In the case that the columns for recording the names of ownership on the share certificates are completely filled out, the Company shall collect such share certificates and issue new share certificates. (Automatic Consolidation of Less-Than-One-Unit Share Certificates) Article 23. When Less-Than-One-Unit Share Certificates are submitted for a transfer of shares and such share certificates can be consolidated to constitute one (1) unit, the Company shall so consolidate the same, unless otherwise specifically requested by the applicant who has requested the registration of the transfer of shares. CHAPTER VII. RE-ISSUANCE OF SHARE CERTIFICATES DUE TO LOSS (Registration of Lost Share Certificates or Application for Deregistration) 5 Article 24. An applicant who requests the registration of lost share certificates shall submit an application together with a document evidencing the acquisition of the share certificates, the loss of such share certificates and an identification of the applicant; provided, however, that in the case that the applicant who requests the registration of lost share certificates is the listed owner of the lost share certificates or registered pledgee, only a document evidencing the loss of share certificates shall be submitted, in addition to the application. 2. In the case that a registrant of the lost share certificates applies to deregister a registration stated in the preceding paragraph, an application shall be submitted. (Filing of an Objection to Register Lost Share Certificates) Article 25. In the case of filing an objection to the registration of lost share certificates, an application together with the share certificates and an identification of the applicant shall be submitted; provided, however, that in the case that a shareholder or a registered pledgee files an objection, the submission of an identification is not required. (Re-issuance due to Invalidation) Article 26. In the case that a request is made for the re-issuance of invalidated share certificates, an application therefor shall be submitted. (Applicable Notifications) Article 27. In the case that an applicant who requests the registration of lost share certificates is not a shareholder or a registered pledgee and changes are to be made to the entries or records in the register of lost share certificates, the provisions set forth in Articles 14 through 18 shall apply MUTATIS MUTANDIS. CHAPTER VIII. PURCHASE OF LESS-THAN-ONE-UNIT SHARES (Application for Purchase) Article 28. In the case that a request is made for the purchase of Less-Than-One-Unit Shares, an application shall be submitted together with the share certificates; provided, however, that in the case that the share certificates have not been issued, submission thereof shall not be required. 2. In the case that Beneficial Owners submit an application set forth in the preceding paragraph, the procedure shall be carried out through a participant and the Center. (Purchase Price) Article 29. The purchase price per Less-Than-One-Unit Shares shall be the closing price of the stock of the Company at the market operated by the Tokyo Stock 6 Exchange on the day on which the application and the share certificates are received at the handling office or a forwarding office set forth in Article 2; provided, however, that in the case that no trading is effected on that day, the purchase price shall be the price at which the shares of the Company are first traded thereafter. (Payment of Purchase Price) Article 30. The purchase price shall be paid to the applicant at the place where the application for purchase was filed on the sixth (6) business day counting from the day following the day on which the purchase price in the preceding Article was determined; provided, however, that when such purchase price includes a premium due to dividends, stock splits or stock options, the purchase price shall be paid prior to the relevant date of record or a day on which the rights due to such stock splits or stock options attach to the share. 2. The applicant requesting the purchase may request that payment of the purchase price be made by remittance/wire transfer to a bank account or post office account designated by such applicant. 3. The fees provided for in Article 32, Item 4 shall de deducted from the purchase price at the time of payment thereof. (Transfer of Shares Purchased) Article 31. Less-Than-One-Unit Shares for which an application for purchase has been made shall be transferred to the Company on the day on which the purchase price has been paid or the procedure for payment has been completed pursuant to the preceding Article. CHAPTER IX. SALE OF LESS-THAN-ONE-UNIT SHARES UPON A REQUEST FOR ADDITIONAL PURCHASE (Procedure for Request for Additional Purchase) Article 32. In the case that a request is made by a shareholder who owns Less-Than-One-Unit Shares for the sale of additional shares that, when added to such shareholder's shares, would form one unit of shares (hereinafter referred to as the "request for additional purchase"), a request for additional purchase shall be submitted together with the share certificates and the approximate amount for additional purchase set forth in the following Article; provided, however, that in the case that the share certificates have not been issued, submission thereof shall not be required. (Approximate Amount for Additional Purchase) Article 33. The approximate amount for additional purchase shall be calculated by multiplying the closing price of the stock of the Company at the market operated by the Tokyo Stock Exchange on the business day (if there is no trading on such day, the closing price at which the shares of the Company are last traded prior to such 7 day) preceding the day on which the request for additional purchase and the share certificates set forth in the preceding Article are received at the handling office or a forwarding office set forth in Article 2 by the number of shares requested to be additionally purchased and by 1.3; provided that any amount less than 1,000 yen arising out of such calculation shall be rounded up. 2. In the case that a request for additional purchase set forth in the preceding Article has been made, if the approximate amount for additional purchase actually received is less than the amount set forth in the preceding paragraph, the Company shall not proceed with such request for additional purchase. (Requests for Additional Purchases which Exceed the Balance of the Shares of the Company Owned by Itself) Article 34. When the total number of shares for which requests for additional purchase are made exceeds the number of the shares of the Company owned by itself that is transferable (excluding such shares owned for a specific purpose), none of the requests for additional purchase made on that day shall have any effect. (Effective Date of the Request for Additional Purchase) Article 35. The request for additional purchase shall become effective as of the day on which the request for additional purchase and the share certificates set forth in Article 32 and the approximate amount for additional purchase set forth in Article 33 are received at the handling office or a forwarding office set forth in Article 2. (Period during which Receipts of Requests for Additional Purchase Are Suspended) Article 36. The Company shall suspend receipts of requests for additional purchase during the period from the day twelve (12) business days preceding March 31 to March 31 and the period from the day twelve (12) business days preceding September 30 to September 30 of each year. 2. Notwithstanding the preceding paragraph, the Company may set an additional suspension period during which receipts of requests for additional purchase are suspended, if the Company deems necessary. (Determination of the Price for Additional Purchase) Article 37. The purchase price per share for additional purchase of Less-Than-One-Unit Shares shall be the closing price of the stock of the Company at the market operated by the Tokyo Stock Exchange on the effective date of the request for additional purchase; provided, however, that in the case that no trading is effected on that day or such stock exchange is closed on that day, the purchase price per share shall be the price at which the shares of the Company are first traded thereafter. 2. The total purchase price for additional purchase of Less-Than-One-Unit Shares shall be the amount obtained by multiplying the purchase price per share for 8 additional purchase of Less-Than-One-Unit Shares by the number of shares requested to be additionally purchased. 3. In the event that the approximate amount for additional purchase set forth in Article 33 is less than the sum of the total purchase price set forth in the preceding paragraph and the fees for additional purchase set forth in Article 41 (hereinafter referred to as "Definitive Purchase Price for Additional Shares"), the shortfall shall be charged to the shareholder who made such request for additional purchase. In this case, such request for additional purchase shall be cancelled if such shortfall is not paid within five (5) business days from the date on which the shortfall was charged. (Receipt of Definitive Purchase Price for Additional Shares) Article 38. The Company shall receive the Definitive Purchase Price for Additional Shares out of the approximate amount for additional purchase on the day designated by the Company within six (6) business days either from the date on which the Definitive Purchase Price for Additional Shares is determined or from the date immediate following the day on which the shortfall set forth in Paragraph 3 of the preceding Article is paid; provided, however, that when such purchase price reflects the value attributable to dividends, stock splits or stock options, etc., the purchase price shall be received prior to the relevant record date or allocation date. 2. The balance of the approximate amount for additional purchase and the Definitive Purchase Price for Additional Shares set forth in the preceding paragraph shall be returned to the shareholder who made the request for additional purchase, by remittance/wire transfer to a bank account or post office account designated by such shareholder. (Transfer of Additionally Purchased Shares) Article 39. The Less-Than-One-Unit Shares for which a request for additional purchase has been made shall be transferred to the shareholder who made the request for additional purchase on the day which the Definitive Purchase Price for Additional Shares was received pursuant to the preceding Article. (Delivery of Share Certificate) Article 40. When the shares reach one unit as a result of the request for an additional purchase, the Company shall issue a share certificate without delay and deliver the same to the shareholder who made the request for the additional purchase. CHAPTER X. FEES (Fees) Article 41. Fees for handling of the shares of the Company shall be free of charge, except in the following cases: 9 (1) Delivery of share certificates pursuant to a request to issue or return share certificates as set forth in Article 13 (Non-possessed share certificates): Yen 200 per share certificate (2) Delivery of share certificates pursuant to a request to reissue share certificates based on Article 21 (Re-issuance due to Defacement or Mutilation) and Article 26 (Re-issuance due to Invalidation): Yen 200 per share certificate (3) Registration of lost share certificates as set forth in Article 24 (Registration of Lost Share Certificates or Application for Deregistration): Yen 8,600 per registration (deregistration) Yen 500 per share certificate (4) In the case of purchasing Less-Than-One-Unit Shares pursuant to Article 28 (Application for Purchase) and additional purchase by the shareholders pursuant to Article 32 (Procedure for Request for Additional Purchase), an amount per unit calculated pursuant to the following formula, as equivalent to the brokerage commission for the sale and purchase of shares, which shall be proportionally divided by the number of Less-Than-One-Unit Shares purchased. Formula: In respect of the total amount obtained by multiplying the purchase price per share specified in Article 29 (Purchase Price) by the number of shares constituting one unit of shares: Amount equal to or less than 1 million yen: 1.150% Amount exceeding 1 million yen and equal to or less than 5 million yen: 0.900% Amount exceeding 5 million yen and equal to or less than 10 million yen: 0.700% Amount exceeding 10 million yen and equal to or less than 30 million yen: 0.575% Amount exceeding 30 million yen and equal to or less than 50 million yen: 0.375% (Any amounts less than Yen 1 are rounded downward.) Provided, however, that if the amount calculated for one unit of share is less than Yen 2,500, the purchase price shall be Yen 2,500. 10 SUPPLEMENTARY PROVISIONS 1. Date of Enactment: June 27, 2003 2. Date of Amendment: June 26, 2003 3. Approved by: The Board of Directors 4. Established by: Head Office of the Department of Human Resources. Administrative Manager 5. Section in charge: Head Office of the Department of Human Resources. Department of General Affairs 11 EX-3 4 rex013.txt REGURATIONS OF THE BOARD OF DIRECTORS,AS AMENDED (ENGLISH TRANSLATION) Exhibit 1.3 Regulations of The Board of Directors (English Translation) (Translation) REGULATIONS OF THE BOARD OF DIRECTORS (Purpose) Article 1. These Regulations shall set forth matters concerning the management of the meeting of the Board of Directors of the Company and matters to be resolved thereof. (Application) Article 2. Any matters with regards to the Board of Directors shall be governed by these Regulations in addition to the applicable statutes and the Articles of Incorporation. (Organization) Article 3. The Board of Directors shall consist of all Directors. (Attendance by Corporate Auditors) Article 4. Corporate Auditors shall attend the meetings of the Board of Directors and, when necessary, express their opinions at the meeting. (Types of Meetings of the Board of Directors) Article 5. Meetings of the Board of Directors shall consist of ordinary meetings of the Board of Directors and extraordinary meetings of the Board of Directors. Ordinary meetings of the Board of Directors shall be held periodically at least once every three (3) months, and extraordinary meetings of the Board of Directors shall be held whenever necessary. (Convocation of Meetings and Chairman) Article 6. Meetings of the Board of Directors shall be convened and presided over by the Chairman of the Board of Directors. In the case the Chairman of the Board of Directors is absent or in the case that the Chairman of the Board of Directors is unable to act, the President who is also a Director, the Vice President who is also a Director, or the Senior Managing Director shall convene such meetings in aforesaid order. In the event that there are more than one (1) Vice President who is also a Director or Senior Managing Directors, one of them shall convene such meetings in the order set forth in advance by the resolution of the Board of Directors. Each Director and Corporate Auditor may request convocation of a meeting of the Board of Directors by submitting a document that includes an agenda and sets forth the reason for such meeting. (Notice of Convocation) Article 7. A notice of convocation of a meeting of the Board of Directors shall be dispatched to each Director and each Corporate Auditor at least three (3) days prior to the date set 1 forth for such meeting; provided, however, that with the consent of all Directors and Corporate Auditors, a meeting of the Board of Directors may be held without the convocation procedure. (Resolution) Article 8. Resolutions of the Board of Directors shall be adopted by the affirmative vote of a majority of the Directors present at the meeting, whereby a majority of all Directors shall constitute a quorum. However, in the case that the votes for and against the resolution are the same in number, the Chairman of the Board of Directors shall make a final decision. A Director who has a special interest in any proposal that is deliberated by the Board of Directors shall not be entitled to vote on such matter. (Attendance by Third Parties) Article 9. The Board of Directors may request any person other than Directors and Corporate Auditors to attend a meeting of the Board of Directors and to provide reports or opinions whenever necessary. (Matters to be Resolved) Article 10. The following matters shall be resolved at a meeting of the Board of Directors: 1. Statutory matters 1-1 Establishment, relocation and closure of a branch and other important organizations; 1-2 Transfer and acquisition of business and disposal and acquisition of important assets; 1-3 A significant amount of borrowing, donation, capital contribution, loan, guarantee, furnishing of collateral and waiver of indebtedness; 1-4 Appointment and discharge of a Representative Director, manager and other important employees and appointment and change of co-representatives; 1-5 Approval of transactions between a Director and the Company, and competing transaction by a Director; 1-6 Issuance of new shares (including various types of share); 1-7 Capitalization of reserves; 1-8 Stock splits; 1-9 Increase of the total number of shares to be issued by the Company at the ratio in accordance with a stock split and amendments to the Articles of Incorporation pursuant to such increase; 2 1-10 Interim dividends; 1-11 Issuance of corporate bonds and bonds with stock options (shinkabu-yoyakuken); 1-12 Approval of the balance sheet, profit and loss statement, business report, proposal relating to the disposition of profits and other annexed specifications; 1-13 Determination regarding the convocation of a meeting of the shareholders and its agenda; 1-14 Determination regarding matters delegated by a resolution of the meeting of the shareholders; 1-15 Acquisition of its own stock by the Company based on a resolution adopted at the ordinary meeting of the shareholders; 1-16 Acquisition of its own stock owned by a subsidiary of the Company; 1-17 Disposition of the treasury stock by the Company; 1-18 Elimination of the treasury stock by the Company; 1-19 Amendments to the Articles of Incorporation as a result of a decrease in the number of shares per unit or abolishment of the unit system; 1-20 Issuance of stock options; 1-21 Computerization of exercising voting right at a shareholders' meeting; 1-22 Computerization of the publication of financial statements; and 1-23 Other matters stipulated by laws and regulations. 2. Matters authorized by the Articles of Incorporation 2-1 Acquisition of the treasury stock by the Company; 2-2 Appointment of a transfer agent and designation of its handling offices; 2-3 Establishment of and amendment to the Share Handling Regulations; 2-4 Setting forth a date of record, which determines who are the shareholders that are entitled to exercise the relevant rights; and 2-5 Appointment and discharge of the Chairman, the President, the Vice President, the Senior Managing Director and the Managing Director. 3 3. Other important matters relating to the execution of business of the Company. (Business Affairs of Company) Article 11. Pursuant to the statutes, the Articles of Incorporation and these Regulations, a Representative Director shall execute the business of the Company and act as a representative of the Company to third parties as part of his duties. In the event that there are more than one (1) Representative Directors, the President who is also a Director shall be the chief executive officer of the Company. (Matters to be reported to the Board of Directors and the Board of Corporate Auditors) Article 12. The Board of Directors shall receive reports concerning the following matters: 1-1 The President shall report on the conditions of the execution of the business of the Company to the Board of Directors at least once every three (3) months. The President may cause any other person to provide a report on his/her behalf. 1-2 The Board of Directors shall receive reports on the following matters by the relevant Directors: (i) Competing transactions (Article 264, Paragraph 2 of the Commercial Code); (ii) Transactions between a Director and the Company, and transactions in which there is a conflict of interest between a Director and the Company (Article 265, Paragraph 3 of the Commercial Code); and (iii) Other important matters. 2. The Board of Directors shall receive reports on matters set forth by the statutes (Article 260-3, Paragraph 2 of the Commercial Code) from the Corporate Auditors. (Minutes) Article 13. The summary of the proceedings of a meeting of the Board of Directors and the results thereof shall be recorded in the minutes of the meeting of the Board of Directors, to which each Director and Corporate Auditor present at such meeting shall print his/her name and affix his/her seal, and which minutes shall be kept in safe-keeping by the Company. Such minutes shall be kept for ten (10) years at the principal office of the Company. (Board of Directors Clerical Office) Article 14. The Chief Secretary shall handle any administrative matters concerning the Board of Directors. 4 (Other Matters) Article 15. Any matters relating to the administration of the meetings of the Board of Directors which are not provided for by the statutes, the Articles of Incorporation or these Regulations shall be determined by the Chairman. (Amendment to or Abolition of These Regulations) Article 16. The amendment to or abolishment of these Regulations shall be subject to the resolution by the Board of Directors. SUPPLEMENTARY PROVISIONS Date of Establishment and Enactment: October 1, 1982 Date of Enactment of Amendment: July 1, 1977 February 7, 1978 September 21, 1982 October 1, 1987 Date of Confirmation: October 1, 1997 Date of Enactment of Amendment: June 26, 1998 June 29, 2000 October 1, 2001 May 1, 2002 June 25, 2004 Approved by: The Board of Directors Section in Charge: Secretariat Office 5 EX-4 5 rex014.txt REGURATIONS OF THE BOARD OF CORPORATE AUDITORS,AS AMENDED (ENGLISH TRANSLATION) Exhibit 1.4 Regulations of The Board of Corporate Auditors (English Translation) (Translation) REGULATIONS OF THE BOARD OF CORPORATE AUDITORS OF RICOH COMPANY, LTD. (Purpose) Article 1. Pursuant to laws, ordinances and the Articles of Incorporation, these Regulations shall set forth matters concerning the Board of Corporate Auditors of the Company. (Organization) Article 2. The Board of Corporate Auditors shall consist of all Corporate Auditors. (Objectives of Board of Corporate Auditors) Article 3. The Board of Corporate Auditors shall receive reports, discuss or resolve important matters relating to audits; provided, however, that each Corporate Auditor shall not be prevented from exercising its power. (Holding of Meetings) Article 4. Meetings of the Board of Corporate Auditors shall be held, as a general rule, at least once every three (3) months; provided, however, that meetings may be held from time to time whenever necessary. (Person Convening Meetings and Chairman) Article 5. (1) The Board of Corporate Auditors may appoint in advance, from among the Corporate Auditors, a Corporate Auditor who shall convene meetings of the Board of Corporate Auditors; provided, however, that other Corporate Auditors shall not be prevented from convening any meetings. (2) The person who has convened the meeting of the Board of Corporate Auditors pursuant to the preceding paragraph shall act as chairman at the meeting. 1 (Convocation Notice) Article 6. (1) A notice of convocation of a meeting of the Board of Corporate Auditors shall be dispatched to each Corporate Auditor at least three (3) days prior to the date set forth for such meeting. (2) With the consent of all Corporate Auditors, a meeting of the Board of Corporate Auditors may be held without the convocation procedure. (Method of Adopting Resolutions) Article 7. (1) "Resolution of the Board of Corporate Auditors" shall mean a decision of the matters which are subject to the agreement of the Corporate Auditors. In such case, the resolution shall be adopted by the affirmative vote of a majority of all Corporate Auditors, unless otherwise provided in these Regulations. (2) The resolutions shall be adopted after taking into deliberation all sufficient information and materials. (Resolutions relating to Audit Policies, etc.) Article 8. (1) Matters such as audit policy, audit plan, audit methods, assignment of audit work, budget for audit expenses and independent outside advisors' expenses, etc. shall be determined by a resolution of the Board of Corporate Auditors following discussions at a meeting of the Board of Corporate Auditors at the commencement of an audit. (2) All matters other than those referred to in the preceding paragraph, which any Corporate Auditor deems necessary in order to fulfill his duties, may be determined by a resolution of the Board of Corporate Auditors. (Report by Corporate Auditors to the Board of Corporate Auditors) Article 9. (1) Each Corporate Auditor shall report to the Board of Corporate Auditors on the status of conducting its duties from time to time and whenever requested by the Board of Corporate Auditors. (2) Any Corporate Auditor who receives a report from an Accounting Auditor (Kaikei Kansanin), a Director or any other person shall make a report to the Board of Corporate Auditors. 2 (Hearing Reports from the Accounting Auditor or Directors, etc.) Article 10. Corporate Auditors may request the Accounting Auditors, Directors or any other related persons to attend the meeting of the Board of Corporate Auditors and to provide an opinion or a report to the Board of Corporate Auditors as it deems necessary. (Measures for Special Reports) Article 11. (1) In the case that the Board of Corporate Auditors receives a report from a Director that such Director has found a fact that may cause material damage to the Company, the Board of Corporate Auditors shall deliberate whether or not any investigation is necessary. (2) In the case that the Board of Corporate Auditors receives a report from an Accounting Auditor that such Accounting Auditor has discovered unfair practices of a Director pertaining to the duties of a Director or any material fact which is in violation of the laws, ordinances or the Articles of Incorporation, the Board of Corporate Auditors shall take the same measure as referred to in the preceding paragraph. (Measures for Internal and External Claims and Accusations) Article 12. (1) The Board of Corporate Auditors shall delegate a part of its business to accept, keep and handle claims and accusations of any flaws concerning accounting, internal accounting controls or auditing to the Corporate Social Responsibility (hereinafter the "CSR") Enhancement Section. (2) In the case that the Board of Corporate Auditors receives from the CSR Enhancement Section a report on the claims and accusations described in the previous paragraph concerning the matters stated below, Article 11, Paragraph 1 shall apply mutatis mutandis: 1. Matters stated in the Corporate Auditors' audit report (relating to Article 133, Paragraph 1 of the Commercial Code Enforcement Rules); 2. Matters relating to derivative actions by shareholders; 3. Important matters affecting the corporate performance; and 4. Other material violations of compliance and important flaws concerning accounting, internal accounting controls or auditing. 3 (Preparation of Audit Reports) Article 13. (1) The Board of Corporate Auditors shall receive financial documents, etc. from the Directors and the audit report, etc. from the Accounting Auditors. The Board of Corporate Auditors may cause a Full-Time Corporate Auditor to receive such documents. (2) The Board of Corporate Auditors shall receive a report from the Corporate Auditors on matters covered by the audit report, etc. and prepare its audit report through discussions among themselves. (3) If any Corporate Auditor expresses a different opinion, such opinion shall be stated in the audit report. (4) Each Corporate Auditor shall sign, and affix his/her seal to, the audit report. Full-Time Corporate Auditors shall be named as such in the audit report. (Resolutions on Appointment, Non-Reappointment and Discharge of Accounting Auditors) Article 14. (1) The following matters relating to the appointment, non-reappointment and discharge of Accounting Auditors shall be determined by a resolution of the Board of Corporate Auditors: 1. Consent to the proposal concerning the appointment, non-reappointment and discharge of Accounting Auditors to be submitted to the Meeting of the Shareholders; 2. Request to include the appointment, non-reappointment and dismissal of an Accounting Auditors in the agenda of the Meeting of the Shareholders; 3. Request to submit a proposal relating to the appointment of the Accounting Auditors to the Meeting of the Shareholders; and 4. Appointment of provisional Accounting Auditors, in case of an absence in the office of the Accounting Auditors. (2) In the case that the Board of Corporate Auditors shall discharge Accounting Auditors based upon any reason provided for by statute, a resolution of the Board of Corporate Auditors for such discharge shall be adopted unanimously. In such case, the Corporate Auditor designated by the Board of Corporate Auditors shall report such discharge and the reason thereof at the first Meeting of the Shareholders held immediately after such discharge. 4 (Resolutions of Appointment and Discharge of Independent Outside Advisors) Article 14-2. Independent Outside Advisors shall be appointed and discharged by a resolution of the Board of Corporate Auditors. (Right to Give Consent and Proposal concerning the Appointment of Corporate Auditors) Article 14-3. The following matters concerning the appointment of the Corporate Auditors shall be determined by a resolution of the Board of Corporate Auditors: (1) Consent to the proposal concerning the appointment of a Corporate Auditor to be submitted to the Meeting of the Shareholders; (2) Request to include the appointment of a Corporate Auditor in the agenda of the Meeting of the Shareholders; and (3) Request to submit a proposal relating to the appointment of a Corporate Auditor to the Meeting of the Shareholders. (Consent of the Board of Corporate Auditors) Article 14-4. A consent of the Board of Corporate Auditors relating to the following proposals, etc. shall be adopted pursuant to an unanimous resolution of the Board of Corporate Auditors: (1) Proposal to exempt Directors from their liabilities which is to be submitted to the Meeting of the Shareholders; (2) Proposal to amend the Articles of Incorporation to enable the Company to exempt Directors from their liabilities by a resolution of the Board of Directors; (3) Proposal to exempt Directors from their liabilities which is to be submitted to a meeting of the Board of Directors pursuant to the provisions of the Articles of Incorporation; (4) Proposal to amend the Articles of Incorporation to enable the Company to enter into an agreement with any outside Director (shagai torishimariyaku) to limit his/her liabilities; and (5) Proposal for the Company to participate in a litigation to support a Director. (Report and Confirmation of the Contents of the Securities Report and the Annual Report) Article 14-5. The Board of Corporate Auditors shall receive reports from the Disclosure Committee and confirm the contents of the Securities Report prepared pursuant to (Pre-Approval relating to the Independence of Accounting Auditors) Article 14-6. (1) The Board of Corporate Auditors shall pre-approve the Audit Services and Non-Audit Services to be provided to the Company and its subsidiaries by Accounting Auditors. (2) The Board of Corporate Auditors shall enact "Audit and Non-Audit Services Pre-Approval Policy" as its policy and procedures for pre-approval. (3) The Board of Corporate Auditors may, by resolution, delegate its business of pre-approval to an outside Corporate Auditor (shagai kansayaku). 5 the Securities and Exchange Law and the Annual Report on Form 20-F prepared pursuant to the United States Securities Exchange Act of 1934, as amended. (Consultation concerning Exercising Powers of the Corporate Auditor) Article 15. The Corporate Auditor may consult each other at a meeting of the Board of Corporate Auditors prior to the performance of their duties or exercise of their powers on the following matters: 1. Providing an explanation to respond to inquiries posed in writing by a shareholder prior to the Meeting of the Shareholders; 2. Reporting to the Board of Directors and requesting to convene a meeting thereof, etc.; 3. Providing an opinion on proposals, documents and other material to be submitted to the Meeting of the Shareholders; 4. Requesting an injunction for an unlawful action by a Director; 5. Providing an opinion at the Meeting of the Shareholders as to the appointment, discharge, resignation of and remuneration for Corporate Auditors; 6. Matters concerning a litigation between the Company and a Director; and 7. Other matters relating to a filing of any litigation. (Consultation Concerning the Election of Full-Time Corporate Auditors and Remuneration) Article 16. The election of Full-Time Corporate Auditors from among the Corporate Auditors and remuneration therefor may be discussed at a meeting of the Board of Corporate Auditors. (Appointment of Full-Time Corporate Auditors) Article 16-2. The Corporate Auditors may elect Full-Time Corporate Auditors from among themselves. (Minutes) Article 17. (1) The summary of the proceedings at a meeting of the Board of Corporate Auditors and the results thereof shall be contained and recorded in the minutes of the meeting of the Board of Corporate Auditors, to which each Corporate Auditor present at such meeting shall print his/her name and affix his/her seal or provide a 6 signature in electronic format. The minutes of the meeting of the Board of Corporate Auditors shall be treated in the same manner as the minutes of the meeting of the Board of Directors. (2) The minutes referred to in the preceding paragraph shall be kept for ten (10) years at the principal office of the Company. (Board of Corporate Auditors Office) Article 18. The Board of Corporate Auditors Office shall handle matters such as the convocation of meetings of the Board of Corporate Auditors, drafting of the minutes, and other work concerning the administration of the Board of Corporate Auditors meeting. (Amendment to or Abolition of These Regulations) Article 19. The Board of Corporate Auditors is authorized and empowered to amend or abolish these Regulations. 7 SUPPLEMENTARY PROVISIONS 1. Date of Enactment: May 1, 2002 2. Approved by: The Board of Corporate Auditors 3. Established by: Chief of Audit Section 4. Section in Charge: Audit Section 5. History of Establishment and Amendments Date of Establishment and Enactment: November 1, 1978 (Chief of Audit Section) Date of Enactment of Amendments: June 29, 1982 (Chief of Audit Section) Date of Enactment of Amendments: June 29, 1994 (Chief of Audit Section) Date of Enactment of Amendments: May 1, 2002 (Chief of Audit Section) Date of Enactment of Amendments: May 1, 2003 (Chief of Audit Section) Date of Enactment of Amendments: October 17, 2003 (Chief of Audit Section) 8 EX-5 6 rex11.txt CODE OF ETHICS (ENGLISH TRANSLATION) Exhibit 11 [LOGO] RICOH THE RICOH GROUP CODE OF CONDUCT 1 Ricoh Group Corporate Social Responsibility (CSR) Charter To be an enterprise whose growth and development is welcomed in society, and to discharge its "Corporate Social Responsibility" (CSR) from a global perspective in every aspect of its operations, the Ricoh Group shall comprehend and comply with the laws and regulations of each and every country, and the international rules and underlying sprits thereof pursuant to the following principles, in addition to acting with good and sound social sense. Integrity in Corporate Activities 1. Every company in the Ricoh Group shall develop and provide useful, environmental-conscious and customer-friendly products and services that exceed in quality, safety, information security and reliability. 2. Every company in the Ricoh Group shall engage in fair, open and free competition, and maintain normal and healthy relationships with political and governmental figures and bodies, citizens and organizations. 3. Every company in the Ricoh Group shall ensure proper control and protection of its own information and that of its customers. Harmony with the Environment 4. Every company in the Ricoh Group shall make efforts, as a responsible global citizen, to voluntarily and actively conserve the environment. 5. Every company in the Ricoh Group and all employees of such company shall seek to implement technological reforms that take the environment into consideration and shall continuously participate to conserve the environment. Respect for People 6. Every company in the Ricoh Group shall maintain a safe and comfortable working environment for all persons connected with the corporate activities of the Ricoh Group and respect the personalities of all of its employees to foster their sense of independence and creativity. 7. Every company in the Ricoh Group shall respect the rights of all those concerned, and seek to create a cheerful working environment without discrimination. 8. No company in the Ricoh Group shall permit any form of forced labor or child labor, or participate in any activity that infringes upon human rights. Harmony with Society 9. Every company in the Ricoh Group shall, as a "good corporate citizen," actively engage in activities that contribute to society. 2 10. Every company in the Ricoh Group shall respect the cultures and customs of every country and region, and operate its business in such a manner that contributes to their development. 11. Every company in the Ricoh Group shall communicate with society and ensure that its corporate information is disclosed actively, properly and fairly. 3 Message from the CEO as to the Establishment of the Ricoh Group Corporate Social Responsibility Charter Aiming to create a harmonious relationship with and earn trust from society, Ricoh enacted the Ricoh Business Code of Conduct in April 1993 as the standard of each director, officer and employee of the Group for both corporate and individual activities, and has acted to achieve its management philosophy. Furthermore, each group company has engaged in activities that are in line with its own code of conduct, which was established based on the Ricoh model. Such actions have served to enhance the reputation of the entire Group. Nowadays, companies, as global citizens as well as members of society, are becoming more and more important in their roles and influences. Accordingly, companies are being asked to switch their activities from those that contribute to society to those that are responsible to society. In other words, socially responsible management of companies are beginning to be sought to a greater degree. This means that it has become even more important for companies to carry out their corporate activities with a greater sense of responsibility towards ethics, morals and responsibility, not to speak of, compliance with the laws and regulations. Along with the recent trend towards the globalization of corporate activities and group management, the Ricoh Group has been increasingly composed of people with different values from a variety of countries around the world, and therefore the need to establish values and standards of behavior that can be shared throughout the group has been growing. Under such circumstances, we reviewed the original Ricoh Business Code of Conduct from the perspective of "a corporation that undertakes activities with a sense of responsibility towards achieving harmony with society as well as the environment." Consequently, we established "the Ricoh Group CSR Charter" as the document that sets forth the principles of our corporate activities to be shared globally within the Ricoh Group, and "the Ricoh Group Code of Conduct" as the document that sets forth the standard of conducts or attitudes that individual members within the Ricoh Group should follow. To attain Ricoh Group's goal of becoming a "Reliable and Attractive Global Enterprise" and to remain a group that is loved by society and whose growth and development is welcomed, it is strongly expected that every group company and individual member thereof adhere to and act to achieve the philosophy of this Ricoh 4 Group CSR Charter and this Ricoh Group Code of Conduct. January 1, 2004 Masamitsu SAKURAI President and CEO, Ricoh Group 5 CONTENTS General Principles..................................................................7 Integrity in Corporate Activities 1 Providing customer-friendly products.........................................10 2 Free competition and fair trading............................................11 3 Prohibition of insider trading...............................................12 4 Managing corporate secrets...................................................13 5 Limitation on entertainment and gifts, etc...................................14 6 Transactions with public bodies and management of political contributions....15 7 Strict control of exports and imports for international peace and security...16 8 Protection and application of intellectual properties........................18 9 Prohibition of anti-social activities........................................19 10 Prohibition of individual activities that are against the interests of the company.....................................................20 11 Protection of corporate assets...............................................21 Harmony with the Environment 12 Respect for the global environment...........................................22 Respect for People 13 Respect for human rights.....................................................24 Harmony with Society 14 The practice of contributions to society.....................................25 15 Mutual understanding with society............................................26 Implementation.....................................................................27
6 General Principles OBJECTIVE The objective of the Ricoh Group Code of Conduct (hereinafter referred to as the "Code") is to set forth the basic standards of conduct that Officers and Employees of the companies within the Ricoh Group shall follow to comply with the laws and regulations and observe to abide by the social ethics in developing the Ricoh Group's corporate activities. DEFINITIONS The definitions of the terms used in this Code are as follows: 1. "Ricoh" means Ricoh Company, Ltd. 2. "Affiliate" means a consolidated subsidiary of Ricoh and a company substantially controlled by Ricoh. 3. "Ricoh Group" means Ricoh and its Affiliates. 4. "Officers and Employees" means directors, statutory auditors, officer, board members, all persons who are subject to the Employment Regulations (SHUGYO KISOKU) of each company and all others who are in an employment relationship with a company within the Ricoh Group (including part-time or temporary employees). APPLICABILITY 1. This Code applies to Officers and Employees. 2. Each Affiliate shall appoint a responsible person to implement this Code and make every effort to ensure its implementation. However, under the following circumstances, each Affiliate may, pursuant to the resolution of its board of directors, enact supplemental provisions to this Code to the extent they are consistent with this Code: (1) when modifications are necessary due to changes in the laws and regulations, commercial customs, employment practices, or values in a specific country or region; or (2) when modifications are necessary due to the nature of the business or the type of products or transactions that a company within the Ricoh Group engages in or enters into. Each Affiliate shall report such supplemental provisions to the central authority in charge of this Code. 7 BASIC ATTITUDES TO BE ADOPTED BY OFFICERS AND EMPLOYEES It is important that all Officers and Employees, as individuals, citizens and business persons, understand the following basic concepts and seek to implement them in their daily activities. 1. Officers and Employees shall always be attentive to, seek to understand, and act in compliance with, the laws and regulations in each and every country or region. 2. Officers and Employees shall recognize their social responsibilities, and act with common sense as good citizens with high ethical and moral standards. 3. Officers and Employees shall respect each other's personalities and values, and act in a self-controlled way as a good business person. In addition, Officers and Employees shall comply with all the basic rules of the Ricoh Group, including its regulations, standards, etc., draw distinctions between business and personal matters, and act with a full sense of responsibility as a member of the Ricoh Group. 4. Officers and Employees shall make efforts to achieve customer satisfaction recognizing that all activities, not limited to those involving direct contact with customers such as sales and maintenance services, are always evaluated by them. 5. To stay keenly aware of the various developments and problems, Officers and Employees shall act autonomously and always seek to maintain the creativity to freely generate new ideas so as to create new values. 6. Officers and Employees shall put themselves, not only in the place of their customers, but also in the place of their counterparties, business partners and fellow employees, and make themselves useful. 7. Officers and Employees shall make every effort to balance the growth of the company and their own personal happiness, and to seek to realize rich and full personal lives. 8 BASIC ATTITUDE OF THE RICOH GROUP TOWARDS ITS EMPLOYEES The Ricoh Group shall take the following measures to ensure that all employees can act on the above-mentioned Basic Attitudes, make the fullest use of their abilities and self-actualize: 1. Desiring their growth as human beings and responding to their wish for self-actualization both in and outside of the work setting, the Ricoh Group shall create and provide a wide range of opportunities for self-actualization to its employees. The Ricoh Group shall create a free and healthy corporate atmosphere in which each employee can gain a sense of self-existence, self-development and self-confidence, and act freely based on his or her creativity. 2. The Ricoh Group shall cherish and seek to actively utilize each employee's specialized abilities, while at the same time provide proper support for proactive efforts by each employee to enhance his or her specialized abilities by establishing a system or entering into an arrangement that encourages such proactive efforts. 3. By making an objective and fair evaluation of each employee's achievement, the Ricoh Group shall promote vitality within the Group. The Ricoh Group shall specify items and standards used for the evaluation of its employees, fairly evaluate the degree of achievement of each employee's goals, the ability to perform his or her duties, the degree of his or her contributions and other factors, and reward each employee based on such evaluation. 4. The Ricoh Group shall develop and maintain a safe, healthy, comfortable and efficient work environment, and make effort to shorten working hours and provide various work conditions and types of employment to accommodate a wide variety of lifestyles. 9 Integrity in Corporate Activities 1 PROVIDING CUSTOMER-FRIENDLY PRODUCTS .. Basic Policy The Ricoh Group's basic policy is to develop and provide products and services to its customers from the customer's point of view. .. Model Conduct (1) WE SEEK TO SOLVE THE CUSTOMERS' PROBLEMS. Officers and Employees shall actively seek to identify the customers' problems, and make an effort to solve such problems. (2) WE SEEK TO EARN THE CUSTOMERS' TRUST. Officers and Employees shall consider quality, safety, information security, reliability, environmental conservation and user-friendliness in developing products and services to be provided to the customers. (3) WE SEEK TO HEIGHTEN CUSTOMER SATISFACTION. Officers and Employees shall regularly assess the level of satisfaction of the customers, and make every effort to improve its products and services to attain higher levels of satisfaction by the customers. .. Related Standards: Ricoh Group Quality Assurance Regulation (RGS-AQAA0001) Ricoh Group Product Safety Regulation (RGS-AQAA0002) 10 2 FREE COMPETITION AND FAIR TRADING .. Basic Policy The Ricoh Group shall strictly comply with the applicable laws and regulations of each and every country and region with respect to anti-monopoly, fair competition and fair trade, and shall not take any action to violate these laws and regulations. .. Model Conduct (1) WE DO NOT ENTER INTO ANY DISCUSSIONS OR AGREEMENTS THAT LIMIT CORPORATE ACTIVITIES. Officers and Employees shall not participate in any discussions or agreements with competitors that limit corporate activities, including conditions on bids, pricing of products, sales terms, profits, market share, sales areas, etc. (2) WE DO NOT ABUSE OUR TRADING POSITION. Officers and Employees shall not abuse their trading position to impose disadvantageous terms upon the counterparties, or to limit transactions between the counterparties and third parties. (3) WE DO NOT DISPLAY OUR PRODUCTS INAPPROPRIATELY OR OFFER EXCESSIVE PREMIUMS OR PRIZES. Officers and Employees shall not inappropriately display Ricoh Group products or offer excessive premiums or prizes that might mislead the customers' decision on the choice of product. .. Related Standards: "Manual for Compliance with Anti monopoly Law" 11 3 PROHIBITION OF INSIDER TRADING .. Basic Policy The Ricoh Group shall not take advantage of any insider information obtained in the course of its business for its financial gain, or engage in other activities that would undermine the soundness and fairness of the securities markets. .. Model Conduct (1) WE DO NOT DISCLOSE INSIDER INFORMATION TO THIRD PARTIES. Officers and Employees shall not obtain insider information on the Ricoh Group or other companies unless it is necessary for the purpose of performing their duties. Officers and Employees shall not disclose any insider information on the Ricoh Group or other companies obtained in the course of its business to anyone except to those who require such information to perform their duties. (2) WE DO NOT USE INSIDER INFORMATION FOR PERSONAL GAIN. Officers and Employees who come to know of insider information on the Ricoh Group or other companies, either in the course of or as a result of its business, shall not carry out any sale or purchase of stocks or other securities of the Ricoh Group or other companies or engage in any other trades. * "Insider information" means unpublished material corporate information, including but not limited to, increase or decrease in capital, launching of new products, business alliances, sales revenue and ordinary profits, etc. 12 4 MANAGING CORPORATE SECRETS .. Basic Policy Information that the Ricoh Group acquired or created in the course of its business shall, depending on its importance, be treated as a corporate secret and shall be managed appropriately. In addition, information on third parties (such as customers, business partners and client companies) obtained by the Ricoh Group and information entrusted by third parties shall be managed as a corporate secret in the same manner. .. Model Conduct (1) WE COMPLY WITH THE RULES REGARDING THE MANAGEMENT OF CORPORATE SECRETS. When Officers and Employees obtain information, materials or documents in the course of business, they shall notify such fact to their superiors, and manage them in accordance with the applicable rules, etc. of each company. Officers and Employees shall continue to comply with the related rules, etc. after the termination of their employment. (2) WE ONLY DISCLOSE CORPORATE SECRETS UPON RECEIPT OF PROPER AUTHORIZATIONS. When Officers and Employees are requested from inside or outside the company to respond to inquiries or to provide materials relating to business matters, they shall ask their superior for instructions as to the handling of such requests unless they have clearly been given the necessary authority to respond to the inquiry or provide the materials. (3) WE DO NOT EXPLOIT CORPORATE SECRETS FOR PERSONAL INTERESTS. Officers and Employees shall only use corporate secrets for business purposes, and shall not exploit them for their own interests or those of third parties during or after their employment. (4) WE DO NOT OBTAIN THIRD PARTIES' SECRETS BY UNFAIR METHODS. Officers and Employees shall not obtain other companies' secrets by unfair methods. When Officers and Employees obtain another company's secret based on a contractual relationship with such company, they shall use such secret in compliance with the objectives and the terms and conditions of such contract. 13 5 LIMITATION ON ENTERTAINMENT AND GIFTS, ETC. .. Basic Policy The Ricoh Group, in connection with offering and accepting entertainment or gifts, shall not offer or accept bribes or engage in any activity which deviates from general good business practice. .. Model Conduct (1) WE DO NOT OFFER ENTERTAINMENT OR GIFTS TO GOVERNMENT OFFICERS OR EMPLOYEES OF PUBLIC BODIES (INCLUDING FORMER OFFICERS AND EMPLOYEES). Officers and Employees shall not offer entertainment or gifts to officers or employees (including former officers or employees) of national, local or regional, or other public bodies as well as foreign governments. (2) WE FOLLOW GENERAL GOOD BUSINESS PRACTICE. When Officers and Employees offer entertainment or gifts, the offer by such Officers and Employees shall not deviate from general good business practice. Officers and Employees shall make every effort to notify business counterparties and clients in advance that Officers and Employees do not accept entertainment or gifts, but if the circumstances make it difficult to refuse being entertained, they shall immediately report such circumstances to their superior and ask for instruction. .. Related Standards: "Employment Regulations" 14 6 TRANSACTIONS WITH PUBLIC BODIES AND MANAGEMENT OF POLITICAL CONTRIBUTIONS .. Basic Policy The Ricoh Group shall comply with the relevant laws and regulations with respect to transactions with public bodies and political contributions. .. Model Conduct (1) WE MANAGE TRANSACTIONS WITH PUBLIC BODIES IN STRICT COMPLIANCE WITH THE RELEVANT LAWS AND REGULATIONS. When Officers and Employees engage in transactions with public bodies such as national, regional or local governments, they shall strictly comply with the relevant laws and regulations which set forth the rules governing the manner of such transactions, etc., and always pay full attention to the legality of such business. (2) WE DO NOT MAKE ILLEGAL POLITICAL CONTRIBUTIONS. Except as otherwise permitted under the relevant laws and regulations, Officers and Employees shall not directly or indirectly make political contributions to or provide support for an election campaign of political figures (including candidates for a political office) or political organizations in connection with the business. 15 7 STRICT CONTROL OF EXPORTS AND IMPORTS FOR INTERNATIONAL PEACE AND SECURITY .. Basic Policy The Ricoh Group shall not engage in any activity that violates the relevant laws and regulations governing exports and imports, including the Foreign Exchange and Foreign Trade Law of Japan that aims to preserve international peace and security and the relevant foreign laws and regulations of the country where the counterparty is located. .. Model Conduct (1) WE PERFORM APPLICABILITY ASSESSMENTS. When Officers and Employees engage in the planning, development or design of products or the purchase of parts, equipment or raw materials, they shall make assessments in advance as to whether such products, parts, equipment or raw materials fall within a category of contraband products pursuant to the procedures provided for in the internal regulations. (2) WE CONFIRM RESULTS OF THE ASSESSMENT. When Officers and Employees engage in export or import transactions of goods (products, parts, equipment, raw materials, etc.) or technology (technical documentation, programs, technical instruction or other services), they shall confirm in advance based on the results of the assessment whether any restrictions under the relevant export-import laws and regulations are applicable, and if so they shall comply with such restrictions. (3) WE PREVENT THE CONVERSION OF OUR PRODUCTS FOR MILITARY USE. When Officers and Employees engage in export or import transactions of goods or technology, they shall voluntarily apply controls to such transactions in the spirit of nonproliferation, regardless of whether the results of the assessment have found the rules and regulations to be inapplicable. Officers and Employees shall confirm in writing (such as a contract, memorandum, confirmation, etc.) the ultimate user and the ultimate purpose for which the goods or technology will be used, and ask the Ricoh Group Export-Import Control Committee for instructions as to whether they may undertake the transaction when (i) there is a risk that the counterparty may convert the goods or technology for military 16 use, or (ii) the counterparty is (a) a country that does not have adequate export-import regulations, (b) a country that is subject to international criticism from the perspective of maintaining international peace and order or (c) a country or region that is or is likely to be in a conflict situation. .. Related Standards: Regulations requiring compliance with export-import laws (RGS-ATRA0001) Export-import controls and assessment of applicability, screening of customers and trading (RGS-ATRC0001) "Guidebook for Export & Import Control" (published by the Ricoh Group Export-Import Control Committee) 17 8 PROTECTION AND APPLICATION OF INTELLECTUAL PROPERTIES .. Basic Policy The Ricoh Group shall encourage the creation of intellectual properties that are important to the Ricoh Group, and make an effort to protect and utilize such intellectual properties appropriately. .. Model Conduct (1) WE PROVIDE PROMPT NOTIFICATION. All intellectual properties created in connection with the business shall belong to the company. Officers and Employees shall promptly notify the company of all intellectual properties (including personal inventions in the case of patent rights) created in connection with the business. (2) WE RESPECT THE INTELLECTUAL PROPERTIES RIGHTS OF THIRD PARTIES. Officers and Employees shall, in performing their duties, respect the intellectual properties rights of third parties and ensure that such rights are not infringed upon. (3) WE COMPLY WITH THE PROCEDURES FOR DISCLOSURE AND TRANSFER OF INTELLECTUAL PROPERTIES. Officers and Employees shall follow the Ricoh Group policies and undertake the proper procedures when disclosing intellectual properties to third parties through a presentation at academic conferences, or the implementation of a new business model, etc., or when transferring intellectual properties to third parties by a license or an assignment thereof. * "Intellectual properties" referred to herein means patents, utility models, designs, registered trademarks, copyrights on programs, rights to use circuit configurations, etc. .. Related Standards: Ricoh Group Regulations on Intellectual Properties (RGS-ALAA2001) 18 9 PROHIBITION OF ANTI-SOCIAL ACTIVITIES .. Basic Policy The Ricoh Group shall take a firm stance towards, and have no involvement in, any anti-social activities or elements. .. Model Conduct (1) WE DO NOT ASSOCIATE OURSELVES WITH ANY ANTI-SOCIAL ACTIVITIES OR ELEMENTS. Officers and Employees shall not have any involvement in any anti-social activities or elements that threaten the order and security of society and interfere with economic activities. (2) WE DO NOT YIELD TO OR COMPROMISE WITH ANY UNJUST DEMANDS FROM ANTI-SOCIAL ELEMENTS. Officers and Employees shall not yield to or compromise with any unjust demands from anti-social elements by agreeing to pay money, etc. When Officers and Employees are faced with such demands, they shall immediately report such events to their superior, and such superior shall notify such events to the person or department in charge of the general administration of each company. (3) WE DO NOT ENTER INTO ANY TRANSACTION WITH ANY ANTI-SOCIAL ELEMENTS. Officers and Employees shall not enter into any transaction with any anti-social elements. 19 10 PROHIBITION OF INDIVIDUAL ACTIVITIES THAT ARE AGAINST THE INTERESTS OF THE COMPANY .. Basic Policy The Ricoh Group shall not approve any personal activities by its Officers or Employees that result or is likely to result in a disadvantage to the Ricoh Group. .. Model Conduct (1) WE INFORM THE COMPANY. Officers and Employees shall not engage in any activities that result or is likely to result in a disadvantage to the company, and shall inform their superior if such situation arises. (2) WE OBTAIN THE COMPANY'S APPROVAL IN ADVANCE. Officers and Employees shall obtain the company's approval in advance when they intend to assume offices of a director or an officer of, or enter into an employment agreement with, another company or organization. (3) WE DO NOT ENTER INTO COMPETING ACTIVITIES WITHOUT PERMISSION. Officers and Employees shall not, without obtaining the company's permission in advance, engage in any activities that compete with the Ricoh Group, such as entering into transactions that compete with the Ricoh Group or participating in the management of a competitor. 20 11 PROTECTION OF CORPORATE ASSETS .. Basic Policy The Ricoh Group shall establish and strictly implement rules that protect the corporate assets (i.e., tangible and intangible assets including products, equipment and information, etc.). .. Model Conduct (1) WE APPROPRIATELY CONTROL THE CORPORATE ASSETS. Officers and Employees shall appropriately control the corporate assets in compliance with the relevant rules. (2) WE DO NOT USE THE CORPORATE ASSETS FOR IMPROPER PURPOSES. Officers and Employees shall not use the corporate assets for non-business purposes, such as exploiting the corporate assets for personal gain. .. Related Regulations: "Employment Regulations" 21 Harmony with the Environment 12 RESPECT FOR THE GLOBAL ENVIRONMENT .. Basic Policy Recognizing that environmental conservation is our mission as a global citizen and that the activities for environmental conservation are indispensable for our business, the Ricoh Group shall ensure that the entire Group participates in such activities with responsibility. .. Model Conduct (1) WE SET AND ACHIEVE HIGHER TARGETS FOR ENVIRONMENTAL CONSERVATION. Officers and Employees shall not only be in full compliance with all laws but take personal responsibility to set higher targets to reduce the environmental impact of its business activities taking into consideration the expectation of society, and make every effort to create new economic values in achieving these targets. (2) WE IMPLEMENT TECHNOLOGICAL REFORMS. Officers and Employees shall make every effort to promote technological reforms that make it possible to reduce the environmental impact of its business activities and actively utilize such technologies. (3) WE DEVELOP BUSINESS OPERATIONS IN HARMONY WITH THE ENVIRONMENT. In managing the business operations, Officers and Employees shall always grasp the environmental impact of the business operation and make efforts to prevent pollution, utilize energy and other natural resources effectively, and reduce the volume of and take measures to responsibly dispose industrial waste. Officers and Employees shall also engage in continuous efforts to maintain and improve the systems that promote environmental conservation. (4) WE PROVIDE ENVIRONMENT-FRIENDLY PRODUCTS AND SERVICES. Officers and Employees shall provide products and services that have minimal impact on the environment at all stages, from the procurement of materials and production of the products to the sales, distribution, recycling and disposal of the products. 22 (5) WE ENHANCE OUR ENVIRONMENTAL AWARENESS AND ACT RESPONSIBLY. Officers and Employees shall make efforts to enhance their environmental awareness by keeping their eyes open to various events in the community and actively studying environmental issues, and be personally responsible for actively engaging in environmental conservation activities. (6) WE MAKE SOCIAL CONTRIBUTIONS FOR THE ENVIRONMENT. In the various countries and regions in the world, Officers and Employees shall seek to establish close relationships with the society and actively contribute to the society by disclosing information and aiding and supporting environmental conservation activities. .. Related Standards: "Ricoh General Principles on the Environment" Ricoh Group Environmental Conservation Regulation (RGS-AEP A0001) 23 Respect for People 13 RESPECT FOR HUMAN RIGHTS .. Basic Policy The Ricoh Group shall always respect fundamental human rights, which is the basis for mutual understanding. The Ricoh Group shall not discriminate on the basis of race, religious faith, gender, social position, nationality, sickness, physical or mental disability, etc. .. Model Conduct (1) WE ELIMINATE ALL TYPES OF DISCRIMINATION. Officers and Employees shall respect all types of fundamental human rights and shall not engage in any action that ignores fundamental human rights, such as discriminatory speech and behavior, violent behavior, sexual harassment, power harassment, etc. (2) WE PROTECT INDIVIDUAL PRIVACY. When dealing with personal information in the course of business of any individual, whether inside or outside the company, Officers and Employees shall pay attention not to infringe on his or her privacy, and manage such information appropriately. (3) WE ELIMINATE IMPROPER LABOR PRACTICES. Officers and Employees shall not make improper demands for labor. Officers and Employees shall not employ children under the legal working age of each country or region. Officers and Employees shall require the Ricoh Group's distributors and allied companies, etc. to implement similar restrictions. .. Related Standards: "Employment Regulations" Basic regulations for the protection of personal information (RGS-AITA0004) Rules on internal group usage of personal information (RGS-AITA0003) 24 Harmony with Society 14 THE PRACTICE OF CONTRIBUTING TO SOCIETY .. Basic Policy Recognizing its role as a corporate citizen, the Ricoh Group shall actively engage in activities that contribute to society in partnership with like-minded people. .. Model Conduct (1) WE ENGAGE IN ACTIVITIES THAT CONTRIBUTE TO THE LOCAL COMMUNITY. It is important to recognize that corporate activities are carried out in close contact with the local community. With the hope that the Ricoh Group will be welcomed by, familiar to and trusted by the local society, Officers and Employees shall make efforts to engage in activities that are closely connected with the local community so that it supports or aids the local community's cultural and economical development. (2) WE FOSTER A CORPORATE CULTURE THAT PLACES IMPORTANCE ON CONTRIBUTING TO SOCIETY. In addition to the social contribution by the company, it is important that each and every Officer and Employee consider how to contribute to society, and take part in such activities in their own community. Through participating in volunteer activities that contribute to society, Officers and Employees shall make every effort to foster a corporate culture that places importance on social contributions. 25 15 MUTUAL UNDERSTANDING WITH SOCIETY .. Basic Policy To coexist harmoniously with society, the Ricoh Group shall actively operate its business in a manner that cultivates a mutual understanding with, establishes a trusting relationship with, and makes contributions to society. .. Model Conduct (1) WE RESPECT THE CULTURES AND CUSTOMS OF THE WORLD. There are many things that are not accepted in one country or region, that are accepted in another country or region. Officers and Employees shall properly act to respect the histories, cultures and customs of each and every country or region in the world. (2) WE ACTIVELY DISCLOSE INFORMATION. Accurately communicating the corporate attitudes of the Ricoh Group is the first step for deepening the mutual understanding between the Ricoh Group and society. To ensure that as many people have a proper understanding of the Ricoh Group, Officers and Employees shall actively and fairly disclose corporate information in a timely manner pursuant to the appropriate procedures of the company. (3) WE KEEP ACCURATE RECORDS AND REPORTS. Officers and Employees shall keep accounting and financial records and reports in compliance with the relevant laws and regulations and internal rules, etc. Such records and reports shall be prepared so that its contents is complete, fair, accurate, timely and readily understandable. 26 Implementation ENACTMENT, ABOLISHMENT AND AMENDMENT This Code shall be enacted, abolished or amended by the decision of the board of directors of Ricoh after discussions are held at the CSR Committee. ENSURING RECOGNITION OF THE CODE To ensure that this Code is well-known, the department of Ricoh in charge of CSR shall implement and promote the necessary activities, including providing continuing education and instruction programs. All of the Officers and Employees shall submit to the company every year a certification swearing that they will adhere to this Code. PENALTIES Any activity that breaches this Code shall be subject to penalties as provided in the Employment Regulations of each company. TREATMENT OF TEMPORARY EMPLOYEES, ETC. (1) With regards to temporary employees on contract dispatched from a temporary employment agency, the responsible person of the department that hired such temporary employee shall explain this Code to such temporary employee, and have the temporary employee submit a certification swearing that they will adhere to this Code. (2) With regards to full-time employees that work for the Ricoh Group pursuant to an outsourcing agreement or a consultancy agreement, etc., the responsible person of the relevant department of each company shall appropriately explain this Code to such full-time employees, taking into consideration the nature of their job, and incorporate the proper provisions with regard to compliance of this Code in the relevant agreements. RELATED STANDARDS To supplement the contents of each section of this Code the relevant regulations, group standards and manuals, etc., have been provided in this Code under the heading "Related Standards." MISCELLANEOUS 27 Officers and Employees who come to know of any activity that breaches or is likely to breach this Code may consult with the relevant department of Ricoh in charge of CSR either directly or indirectly through their superior or call the "Hotline." No person shall suffer from any disadvantage due to the fact that he or she consulted such person or department about such events. FOR FURTHER INFORMATION Corporate activities are both vast in scale and complex in nature. It will not always be clear how this Code applies in individual cases. In such case, please contact the responsible section or the central authority as listed below. When there is an organization change, please contact the new section or authority that assumed the relevant function. RESPONSIBLE SECTION 1 Providing customer-friendly products ..... Ricoh Quality of Management --------------------------- Division -------- 2 Free competition and fair trading ..... Ricoh Legal Division -------------------- 28 3 Prohibition of insider trading ..... Ricoh Corporate Planning Division --------------------------------- 4 Managing corporate secrets ..... Ricoh Personnel Division ------------------------ 5 Limitation on entertainment and gifts, etc ..... Ricoh Personnel Division ------------------------ 6 Transactions with public bodies ..... Ricoh Personnel Division ------------------------ Management of political contributions ..... Ricoh Secretary Office ---------------------- 7 Strict control of exports and imports for international peace and security..... Ricoh International Marketing Group ----------------------------------- 8 Protection and application of intellectual properties ..... Ricoh Legal ----------- Division -------- 9 Prohibition of anti-social actions ..... Ricoh Personnel Division ------------------------ 10 Prohibition of individual activities that are against the interests of the company ..... Ricoh Personnel Division ------------------------ 11 Protection of corporate assets ..... Ricoh Personnel Division ------------------------ 12 Respect for the global environment ..... Ricoh Corporate Environment --------------------------- Division -------- 13 Respect for human rights ..... Ricoh Personnel Division ------------------------ 14 The practice of contributing to society ..... Ricoh Corporate Citizenship --------------------------- Promotion Office ---------------- 15 Mutual understanding with society ..... Ricoh Corporate Planning Division --------------------------------- CENTRAL AUTHORITY Ricoh Group Code of Conduct ..... Ricoh CSR Division ------------------ 29 Ricoh Group Code of Conduct - -------------------------------------------------------------------------------- Enacted November 4, 2003 Effective January 1, 2004 CSR Division, Ricoh Company, Ltd. 1-15-5 Minami Aoyama Minato-ku, Tokyo 107-8544 Tel: 03-5411-4670 Copyright 2003 RICOH COMPANY, LTD. All rights reserved - -------------------------------------------------------------------------------- 30
EX-6 7 rex121.txt CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) Exhibit 12.1 CERTIFICATION OF THE PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER I, Masamitsu Sakurai, President, Chief Executive Officer and Chief Operating Officer of Ricoh Company, Ltd., certify that: 1. I have reviewed this annual report on Form 20-F of Ricoh Company, Ltd.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and 5. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting. Date: June 28, 2004 By: /S/ Masamitsu Sakurai ---------------------------------- Masamitsu Sakurai President, Chief Executive Officer and Chief Operating Officer EX-7 8 rex122.txt CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) Exhibit 12.2 CERTIFICATION OF THE DEPUTY PRESIDENT AND EXECUTIVE VICE PRESIDENT (CORPORATE STRATEGY AND PERSONNEL) I, Tatsuo Hirakawa, Deputy President and Executive Vice President (Corporate Strategy and Personnel) of Ricoh Company, Ltd., certify that: 1. I have reviewed this annual report on Form 20-F of Ricoh Company, Ltd.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and 5. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting. Date: June 28, 2004 By: /S/ Tatsuo Hirakawa ---------------------------------- Tatsuo Hirakawa Deputy President and Executive Vice President (Corporate Strategy and Personnel) EX-8 9 rex13a1.txt CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE Exhibit 13.(a)(1) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report on Form 20-F of Ricoh Company, Ltd. (the "Company") for the period ended March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Masamitsu Sakurai, President, Chief Executive Officer and Chief Operating Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: June 28, 2004 By: /s/ Masamitsu Sakurai ------------------------------------ Masamitsu Sakurai President, Chief Executive Officer and Chief Operating Officer EX-9 10 rex13a2.txt CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE Exhibit 13.(a)(2) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report on Form 20-F of Ricoh Company, Ltd. (the "Company") for the period ended March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Tatsuo Hirakawa, Deputy President and Executive Vice President (Corporate Strategy and Personnel) of the Company, certify, pursuant to 18 U.S.C. (s) 1350, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: June 28, 2004 By: /s/ Tatsuo Hirakawa ------------------------------------------- Tatsuo Hirakawa Deputy President and Executive Vice President (Corporate Strategy and Personnel)
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