20-F 1 r20f.txt FORM 20-F UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20 - F (Mark One) [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2009 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report ------------- For the transition period from to ---------- ---------- Commission file number 2 - 68279 KABUSHIKI KAISHA RICOH ---------------------- (Exact name of Registrant as specified in its charter) RICOH COMPANY, LTD. ------------------- (Translation of Registrant's name into English) Japan ----- (Jurisdiction of incorporation or organization) 13-1, Ginza 8-chome, Chuo-ku, Tokyo 104-8222, Japan --------------------------------------------------- (Address of principal executive offices) Kunihito Minakawa, (T)+81-3-6278-5241, (F)+81-3-3543-9086 --------------------------------------------------------- 13-1,Ginza 8-chome, Chuo-ku, Tokyo 104-8222, Japan -------------------------------------------------- (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act. Name of each exchange Title of each class 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) * 1,008,926 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, 2009: 725,679,726shares (excluding 19,232,352 shares of Treasury Stock) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ]. If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes [ ] No [X]. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ((S)232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]. Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP [X] International Financial Reporting Standards as issued by the International Accounting Standards Board [ ] Other [ ]. If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 [ ] Item 18 [ ]. If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]. Defined Terms, Conventions and Presentation of Financial Information -------------------------------------------------------------------- On June 25, 2009, the noon buying rate for cable transfers in New York City as certified for customs purposes by the Federal Reserve Board for the Japanese Yen to the U.S. Dollar was Yen 96.21 = 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 2009" refers to Ricoh's fiscal year ended March 31, 2009, and other fiscal years of Ricoh are referred to in a corresponding manner. As used in this annual report, "U.S. GAAP" means U.S. generally accepted accounting principles. Cautionary Statement With Respect to Forward-Looking Statements --------------------------------------------------------------- Statements made in this annual report with respect to Ricoh's current plans, estimates, strategies and beliefs and other statements that are not historical facts are or may be deemed to be forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, about the future performance of Ricoh. These forward-looking statements are made in reliance upon the protections provided by such acts for forward-looking statements. Forward-looking statements include but are not limited to those using words such as "believe," "expect," "plans," "strategy," "prospects," "forecast," "estimate," "project," "anticipate," "may" or "might" and words of similar meaning in connection with a discussion of future operations or financial performance. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management's assumptions and beliefs in light of the information currently available to it. Ricoh cautions you that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore you should not place undue reliance on them. You also should not rely on any obligation of Ricoh to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Ricoh disclaims any such obligation. Risks and uncertainties that might affect Ricoh include, but are not limited to (i) general economic conditions in Ricoh's markets, particularly levels of consumer spending; (ii) exchange rates, particularly between the Japanese Yen and the U.S. Dollar, the Euro, and other currencies in which Ricoh makes significant sales or in which Ricoh's assets and liabilities are denominated; (iii) Ricoh's ability to continue to design and develop products and services, and win acceptance of its products and services which are offered in highly competitive markets characterized by continual introduction of new products, rapid development in new technology, and consumer preferences that are subjective and likely to change; (iv) Ricoh's ability to successfully implement strategies for its office equipment business, such as further globalization of its operations to increase account sales to corporate clients, reinforcement of the color printer line-up to meet growing demand for color products among its office users, implementation of optimal printing solutions for customers' digitally networked offices and enhancement of printing capabilities centered on multi-functional printers ("MFPs"), and implementation of optimal localization of manufacturing operations so that such operations are closer to the customer; (v) Ricoh's ability to continuously devote sufficient resources to research and development, and capital expenditures for digital and networking equipment, such as digital plain paper copiers ("PPCs"), MFPs, laser printers, GELJET printers and production printing products; (vi) the success of Ricoh's alliances with various computer manufacturers which Ricoh may engage in alliances with in the future; and (vii) the outcome of contingencies. Important information regarding risks and uncertainties is also set forth elsewhere in this annual report, including in "Risk Factors" included in "Item 3. Key Information," "Item 4. Information on the Company," "Item 5. Operating and Financial Review and Prospects" and "Item 11. Quantitative and Qualitative Disclosures About Market Risk." 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..................................... 10 Item 4A. Unresolved Staff Comments...................................... 32 Item 5. Operating and Financial Review and Prospects................... 33 Item 6. Directors, Senior Management and Employees..................... 73 Item 7. Major Shareholders and Related Party Transactions.............. 93 Item 8. Financial Information.......................................... 94 Item 9. The Offer and Listing.......................................... 94 Item 10. Additional Information......................................... 97 Item 11. Quantitative and Qualitative Disclosures About Market Risk..... 111 Item 12. Description of Securities Other Than Equity Securities......... 114 PART II Item 13. Defaults, Dividend Arrearages and Delinquencies................ 114 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds............................................ 114 Item 15. Controls and Procedures........................................ 115 Item 16. [RESERVED] .................................................... 116 Item 16A. Audit Committee Financial Expert............................... 116 Item 16B. Code of Ethics................................................. 117 Item 16C. Principal Accountant Fees and Services......................... 117 Item 16D. Exemptions from the Listing Standards for Audit Committees..... 118 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers..................................................... 119 Item 16F. Change in Registrant's Certifying Accountant................... 119 Item 16G. Corporate Governance........................................... 119 PART III Item 17. Financial Statements........................................... 119 Item 18. Financial Statements........................................... 119 Item 19. Exhibits....................................................... 119
Item 1. Identity of Directors, Senior Management and Advisers ----------------------------------------------------- Not applicable. Item 2. Offer Statistics and Expected Timetable --------------------------------------- Not applicable. Item 3. Key Information --------------- A. Selected Financial Data. The following selected consolidated financial data have been derived from the audited consolidated financial statements of Ricoh prepared in accordance with U.S. generally accepted accounting principles as of each of the dates and for each of the periods indicated below. This information should be read in conjunction with Ricoh's audited consolidated balance sheets as of March 31, 2008 and 2009, the related consolidated statements of income, shareholders' investment and cash flows for the three years ended March 31, 2007, 2008 and 2009 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, ---------------------------------------------------------------------------------- 2005 2006 2007 2008 2009 -------------- -------------- -------------- -------------- -------------- INCOME STATEMENT DATA: Net sales: Yen 1,807,406 Yen 1,909,238 Yen 2,068,925 Yen 2,219,989 Yen 2,091,696 Operating income 131,109 148,584 174,380 181,506 74,536 Income from continuing operations 80,537 95,022 106,224 106,463 6,530 Net income 83,143 97,057 111,724 106,463 6,530 PER AMERICAN DEPOSITARY SHARE:(1) Net income (basic) 563.20 661.65 765.50 730.20 45.10 Net income (diluted) 563.20 661.65 759.45 710.75 43.75 BALANCE SHEET DATA: Total assets 1,953,669 2,041,183 2,243,406 2,214,368 2,513,495 Shareholders' investment 862,998 960,245 1,070,913 1,080,196 975,373 Common stock 135,364 135,364 135,364 135,364 135,364 Weighted average number of shares outstanding 738,160,042 733,434,414 729,744,656 729,010,475 723,924,525 Cash dividends declared Per American Depositary Share: (1), (2) Interim 50.00 60.00 65.00 80.00 90.00 ($0.49) ($0.50) ($0.56) ($0.72) ($0.96) Year-end 50.00 60.00 75.00 85.00 75.00 ($0.45) ($0.52) ($0.61) ($0.80) ($0.78)
-1-
Millions of Yen except per share amounts and number of shares Year ended March 31, ---------------------------------------------------------------------------------- 2005 2006 2007 2008 2009 -------------- -------------- -------------- -------------- -------------- At year-end: Cash and cash equivalents 186,857 187,055 255,737 170,607 258,484 Capital investments 84,699 102,049 85,800 85,215 96,958 Long-term indebtedness, excluding current installment 226,567 195,626 236,801 225,930 509,403
Notes: (1) Each American Depositary Share represents five shares of Ricoh Common Stock. (2) Cash dividends declared per American Depositary Share for any given fiscal year consist of interim dividends paid during the fiscal year and year-end dividends to be paid after the fiscal year-end for such fiscal year, which are not equal to the dividends paid during such fiscal year, set forth under "Per American Depositary Share, each representing 5 shares of common stock - Cash dividends paid per share" in the Consolidated Statements of Income appearing elsewhere in this annual report. In the preceding table, cash dividends declared in U.S. Dollars are based on the exchange rates at each respective payment date, using the noon buying rates for cable transfer in Japanese Yen in New York City as certified for customs purposes by the Federal Reserve Board. On June 25, 2009, the noon buying rate for cable transfers in New York City as certified for customs purposes by the Federal Reserve Board for the Japanese Yen to the U.S. Dollar was Yen 96.21 = 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 Board during the previous six months and prior five fiscal years: December January February March April May 2008 2009 2009 2009 2009 2009 -------- ------- -------- ----- ------ ----- High 87.84 87.80 89.09 93.85 96.49 94.45 Low 93.71 94.20 98.55 99.34 100.71 99.24 Year ended March 31, ------------------------------------------ 2005 2006 2007 2008 2009 ------ ------ ------ ------ ------ Year-end 107.22 117.48 117.56 99.85 99.15 Average* 107.28 104.64 116.55 113.61 100.85 High 102.26 104.41 110.07 96.88 87.80 Low 114.30 120.93 121.81 124.09 110.48 -2- * The average Japanese Yen exchange rates represent average noon buying rate on the last business day of each month during the respective period. 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; -3- . No assurances can be made that Ricoh will be able to successfully manage the distribution system for its new products to eliminate the risk of loss resulting from a failure to take advantage of market opportunities; . No assurances can be made that Ricoh will succeed in marketing any newly developed product or technology; and . No assurances can be given that Ricoh will be able to respond adequately to changes in the industry. Ricoh's failure to respond to any risks associated with this industry, including those described above, may reduce Ricoh's future growth and profitability and may adversely affect Ricoh's financial results and condition. In addition to the above general risks, Ricoh is exposed to the following specific risks relating to the document imaging and management industry: Digital Technology ------------------ Among the various technologies used in the document imaging and management industry, Ricoh believes the successful development of digital technology is one of the most essential factors in attaining a competitive advantage. Ricoh currently is a leader in digital technology and believes that the importance of digital technology used in office equipment, including copiers, printers, facsimiles and scanners, will continue to grow in the future. While most of Ricoh's PPCs sold in Japan and overseas are already digital, Ricoh believes that the digital technology used in connection with digital copiers and other digital products will continue to develop and that competition with respect to digital products will intensify. There is no assurance that Ricoh will continue to be in the forefront of digital technology despite its commitment to invest in research and development activities in this area. Failure of Ricoh to adequately develop digital technology may adversely affect Ricoh's financial results and condition. Multi-Functional Equipment -------------------------- Ricoh believes that the document imaging and management industry is moving towards a multi-functional office environment where various office equipment (including copiers, facsimile machines, printers, scanners and personal computers) become more interdependent on each other due to the increasing use of digital technology and initiatives taken by many offices to eventually become a "paperless office." As a result, certain existing office equipment may either be consolidated into multi-functional equipment or may be linked together electronically to perform various office functions. Although Ricoh already manufactures certain multi-functional equipment, as a result of this trend towards multi-functional equipment, some of Ricoh's products may become obsolete while other products may require substantial product enhancements, requiring technologies currently unavailable within Ricoh. No assurances can be made that Ricoh will be able to successfully adjust to such changes. -4- RICOH MUST SUCCESSFULLY OPERATE IN HIGHLY COMPETITIVE MARKETS The document imaging and management industry, including the copier industry, is intensely competitive. Ricoh expects to face increased competition in the various markets in which it operates. Currently, Ricoh's competitors include other large manufacturers and distributors of office equipment. In addition, as digital and other new technology develops and as new office equipment products using these newly developed technologies gain increased market acceptance, Ricoh may find itself competing with new competitors that develop such new technologies, including computer software and hardware manufacturers and distributors. Accordingly, it is possible that new competitors or alliances among existing and new competitors may emerge and rapidly acquire significant market share. While Ricoh believes it is a leading manufacturer and distributor in the document imaging and management industry and it intends to maintain its position, no assurances can be made that it will continue to compete effectively in the future. Pricing pressures or loss of potential customers resulting from Ricoh's failure to compete effectively may adversely affect Ricoh's financial results and condition. RICOH IS SUBJECT TO THE RISKS OF INTERNATIONAL OPERATIONS AND THE RISKS OF OVERSEAS EXPANSION A substantial portion of Ricoh's manufacturing and marketing activity is conducted outside of Japan, including in the United States, Europe, and in developing and emerging markets such as China. There are a number of risks inherent in doing business in such overseas markets, including the following: . unfavorable political or economical factors; . fluctuations in foreign currency exchange rates; . potentially adverse tax consequences; . unexpected legal or regulatory changes; . lack of sufficient protection for intellectual property rights; . difficulties in recruiting and retaining personnel, and managing international operations; and . less developed infrastructure. Ricoh's inability to manage successfully the risks inherent in its international activities could adversely affect its business, financial condition and operating results. In addition, while Ricoh plans to continue to expand its business worldwide and increase overseas sales, because of the risks associated with conducting an international operation (including the risks listed above), there can be no assurances that Ricoh's overseas expansion will be successful or have a positive effect on Ricoh's financial results and condition. ECONOMIC TRENDS IN RICOH'S MAJOR MARKETS MAY ADVERSELY AFFECT RICOH'S SALES Demand for Ricoh's products is affected by cyclical changes in the economies of Ricoh's major markets, including Japan, the United States and Europe. Economic -5- downturns and declines in consumption in Ricoh's major markets may adversely affect Ricoh's financial results and condition. FOREIGN EXCHANGE FLUCTUATIONS AFFECT RICOH'S RESULTS Local currency-denominated financial results in each of the Company's subsidiaries around the world are translated into Japanese Yen by applying the average market rate during each financial period and recorded on Ricoh's consolidated statements of income. Local currency-denominated assets and liabilities are translated into Japanese Yen by applying the market rate at the end of each financial period and recorded on Ricoh's consolidated balance sheets. Accordingly, the financial results, assets and liabilities are subject to foreign exchange fluctuations. In addition, operating profits and losses are highly sensitive to the fluctuations in the value of the Japanese Yen because the high volume of Ricoh's production and sales activities in the Americas, Europe and Other, such as China, results in a large proportion of revenues and costs denominated in local currencies. Although Ricoh engages in hedging transactions such as forward contracts with several financial institutions having credit ratings satisfactory to Ricoh to minimize the negative effects of short-term fluctuations in foreign exchange rates among major currencies such as the U.S. Dollar, the Euro and Japanese Yen, mid-to-long-term volatile changes in the exchange rate levels make it difficult for Ricoh to execute planned procurement, production, logistics, and sales activities and may adversely affect Ricoh's financial results and condition. CRUDE OIL PRICE FLUCTUATIONS AFFECT RICOH'S RESULTS Many of the parts or materials used in manufacturing Ricoh's products are made from oil. If the price of crude oil rises, the purchase price of such product parts or materials may increase as well. Furthermore, a rise in the price of crude oil may lead to an increase in shipping and handling costs due in part to a rise in the cost of fuel and the cost of utilities. Ricoh may not be able to pass these incremental costs onto the sales price of its products. Such fluctuations in crude oil prices may therefore adversely affect Ricoh's financial position and results of operations. RICOH IS SUBJECT TO GOVERNMENT REGULATION THAT CAN LIMIT ITS ACTIVITIES OR INCREASE ITS COST OF OPERATIONS Ricoh is subject to various governmental regulations and approval procedures in the countries in which it operates. For example, Ricoh may be required to obtain approvals for its business and investment plans, be subject to export regulations and tariffs, as well as rules and regulations relating to commerce, antitrust, patent, consumer and business taxation, exchange control, and environmental and recycling laws. Ricoh has established a Corporate Social Responsibility Office to heighten awareness of the importance of corporate social responsibility. Through this office, Ricoh involves its employees in various activities designed to ensure compliance with applicable regulations as part of its overall risk management and compliance program. However, if Ricoh is unable to comply with any of these regulations or fails to obtain the requisite approvals, -6- Ricoh's activities in such countries may be restricted. In addition, even if Ricoh is able to comply with these regulations, compliance can result in increased costs. In either event, Ricoh's financial results and condition may be adversely affected. RICOH IS SUBJECT TO INTERNAL CONTROL EVALUATIONS AND ATTESTATION OVER FINANCIAL REPORTING UNDER THE SARBANES-OXLEY ACT OF 2002 OF THE UNITED STATES AND THE FINANCIAL INSTRUMENTS AND EXCHANGE ACT OF JAPAN The United States Securities and Exchange Commission (the "SEC"), as required by Section 404 of the Sarbanes-Oxley Act of 2002 of the United States, adopted rules requiring every company that files reports with the SEC to include a management report on such company's internal control over financial reporting in its annual report. In addition, the company's independent registered public accounting firm must publicly attest to the effectiveness of the company's internal control over financial reporting. Furthermore, the Financial Instruments and Exchange Act of Japan requires Japanese companies whose shares are listed on the Japanese stock exchanges to submit a report which evaluates internal control over financial reporting to the commissioner of the financial bureau of Japan. Ongoing compliance with these requirements is complex, costly and time-consuming. If Ricoh were to fail to maintain effective internal control over financial reporting, Ricoh's management were to fail to assess on a timely basis the adequacy of such internal control, or Ricoh's independent registered public accounting firm were to fail to attest on a timely basis to the effectiveness of such internal control or issue a qualified opinion, Ricoh could be subject to regulatory sanctions or could face adverse reactions in the financial markets due to loss of investor confidence. RICOH'S BUSINESS DEPENDS ON PROTECTING ITS INTELLECTUAL PROPERTY RIGHTS Ricoh owns or licenses a number of intellectual property rights in the field of office equipment automation and, when Ricoh believes it is necessary or desirable, obtains additional licenses for the use of other parties' intellectual property rights. If Ricoh fails to protect, maintain or obtain such rights, its performance and ability to compete may be adversely affected. Ricoh has a program in place under which company employees are compensated for any valuable intellectual property rights arising out of any inventions developed by them during the course of their employment with Ricoh. While unlikely, management believes that there could arise instances in the future where Ricoh may become the subject of legal actions or proceedings where claims alleging inadequate compensation are asserted by company employees. RICOH IS DEPENDENT ON SECURING AND RETAINING SPECIALLY SKILLED PERSONNEL Ricoh believes that it can continue to remain competitive by securing and retaining additional personnel who are highly skilled in the fields of management and information technology. However, the number of skilled personnel is limited and the competition for attracting and retaining such personnel is intense, particularly in the information technology industry. Securing and retaining skilled personnel in the information technology industry is especially important for Ricoh to compete effectively with its competitors as expectations and market standards for office equipment become -7- more technologically advanced. Ricoh cannot assure that it will be able to successfully secure and retain additional skilled personnel. RICOH MAY BE ADVERSELY AFFECTED BY ITS EMPLOYEE BENEFIT OBLIGATIONS With respect to its employee benefit obligations and plan assets, Ricoh accrues the cost of such benefits based on applicable accounting policies and funds such benefits in accordance with governmental regulations. Currently, there is no immediate and significant funding requirement; however, if returns from investment assets continue to decrease and/or turn to be negative due to market conditions, such as the fluctuations in the stock or bond markets, additional funding and accruals may be required. Such additional funding and accruals may adversely affect Ricoh's financial position and results of operations. RICOH'S OPERATIONS ARE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS Ricoh's operations are subject to many environmental laws and regulations governing, among other things, air emissions, wastewater discharges, the use and handling of hazardous substances, waste disposal, product recycling, and soil and ground-water contamination. Ricoh faces risks of environmental liability in our current and historical manufacturing activities. Costs associated with future additional environmental compliance or remediation obligations could adversely affect Ricoh's business, operating results, and financial condition. RISKS ASSOCIATED WITH RICOH'S EQUIPMENT FINANCING BUSINESS MAY ADVERSELY AFFECT RICOH'S FINANCIAL CONDITION Ricoh provides financing to some of its customers in connection with its equipment sales and leases. Ricoh evaluates the creditworthiness and the amount of credit extended to a customer prior to the financing arrangement and during the financing term on a regular basis. Depending on such evaluations, Ricoh makes adjustments to such extensions of credit as it deems necessary to minimize any potential risks of concentrating credit risk or non-payment of credit. Despite the application of these monitoring procedures, no assurances can be made that Ricoh will be able to fully collect on such extensions of credit due to unforeseeable defaults by its customers. In addition, these financing arrangements that Ricoh enters into with its customers result in long-term receivables bearing a fixed rate of interest. However, Ricoh finances these financing arrangements primarily with short-term borrowings subject to a variable interest rate. Although Ricoh engages in hedging activities, Ricoh is not able to fully hedge this interest rate mismatch. If Ricoh is unable to successfully manage these risks associated with its equipment financing business, Ricoh's financial results and condition may be adversely affected. -8- RICOH MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD SIGNIFICANTLY AFFECT ITS FINANCIAL CONDITION Ricoh may be held responsible for any defects that occur with respect to its products and services. Based on the defect, Ricoh may be liable for significant damages, which may adversely affect its financial results and condition. Furthermore, as Ricoh increasingly provides products and services utilizing sophisticated and complex technologies, such defects may occur more frequently. Such potential increase in defects, which could result in an increase in Ricoh's liability, may adversely affect its financial results and condition. In addition, negative publicity concerning these defects could make it more difficult for Ricoh to attract and maintain customers to purchase Ricoh products and services. As a result, Ricoh's financial results and condition may be adversely affected. RICOH'S PERFORMANCE CAN BE AFFECTED BY ALLIANCE WITH, AND STRATEGIC INVESTMENTS IN, OTHER ENTITIES Ricoh engages in alliances with other entities to create various products and services to fulfill customer demands. Ricoh believes that an alliance is an effective method for timely development of new technology and products using management resources of both parties. However, if Ricoh's interest differs from other parties' interests due to financial or other reasons, Ricoh may be unable to maintain the alliance. Ricoh also makes strategic investments to acquire interests in companies that Ricoh believes would support existing businesses and/or lead to new businesses. Such strategic investments may not necessarily lead to the expected outcome or performance and may result in increased time and expenses being incurred due to the integration of businesses, technologies, products and/or personnel necessitated by such investments. Accordingly, these types of management decisions may have a significant impact on the future performance of Ricoh. Failure to maintain an on-going alliance, establish a necessary alliance or make a strategic investment to acquire an interest in a company may adversely affect Ricoh's future financial position and results of operations. INADVERTENT OR ACCIDENTAL LEAKAGE OR DISCLOSURE OF CONFIDENTIAL OR SENSITIVE INFORMATION MAY ADVERSELY AFFECT RICOH'S OPERATIONS Ricoh obtains confidential or sensitive information from various sources, including its customers, in the ordinary course of its business. Ricoh also holds trade secrets regarding its technologies and other confidential or sensitive information relating to marketing. To prevent unauthorized access and/or fraudulent leakage or disclosure of such confidential or sensitive information, Ricoh has implemented an internal management system, which includes measures to improve security and access to its internal database, as well as employee training programs to educate its employees with respect to compliance with applicable regulations relating to information security and data access. Despite Ricoh's efforts, however, confidential or sensitive information may be inadvertently or accidentally leaked or disclosed and any such leakage or disclosure may result in Ricoh incurring damages, which may adversely affect Ricoh's reputation. -9- In addition, Ricoh may incur significant expenses for defending any lawsuits that may arise from such claims. Furthermore, the leakage or disclosure of Ricoh's confidential or sensitive marketing and technological information to a third party may adversely affect Ricoh's financial results and condition. RICOH MAY SUFFER LOSS AS A RESULT OF CATASTROPHIC DISASTER, INFORMATION TECHNOLOGY PROBLEMS OR INFECTIOUS DISEASES Several of Ricoh's manufacturing facilities in Japan could be subject to a catastrophic loss caused by earthquakes as such facilities are located in areas with above average seismic activity. If any of these facilities were to experience a catastrophic loss, Ricoh could experience disruptions in its operations and delays in its production and shipments. If such occurred, Ricoh would likely record a decrease in revenue, and require large expenditures to repair or replace the damaged facility, which is likely to affect Ricoh's financial position and results of operations. As Ricoh becomes increasingly dependent on information technology, software and hardware defects, computer viruses, as well as internal database problems (e.g., falsifications or disappearance of information relating to our customers) pose a greater risk to its operations. Although Ricoh has taken various precautionary measures, such as installing firewalls and anti-virus software to detect and eliminate computer viruses, Ricoh may not be able to completely prevent or mitigate the effects of such problems, which may affect Ricoh's performance. In addition, the Ricoh is continually expanding its worldwide operations to set in place a global supply chain of its products and services so that we can satisfy our local customer needs faster, more effectively and on a regular basis. As Ricoh expands its operations worldwide, additional risks, such as infectious diseases (e.g., a new strain of influenza) and epidemics, may adversely affect Ricoh's operations and financial positions. Item 4. Information on the Company -------------------------- A. History and Development of the Company The Company was incorporated as a joint stock corporation (kabushiki kaisha) on February 6, 1936 in accordance with Japanese law under the name Riken Kankoshi Co., Ltd. as a manufacturer and distributor of sensitized paper for use in copiers. Since its incorporation, Ricoh has expanded its business into related businesses in the office equipment field. It now manufactures and markets copiers (such as PPCs), MFPs, laser printers, GELJET printers, production printing products, facsimile machines, personal computers and servers, network related software and other equipment, including semiconductors, measuring equipment and cameras. Historical Highlights --------------------- February 1936 Riken Kankoshi Co., Ltd. is formed in Kita-kyushu to manufacture and market sensitized paper. -10- March 1938 The Company's name is changed to Riken Optical Co., Ltd., and starts manufacturing and selling optical devices and equipment. May 1949 The Company lists its securities on the Tokyo and Osaka Stock Exchanges. April 1954 The Company establishes an optical device and equipment plant in Ohmori, Ohta-ku, Tokyo (now known as the Ohmori plant). May 1955 The Company begins manufacturing and selling desktop copiers. May 1961 The Company establishes a sensitized paper plant in Ikeda, Osaka (now known as the Ikeda plant). October 1961 The Company lists its securities on the First Sections of the Tokyo and Osaka Stock Exchanges. June 1962 The Company starts operations of a paper plant in Numazu, Shizuoka, which featured a fully-integrated sensitized paper production system (now known as the Numazu plant). December 1962 The Company establishes Ricoh of America, Inc. (a subsidiary, later known as Ricoh Corporation and now known as Ricoh Americas Corporation). April 1963 The Company changes its corporate name to Ricoh Company, Ltd. July 1967 The Company establishes Tohoku Ricoh Co., Ltd. (a subsidiary) in Shibata-gun, Miyagi. May 1971 The Company completes its manufacturing facility in Atsugi, Kanagawa (now known as the Atsugi plant), to which it transfers some of its office equipment production from the Ohmori plant. June 1971 The Company establishes Ricoh Nederland B.V. (a subsidiary, later known as Ricoh Europe B.V. and now known as Ricoh Europe Holdings B.V.) in the Netherlands. January 1973 The Company establishes Ricoh Electronics, Inc. (a subsidiary) in the United States. September 1973 The Company lists its securities on the Amsterdam Stock Exchange(now known as Euronext Amsterdam; Ricoh no longer lists its securities on this exchange). December 1976 The Company forms Ricoh Credit Co., Ltd. (a subsidiary, now known as Ricoh Leasing Co., Ltd.). March 1977 The Company relocates its headquarters to Minato-ku, Tokyo. July 1978 The Company lists its securities on the Frankfurt Stock Exchange (Ricoh no longer lists its securities on this exchange). December 1978 The Company establishes Ricoh Business Machines, Ltd. (a subsidiary, now known as Ricoh Hong Kong Ltd.). March 1981 The Company builds the Ricoh Electronics Development Center at the Ikeda plant to develop and manufacture electronic devices. -11- October 1981 The Company lists its securities on the Paris Stock Exchange(now known as Euronext Paris). May 1982 The Company establishes sensitized paper production facilities in Fukui (now known as the Fukui plant), which takes over some of the sensitized paper production from the Osaka plant (now known as the Ikeda plant). July 1982 The Company launches its information technology equipment facility in Hatano, Kanagawa (now known as the Hatano plant). December 1983 The Company establishes Ricoh UK Products Ltd. (a subsidiary). October 1985 The Company builds a copier manufacturing plant in Gotenba, Shizuoka (now known as the Gotenba plant). April 1986 The Company opens a research and development ("R&D") facility in Yokohama, Kanagawa (now known as the Ricoh Research and Development Center) in commemoration of Ricoh's 50th anniversary, to which it transfers some of its R&D operations from the Ohmori plant. April 1987 The Company establishes Ricoh Industrie France S.A. (a subsidiary, now known as Ricoh Industrie France S.A.S.). April 1989 The Company sets up an electronic devices facility in Yashiro-cho, Kato-gun, Hyogo (now known as the Yashiro plant). January 1991 The Company establishes Ricoh Asia Industry (Shenzhen) Ltd. (a subsidiary) in China. March 1995 Ricoh Corporation acquires Savin Corporation, an American office equipment sales company. September 1995 The Company acquires Gestetner Holdings PLC (now known as 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 (now a wholly-owned subsidiary of the Company). January 2001 Ricoh Corporation acquires Lanier Worldwide, Inc., an American office equipment sales company. October 2002 The Company establishes Ricoh China Co., Ltd. (a subsidiary). -12- April 2003 Tohoku Ricoh Co., Ltd. becomes a wholly-owned subsidiary of the Company. October 2004 The Company acquires Hitachi Printing Solutions, Ltd. (now known as Ricoh Printing Systems, Ltd.) in Japan. August 2005 The Company opens Ricoh Technology Center in Ebina, Kanagawa to integrate its domestic R&D facilities and offices. November 2005 The Company relocates its headquarters to Chuo-ku, Tokyo. January 2007 Ricoh Europe B.V. acquires the European operations of Danka Business Systems PLC. June 2007 InfoPrint Solutions Company, LLC ("InfoPrint Solutions Company"), a joint venture company of Ricoh and International Business Machines Corporation ("IBM"), commences its operations. August 2008 Ricoh Elemex Corporation becomes a wholly-owned subsidiary of the Company. October 2008 Ricoh Americas Corporation acquires all of the outstanding shares of IKON Office Solutions, Inc. ("IKON"), an American office equipment sales and service company, for approximately Yen 172.1 billion based on a cash offer of US$17.25 per share. The Company's registered head office and executive office are as follows:
Address Telephone number ---------------------------------------- ---------------- Registered Head office 3-6, Naka Magome 1-chome, Ohta-ku, Tokyo +81-3-3777-8111 143-8555, Japan Executive office 13-1, Ginza 8-chome, Chuo-ku, Tokyo +81-3-6278-2111 104-8222, Japan
Principal Capital Investments ----------------------------- Ricoh's capital investments for fiscal years 2007, 2008 and 2009 were Yen 85.8 billion, Yen 85.2 billion and Yen 96.9 billion, respectively. Ricoh directed a significant portion of its capital investments for fiscal years 2007, 2008 and 2009 towards digital and networking equipment, such as digital PPCs/MFPs, laser printers and production printing products, and manufacturing facilities to maintain or enhance its competitiveness in the industry. Ricoh projects that for fiscal year 2010, its capital investments will amount to approximately Yen 95.0 billion, which will principally be used for investments in manufacturing facilities of digital and networking equipment with new engines, toners, semiconductors and thermal media. For example, during fiscal year 2010, Ricoh plans to complete the construction of a manufacturing plant in Thailand for MFPs and laser printers to reinforce its manufacturing network in Asia. Ricoh intends to finance the construction of this new plant with internally generated funds. This new manufacturing -13- plant will allow the Company to improve its production capabilities and to hedge against the risk of over-dependence on its manufacturing plants located in China. In addition, one of Ricoh's subsidiaries, Tohoku Ricoh Co., Ltd is expected to establish a manufacturing plant in Japan during fiscal year 2010 for PxP toners, which are toners that are capable of producing higher quality images. The construction of this plant is expected to be financed with internally generated funds. B. Business Overview Ricoh is a leading manufacturer of office automation equipment. Ricoh's principal products include copiers(such as PPCs), printers(MFPs, laser printers and GELJET printers), production printing products and facsimile machines. Ricoh is also a prominent manufacturer of digital and advanced electronic devices such as semiconductor devices. In recent years, Ricoh has been rapidly building a solid presence globally as a comprehensive document solutions provider that helps its customers streamline their businesses and decrease operating costs. More specifically, Ricoh supports its office and production printing equipment businesses by offering customers various "solution" systems that work with personal computers and servers, and related product support and after-sales services to assist customers in fully utilizing the Ricoh products that they purchase. Ricoh's support services include assisting customers in setting up their information technology environment or network administration. Ricoh also offers various supplies and peripheral products to be used with its products and systems. PRODUCTS -------- Starting with fiscal year 2009, Ricoh's operating segments consisted of "Imaging and Solutions," "Industrial Products" and "Other." Ricoh's management determined that it was appropriate to rename the "Office Solutions" operating segment to "Imaging and Solutions" starting with fiscal year 2009 in light of the fact that InfoPrint Solutions Company's products, which are distinguishable from office equipment due to the fact that they primarily consist of production printing products that print images in large quantities and are often used in central reproduction departments or data centers, have been incorporated in the Office Solutions operating segment. Management decided to rename the "Office Solutions" operating segment starting with fiscal year 2009 since fiscal year 2009 was the first fiscal year in which InfoPrint Solutions Company's financial information was consolidated with Ricoh's financial information for the full fiscal year. This renaming of the operating segment, however, did not result in any reclassification among Ricoh's other operating segments or adjustments in financial data. Ricoh's management analyzes its business operations and performance based on these segments. -14- The following table sets forth Ricoh's sales by products for fiscal years 2007, 2008 and 2009. SALES BY PRODUCT
Millions of Yen (except for percentages) For the Year Ended March 31, --------------------------------------------------------------------------------------------------- 2007 2008 2009 --------------------------------------------------------------------- IMAGING AND SOLUTIONS Imaging Solutions Yen 1,580,155 76.4% Yen 1,709,491 77.0% Yen 1,598,614 76.4% Network System Solutions 194,312 9.4 200,082 9.0 234,484 11.2 INDUSTRIAL PRODUCTS 133,387 6.4 144,340 6.5 115,550 5.5 OTHER 161,071 7.8 166,076 7.5 143,048 6.9 --------------------------------------------------------------------------------------------------- Total Yen 2,068,925 100.0% Yen 2,219,989 100.0% Yen 2,091,696 100.0% ---------------------------------------------------------------------------------------------------
Notes: (1) During fiscal year 2007, a subsidiary of the Company sold its content distribution business. As a result of such sale, the operating results of such business were reclassified as a discontinued operation and excluded from the above segment data for fiscal year 2007 in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." (2) The above consolidated financial data set forth net sales to external customers by product. IMAGING AND SOLUTIONS --------------------- This segment consists of products that are widely used in the office and production printing environments and are categorized as follows: (1) Imaging Solutions For fiscal year 2009, the Imaging Solutions product category accounted for 76.4% of Ricoh's net sales. The primary functions of products in this category are (1) to produce copies and (2) to print or produce images using a network. Stand-alone PPCs are representative of products in the first group, and MFPs and laser printers are representative of products in the second group. The principal products in the Imaging Solutions product category include monochrome and color digital PPCs/MFPs, laser printers, GELJET printers and production printing products. Ricoh continues to be a global leader in PPCs/MFPs and has been a pioneer in the development of digital machines. Ricoh manufactures a wide range of PPCs/MFPs with a variety of copying speeds and functions such as double-sided printing, sorting, reducing and enlarging, and zoom adjustment based on copy sizes. Ricoh has strengthened its digital PPC/MFP product lineup recently with new product offerings that range from low-end models (regular print speed models for low volume copying or printing) to high-end models (high print speed models for large volume copying or printing). PPCs/MFPs use a drum or other medium coated with a photo conductive material on which an image of the original document is projected optically and developed by applying a dry powder-based toner. The application of this printing process enables, higher picture quality and is environmentally friendly. Ricoh's PPCs/MFPs are designed to provide information technology support for all types of office environments by delivering enhanced basic features (i.e., reduction, enlargements), simpler operation, reduced paper consumption -15- through electronic storage, and better connectivity with document distribution and storage systems. Ricoh also manufactures a wide range of laser printers that print in monochrome or color and in a variety of print speeds, are able to connect to a network and are multifunctional in that they have scanning, faxing and copying capabilities as well as advanced finishing capabilities. GELJET printers utilize "GELJET technology" developed by Ricoh, which allows ultra-fine particle pigment dispersion to produce higher image qualities. All GELJET printers are color printers. In addition, Ricoh manufactures production printing products that are high-speed laser printers designed to be used as a central printing device to satisfy customers' needs to print-on-demand and print large volumes. Production printing products are often used in data processing environments (such as central reproduction departments within companies and data centers) and the commercial professional printing market (i.e., market comprised of businesses offering high-quality printing services) More specifically, in response to customer demand, Ricoh has focused in recent years on designing a wide-range of products that enhance productivity, have improved security features, are user friendly and are environmentally friendly. For example, during fiscal year 2009, Ricoh released its imagio MP C5000/C4000/C3300/C2800/C2200 Series (also known as Aficio MP C5000/C4000/C3300/C2800/C2200 Series when sold overseas) as part of its color MFP product lineup. This new color MFP series (1) decreases typical energy consumption compared to that of earlier models due to the use of energy-efficient "color PxP toners" developed by Ricoh and an improved fusing system, which enables stable printing of images on paper by anchoring toner particles, (2) has security features such as a user authentication system to prevent unauthorized access and an encryption system that encrypts user names and passwords, (3) is suitable for use not only as the main color MFP in an office but also as one of several pieces of printing equipment in a central reproduction department of a company and (4) has the capacity to respond to high quality printing demands. During fiscal year 2009, Ricoh also introduced imagio Neo 300RC/250RC, which are reconditioned monochrome MFPs (1) whose environmental impact has been decreased by 29% as compared to earlier models at the manufacturing stage resulting in it having a recycled parts mass ratio of 89% (where such ratio represents the percentage of recycled parts used in a particular piece of equipment), (2) that have achieved both user-friendliness and energy conservation through the installation on reconditioned machines of the "QSU (Quick Start-Up)" technology, which enable shorter warm-up and recovery times and (3) that have security features such as a user authentication system to prevent unauthorized access and a function that prints documents with security watermarks that become visible when copied. The QSU technology enables imagio Neo 300RC/250RC to use less than the maximum recommended power consumption level prescribed by the Law Concerning the Promotion of Eco-friendly Goods and Services by the State and Other Entities (Law on Promoting Green Purchasing) of Japan and the regulations promulgated thereunder. In addition, Ricoh introduced during fiscal year 2009 other MFP products that are environmentally friendly and have security features of the type discussed above, such as the imagio MP 1600/1300 Series (low-end monochrome digital MFPs that are equipped with a user authentication system) and the imagio MP 6001/7501/9001 Series (high-end monochrome digital MFPs that are equipped with "HYBRID QSU" technology (a -16- technology that integrates the next generation electrical storage device "capacitor" (which stores power during the standby mode and uses such power to restore heat to the fusing roller and transfers images to paper during printing, thereby enabling high-speed printing)) and Ricoh's QSU technology). By enhancing the environmental features, incorporating advanced security functions and maintaining higher image quality in these new products, Ricoh has been able to capture a larger market share in the MFP market in Japan and overseas. For the second consecutive year, Ricoh was named first place for customer satisfaction in the color categories with respect to copier/multifunction products in fiscal year 2009 based on a survey conducted by J.D. Power Asia Pacific, Inc. Ricoh also developed and introduced during fiscal year 2009 low- to high-end laser printers that improve productivity and user friendliness, such as the IPSiO SP 4210 (also known as Aficio SP 4210DN when sold overseas), which is a low-end monochrome laser printer featuring (1) improved productivity due to shorter warm-up times and a print speed of less than seven seconds for the first page and (2) enhanced user friendliness as a result of the use of the all-in-one print cartridge system that can be easily replaced by the user, thereby saving time and money spent on service calls. Ricoh also released other printers that improved productivity and user friendliness, such as the IPSiO SP 8200 Series (also known as Aficio SP 8200DN when sold overseas), which is a high-end monochrome laser printer featuring a high print speed of 50 pages per minute on A4-size paper fed horizontally, the IPSiO SP C310 (also known as Aficio SP C310 when sold overseas), which is a low-end color laser printer featuring (1) a high print speed of 25 pages per minute for both color and monochrome printing on A4-size paper fed horizontally, (2) a space-saving compact size comparable to that of a monochrome printer in a stylish design and (3) adaptability for various environments ranging from small office use to use as a desk-side printer in a large office, and the IPSiO SP C821/820 Series (also known as Aficio SP C821/820dn when sold overseas), which is a mid- and high-end color laser printer featuring energy-efficient "color PxP toners" and "color QSU" technology. Furthermore, in May 2008, Ricoh released a new series called the "RICOH Pro" for the production printing market. This series was introduced to satisfy the business needs to print-on-demand and to print in large volumes, such as in central reproduction departments within companies and in data centers. As part of this series, Ricoh introduced during fiscal year 2009 the RICOH Pro C900/C900S, which are color laser printers with high print speeds (90 pages per minute for both monochrome and color printing on A4-size paper fed horizontally) and the ability to capture images in high resolutions to reproduce higher quality images, and the RICOH Pro 1357EX/1107EX/907EX, which are monochrome printers with high print speeds of 90 to 135 pages per minute. (2) Network System Solutions For fiscal year 2009, the Network System Solutions product category accounted for 11.2% of Ricoh's net sales. The primary function of products in this category is to assist customers in establishing a networked environment and provide customized printing solutions that -17- satisfy customers' individual needs. The principal products in the Network System Solutions category include personal computers and servers, network systems, application software, and related services and support. In fiscal year 2008, Ricoh launched its new solutions brand "Operius" in Japan, which is focused on providing solutions to customers to optimize their office environment. Operius is comprised of three key components: (1) hardware, (2) software and (3) support and services. By identifying and utilizing the most appropriate hardware and software to address customers' needs, and supplementing such products with a comprehensive support and service team (such as a 24-hour IT monitoring center, and an expert team of hardware and software engineers), Ricoh is striving to assist its customers in creating a working environment that is more efficient and effective. For example, storage and management solutions can be developed that address the customers' need to organize and keep track of both paper and digital files, and that provide a secure centralized electronic document storage system that enables easy retrieval. Through the seamless integration of hardware and software, customers can utilize and benefit from streamlined document scanning, indexing and electronic document distribution. As part of Operius, Ricoh delivers total cost of ownership ("TCO") consulting that begins with analyzing the customers' document workflow, output devices and document processes. Through support services, Ricoh has been able to lower the total printing costs of its customers by assisting them in the set up of their information technology or networks in various environments in Japan (where physical space is costly) and thereby increasing the efficiency of their printing process. During fiscal year 2009, Ricoh continued its efforts to expand its "Operius" business in Japan, and as a result strengthened its relationships with 136 partner companies to develop customized solutions by combining its partners' applications with Ricoh's "Operius," which culminated in the development of 41 solution models by the end of fiscal year 2009. Meanwhile, outside of Japan, Ricoh entered into a global strategic alliance with IBM in January 2009 through which Ricoh and IBM will launch the document security and management services ("DSMS") in the U.S. This solution builds upon Ricoh's experience and expertise in helping customers improve their document workflow, security and compliance frameworks, while reducing their TCO of office equipment and advancing their environmental sustainability practices. INDUSTRIAL PRODUCTS ------------------- The Industrial Products segment consists of products that are used in the industrial sector. For fiscal year 2009, this segment accounted for 5.5% of Ricoh's net sales. Principal products in this segment include thermal media, optical equipment, semiconductor devices, electronic components and measuring equipment. Through technological enhancements in its thermal media business, Ricoh has been able to expand its business from the production of thermal paper for use in facsimiles to a variety of business areas, including the production of POS sheets, logistics management sheets, reward cards, identification cards, medical films and rewritable cards -18- that utilize thermo-chromic printing technology which can be used to erase and update text and graphics up to 500 times. Ricoh's optical equipment business utilizes technology originally developed by Ricoh for its copiers and cameras. This business supplies optical equipment and optical supply parts, such as lens units, to third parties. Ricoh also manufactures various types of semiconductor devices. Such devices include application-specific integrated circuits ("ASICs") and application-specific standard products ("ASSPs") that are often used in digital copiers, printers, personal computers, PC card and cellular phones. For fiscal year 2009, Ricoh released the RP200x Series (voltage regulator ICs with high output voltage accuracy, low dropout voltage and low supply current) that are suitable as a power source for portable communication equipment and electronic devices, such as cameras, VCRs and camcorders, and the R3119N Series (an input voltage detector with high detector threshold accuracy and ultra-low supply current) that are suitable for central processing unit and logic circuit resets, and battery back-up circuits. The electronic components business consists of components supplied to Ricoh's manufacturing plants in connection with the production of its own products, such as copiers and printers, as well as components supplied to third parties. In addition, Ricoh is one of the leading manufacturers of measuring equipment in Japan. Ricoh offers a wide range of measuring equipment, such as gas meters and gas leak detectors. Sales in the measuring equipment category are greatly affected by the cyclical nature of market demand for this equipment. OTHER ----- The Other segment, which accounted for 6.9% of Ricoh's net sales for fiscal year 2009, includes digital cameras, financing and logistics services. Ricoh is one of the pioneers in commercializing digital cameras, which have tremendous potential as "image capturing devices." As digital cameras may be used in a variety of ways to capture and input images, Ricoh expects that the digital camera market will continue to grow in the future. During fiscal year 2009, Ricoh released new digital cameras under the names "G600," "CX1," "RICOH R10" and "GX200". The "G600" is a compact digital camera with a tough body that can withstand the outdoors, including water, dirt and impact. The "CX1" is a digital camera featuring a 9.29 mega pixel CCD and a 7.1x optical zoom lens, and is able to process images at high speed since it is equipped with a highly evolved image processing engine called "Smooth Imaging Engine IV" and a CMOS sensor. Ricoh also introduced during fiscal year 2009 the "RICOH R10," a standard digital camera model. The "GX200" is a high-performance compact digital camera that is equipped with a 24mm (35mm film camera equivalent) 3x wide-angle zoom lens and a removable LCD viewfinder, which has been well-received by customers since its introduction. In December 2008, the "GX200" was awarded the "iF product design award 2009" gold award for its innovative design along with the "GR DIGITAL II," which is a compact digital camera that Ricoh introduced during fiscal year 2008 that is made to exacting standards featuring high image quality. -19- Ricoh provides certain financing services through Ricoh Leasing Co., Ltd., which leases industrial equipment and medical equipment as well as office equipment, and offers loans, such as support loans, to small businesses and independent doctors. Ricoh Logistics System Co. Ltd. offers logistics services in the delivery, distribution and storage of products, such as electronic products, office equipment, and electronic and machinery parts. GROUP VISION AND MANAGEMENT PLANS --------------------------------- With "Winner in the 21st Century (Build a strong global RICOH brand)" as its group vision, Ricoh strives to continue growing and developing as a global company by gaining the trust of its customers. Ricoh intends to gain the trust of its customers by continuously working towards achieving greater customer productivity and knowledge management. Accordingly, Ricoh plans to conduct its business activities in a way that provides innovative products and services to all of its customers (including those who use information at work and in their lives outside of work) based on Ricoh's three core values of "harmonizing with the environment (i.e., reducing and minimizing environmental impact)," "simplifying your life and work (i.e., enhancing user friendliness and striving towards simplification)," and "supporting knowledge management (i.e., offering solutions to process information)." In addition to this overall group vision, management has established medium-term goals. Fiscal year 2009 was the first fiscal year of the 16th Medium-Term Management Plan, which covers the period from fiscal year 2009 through fiscal year 2011, and Ricoh made efforts to lay the groundwork to achieve the objectives of this plan. Under the 16th Medium-Term Management Plan, Ricoh's objectives are to earn even greater trust from its customers by placing greater emphasis on customer viewpoints and continuing to provide products and services which meet and exceed customer expectations. To achieve the objectives of the 16th Medium-Term Management Plan, Ricoh has established the following five basic group management strategies: (1) become the market leader in each of the targeted business areas (such as the production printing business and the solution business), (2) strengthen and accelerate its environmental management (which encompasses environment-related technological development, such as the development of products like color PxP toners (tin-free eco-toners that anchor toner particles at low temperatures), the management of resources and energy used in the entire lifecycles of Ricoh products and the delivery to customers of Ricoh's environmental philosophy and activities), (3) promote "Ricoh Quality" (which means to accelerate the innovation processes to achieve greater customer satisfaction), (4) create new business lines and (5) build a strong global RICOH brand. More specifically, in the Imaging and Solutions segment, Ricoh is utilizing its strengths, such as customer contacts, broad product lines, image processing technologies, ability to propose solutions and ability to conduct business globally, to respond to the increasingly diverse needs of a greater number of customers, and further solidify its business foundation. Ricoh understands that "work flow," "security," "TCO," "compliance" and the "environment" are important considerations for customers. By -20- focusing on these considerations, Ricoh intends to provide greater value to its customers using its products. For example, to contribute to the overall productivity increase of its customers, Ricoh is working to develop (1) printing solutions that efficiently network multiple copiers and printers and (2) document solutions that construct and manage a file server system that saves, searches and outputs documents. Furthermore, Ricoh is striving to create new service businesses, such as a service in which customers outsource their business processing to Ricoh, by utilizing its strengths. To achieve the above goals, Ricoh will continue to focus its efforts on developing solution platforms and enhancing its solution sales organization. Ricoh also has plans to expand in fiscal years 2010 and 2011 its business in the printing market by (1) expanding its low-end printing business by offering better color laser printers and color GELJET printers, and (2) stabilizing and expanding its production printing business. In the Industrial Products segment, Ricoh is working to identify new business areas where large growth can be expected, and allocate and direct its resources to such business areas. Ricoh is also making an effort to strengthen cooperation among personnel in the technical fields and the other business areas in order to develop new businesses that combine diverse fields. In addition, Ricoh plans to take further steps to develop business in the emerging markets in the Imaging and Solutions segment and the Industrial Products segment. For example, during fiscal year 2010, Ricoh plans to complete the construction of a manufacturing plant in Thailand for MFPs and laser printers to reinforce its manufacturing network in Asia. This new manufacturing plant will allow Ricoh to improve its production capabilities in this region and to hedge against the risk of over-dependence on its manufacturing plants located in China. In addition, Ricoh expects that this new plant will lead to increased business in the Asia region since locating manufacturing plants close to sales subsidiaries customarily increases coordination and enables Ricoh to develop and manufacture products that satisfy the specific demands of customers in such region. SALES AND DISTRIBUTION ---------------------- Ricoh continues to utilize the following three marketing and sales channels for the distribution of its products to end-user customers in Japan: (1) direct sales by Ricoh to end-user customers through 9 domestic subsidiaries and affiliates, (2) sales through independent dealers of office equipment and (3) sales through independent office supply wholesalers and retailers. Ricoh estimates that over one-half of its domestic copier sales by revenue are derived from its direct sales channels to end-user customers, with the remaining balance being divided between sales through independent dealers of office equipment and independent office supply wholesalers and retailers. These marketing and sales channels are coordinated by Ricoh's seven regional sales subsidiaries located in the Hokkaido, Tohoku, Kanto, Chubu, Kansai, Chugoku and Kyushu areas. During fiscal year 2009, in an effort to consolidate its operations, Ricoh merged 33 sales subsidiaries in Japan into five sales subsidiaries to enhance the efficiency of its domestic sales activities. As a result, as of the end of fiscal year 2009, Ricoh has seven domestic sales subsidiaries, which include Hokkaido Ricoh Inc. and Ricoh Sales Inc. -21- Ricoh has organized marketing and sales channels to accommodate its four operating regions outside of Japan: (1) the Americas, (2) Europe, Africa, and the Middle East, (3) Asia and Oceania and (4) China. One of Ricoh's strategies in expanding its overseas marketing and sales channels has been to acquire office equipment sales companies in various locations around the world through which it can sell its products. Accordingly, in addition to selling Ricoh brand name products through its overseas sales subsidiaries, affiliates and independent dealers (similar to the marketing and sales channels used for the distribution of products in Japan), Ricoh also sells its products through the following two marketing and sales channels in the overseas market: (1) sales of products under brand names which Ricoh purchased through acquisitions (i.e., the "Savin" brand, the "Lanier" brand and the "Infotec" brand) and (2) sales of Ricoh's products by other companies under their brand names where Ricoh is the original equipment manufacturer ("OEM"). Savin and Lanier were originally Ricoh's OEM distributors prior to their acquisition. During fiscal year 2009, Ricoh acquired the U.S.-based IKON and its subsidiaries, who supply and service a wide range of office equipment in the U.S., Canada and the Western European markets. With this acquisition, Ricoh aims to strengthen and broaden its business opportunities and infrastructure in the U.S., Canada and Europe by capitalizing on IKON's broad sales and service network and gaining access to IKON's customer relationships, which includes large private corporations as well as U.S. government and public sector entities/organizations. Ricoh recognizes revenue for sales upon the delivery and installation of equipment to its end-user customers. Revenue from the sales of equipment under sales-type leases is recognized as product sales at the inception of the lease. Information regarding the methods by which Ricoh recognizes revenue is also set forth in Item 5. Critical Accounting Policies and Note 2 to the Consolidated Financial Statements which are included in this annual report. AFTER-SALES SERVICE ------------------- Ricoh provides repair and maintenance services for its products to Ricoh's end-user customers based on the belief that periodic and timely maintenance services are essential in preserving Ricoh's market share in the relevant products. These maintenance services are provided to customers pursuant to maintenance service contracts customarily entered into at the time the equipment is originally sold. In Japan, repair and maintenance services are generally provided by Ricoh's service specialists. Ricoh's service network in Japan includes service centers operated by Ricoh and its affiliates and service outlets operated by other companies. Ricoh's Customer Support System is available on a nationwide basis in Japan in order to enhance customer satisfaction and service efficiency. This system allows Ricoh to remotely monitor copiers that are in operation and provide prompt service to such copiers. The total number of Ricoh's sales and service personnel in Japan is approximately 23,100. Similar to Japan, Ricoh employees and contracted maintenance providers provide repair and maintenance services to end-user customers in the overseas market who purchase Ricoh products. The total number of Ricoh's overseas sales and service personnel is approximately 46,500. -22- Additional information regarding the manner in which Ricoh accounts for its after-sales services is set forth in Item 5. Critical Accounting Policies and Note 2 to the Consolidated Financial Statements which are included in this annual report. PRINCIPAL MARKETS ----------------- Ricoh distributes its products and competes in the following four geographic areas: Japan, the Americas, Europe and Other. In the aggregate, Ricoh's sales decreased in fiscal year 2009. As noted below, for fiscal year 2009, net sales in Japan, the Americas, Europe and Other as a percentage of total net sales were 44.9%, 24.0%, 25.0% and 6.1%, respectively. The table below breaks down for each geographic area the total net sales amount and percentage of such net sales amount as compared against total net sales for each of the last three fiscal years. SALES BY GEOGRAPHIC AREA
Millions of Yen (except for percentages to net sales) For the Year Ended March 31, --------------------------------------------------------------------- 2007 2008 2009 --------------------- --------------------- --------------------- JAPAN Yen 1,002,251 48.4% Yen 1,016,034 45.8% Yen 938,331 44.9% THE AMERICAS 426,453 20.6 434,799 19.6 502,862 24.0 EUROPE 507,158 24.5 603,219 27.2 523,407 25.0 OTHER 133,063 6.5 165,937 7.4 127,096 6.1 ------------------------------------------------------------------------------------ Total Yen 2,068,925 100.0% Yen 2,219,989 100.0% Yen 2,091,696 100.0% ------------------------------------------------------------------------------------
Notes: (1) Sales amounts set forth in the above table are based on the location of the purchaser (external customer) of the product. For example, if the product is manufactured in Japan and sold to an external customer located in the United States, such sale would be recorded as a sale in the Americas. (2) During fiscal year 2007, a subsidiary of the Company sold its content distribution business. As a result of such sale, the operating results of such business were reclassified as a discontinued operation and excluded from the above segment data for fiscal year 2007 in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." (1) Japan As the economic crisis spread across the world during fiscal year 2009, the Japanese economy suffered an overall decline in demand and corporate performance worsened. In light of such economic situation, customers reduced their capital investments in office equipment and focused on reducing printing costs by reducing printing volume. Furthermore, competition in the type of products that Ricoh manufactures and markets continued to intensify. As a result, sales in Japan for fiscal year 2009 decreased by 7.6% compared to fiscal year 2008. Despite such environment, Ricoh continued to change its product lineup from analog stand-alone equipment and monochrome products to value-added digital equipment with network capabilities and color products in order to respond to customers' preferences. To assist customers in managing their Total Document Volume ("TDV") effectively and efficiently in the office environment, Ricoh also offered various business solutions to create a networked environment that meets customers' needs. In addition, by using its "Operius" business that launched in fiscal year 2008, Ricoh assisted its customers by developing a more efficient and effective work environment. -23- (2) The Americas Despite sluggish economic conditions in the Americas as a result of the economic recession in the United States, Ricoh continued to introduce new color MFPs to meet customers' demands for color and high-speed printing products with networking capabilities. During fiscal year 2009, Ricoh acquired the U.S.-based IKON and its subsidiaries, who supply and service a wide range of office equipment in the U.S., Canada and the Western European markets. With this acquisition, Ricoh aims to strengthen and broaden its business opportunities and infrastructure in the U.S., Canada and Europe by capitalizing on IKON's broad sales and service network and gaining access to IKON's customer relationships, which includes large private corporations as well as U.S. government and public sector entities/organizations. (3) Europe As turmoil in the financial market triggered by the U.S. subprime mortgage crisis spread to Europe, customer demand for office equipment declined. As a result, sales of PPCs/MFPs decreased despite Ricoh's efforts to introduce new products in such product lines. Despite such economic situation, Ricoh continued to enhance and introduce new products in the Imaging and Solutions segment so that customers are able to fulfill more of their office equipment needs through Ricoh. After acquiring IKON to further enhance its sales and service network, Ricoh consolidated the European business operations of IKON into Ricoh Europe PLC's operations during fiscal year 2009. The purpose of this consolidation was to optimize the operational structure in each country in this geographic region to respond promptly to new customer demands and to enhance the effectiveness of its business by eliminating duplicative functions. (4) Other The Other geographic area includes China, South East Asia and Oceania. Sales in this geographic area decreased due to slower demand in office products during the second half of fiscal year 2009 as a result of the global financial crisis. Despite this decrease in sales in fiscal year 2009, Ricoh still believes that this geographic area will expand in the future. Accordingly, Ricoh continues to view this geographic area as strategically important not only as a production site but also as a potential market within which to increase future sales of its products. Consistent with such view, Ricoh commenced the construction of a new manufacturing plant in Thailand during fiscal year 2009. Ricoh expects to complete the construction of this plant and commence operations during fiscal year 2010. Ricoh expects this new manufacturing plant will secure sufficient production capacity and reduce its dependence on its production facilities in China. In addition, Ricoh continues to strengthen its relationships with its customers in this geographic area by working closely with its regional sales network. -24- COMPETITION ----------- The office equipment industry in which Ricoh primarily competes remains highly competitive and Ricoh continues to encounter intense competition in its Imaging and Solutions segment. Furthermore, competition in each of the product categories in the Imaging and Solutions segment is expected to increase in the future as Ricoh's competitors enhance and expand their product and service offerings. This increase in competition may result in price reductions and decreases in profitability as well as market share in these products. Ricoh cannot provide assurance that it will be able to compete successfully against existing or future competitors. Moreover, Ricoh may face competition from some of its current customers and companies with which Ricoh has strategic business relationships. The size and number of our competitors vary across our product categories, as do the resources allocated by our competitors to the markets Ricoh targets. Ricoh's competitors may have greater financial, personnel and other resources than Ricoh has in a particular market or overall. These competitors may have greater resources available to them to respond quickly to new technologies and may be able to undertake more extensive marketing campaigns than Ricoh. Competitors may also adopt more aggressive pricing policies for their products and make more attractive offers to potential customers, employees, and strategic partners. These competitors may also make strategic acquisitions or establish cooperative relationships among themselves or with third parties to increase their ability to gain market share. Despite this intense competition in the office equipment industry, Ricoh's management believes that Ricoh will be able to maintain and enhance its position in the global market because of its experience, expertise and technical capabilities as a leading provider of office and production printing equipment, and dedication to meet customers' needs. SEASONALITY ----------- Sales in the Imaging and Solutions segment generally increase in March of each year, which is the end of the fiscal year for most Japanese companies. This is due to the increase in demand for these products as many Japanese companies and government entities try to expend their allotted capital expenditure budget for the fiscal year. Sales generated during the month of March each year due to this seasonality accounts for approximately 12.8% of Ricoh's domestic sales in Japan. However, the effect of this seasonality on a consolidated basis is minimal, as only approximately 3.7% of Ricoh's total consolidated sales are generated from domestic sales in Japan during the month of March. SOURCES OF SUPPLY ----------------- The raw materials, parts and components used in the production of Ricoh's products, such as plastics, rubber and chemicals are procured on a global basis. Prices of -25- some raw materials that Ricoh uses fluctuate according to the market and prices of some parts and components that Ricoh uses fluctuate as well. Generally, Ricoh maintains multiple suppliers for the most significant categories of raw materials, parts and components to address such fluctuations. Because very few of the raw materials required by Ricoh in manufacturing its products can be procured in Japan, most of the raw materials used by Ricoh come from outside of Japan. Ricoh monitors the availability of raw materials on a regular basis to ensure that it will not encounter any shortages. Ricoh has not experienced any significant difficulty in obtaining the raw materials, parts and components necessary for it to manufacture its products and believes that it will be able to continue to obtain necessary raw materials, parts and components in sufficient quantities to meet its manufacturing needs in the future. A rise in crude oil prices may lead to an increase in the overall cost of procuring raw materials, parts and components. This is due to the fact that the cost of oil-based parts and components, the processing costs of raw materials and fuel costs of shipping and distributing such raw materials, parts and components may increase as a result of higher crude oil prices. However, Ricoh believes that it will be able to adequately manage the impact of any such price volatility in connection with the raw materials, parts and components that are required for the manufacturing of its products. INTELLECTUAL PROPERTY --------------------- Ricoh holds a large number of patents and trademark rights. While Ricoh considers such intellectual property rights to be valuable assets and important for its operations, it believes that its business is not dependent to any material extent upon any single patent or trademark right, or any related group of rights it holds. Ricoh also has many licenses and technical assistance agreements covering a wide variety of products. Such agreements grant Ricoh the right to use certain Japanese and foreign patents or the right to receive certain technical information. However, Ricoh is not materially dependent on any such single license or agreement. In addition, Ricoh has granted licenses and technical assistance to various companies located in and outside of Japan. In certain instances, Ricoh has entered into cross-licensing agreements with other major international electronics and electrical equipment manufacturers. None of these agreements are likely to materially affect Ricoh's business or profitability. See Item 5.C. Patents and Licenses. GOVERNMENT REGULATIONS ---------------------- Ricoh's business activities are subject to various government regulations in the various countries in which it operates, including regulations relating to business and investment approvals, export regulations, tariffs, antitrust, intellectual property, consumer and business taxation, exchange controls, and environmental and recycling requirements. Ricoh is also subject to environmental regulations in the jurisdictions in which it operates, particularly those jurisdictions in which it has manufacturing, research or similar operations. -26- Four environmental regulations which may affect Ricoh's businesses are the European Union Directive on Waste Electrical and Electronic Equipment (the "WEEE Directive"), the European Union Directive on the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (the "RoHS Directive"), the European Union Regulation on the Registration, Evaluation, Authorisation and Restriction of Chemicals (the "REACH Regulation") and the European Union Directive on Energy-Using Products (the "EuP Directive", also commonly known as Directive 2005/32/EC). Beginning in August 2005, the WEEE Directive, as enacted by individual European Union countries, made manufacturers or importers of electrical and electronic equipment in the European Union financially responsible for the collection, recycling, treatment, recovery and legitimate disposal of collected electrical and electronic equipment. The RoHS Directive prohibits more than specific levels of lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls (PBB) or polybrominated diphenyl ethers (PBDE) to be contained in electrical and electronic equipment that is to be sold in the European Union market from July 2006. The REACH Regulation was entered into force in June 2007 to improve and protect human health and the environment through the identification of intrinsic properties of chemical substances and, among other things, requires the registration of chemical substances manufactured or used in products that are sold in the European Union. This regulation covers almost all forms of chemicals (that is, products in gaseous, liquid, paste or powdery form) and "articles" (as defined in the REACH Regulation) manufactured in or imported into the European Union. The EuP Directive sets forth a framework for establishing eco-design requirements for energy-using products by systematically integrating environmental aspects at early stages of the product design. One of the important goals of the EuP Directive is to improve the overall environmental performance of products throughout their life-cycle. A variety of similar environmental regulations have been or are expected to be enacted in other regions where Ricoh operates. While Ricoh's businesses may be affected by various government regulations, Ricoh currently operates, and expects to continue operating, its business without significant difficulty in complying with applicable government regulations. C. Organizational Structure As of March 31, 2009, the Ricoh group includes the Company, 302 subsidiaries and 9 affiliates located worldwide. The Company is the parent of the Ricoh group. The Company heads the R&D activities of Ricoh products with assistance from its subsidiaries. The Company and its subsidiaries and affiliates maintain an integrated domestic and international manufacturing and distribution structure. The following is a list of the principal subsidiaries of the Company. None of the Company's 9 affiliates are considered material affiliates of Ricoh. -27-
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 100.0 Manufacturing and sales of office equipment and 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 Ricoh Printing Systems, Ltd. Japan 100.0 Manufacturing and sale of office equipment 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 100.0 Sale of office equipment Ricoh Sales 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 100.0 Logistics services and custom clearances Ricoh Leasing Co., Ltd. Japan 51.1 General leasing Ricoh Electronics, Inc. U.S.A. 100.0 Manufacturing office equipment and related supplies Ricoh UK Products Ltd. U.K. 100.0 Manufacturing office equipment Ricoh Industrie France S.A.S. France 100.0 Manufacturing office equipment and related supplies Ricoh Asia Industry (Shenzhen) Ltd. China 100.0 Manufacturing office equipment and related supplies Shanghai Ricoh Digital Equipment Co., Ltd. China 100.0 Manufacturing and sale of office equipment Ricoh Americas Corporation U.S.A. 100.0 Sale of office equipment InfoPrint Solutions Company, LLC U.S.A. 79.5 Sale of office equipment IKON Office Solutions, Inc. U.S.A. 100.0 Sale of office equipment Ricoh Europe Holdings PLC U.K. 100.0 Sale of office equipment Ricoh Asia Industry Ltd. Hong Kong, 100.0 Sale of office equipment China
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Proportion Country of of ownership Company Name Formation interest Main businesses --------------------------------------------------------------------------------------------------------------------------------- Ricoh Asia Pacific Pte Ltd Singapore 100.0 Sale of office equipment Ricoh China Co., Ltd. China 100.0 Sale of office equipment Ricoh Finance Nederland B.V. Netherlands 100.0 Corporate finance And 272 other subsidiaries (AFFILIATES) 9 affiliates (none of which are material affiliates)
Notes: (1) Proportion of ownership interest includes indirect ownership. (2) Figures in parentheses indicate portion of voting power if different from portion of ownership interest. (3) Ricoh Leasing Co., Ltd. and NRG Group PLC are the only subsidiaries of the Company that are a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X. D. Property, Plant and Equipment Ricoh manufactures its products primarily in fifteen plants in Japan and six plants overseas. Ricoh owns all of the buildings and the land on which its plants are located, with the exception of certain leases of land and floor space of certain of its subsidiaries. None of these leased land and floor spaces have major encumbrances on them. The following table gives certain information as of March 31, 2009 regarding the Company's and its subsidiaries' principal manufacturing and other facilities. With the exceptions of Shanghai Ricoh Digital Equipment Co., Ltd. and GR Advanced Materials Ltd., the manufacturing and other facilities listed below have floor space exceeding 10,000 square meters.
Name (Location) Floor space Principal activities and products manufactured ----------------------------------------------------------- ----------------- ---------------------------------------------------- (in thousands of square meters) Japan: Ricoh Company, Ltd. Ohmori Plant (Tokyo) 54 Parts relating to copiers Atsugi Plant (Kanagawa) 73 Office equipment and other products Numazu Plant (Shizuoka) 122 Paper and toner Ikeda Plant (Osaka) 27 Electronic devices Hatano Plant (Kanagawa) 15 Printed circuit boards and electronic components Fukui Plant (Fukui) 34 Papers and toner Gotenba Plant (Shizuoka) 70 Office equipment Yashiro Plant (Hyogo) 34 Electronic devices Ricoh Technology Center (Kanagawa) 71 R&D Head Office (Tokyo) 21 Head office and marketing of office equipment
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Name (Location) Floor space Principal activities and products manufactured ----------------------------------------------------------- ----------------- ---------------------------------------------------- (in thousands of square meters) Research & Development Center 17 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, other business and related services Katsuta office (Ibaraki) 54 R&D of production printing products Subsidiaries: Ricoh Optical Industries Co., Ltd. (Iwate) 23 Photographic equipment Tohoku Ricoh Co., Ltd. (Miyagi) 55 Office equipment, parts relating to copiers and duplicators Hasama Ricoh, Inc. (Miyagi) 14 Parts relating to copiers and data processing equipment Ricoh Unitechno Co., Ltd. (Saitama) 18 Office equipment Ricoh Elemex Corporation. (Aichi) 47 Office equipment and measuring equipment Ricoh Microelectronics Co., Ltd. (Tottori) 12 Printed circuit boards and electronic components Ricoh Keiki Co., Ltd. (Saga) 10 Printed circuit boards and parts relating to copiers Ricoh Printing Systems, Ltd. (Ibaraki) 54 Printers and production printing products Overseas: Ricoh Electronics, Inc. 81 Copiers, parts relating to copiers, toner and (Irvine, Santa Ana and Tustin, California and thermal paper Lawrenceville, Georgia, U.S.A.)
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Name (Location) Floor space Principal activities and products manufactured ----------------------------------------------------------- ----------------- ---------------------------------------------------- (in thousands of square meters) Ricoh UK Products Ltd. 34 Copiers, parts relating to copiers and toner (Telford, United Kingdom) Ricoh Industries France S.A.S. 42 Copiers, parts relating to copiers and thermal paper (Colmar, France) Ricoh Asia Industry (Shenzhen) Ltd. (Shenzhen, China) 42 Copiers, parts relating to copiers, and toner Ricoh Components Asia (Shenzhen) Co., Ltd. 35 Printed circuit boards and electronic components (Shenzhen, China) Shanghai Ricoh Facsimile Co., Ltd (Shanghai, China) 27 Facsimile equipment Ricoh Thermal Media (Wuxi) Co., Ltd. 25 Direct thermal paper and thermal transfer ribbon (Shenzhen, China) Shanghai Ricoh Digital Equipment Co., Ltd. 6 Copiers, facsimile equipment and parts relating to (Shanghai, China) copiers GR Advanced Materials Ltd. 7 Supplies relating to duplicators (Scotland, United Kingdom)
As discussed in this Item 4, during fiscal year 2010, Ricoh plans to complete the construction of a manufacturing plant in Thailand for MFPs and laser printers to reinforce its manufacturing network in Asia. This new manufacturing plant will allow the Company to improve its production capabilities and to hedge against the risk of over-dependence on its manufacturing plants located in China. In addition, one of Ricoh's subsidiaries, Tohoku Ricoh Co., Ltd is expected to establish a manufacturing plant in Japan during fiscal year 2010 for PxP toners, which are toners that are capable of producing higher quality images. Ricoh considers its manufacturing facilities to be well maintained and believes its plant capacity is adequate for its current needs, though successive investments in manufacturing facilities are being made for its long-term success. -31- Item 4A. Unresolved Staff Comments ------------------------- Not applicable. -32- Item 5. Operating and Financial Review and Prospects -------------------------------------------- OVERVIEW Ricoh is engaged primarily in the development, manufacturing, sales and servicing of office automation equipment, such as PPCs/MFPs, laser printers, GELJET printers, production printing products and facsimile machines, as well as digital cameras, semiconductor devices and thermal media. Ricoh supports its office and production printing equipment business by offering customers various "solution" systems that work with personal computers and servers, and related product support and after-sales services to assist customers in fully utilizing the Ricoh products that they purchase. Ricoh's support services include assisting customers in setting up their information technology environment or network administration. Ricoh also offers various supplies and peripheral products to be used with its products and systems. Ricoh distributes its products and competes in the following four geographic areas: (1) Japan, (2) the Americas, (3) Europe and (4) Other, which includes China, South East 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. Furthermore, competition in the businesses Ricoh operates has increased significantly and is likely to continue increasing in the future. The two most significant trends in the office equipment market continue to be the movement towards digital networking systems from stand-alone models and the shift in customers' demands toward color products from monochrome products. In response to these trends, Ricoh's competitors are introducing color products and digital networking systems, thereby increasing the level of competition in these products. Ricoh seeks to prevail over the intense competition in the office equipment market by continuing to provide customers with equipment that optimizes the TCO of such equipment and enhancing office productivity and efficiency. Historically, Ricoh's revenues have been derived mainly from the manufacturing and sale of equipment (such as copiers and printers). In recent years, the key factor to achieve revenue growth has been the expansion of available product lines and areas of services to address the increase in customer demand for digitization, color printing and high volume printing, which became possible upon the introduction of printers with high-speed printing capabilities. Notwithstanding the effect of the current global economic recession, Ricoh remains focused on achieving sustained growth in the current competitive environment. To achieve such growth, Ricoh has striven to broaden its revenue and earnings base by increasing the total copying or printing volume of its customers (which Ricoh refers to as "Building Total Document Volume") and the amount of revenue per copy or printed page. More specifically, Ricoh's strategies continue to include (1) replacing monochrome products with color models at prices comparable to those of monochrome models, (2) expanding sales of high-speed models and (3) -33- deploying printing solutions so that customers can optimize the total output costs of their copiers and printers. In support of such strategies, Ricoh has been placing a high priority on creating products that add value for customers in new ways (e.g., higher print speeds, easier network connectivity, enhanced user-friendliness and improved security features). To this end, Ricoh continued to reinforce its technological strengths during fiscal year 2009 by making capital expenditures and investments in R&D to create products and services that can provide new value for its customers. To increase the sale of its products to corporations with global operations, Ricoh has been expanding its sales structure in the Imaging and Solutions segment through various means during the last few fiscal years, including the acquisition of the European sales and service companies of Danka Business Systems PLC and the acquisition of the U.S.-based IKON and its subsidiaries, who supply and service a wide range of office equipment in the U.S., Canada and the Western European markets. In addition to its continuing efforts to strengthen its printing and copying business, Ricoh and IBM formed a joint venture company, InfoPrint Solutions Company (which commenced its operations in June 2007), to enter into the production printing business. At the time this company commenced its operations, Ricoh owned 51 percent of this company. Based on the agreement entered into with IBM, Ricoh's ownership percentage is expected to gradually increase up to 100 percent by July 2010. As of March 31, 2009, Ricoh owned 79.5 percent of InfoPrint Solutions Company. Ricoh expects that this company will strengthen its capabilities in output solutions, including large volume production printing products. Furthermore, Ricoh continued to steadily increase its operational efficiency through cost-cutting measures across its business units, which included the reduction of production costs and the streamlining of its business structure, as well as supply chain management. As part of its strict cost management policy, Ricoh continued to analyze the cost structure of its products at the design phase for the purpose of minimizing production costs. In terms of fiscal year 2009, Ricoh's consolidated net sales decreased by 5.8% to Yen 2,091.6 billion, from Yen 2,219.9 billion for fiscal year 2008, due primarily to the decrease in net sales in all of its operating segments in Japan and overseas. This decrease was due mainly to the global economic recession stemming from the global financial crisis, which caused a decrease in customer demand for Ricoh products as customers decreased their capital spending. The decrease in net sales was also attributable to the depreciation of the U.S. Dollar and the Euro against the Japanese Yen. While net sales generated by IKON, which became a consolidated subsidiary in fiscal year 2009 (whose net sales were reflected for part of the fiscal year), as well as InfoPrint Solutions Company, which became a consolidated subsidiary in fiscal year 2008 (whose net sales were reflected for the full fiscal year for the first time), contributed to the increase in overall net sales in the Americas for fiscal year 2009, such increase was not sufficient to fully offset the decrease in net sales of Ricoh's other businesses and the appreciation of the Japanese Yen. While cost of sales decreased by 4.3% for fiscal year 2009, such percentage decrease was less than the percentage decrease of net sales because Ricoh lowered the sales price for certain products to stimulate sales in the sluggish and competitive market, and Ricoh was not able to fully absorb certain fixed costs as a result of the decrease in production -34- volume. As a result, gross profit decreased by 7.9% for fiscal year 2009 as compared to fiscal year 2008. In terms of its selling, general and administrative expenses, while the group-wide cost reduction efforts contributed to a decline in ongoing operating expenditures, Ricoh incurred additional strategic expenses in connection with its efforts to (1) enhance its sales and service structures, such as through the IKON acquisition, (2) expand its production printing business and (3) make structural changes aimed at improving its operational efficiency on a worldwide basis of all aspects of its R&D, manufacturing and sales operations. Consequently, selling, general and administrative expenses increased by 4.5% from fiscal year 2008. As a result, Ricoh's operating income for fiscal year 2009 decreased by 58.9%, with operating income as a percentage of net sales decreasing from 8.2% to 3.6% as compared to fiscal year 2008. KEY PERFORMANCE INDICATORS The following table shows changes for the last three fiscal years in the key performance indicators that Ricoh's management uses in assessing its performance. Ricoh's management considers these indicators to be important in monitoring and evaluating its performance to meet the expectation of its shareholders. For the year ended March 31, ---------------------------- 2007 2008 2009 ------- ------- ------- Net Sales (in billions of Yen) 2,068.9 2,219.9 2,091.6 Operating income to net sales ratio/(1)/ 8.4% 8.2% 3.6% Return on assets/(2)/ 5.2% 4.8% 0.3% Inventory turnover within months/(3)/ 1.83 1.78 1.86 Interest-bearing debt (in billions of Yen) 415.6 384.3 779.1 Notes: /(1)/ Operating income to net sales ratio = Operating income divided by net sales. /(2)/ Return on assets = Net income divided by average total assets for the fiscal year. /(3)/ Inventory turnover within months = Inventory divided by average monthly cost of sales. In fiscal year 2009, Ricoh's consolidated net sales decreased by 5.8% to Yen 2,091.6 billion, from Yen 2,219.9 billion for fiscal year 2008, due primarily to the decrease in net sales in all of its operating segments. Operating income to net sales ratio decreased by 4.6 percentage points to 3.6% from 8.2% for fiscal year 2008 due primarily to the decrease in operating income resulting from the decrease in net sales. Return on assets decreased by 4.5 percentage points to 0.3% from 4.8% for fiscal year 2008 due mainly to the consolidation of IKON's assets with Ricoh's assets as a result of its acquisition. Inventory turnover within months increased by 0.08 points. Interest-bearing debt increased by Yen 394.8 billion due primarily to the consolidation of IKON's interest bearing debt with Ricoh's interest bearing debt as a result of its acquisition and the increase in interest-bearing debt of the Company as it borrowed additional funds from third parties to finance the IKON acquisition. -35- CRITICAL ACCOUNTING POLICIES The consolidated financial statements of Ricoh are prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. On an ongoing basis, Ricoh evaluates its estimates which are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The results of these evaluations form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions. Ricoh considers an accounting policy to be critical if it is important to its financial condition and results, and requires significant judgments and estimates on the part of management in its application. Ricoh believes that the following represent the critical accounting policies of the Company. For a summary of the significant accounting policies, including the critical accounting policies discussed below, see Note 2 to the Consolidated Financial Statements. Revenue Recognition ------------------- Ricoh believes that revenue recognition is critical for its financial statements because net income is directly affected by the timing of revenue recognition. Ricoh generates revenue principally through the sale of equipment, supplies and related services under separate contractual arrangements for each. Generally, Ricoh recognizes revenue when (1) it has a firm contract, (2) the product has been shipped to and accepted by the customer or the service has been provided, (3) the sales price is fixed or determinable and (4) amounts are reasonably assured of collection. Most equipment sales require that Ricoh install the product. As such, revenue is recognized at the time of delivery and installation at the customer location. Equipment revenues are based on established prices by product type and model and are net of discounts. A sales return is accepted only when the equipment is defective and does not meet Ricoh's product performance specifications. Other than installation, there are no customer acceptance clauses in the sales contract. Service revenues result primarily from maintenance contracts that are normally entered into at the time the equipment is sold. Standard service fee prices are established depending on equipment classification and include a cost value for the estimated services to be performed based on historical experience plus a profit margin thereon. As a matter of policy, Ricoh does not discount such prices. On a monthly basis, maintenance service revenues are earned and recognized by Ricoh and billed to the customer in accordance with the contract and include a fixed monthly fee plus a variable amount based on usage. The length of the contract ranges up to five years; however, most contracts can be cancelled at any time by the customer upon a short notice period. -36- 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 separately generally determines fair value. Otherwise, revenue is deferred until the undelivered elements are fulfilled as a single unit of accounting. Allowance for Doubtful Receivables ---------------------------------- Ricoh performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer's current creditworthiness, as determined by Ricoh's review of the customers' credit information. Ricoh continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon its historical experience and any specific customer collection issues that Ricoh has identified. While such credit losses have historically been within Ricoh's expectations and the provisions established, Ricoh cannot guarantee that it will continue to experience the same credit loss rates that it has in the past. Changes in the underlying financial condition of our customers could result in a material impact on Ricoh's consolidated results of operation and financial position. Pension Accounting ------------------ The total costs for employees' severance payments and pension plans represented approximately 0.9%, 0.8% and 0.9% of Ricoh's total costs and expenses for fiscal years 2007, 2008 and 2009, respectively. The amounts recognized in the consolidated financial statements relating to employees' severance payments and pension plans are determined on an actuarial basis utilizing certain assumptions in the calculation of such amounts. The assumptions used in determining net periodic costs and liabilities for employees' severance payments and pension plans include expected long-term rate of return on plan assets, discount rate, rate of increase in compensation levels, average remaining years of service and other factors. Among these assumptions, the expected long-term rate of return on assets and the discount rate are two critical assumptions. Assumptions are evaluated at least annually, and events may occur or circumstances may change that may have a significant effect on the critical assumptions. In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods, thereby reducing the year-to-year volatility in pension expenses. As of March 31, 2009, Ricoh recognized and reflected in its consolidated balance sheets the funded status -37- of its pension plans (equal to the difference between the fair value of plan assets and the projected benefit obligations) in the total amount of Yen 153.2 billion. For fiscal years 2007, 2008 and 2009, Ricoh used expected long-term rates of return on pension plan assets of 3.1%, 3.2% and 3.5%, respectively. In determining the expected long-term rate of return on pension plan assets, Ricoh considers the current and projected asset allocations, as well as expected long-term investment returns and risks for each category of the plan assets based on Ricoh's analysis of historical results. The projected allocation of the plan assets is developed in consideration of the expected long-term investment returns for each category of the plan assets. To moderate the level of volatility in pension plan asset returns and to reduce risks, approximately 35%, 40%, 15% and 10% of the plan assets will be allocated to equity securities, debt securities, life insurance company general accounts and other financial instruments, respectively. As of March 31, 2009, the actual allocation of assets was generally consistent with the projected allocation stated above. The actual returns for fiscal years 2007, 2008 and 2009 were approximately 2.3% (gain), 6.4% (loss) and 15.7% (loss), respectively. The actual returns on pension plan assets may vary in future periods, depending on market conditions. The market-related value of plan assets is measured using fair values on the plan measurement date. With respect to the discount rate used in the annual actuarial valuation of the pension benefit obligations, the other critical assumption, Ricoh's weighted average discount rates for fiscal years 2007, 2008 and 2009 were 3.1%, 3.1% and 3.6%, respectively. In determining the appropriate discount rate, Ricoh considers available information about the current yield on high-quality fixed-income investments that are currently available and are expected to be available during the period corresponding to the expected duration of the pension benefit obligations. The following table illustrates the sensitivity to changes in the discount rate and the expected return on pension plan assets, while holding all other assumptions constant, for Ricoh's pension plans as of March 31, 2009.
CHANGE IN CHANGE IN PRE- PENSION BENEFIT TAX PENSION CHANGE IN ASSUMPTION OBLIGATIONS EXPENSES --------------------------------------------------------------- --------------- -------------- (Billions of Yen) 50 basis point increase / decrease in discount rate - / + Yen 25.6 - / + Yen 2.3 50 basis point increase / decrease in expected return on assets -- - / + Yen 1.3
Purchase Accounting ------------------- Ricoh accounts for acquired businesses using the purchase method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of the acquisition at their respective estimated fair values. The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as the estimated life of each asset, can materially impact the net income of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. In determining the estimated fair value for intangible assets, Ricoh typically utilizes the income approach, which discounts the projected future net cash flow using an appropriate -38- discount rate that reflects the risks associated with such projected future cash flow. Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. Intangible assets determined to have an indefinite useful life have been reassessed periodically based on the factors prescribed in SFAS No. 142 including, but not limited to, the expected use of the asset by us, legal or contractual provisions that may affect the useful life or renewal or extension of the asset's contractual life without substantial cost, and the effects of demand, competition and other economic factors. Impairment of Long-Lived Assets and Goodwill -------------------------------------------- As of March 31, 2009, the aggregate of Ricoh's property, goodwill and intangible assets was Yen 684.7 billion, which accounted for 27.2% of the total assets. Ricoh believes that impairment of long-lived assets and goodwill are critical to Ricoh's financial statements because the recoverability of the amounts or lack thereof, could significantly affect its results of operations. Ricoh periodically reviews the carrying value of its goodwill for continued appropriateness. This review is based upon Ricoh's projections of anticipated future cashflows and estimated fair value of the reporting units for which goodwill is assigned. Ricoh reviews long-lived assets and acquired intangible assets with a definite life for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The recoverability of assets to be held and used is assessed by comparing the carrying amount of an asset or asset group to the expected future undiscounted net cashflows of the asset or asset group. If an asset or asset group is considered to be impaired, the impairment charge to be recognized is measured as the amount by which the carrying amount of the asset or asset group exceeds fair value. Long-lived assets meeting the criteria to be considered as held for sale are reported at the lower of their carrying amount or fair value less costs to sell. While Ricoh believes that its estimates of future cashflows are reasonable, different assumptions regarding such cashflows could materially affect Ricoh's evaluations. Impairment of Securities ------------------------ Individual securities classified as available-for-sale securities are reduced to their fair market value by a charge to income for declines in value that are not temporary. Factors considered in assessing whether an impairment other than a temporary impairment exists include: (1) the length of time and extent of decline, (2) the financial condition and near term prospects of the issuer and (3) the intent and ability of Ricoh to retain such investment for a period of time sufficient to allow for any anticipated recovery in market value. Ricoh believes that impairment of securities is critical for its financial statements because it holds significant amounts of securities, the recoverability of which or lack thereof, could significantly affect its results of operations. -39- Realizability of Deferred Tax Assets ------------------------------------ Ricoh records deferred tax assets and liabilities using the effective tax rate taking into consideration the effect of temporary differences between the book and tax bases of assets and liabilities. If the effective tax rate were to change, Ricoh would adjust its deferred tax assets and liabilities, through the provision for income taxes in the period of change, to reflect the effective tax rate expected to be in effect when the deferred tax items reverse. Ricoh records a valuation allowance to reduce Ricoh's deferred tax assets to an amount that is more likely than not to be recoverable. Ricoh considers future market conditions, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which Ricoh operates, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event Ricoh were to determine that Ricoh would not be able to recover any portion of Ricoh's net deferred tax assets in the future, the unrecoverable portion of the deferred tax assets would be charged to earnings during the period in which such determination is made. Likewise, if Ricoh were to later determine that it is more likely than not that the net deferred tax assets would be recoverable, the previously recovered valuation allowance would be reversed. In order to recover its deferred tax assets, Ricoh must be able to generate sufficient taxable income in the tax jurisdictions in which the deferred tax assets are located. See Note 2 to the Consolidated Financial Statements for "New Accounting Standards." -40- 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:
Thousands Millions of Yen (except percentages) of U.S. % Change ----------------------------------------------------------------- Dollars ----------- 2007 2008 2009 2009/(2)/ 2008 2009 ------------------------------------------------------------------------------------------- Net sales Products Yen 1,189,548 Yen 1,292,228 Yen 1,027,694 $10,380,747 8.6 (20.5) Post sales and rentals 768,965 817,230 955,490 9,651,414 6.3 16.9 Other revenue 110,412 110,531 108,512 1,096,081 0.1 (1.8) -------------------------------------------------------------------------------------------------------------------------------- Total 2,068,925 100.0% 2,219,989 100.0% 2,091,696 100.0% 21,128,242 7.3 (5.8) -------------------------------------------------------------------------------------------------------------------------------- Cost of sales Products 783,681 855,852 710,892 7,180,727 9.2 (16.9) Post sales and rentals 335,444 346,945 440,510 4,449,596 3.4 27.0 Other revenue 87,394 89,465 85,908 867,758 2.4 (4.0) -------------------------------------------------------------------------------------------------------------------------------- Total 1,206,519 58.3% 1,292,262 58.2% 1,237,310 59.1% 12,498,081 7.1 (4.3) -------------------------------------------------------------------------------------------------------------------------------- Gross profit 862,406 41.7% 927,727 41.8% 854,386 40.8% 8,630,162 7.6 (7.9) Selling, general and administrative expenses 688,026 33.3% 746,221 33.6% 779,850 37.2% 7,877,273 8.5 4.5 -------------------------------------------------------------------------------------------------------------------------------- Operating income 174,380 8.4% 181,506 8.2% 74,536 3.6% 752,889 4.1 (58.9) -------------------------------------------------------------------------------------------------------------------------------- Other (income) expenses: Interest and dividend income (5,501) (6,341) (5,227) (52,798) Interest expense 7,350 4,835 5,863 59,222 Foreign currency exchange (gain) loss, net 1,199 10,901 15,576 157,333 Loss on impairment of securities 270 142 26,837 271,081 Other, net (3,457) (2,700) 549 5,546 -------------------------------------------------------------------------------------------------------------------------------- Total (139) (0.0%) 6,837 0.3% 43,597 2.0% 440,374 -- 537.7 -------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes, minority interests and equity in earnings of affiliates 174,519 8.4% 174,669 7.9% 30,939 1.5% 312,515 0.1 (82.3) -------------------------------------------------------------------------------------------------------------------------------- Provision for income taxes: 64,326 3.1% 63,396 2.9% 22,158 1.1% 223,818 (1.4) (65.0) -------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before minority interests and equity in earnings of affiliates 110,193 111,273 8,781 88,697 Minority interests 5,508 6,057 2,322 23,455 Equity in earnings of affiliates 1,539 1,247 71 717 -------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 106,224 5.1% 106,463 4.8% 6,530 0.3% 65,960 0.2 (93.9) -------------------------------------------------------------------------------------------------------------------------------- Income from discontinued operations, net of tax /(1)/ 5,500 0.3% -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------------- Net income 111,724 5.4% 106,463 4.8% 6,530 0.3% 65,960 (4.7) (93.9) --------------------------------------------------------------------------------------------------------------------------------
-41-
YEN Change ----------------------------------------------------------------- ----------------------- Reference: Exchange Rates* 2007 2008 2009 2008 2009 ------------------------------------------------------------------------------------------------------------------------------- US$ 1 Yen 117.02 Yen 114.40 Yen 100.55 Yen (2.62) Yen (13.85) EURO 1 Yen 150.08 Yen 161.69 Yen 143.74 Yen 11.61 Yen (17.95)
* These rates are the annual average exchange rate of the daily average TTM rates published by The Bank of Tokyo-Mitsubishi UFJ, Ltd. These rates are used when consolidating the financial results of Ricoh's overseas subsidiaries with those of the Company. Notes: /(1)/ During fiscal year 2007, a subsidiary of the Company sold its content distribution business. As a result of such sale, the operating results of such business were reclassified as a discontinued operation. Accordingly, sales derived from such business were excluded from the above consolidated financial data for fiscal year 2007 in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." /(2)/ The above consolidated financial data set forth under the heading "Thousands of U.S. Dollars 2009," which have been translated from Japanese Yen to U.S. Dollar for the year ended March 31, 2009, are included solely for the convenience of readers outside of Japan and have been calculated using the exchange rate of Yen 99 to US$1, the approximate rate of exchange prevailing at the Federal Reserve Board on March 31, 2009. -42- SALES BY PRODUCT
Thousands Millions of Yen (except for percentages) of U.S. % Change ---------------------------------------------------------------- Dollars ----------- 2007 2008 2009 2009/(2)/ 2008 2009 ----------------------------------------------------------------------------------------------------------------------- IMAGING AND SOLUTIONS Imaging Solutions Yen 1,580,155 76.4% Yen 1,709,491 77.0% Yen 1,598,614 76.4% $16,147,616 8.2 (6.5) Network System Solutions 194,312 9.4 200,082 9.0 234,484 11.2 2,368,525 3.0 17.2 INDUSTRIAL PRODUCTS 133,387 6.4 144,340 6.5 115,550 5.5 1,167,172 8.2 (19.9) OTHER 161,071 7.8 166,076 7.5 143,048 6.9 1,444,929 3.1 (13.9) Total Yen 2,068,925 100.0% Yen 2,219,989 100.0% Yen 2,091,696 100.0% $21,128,242 7.3 (5.8) -----------------------------------------------------------------------------------------------------------------------
Notes: /(1)/ During fiscal year 2007, a subsidiary of the Company sold its content distribution business. As a result of such sale, the operating results of such business were reclassified as a discontinued operation. Accordingly, sales derived from such business were excluded from the above consolidated financial data for fiscal year 2007 in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." /(2)/ The above consolidated financial data set forth under the heading "Thousands of U.S. Dollars 2009," which have been translated from Japanese Yen to U.S. Dollar for the year ended March 31, 2009, are included solely for the convenience of readers outside of Japan and have been calculated using the exchange rate of Yen 99 to US$1, the approximate rate of exchange prevailing at the Federal Reserve Board on March 31, 2009. /(3)/ The above consolidated financial data set forth net sales to external customers by product. FISCAL YEAR 2009 COMPARED TO FISCAL YEAR 2008 Net sales. Consolidated net sales of Ricoh for fiscal year 2009 decreased by 5.8% (or Yen 128.3 billion) to Yen 2,091.6 billion from Yen 2,219.9 billion for fiscal year 2008. For fiscal year 2009, Ricoh recorded a decrease in net sales in all of its operating segments. This decrease was due primarily to the decrease in customer demand for Ricoh products resulting from the global economic recession stemming from the global financial crisis. More specifically, the 5.8% decrease was due primarily to the 20.5% decrease in sale of products, which was partially offset by an increase in sale of post sales services. The net effect of the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen also adversely affected Ricoh's consolidated net sales in fiscal year 2009 as compared to fiscal year 2008 in Japanese Yen. Had the foreign currency exchange rates remained the same as in fiscal year 2008, Ricoh's consolidated net sales would have increased by 1.1%. Products. The 20.5% decrease in net sales derived from products was -------- due primarily to the decrease in net sales of PPCs/MFPs and laser printers resulting primarily from the sharp decrease in capital spending by customers due to the global economic recession which started with the global financial crisis, and the appreciation of the Japanese Yen. In addition, Ricoh lowered the sales price of certain products to stimulate sales in the sluggish and competitive market, which contributed to the decrease in net sales. Despite such environment, Ricoh continued to introduce new product models with advanced features during fiscal year 2009 and Ricoh recorded an increase in the number of color MFP units sold as such products were favorably received by customers who wished to expand their office digital color networking capacity. While net sales generated by products sold by IKON and InfoPrint Solutions Company during fiscal year 2009 contributed to net sales, such increase was not sufficient to fully offset the decrease in net sales of PPCs/MFPs and laser printers. Post sales and rentals. Net sales derived from post sales services and ---------------------- rentals of equipment increased 16.9% compared to the previous fiscal year due primarily to an -43- increase in sales from post sale services, such as maintenance services, as well as an increase in sales of supplies for PPCs/MFPs, laser printers and GELJET printers. This increase in sales of post sale services and supplies was generated primarily by the increase in the number of equipment in operation (commonly known as machines-in-field, which include new equipment) and the increase in sales of value-added supplies for color products (as opposed to monochrome products). In addition, sales in the network solutions business, such as support services that assist customers establish networked environments in connection with Ricoh's imaging solutions products, solution software and IKON's document outsourcing services (such as on-site printing services), also contributed to the increase in sales of post sales and rentals. Other revenue. Net sales derived from other sources (such as financing ------------- and logistics) decreased mainly due to decreased net sales from financing services, which decreased as sales of products decreased. Cost of sales. Consolidated cost of sales for fiscal year 2009 decreased by 4.3% (or Yen 54.9 billion) to Yen 1,237.3 billion from Yen 1,292.2 billion for fiscal year 2008. This decrease was due primarily to the decrease in sales of products in both of the operating segments as well as the net effect of the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen. Products. Cost of sales derived from products decreased by 16.9% due -------- primarily to the decrease in sales of products in both of the operating segments as well as the net effect of the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen. In addition, because Ricoh reduced its production volume in response to the decrease in demand, Ricoh was not able to fully absorb certain fixed. Post sales and rentals. Cost of sales derived from post sales services ---------------------- and rentals of equipment increased by 26.9%due primarily to the increase in sales from post sale services, such as maintenance services, as well as an increase in sales of supplies for PPCs/MFPs, laser printers and GELJET printers. Other revenue. Cost of sales derived from other sources (such as ------------- financing and logistics) decreased by 3.9% due mainly to decreased net sales from financing services, which decreased as sales of products decreased. Gross profit. Consolidated gross profit for fiscal year 2009 decreased by 7.9% (or Yen 73.3 billion) to Yen 854.3 billion from Yen 927.7 billion for fiscal year 2008. This decrease in gross profit primarily reflects the decrease in net sales in Ricoh's operating segments as well as the net effect of the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen. In addition, net sales decreased at a higher percentage rate than cost of sales due to the fact that Ricoh lowered the sales price of certain products to stimulate sales in the sluggish and competitive market, and Ricoh was not able to fully absorb certain fixed costs as a result of the decrease in production volume. Selling, general and administrative expenses. Consolidated selling, general and administrative expenses for fiscal year 2009, increased by 4.5% (or Yen 33.6 billion) to Yen 779.8 billion from Yen 746.2 billion for fiscal year 2008. While group-wide cost reduction efforts partially decreased ongoing operating expenditures, Ricoh incurred additional -44- strategic expenses in connection with its efforts to (1) enhance its sales and service structures, such as through the IKON acquisition, (2) expand its production printing business and (3) make structural changes aimed at improving its operational efficiency on a worldwide basis of all aspects of its R&D, manufacturing and sales operations. Fiscal year 2009 was also the first year in which selling, general and administrative expenses of IKON (for part of the fiscal year) and InfoPrint Solutions Company (for the full fiscal year) were reflected in Ricoh's consolidated financial statements, which contributed to the increase in selling, general and administrative expenses. Ricoh invested Yen 124.4 billion in R&D activity during fiscal year 2009 (which was Yen 1.6 billion less than fiscal year 2008) for purposes of developing PPCs/MFPs, laser printers, GELJET printers and production printing products with new capabilities to maintain Ricoh's large market share position in these products in the current competitive marketplace. While the net effect of the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen resulted in a decrease in selling, general and administrative expenses of approximately Yen 49.9 billion, and the R&D expenses decreased by Yen 1.6 billion as mentioned above, such decreases were not sufficient to fully offset the various items discussed above that increased selling, general and administrative expenses. Operating income. Consolidated operating income for fiscal year 2009 decreased by 58.9% (or Yen 106.9 billion) to Yen 74.5 billion from Yen 181.5 billion for fiscal year 2008. Operating income as a percentage of net sales decreased by 4.6 percentage points from 8.2% for fiscal year 2008 to 3.6% for fiscal year 2009. This significant decrease in operating income compared to fiscal year 2008 was due primarily to the decrease in gross profit resulting from the decrease in net sales and to the increase in selling, general and administrative expenses, as Ricoh incurred certain expenses during fiscal year 2009 to expand its business and improve its operational efficiency as discussed above, and the expenses of IKON and InfoPrint Solutions Company were reflected in Ricoh's consolidated financial statements. Interest and dividend income. Consolidated interest and dividend income for fiscal year 2009 decreased by Yen 1.1 billion to Yen 5.2 billion from Yen 6.3 billion for fiscal year 2008. This decrease in interest and dividend income was attributable to lower interest rates reflecting the adverse financial market conditions on a global basis. Interest expense. Consolidated interest expense for fiscal year 2009 increased by Yen 1.0 billion to Yen 5.8 billion from Yen 4.8 billion for fiscal year 2008. This increase in interest expense reflected the increase in the amount of outstanding interest-bearing debt that Ricoh borrowed from third parties in fiscal year 2009 in connection with its acquisition of IKON. Loss on impairment of securities. Consolidated loss on impairment of securities for fiscal year 2009 increased by Yen 26.6 billion to Yen 26.8 billion from Yen 0.1 billion for fiscal year 2008. This increase in loss on impairment of securities was attributable to the decrease in the stock markets. Foreign currency exchange (gain) loss, net. Consolidated foreign currency exchange loss, net included in other (income) expenses for fiscal year 2009 increased by Yen 4.6 billion to Yen 15.5 billion from Yen 10.9 billion for fiscal year 2008. For additional -45- information on Ricoh's foreign exchange hedging activities, see Item 11. Quantitative and Qualitative Disclosures About Market Risk. Other, net. Consolidated other, net included in other (income) expenses changed to a loss of Yen 0.5 billion for fiscal year 2009 from an income of Yen 2.7 billion for fiscal year 2008. Provision for income taxes. Total consolidated provision for income taxes for fiscal year 2009 decreased by Yen 41.2 billion to Yen 22.1 billion from Yen 63.3 billion for fiscal year 2008. The effective tax rate was 71.6% for fiscal year 2009 compared to 36.3% for fiscal year 2008. The effective tax rate was higher than the Japanese statutory tax rate of approximately 40%. See Note 9 to the Consolidated Financial Statements for additional information. Minority interests. Consolidated minority interests for fiscal year 2009 decreased by Yen 3.7 billion to Yen 2.3 billion from Yen 6.0 billion for fiscal year 2008. This decrease was due primarily to the fact that Ricoh no longer recorded earnings for Ricoh Elemex, which became a wholly-owned subsidiary during fiscal year 2009 through a share exchange that was completed in August 2008. Equity in earnings of affiliates. Consolidated equity in earnings of affiliates for fiscal year 2009 decreased by Yen 1.1 billion to Yen 0.0 billion from Yen 1.2 billion for fiscal year 2008. This decrease was due primarily to the fact that Ricoh no longer recorded any earnings for a company that ceased to be an affiliate as of October 2007 due to certain restructuring initiatives undertaken by such company. See Note 7 to the Consolidated Financial Statements for additional information. -46- OPERATING SEGMENTS
Millions of Yen (except for percentages) Thousands of --------------------------------------------- U.S. Dollars 2008 2009 2009/(2)/ % Change ---------------------------------------------------------------------------------------------------- IMAGING AND SOLUTIONS Net sales Yen 1,909,573 100.0% Yen 1,833,098 100.0% $18,516,141 (4.0) Operating expenses 1,674,940 87.7 1,687,732 92.1% 17,047,798 0.8 Operating income Yen 234,633 12.3% Yen 145,366 7.9% $ 1,468,343 (38.0) INDUSTRIAL PRODUCTS Net sales Yen 148,883 100.0% Yen 119,671 100.0% $ 1,208,798 (19.6) Operating expenses 144,708 97.2 124,597 104.1 1,258,556 (13.9) Operating income (loss) Yen 4,175 2.8% Yen (4,926) (4.1)% $ (49,758) -- OTHER Net sales Yen 166,076 100.0% Yen 143,048 100.0% $ 1,444,929 (13.9) Operating expenses 163,529 98.5 142,690 99.7 1,441,313 (12.7) Operating income Yen 2,547 1.5% Yen 358 0.3% $ 3,616 (85.9) CORPORATE AND ELIMINATION Net sales Yen (4,543) Yen (4,121) $ (41,626) Operating expenses 55,306 62,141 627,687 Operating income (loss) Yen (59,849) Yen (66,262) $ (669,313) CONSOLIDATED Net sales Yen 2,219,989 100.0% Yen 2,091,696 100.0% $21,128,242 (5.8) Operating expenses 2,038,483 91.8 2,017,160 96.4 20,375,354 (1.0) Operating income Yen 181,506 8.2% Yen 74,536 3.6% $ 752,889 (58.9)
Notes: /(1)/ During fiscal year 2007, a subsidiary of the Company sold its content distribution business. As a result of such sale, the operating results of such business were reclassified as a discontinued operation. Accordingly, sales derived from such business were excluded from the above segment data for fiscal year 2007 in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." /(2)/ The above consolidated financial data set forth under the heading "Thousands of U.S. Dollars 2009," which have been translated from Japanese Yen to U.S. Dollar for the year ended March 31, 2009, are included solely for the convenience of readers outside of Japan and have been calculated using the exchange rate of Yen 99 to US$1, the approximate rate of exchange prevailing at the Federal Reserve Board on March 31, 2009. /(3)/ The above consolidated financial data, which set forth net sales, operating expenses and operating income (loss) for each operating segment, include both transactions with external customers as well as intersegment transactions. Notwithstanding the foregoing, all net sales recorded in the Imaging and Solutions operating segment and the Other operating segment reflect sales to external customers only, as none of the products in the Imaging and Solutions operating segment or the Other operating segment were sold to other Ricoh group companies that conduct businesses in the other operating segments. Accordingly, the consolidated net sales figure for the Imaging and Solutions operating segment set forth in the above table is the aggregate of the sales figures for the Imaging Solutions product category and the Network System Solutions product category set forth in the "SALES BY PRODUCT" table included under Item 5.A. Operating Results. Consolidated net sales of Ricoh for fiscal year 2009 decreased by 5.8% (or Yen 128.3 billion) to Yen 2,091.6 billion from Yen 2,219.9 billion for fiscal year 2008. This 5.8% percent decrease was due primarily to the 4.0% decrease in sales in the Imaging and Solutions segment which accounted for 87.6% of consolidated net sales. The 4.0% decrease in sales in the Imaging and Solutions segment was in turn due primarily to the 6.5% decrease in sales in the Imaging Solutions category, which accounted for 76.4% of consolidated net sales. The 6.5% decrease in sales in the Imaging Solutions category was partially offset by the 17.2% increase in net sales in the Network System Solutions category. -47- Imaging and Solutions Net sales in the Imaging and Solutions segment for fiscal year 2009 decreased by 4.0% (or Yen 76.4 billion) to Yen 1,833.0 billion from Yen 1,909.5 billion for fiscal year 2008. This decrease was due primarily to lower sales recorded in the Imaging Solutions category. More specifically, sales in the Imaging Solutions category for fiscal year 2009 decreased by 6.5% (or Yen 110.8 billion) to Yen 1,598.6 billion from Yen 1,709.4 billion for fiscal year 2008. This decrease was due primarily to the decrease in net sales of monochrome PPCs/MFPs and the net effect of the depreciation of the U.S. Dollar and the Euro in relation to the Japanese Yen. The decrease in net sales of monochrome PPCs/MFPs was due primarily to the effects of the global economic recession and the shift in customer demand from monochrome products to products with color capabilities. Color PPCs/MFPs still remained popular among customers, especially overseas, as these products are equipped with advanced digital and networking technologies, which address customers' needs for conducting business operations effectively and efficiently by digitalizing and colorizing documents and enabling the handling of large volumes of information. Accordingly, due to their popularity, net sales of value-added supplies for color PPCs/MFPs remained strong and together with the net sales generated by IKON and InfoPrint Solutions Company contributed to the overall net sales in this category. Nonetheless, the contributions these factors made to net sales were not sufficient to fully offset the decrease in net sales of monochrome PPCs/MFPs resulting from the global economic recession and the sharp decrease in customer demand for monochrome PPCs/MFPs. In addition, Ricoh lowered the sales price of certain products to stimulate sales in the sluggish and competitive market, which contributed to the decrease in net sales. Sales in the Network System Solutions category for fiscal year 2009 increased by 17.2% (or Yen 34.4 billion) to Yen 234.4 billion from Yen 200.0 billion for fiscal year 2008. Sales in the solutions business, such as support services that assist customers establish networked environments in connection with Ricoh's imaging solutions products and solutions with software to optimize total printing costs, continued to increase in the overseas markets in fiscal year 2009. Sales in the printing solutions business increased because customers sought products that streamlined the process of document scanning, indexing and distribution by integrating hardware and software. In addition, IKON's document outsourcing services (such as on-site printing services) also contributed to the increase in sales in this category. Excluding the net effect of the foreign currency exchange rate fluctuations, sales in the Imaging and Solutions segment would have increased by 3.7% (or Yen 70.9 billion) for fiscal year 2009 as compared to fiscal year 2008. For fiscal year 2009, the cost of sales in the Imaging and Solutions segment decreased due primarily to the decrease in net sales and the net effect of the appreciation of the Japanese Yen in relation to the U.S. Dollar and the Euro. In addition, because Ricoh reduced its production volume in response to the decrease in demand, Ricoh was not able to fully absorb certain fixed costs. In terms of selling, general and administrative -48- expenses, while the group-wide cost reduction efforts contributed to a decline in ongoing operating expenditures, Ricoh incurred additional strategic expenses in connection with its efforts to (1) enhance its sales and service structures, such as through the IKON acquisition, (2) expand its production printing business and (3) make structural changes aimed at improving its operational efficiency in this segment. As a result, operating expenses in the Imaging and Solutions segment for fiscal year 2009 increased by 0.8% (or Yen 12.7 billion) to Yen 1,687.7 billion from Yen 1,674.9 billion for fiscal year 2008. Operating income for the Imaging and Solutions segment for fiscal year 2009 decreased by 38.0% (or Yen 89.2 billion) to Yen 145.3 billion from Yen 234.6 billion for fiscal year 2008. Operating income as a percentage of net sales for fiscal year 2009 decreased by 4.4 percentage points to 7.9% from 12.3% as compared to fiscal year 2008, due primarily to the decrease in net sales and increase in selling, general and administrative expenses as discussed above. Industrial Products Net sales in the Industrial Products segment for fiscal year 2009 decreased by 19.6% (or Yen 29.2 billion) to Yen 119.6 billion from Yen 148.8 billion for fiscal year 2008. This decrease was due primarily to the decrease in sales of semiconductors devices, thermal media and electronic components, which experienced a sharp decline in demand due primarily to the global economic recession. Operating expenses in this segment for fiscal year 2009, decreased by 13.9% (or Yen 20.1 billion) to Yen 124.5 billion from Yen 144.7 billion for fiscal year 2008. This decrease was due primarily to the decrease in cost of sales resulting from the decrease in net sales. Selling, general and administrative expenses decreased slightly due mainly to the decrease in net sales and in ongoing operating expenditures as a result of group-wide cost reduction efforts. As a result, operating income (loss) for the Industrial Products segment for fiscal year 2009 decreased by Yen 9.1 billion to an operating loss of Yen 4.9 billion from an operating income of Yen 4.1 billion for fiscal year 2008. Other Net sales in the Other segment for fiscal year 2009 decreased by 13.9% (or Yen 23.0 billion) to Yen 143.0 billion from Yen 166.0 billion for fiscal year 2008. During fiscal year 2009, sales of digital cameras decreased due primarily to weak demand for new digital camera products that Ricoh introduced. In addition, net sales from the financing business conducted by Ricoh Leasing Co., Ltd. decreased due mainly to the sharp decline in corporate demand for capital investments as a result of the economic recession in Japan. Operating expenses in this segment for fiscal year 2009 decreased by 12.7% (or Yen 20.8 billion) to Yen 142.6 billion from Yen 163.5 billion for fiscal year 2008. This decrease was due primarily to the decrease in cost of sales resulting from the decrease in net sales. Selling, general and administrative expenses decreased slightly due mainly to the -49- decrease in net sales and in ongoing operating expenditures as a result of group-wide cost reduction efforts. As a result, operating income for the Other segment for fiscal year 2009 decreased by Yen 2.1 billion to Yen 0.3 billion as compared to Yen 2.5 billion for fiscal year 2008. Operating income as a percentage of net sales for fiscal year 2009 decreased by 1.2 percentage points to 0.3% from 1.5 % as compared to fiscal year 2008. -50- GEOGRAPHIC SEGMENTS BY GEOGRAPHIC ORIGIN
Millions of Yen (except for percentages) Thousands of ------------------------------------------- U.S. Dollars 2008 2009 2009/(2)/ % Change ------------------------------------------------------------------------------------------------- JAPAN Net sales Yen 1,535,513 100.0% Yen 1,393,196 100.0% $14,072,687 (9.3) Operating expenses 1,427,575 93.0 1,331,638 93.0 13,450,889 (6.7) Operating income Yen 107,938 7.0% Yen 61,558 7.0% $ 621,798 (43.0) THE AMERICAS Net sales Yen 435,783 100.0% Yen 506,789 100.0% $ 5,119,081 16.3 Operating expenses 433,429 99.5 532,734 99.5 5,381,152 22.9 Operating income (loss) Yen 2,354 0.5% Yen (25,945) 0.5% $ (262,071) -- EUROPE Net sales Yen 604,809 100.0% Yen 523,539 100.0% $ 5,288,273 (13.4) Operating expenses 565,736 93.5 504,116 96.3 5,092,081 (10.9) Operating income Yen 39,073 6.5% Yen 19,423 3.7% $ 196,192 (50.3) OTHER Net sales Yen 317,598 100.0% Yen 265,644 100.0% $ 2,683,273 (16.4) Operating expenses 291,141 91.7 252,951 95.2 2,555,061 (13.1) Operating income Yen 26,457 8.3% Yen 12,693 4.8% $ 128,212 (52.0) CORPORATE AND ELIMINATION Net sales Yen (673,714) Yen (597,472) $(6,035,071) Operating expenses (679,398) (604,279) (6,103,828) Operating income Yen 5,684 Yen 6,807 $ 68,758 CONSOLIDATED Net sales Yen 2,219,989 100.0% Yen 2,091,696 100.0% $21,128,242 (5.8) Operating expenses 2,038,483 91.8 2,017,160 96.4 20,375,354 (1.0) Operating income Yen 181,506 8.2% Yen 74,536 3.6% $ 752,889 (58.9)
Notes: /(1)/ During fiscal year 2007, a subsidiary of the Company sold its content distribution business. As a result of such sale, the operating results of such business were reclassified as a discontinued operation. Accordingly, sales derived from such business were excluded from the above segment data for fiscal year 2007 in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." /(2)/ The above consolidated financial data set forth under the heading "Thousands of U.S. Dollars 2009," which have been translated from Japanese Yen to U.S. Dollar for the year ended March 31, 2009, are included solely for the convenience of readers outside of Japan and have been calculated using the exchange rate of Yen 99 to US$1, the approximate rate of exchange prevailing at the Federal Reserve Board on March 31, 2009. /(3)/ The above consolidated financial data, which set forth net sales, operating expenses and operating income (loss) for each geographic segment by geographic origin, include both transactions with external customers as well as intersegment transactions. Japan Sales in Japan for fiscal year 2009 decreased by 9.3% (or Yen 142.3 billion) to Yen 1,393.1 billion from Yen 1,535.5 billion for fiscal year 2008. This decrease was due primarily to decreased sales of PPCs/MFPs, which decrease was partially offset by the increase in sales of laser printers. The decrease in sales of PPCs/MFPs was primarily attributable to (1) the deterioration of customer demand in office equipment during fiscal year 2009 due mainly to the global economic recession as customers reduced their capital investment in office equipment and focused on reducing printing costs by reducing printing volume, and (2) the appreciation of the Japanese Yen against the U.S. Dollar and the Euro. The increase in sales of laser printers, which partially offset the decrease in sales of PPCs/MFPs, was due primarily to increased sales of post sales services such as maintenance services and supplies. Sales of solutions products, such as support services, document management applications and other software, decreased in Japan due to the -51- overall depressed market despite Ricoh's efforts to expand the "Operius" business. In addition, decreased sales of semiconductor devices as well as digital cameras also contributed to the overall decrease in sales in Japan. Furthermore, Ricoh lowered the sales price of certain products to stimulate sales in the sluggish and competitive market, which contributed to the decrease in net sales. Operating expenses in Japan for fiscal year 2009 decreased by 6.7% (or Yen 95.9 billion) to Yen 1,331.6 billion from Yen 1,427.5 billion for fiscal year 2008. This decrease was due primarily to the decrease in cost of sales resulting from the decrease in net sales. Selling, general and administrative expenses also decreased due mainly to the decrease in net sales and in ongoing operating expenditures as a result of Ricoh's group-wide cost reduction efforts. As a result, operating income for fiscal year 2009 decreased by 43.0% (or Yen 46.3 billion) to Yen 61.5 billion from Yen 107.9 billion for fiscal year 2008. The Americas Net sales in the Americas for fiscal year 2009 increased by 16.3% (or Yen 71.0 billion) to Yen 506.7 billion from Yen 435.7 billion for fiscal year 2008. Despite sluggish economic conditions in the Americas due to the economic recession in the United States and the net effect of the depreciation of the U.S. Dollar relative to the Japanese Yen, Ricoh recorded increased sales of value-added color PPCs/MFPs and laser printers in the Americas for fiscal year 2009. This increase in sales was due mainly to the fact that (1) Ricoh introduced new models that responded to the diverse range of customer needs for color, networking and high-speed products in this geographic segment and (2) fiscal year 2009 was the first fiscal year in which net sales generated by IKON for part of the fiscal year was consolidated into Ricoh, as IKON became a consolidated subsidiary during fiscal year 2009, and net sales generated by InfoPrint Solutions Company for the full fiscal year was consolidated into Ricoh, as InfoPrint Solutions Company became a consolidated subsidiary during fiscal year 2008. Operating expenses in the Americas for fiscal year 2009 increased by 22.9% (or Yen 99.3 billion) to Yen 532.7 billion from Yen 433.4 billion for fiscal year 2008. Despite the increase in sales of value-added color PPCs/MFPs and laser printers, operating expenses increased at a higher percentage of increase than the increase in net sales due primarily to the increasingly competitive business environment in the Americas which required Ricoh to increase its strategic sales promotions and incur greater marketing related expenses. In addition, the consolidation of expenses of IKON and InfoPrint Solutions Company contributed to the increase in operating expenses in the Americas. As a result, operating income (loss) for fiscal year 2009 decreased by Yen 28.2 billion to an operating loss of Yen 25.9 billion from an operating income of Yen 2.3 billion for fiscal year 2008. -52- Europe Sales in Europe for fiscal year 2009 decreased by 13.4% (or Yen 81.2 billion) to Yen 523.5 billion from Yen 604.8 billion for fiscal year 2008. This decrease in sales was due primarily to a decrease in sales of PPCs/MFPs reflecting a decrease in demand for such products as a result of the global financial crisis and the net effect of the depreciation of the Euro relative to the Japanese Yen. While Ricoh continued to introduce new products that met customer demand, such efforts were not sufficient to fully offset the decrease in demand. In addition, Ricoh lowered the sales price of certain products to stimulate sales in the sluggish and competitive market, which contributed to the decrease in net sales. Operating expenses in Europe for fiscal year 2009 decreased by 10.9% (or Yen 61.6 billion) to Yen 504.1 billion from Yen 565.7 billion for fiscal year 2008. This decrease was due primarily to the decrease in cost of sales resulting from the decrease in net sales. Selling, general and administrative expenses also decreased due mainly to the decrease in net sales. As a result, operating income for fiscal year 2009 decreased by 50.3% (or Yen 19.6 billion) to Yen 19.4 billion from Yen 39.0 billion for fiscal year 2008. Other Net sales in the Other geographic segment, which includes China, South East Asia and Oceania, decreased for fiscal year 2009 by 16.4% (or Yen 51.9 billion) to Yen 265.6 billion from Yen 317.5 billion for fiscal year 2008. This decrease was due primarily to the decrease in exports to other geographic segments, reflecting decreased demand for Ricoh's products resulting from the global economic recession stemming from the global financial crisis. Operating expenses in the Others geographic segment for fiscal year 2009 decreased by 13.1% (or Yen 38.1 billion) to Yen 252.9 billion from Yen 291.1 billion for fiscal year 2008. This decrease was due primarily to the decrease in cost of sales resulting from the decrease in exports to other geographic segments. Selling, general and administrative expenses also decreased due mainly to the decrease in net sales. As a result, operating income for fiscal year 2009 decreased by 52.0% (or Yen 13.7 billion) to Yen 12.6 billion from Yen 26.4 billion for fiscal year 2008. FISCAL YEAR 2008 COMPARED TO FISCAL YEAR 2007 Net sales. Consolidated net sales of Ricoh for fiscal year 2008 increased by 7.3% (or Yen 151.0 billion) to Yen 2,219.9 billion from Yen 2,068.9 billion for fiscal year 2007. The increase in net sales in the Imaging and Solutions segment and the Industrial Products segment primarily contributed to this increase in net sales. Net sales from the Imaging and Solutions segment accounted for 86.0% of Ricoh's consolidated net sales for fiscal year 2008. Net sales of PPCs/MFPs, laser -53- printers and GELJET printers, particularly those with color capabilities, continued to increase during fiscal year 2008. In addition, net sales generated by InfoPrint Solutions Company (whose net sales were reflected for part of the fiscal year) and the European sales and service companies (formerly known as Danka Business Systems PLC) acquired in fiscal year 2007 (whose net sales were reflected for the full fiscal year for the first time) contributed to the increase in net sales for the Imaging and Solutions segment for fiscal year 2008. More specifically, a significant portion of the net sales from the Imaging and Solutions segment was derived from the Imaging Solutions category, which accounted for 77.0% of Ricoh's total consolidated net sales, up 0.6 percentage points from fiscal year 2007. The increase in net sales from the Imaging Solutions category was due primarily to the increase in net sales of color PPCs/MFPs, color and monochrome laser printers and GELJET printers. Net sales derived from InfoPrint Solutions Company's production printing products as well as Ricoh's ability to respond to its customers' demands by offering solutions aimed at increasing management and workflow efficiencies and tailored to meet their printing needs ranging from office network printers and mission-critical business printers to high-speed, on-demand printing environments also contributed to the increase in net sales in the Imaging Solutions category for fiscal year 2008. Sales of color PPCs/MFPs continued to grow in double-digit percentage figures in both Japan and the overseas markets due in part to the introduction of new value-added products that featured higher printing quality and enhanced security functions. Compared to fiscal year 2007, net sales of color PPCs/MFPs increased by 11.3% in Japan and 35.8% in the overseas markets as customer demand in both Japan and the overseas markets continued to shift from monochrome to color products. Similar to fiscal year 2007, sales of color and monochrome laser printers and GELJET printers continued to grow in double-digit percentage figures in fiscal year 2008 in Japan and the overseas markets. Compared to fiscal year 2007, net sales of laser printers and GELJET printers increased by 8.9% in Japan and 88.8% in the overseas markets. These increases in laser printers and GELJET printers were due primarily to the continuous release of new value added products that adequately addressed customer needs in terms of printing quality and speed in both Japan and the overseas markets. For example, in fiscal year 2008, Ricoh introduced a new product lineup of low-end GELJET printers, such as the IPSiO GX3000SF/GX3000S Series (also known as Aficio GX3000SF/GX3000S/3050sfn when sold overseas), which were favorably received in Japan and the overseas markets. In addition to the increase in net sales in the Imaging Solutions category, the increase in net sales in the Network System Solutions category, which accounted for 9.0% of Ricoh's total consolidated net sales for fiscal year 2008, also contributed to the increase in net sales in the Imaging and Solutions segment. Sales of information technology support services and software, which are focused on enhancing customers' office printing environment, increased in line with the increase in sales of Ricoh's solutions business (comprised not only of sales of hardware but also sales of software and services). In Japan, Ricoh focused on providing greater support services that assisted customers in developing networked environments to optimize their printing costs and that lead to increased sales of both hardware and software particularly following the launch of its new solutions brand "Operius." As a result of these factors, net sales in the Network -54- System Solutions category increased by 3.0% in fiscal year 2008 as compared to fiscal year 2007. In the Industrial Products segment, net sales increased by 8.2% in fiscal year 2008 as compared to fiscal year 2007. This increase was due primarily to the increase in sales of semiconductors and thermal media resulting from stable market demand for such products. In particular, sales of semiconductors increased due primarily to an increase in demand for Ricoh's integrated circuits by manufacturers of electronic devices such as cellular phones and PC card. The increase in sales in these products, however, was partially offset by the decrease in sales of optical equipment due to lower demand for rear projection products. In the Other segment, net sales increased by 3.1% mainly due to the continuous increase in sales of digital cameras and financing services. The net effect of the depreciation of the U.S. Dollar and the appreciation of the Euro in relation to the Japanese Yen also contributed to the increase in consolidated net sales in fiscal year 2008 as compared to fiscal year 2007 in Japanese Yen. Had the foreign currency exchange rates remained the same as in fiscal year 2007, Ricoh's consolidated net sales would have increased by 5.4%. Products. The increase in net sales derived from products was due primarily to the increase in net sales of color PPCs/MFPs, color and monochrome laser printers and GELJET printers resulting from Ricoh's introduction of new high- to low-end product models with advanced features, which were favorably received by customers who wished to expand their office digital color networking capacity. The increase in net sales of color PPCs/MFPs, color and monochrome laser printers and GELJET printers completely offset the decrease in net sales of optical equipment. In addition, net sales generated by products sold by InfoPrint Solutions Company and the European sales and service companies acquired in fiscal year 2007 contributed to the growth in net sales derived from products. Post sales and rentals. Net sales derived from post sales services and rentals of equipment increased mainly due to an increase in revenue from post sale services such as maintenance services as well as increased sales of supplies for PPCs/MFPs, laser printers and GELJET printers. Ricoh continued to direct its marketing and promotional efforts of its equipment rental services towards major corporate clients in Japan and overseas. Other revenue. Net sales derived from other sources increased mainly due to an increase in revenue from financing services. Cost of sales. Consolidated cost of sales for fiscal year 2008 increased by 7.1% (or Yen 85.7 billion) to Yen 1,292.2 billion from Yen 1,206.5 billion for fiscal year 2007. This increase was due primarily to the increase in net sales of color PPCs/MFPs, color and monochrome laser printers and GELJET printers. The increase in cost of sales was also attributable to the fact that fiscal year 2008 was the first year in which (1) cost of sales incurred by InfoPrint Solutions Company, which commenced its operation in June 2007 -55- and (2) cost of sales for the full fiscal year incurred by the European sales and service companies (formerly known as Danka Business Systems PLC) acquired in fiscal year 2007, were reflected in Ricoh's financial statements. While overall cost of sales increased due to the above factors, Ricoh was able to achieve certain production efficiencies as a result of the increase in net sales of the above products. Gross profit. Consolidated gross profit for fiscal year 2008 increased by 7.6% (or Yen 65.3 billion) to Yen 927.7 billion from Yen 862.4 billion for fiscal year 2007. This increase in gross profit primarily reflects the increase in net sales derived from new value-added products, such as color PPCs/MFPs, color and monochrome laser printers and GELJET printers, as well as production efficiencies achieved by Ricoh as a result of increased sale of some of its products. Gross profit recorded by InfoPrint Solutions Company (for part of the fiscal year) and the European sales and service companies (formerly known as Danka Business Systems PLC) acquired in fiscal year 2007 (for the full fiscal year) in Europe also contributed to the increase in consolidated gross profit for fiscal year 2008. Selling, general and administrative expenses. Consolidated selling, general and administrative expenses for fiscal year 2008, increased by 8.5% (or Yen 58.1 billion) to Yen 746.2 billion from Yen 688.0 billion for fiscal year 2007. Ricoh invested Yen 126.0 billion in R&D activity during fiscal year 2008 for purposes of developing more advanced PPCs/MFPs, laser printers and GELJET printers with new capabilities to maintain Ricoh's large market share position in these products in the current competitive marketplace. In addition Ricoh incurred certain expenses relating to (1) investments in information technologies in connection with the development of its core operating systems in its offices in Japan and overseas and (2) the commencement of operations of InfoPrint Solutions Company. Fiscal year 2008 was also the first year in which selling, general and administrative expenses of InfoPrint Solutions Company (for part of the fiscal year) and the European sales and service companies (formerly known as Danka Business Systems PLC) acquired in fiscal year 2007(for the full fiscal year) were reflected in Ricoh's consolidated financial statements. Expenses relating to the consolidation of certain other sales and service companies in Japan and overseas to improve operational efficiency, such as the consolidation of sales and services companies in Europe, also contributed to the increase in consolidated selling, general and administrative expenses for fiscal year 2008. Furthermore, the net effect of the appreciation of the Euro and the depreciation of the U.S. Dollar in relation to the Japanese Yen resulted in an increase in selling, general and administrative expenses of approximately Yen 10.9 billion. Operating income. Consolidated operating income for fiscal year 2008 increased by 4.1% (or Yen 7.1 billion) to Yen 181.5 billion from Yen 174.3 billion for fiscal year 2007. Operating income as a percentage of net sales decreased by 0.2 percentage points from 8.4% for fiscal year 2007 to 8.2% for fiscal year 2008. Despite the increase in sales of value-added products such as color PPCs/MFPs, color and monochrome laser printers and GELJET printers, the percentage of increase in gross profit was lower than the percentage of increase in selling, general and administrative expenses due to certain expenses that Ricoh incurred during fiscal year 2008 to expand its business and to improve its operational efficiency as discussed above. -56- Interest and dividend income. Consolidated interest and dividend income for fiscal year 2008 increased by Yen 0.8 billion to Yen 6.3 billion from Yen 5.5 billion for fiscal year 2007. This increase was attributable to the increase in dividend income derived from equity investments in Japanese companies reflecting the favorable financial market conditions and the positive change in economic conditions in Japan. Interest expense. Consolidated interest expense for fiscal year 2008 decreased by Yen 2.5 billion to Yen 4.8 billion from Yen 7.3 billion for fiscal year 2007. This decrease in interest expense was attributable to the decrease in the amount of outstanding interest-bearing debt owed to third parties, which reflects Ricoh's continuing efforts to utilize funds available within Ricoh rather than borrowing from third parties. Foreign currency exchange (gain) loss, net. Consolidated foreign currency exchange loss, net included in other (income) expenses for fiscal year 2008 increased by Yen 9.7 billion to Yen 10.9 billion from Yen 1.1 billion for fiscal year 2007. For additional information on Ricoh's foreign exchange hedging activities, see Item 11. Quantitative and Qualitative Disclosures About Market Risk. Other, net. Consolidated other, net included in other (income) expenses decreased by Yen 0.7 billion to an income of Yen 2.7 billion for fiscal year 2008 from an income of Yen 3.4 billion for fiscal year 2007. This decrease in income of other, net in fiscal year 2008 was due to the decrease in income derived from the sale of marketable securities as compared to fiscal year 2007. Provision for income taxes. Total consolidated provision for income taxes for fiscal year 2008 decreased by 1.4% (or Yen 0.9 billion) to Yen 63.3 billion from Yen 64.3 billion for fiscal year 2007. The effective tax rate was 36.3% for fiscal year 2008 compared to 36.9% for fiscal year 2007. The effective tax rate was lower than the Japanese statutory tax rate of approximately 40%. See Note 9 to the Consolidated Financial Statements for additional information. Minority interests. Consolidated minority interests for fiscal year 2008 increased by Yen 0.5 billion to Yen 6.0 billion from Yen 5.5 billion for fiscal year 2007. This increase was due primarily to improved performance of Ricoh Elemex Corporation for fiscal year 2008. Equity in earnings of affiliates. Consolidated equity in earnings of affiliates for fiscal year 2008 decreased by Yen 0.2 billion to Yen 1.2 billion from Yen 1.5 billion for fiscal year 2007. This decrease was due primarily to the fact that Ricoh no longer recorded earnings for a company that ceased to be an affiliate as of October 2007 due to certain restructuring initiatives undertaken by such company. See Note 7 to the Consolidated Financial Statements for additional information. -57- OPERATING SEGMENTS
Millions of Yen (except for percentages) Thousands of --------------------------------------------- U.S. Dollars 2007 2008 2008/(2)/ % Change ---------------------------------------------------------------------------------------------------- OFFICE SOLUTIONS Net sales Yen 1,774,467 100.0% Yen 1,909,573 100.0% $19,095,730 7.6 Operating expenses 1,549,156 87.3 1,674,940 87.7 16,749,400 8.1 Operating income Yen 225,311 12.7% Yen 234,633 12.3% $ 2,346,330 4.1 INDUSTRIAL PRODUCTS Net sales Yen 138,112 100.0% Yen 148,883 100.0% $ 1,488,830 7.8 Operating expenses 135,164 97.9 144,708 97.2 1,447,080 7.1 Operating income Yen 2,948 2.1% Yen 4,175 2.8% $ 41,7504 1.6 OTHER Net sales Yen 161,071 100.0% Yen 166,076 100.0% $ 1,660,760 3.1 Operating expenses 158,868 98.6 163,529 98.5 1,635,290 2.9 Operating income Yen 2,203 1.4% Yen 2,547 1.5% $ 25,4701 5.6 CORPORATE AND ELIMINATION Net sales Yen (4,725) Yen (4,543) $ (45,430) Operating expenses 51,357 55,306 553,060 Operating income (loss) Yen (56,082) Yen (59,849) $ (598,490) CONSOLIDATED Net sales Yen 2,068,925 100.0% Yen 2,219,989 100.0% $22,199,890 7.3 Operating expenses 1,894,545 91.6 2,038,483 91.8 20,384,830 7.6 Operating income Yen 174,380 8.4% Yen 181,506 8.2% $ 1,815,060 4.1
Notes: /(1)/ During fiscal year 2007, a subsidiary of the Company sold its content distribution business. As a result of such sale, the operating results of such business were reclassified as a discontinued operation. Accordingly, sales derived from such business were excluded from the above segment data for all periods in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." /(2)/ The above consolidated financial data set forth under the heading "Thousands of U.S. Dollars 2008," which have been translated from Japanese Yen to U.S. Dollar for the year ended March 31, 2008, are included solely for the convenience of readers outside of Japan and have been calculated using the exchange rate of Yen 100 to US$1, the approximate rate of exchange prevailing at the Federal Reserve Board on March 31, 2008. /(3)/ The above consolidated financial data, which set forth net sales, operating expenses and operating income (loss) for each operating segment, include both transactions with external customers as well as intersegment transactions. Office Solutions Net sales in the Imaging and Solutions segment for fiscal year 2008 increased by 7.6% (or Yen 135.1 billion) to Yen 1,909.5 billion from Yen 1,774.4 billion for fiscal year 2007. This increase was due primarily to the growth recorded in the Imaging Solutions category. More specifically, sales in the Imaging Solutions category for fiscal year 2008 increased by 8.2% (or Yen 129.3 billion) to Yen 1,709.4 billion from Yen 1,580.1 billion for fiscal year 2007. This increase was due primarily to the increase in net sales of value-added color PPCs/ MFPs, color and monochrome laser printers and GELJET printers in both Japan and the overseas markets. Color PPCs/MFPs remained popular among customers as these products are equipped with advanced digital and networking technologies, which address customers' needs for conducting business operations effectively and efficiently by digitalizing and colorizing documents and enabling the handling of large volumes of information. The increase in sales of color and monochrome laser printers in fiscal year 2008 was due primarily to the fact that the net sales of InfoPrint Solutions Company, which primarily sells production printing products, were reflected in Ricoh's financial statements. Production printing products are high-end laser -58- printers that are primarily used in environments that require high-volume printing, such as offices and data centers. The increase in sales derived from production printing products contributed to the increase in sales in this segment. In addition, Ricoh continued to release products with enhanced security features and products that are friendly to the environment. Furthermore, Ricoh continued to offer solutions to optimize the total printing costs of its customers in fiscal year 2008 to assist customers manage their TDV more effectively and efficiently. On the other hand, sales of monochrome PPCs/MFPs decreased in fiscal year 2008 due primarily to the shift in customer demand from monochrome products to products with color capabilities. Sales in the Network System Solutions category for fiscal year 2008 increased by 3.0% (or Yen 5.7 billion) to Yen 200.0 billion from Yen 194.3 billion for fiscal year 2007. Sales in the solutions business, such as support services that assist customers establish networked environments in connection with Ricoh's imaging solutions products and solutions with software to optimize total printing costs, continued to increase in both Japan and the overseas markets in fiscal year 2008. Sales in the printing solutions business increased because customers sought products that streamlined the process of document scanning, indexing and distribution by integrating hardware and software. Excluding the net effect of the foreign currency exchange rate fluctuations, sales in the Imaging and Solutions segment would have increased by 5.5% (or Yen 98.1 billion) for fiscal year 2008 as compared to fiscal year 2007. For fiscal year 2008, cost of sales of the Imaging and Solutions segment increased due primarily to the increase in net sales. Fiscal year 2008 was also the first fiscal year in which the cost of sales and selling, general and administrative expenses of InfoPrint Solutions Company (for part of the fiscal year) and the European sales and service companies (formerly known as Danka Business Systems PLC) acquired in fiscal year 2007 (for the full fiscal year) were reflected in Ricoh's consolidated financial statements. In addition, Ricoh incurred expenses relating to the increase of research and development investments in its core products, such as PPCs/MFPs in the Imaging Solutions category. Furthermore, Ricoh incurred certain selling, general and administrative expenses in fiscal year 2008 in connection with the consolidation of a number of sales and service companies in Europe. As a result, operating expenses in the Imaging and Solutions segment for fiscal year 2008 increased by 8.1% (or Yen 125.7 billion) to Yen 1,674.9 billion from Yen 1,549.1 billion for fiscal year 2007. Operating income for the Imaging and Solutions segment for fiscal year 2008 increased by 4.1% (or Yen 9.3 billion) to Yen 234.6 billion from Yen 225.3 billion for fiscal year 2007. Operating income as a percentage of net sales for fiscal year 2008 decreased by 0.4 percentage points to 12.3% from 12.7% as compared to fiscal year 2007 primarily because the percentage increase in operating expenses was greater than the percentage increase in net sales for the same period. Industrial Products Net sales in the Industrial Products segment for fiscal year 2008 increased by 7.8% (or Yen 10.7 billion) to Yen 148.8 billion from Yen 138.1 billion for fiscal year 2007. Sales -59- of semiconductors and thermal media increased due to stable market demand. In particular, sales of semiconductors increased due primarily to an increase in demand for Ricoh's integrated circuits by manufacturers of electronic devices such as cellular phones and PC card. While sales in the optical equipment business decreased from the previous fiscal year due primarily to the decrease in demand for rear projection products, such decrease in sales was fully offset by the increase in sales of the semiconductor and thermal media businesses. Operating expenses in this segment for fiscal year 2008, increased by 7.1% (or Yen 9.5 billion) to Yen 144.7 billion from Yen 135.1 billion for fiscal year 2007. This increase was due primarily to the increase in sales of products in this segment. As a result, operating income for the Industrial Products segment for fiscal year 2008 increased by 41.6% (or Yen 1.2 billion) to Yen 4.1 billion from Yen 2.9 billion for fiscal year 2007. Operating income as a percentage of net sales for fiscal year 2008 increased by 0.7 percentage points to 2.8% from 2.1% as compared to fiscal year 2007. Other Net sales in the Other segment for fiscal year 2008 increased by 3.1% (or Yen 5.0 billion) to Yen 166.0 billion from Yen 161.0 billion for fiscal year 2007. During fiscal year 2008, sales of digital cameras increased due primarily to the favorable response by customers to new digital camera products that Ricoh introduced. The steady performance of the financing business by Ricoh Leasing Co., Ltd. also contributed to the increase in net sales in this segment. Operating expenses in this segment for fiscal year 2008, increased by 2.9% (or Yen 4.6 billion) to Yen 163.5 billion from Yen 158.8 billion for fiscal year 2007. As a result, operating income for the Other segment for fiscal year 2008 increased by Yen 0.3 billion to Yen 2.5 billion as compared to Yen 2.2 billion for fiscal year 2007. Operating income as a percentage of net sales for fiscal year 2008 increased by 0.1 percentage points to 1.5% from 1.4 % as compared to fiscal year 2007. -60- GEOGRAPHIC SEGMENTS BY GEOGRAPHIC ORIGIN
Millions of Yen (except for percentages) Thousands of --------------------------------------------- U.S. Dollars 2007 2008 2008/(2)/ % Change --------------------------------------------------------------------------------------------------- JAPAN Net sales Yen 1,521,967 100.0% Yen 1,535,513 100.0% $15,355,130 0.9 Operating expenses 1,411,653 92.8 1,427,575 93.0 14,275,750 1.1 Operating income Yen 110,314 7.2% Yen 107,938 7.0% $ 1,079,380 (2.2) THE AMERICAS Net sales Yen 429,262 100.0% Yen 435,783 100.0% $ 4,357,830 1.5 Operating expenses 408,150 95.1 433,429 99.5 4,334,290 6.2 Operating income Yen 21,112 4.9% Yen 2,354 0.5% $ 23,540 (88.8) EUROPE Net sales Yen 511,795 100.0% Yen 604,809 100.0% $ 6,048,090 18.2 Operating expenses 478,380 93.5 565,736 93.5 5,657,360 18.3 Operating income Yen 33,415 6.5% Yen 39,073 6.5% $ 390,730 16.9 OTHER Net sales Yen 269,043 100.0% Yen 317,598 100.0% $ 3,175,980 18.0 Operating expenses 251,486 93.5 291,141 91.7 2,911,410 15.8 Operating income Yen 17,557 6.5% Yen 26,457 8.3% $ 264,570 50.7 CORPORATE AND ELIMINATION Net sales Yen (663,142) Yen (673,714) $(6,737,140) Operating expenses (655,124) (679,398) (6,793,980) Operating income (loss) Yen (8,018) Yen 5,684 $ 56,840 CONSOLIDATED Net sales Yen 2,068,925 100.0% Yen 2,219,989 100.0% $22,199,890 7.3 Operating expenses 1,894,545 91.6 2,038,483 91.8 20,384,830 7.6 Operating income Yen 174,380 8.4% Yen 181,506 8.2% $ 1,815,060 4.1
Notes: /(1)/ During fiscal year 2007, a subsidiary of the Company sold its content distribution business. As a result of such sale, the operating results of such business were reclassified as a discontinued operation. Accordingly, sales derived from such business were excluded from the above segment data for all periods in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." /(2)/ The above consolidated financial data set forth under the heading "Thousands of U.S. Dollars 2008," which have been translated from Japanese Yen to U.S. Dollar for the year ended March 31, 2008, are included solely for the convenience of readers outside of Japan and have been calculated using the exchange rate of Yen 100 to US$1, the approximate rate of exchange prevailing at the Federal Reserve Board on March 31, 2008. /(3)/ The above consolidated financial data, which set forth net sales, operating expenses and operating income (loss) for each geographic segment by geographic origin, include both transactions with external customers as well as intersegment transactions. Japan Sales in Japan for fiscal year 2008 increased by 0.9% (or Yen 13.5 billion) to Yen 1,535.5 billion from Yen 1,521.9 billion for fiscal year 2007. Ricoh recorded an increase in sales of color PPCs/MFPs, color and monochrome laser printers and GELJET printers in Japan. This increase reflects the results of Ricoh's strategic sales promotion activities and marketing strategy in the Imaging and Solutions segment that capitalized on the shift in customer demand from stand-alone monochrome products to color high-speed products that function in the network environment. Sales of solutions products such as support services, document management applications and other software increased in Japan as well. The increase in sales of solutions products was attributable to Ricoh's successful promotion of solutions associated with software and information technology support services that optimized customers' total printing costs. In addition, increased sales of thermal media also contributed to the overall increase in sales in Japan. -61- Operating expenses in Japan for fiscal year 2008 increased by 1.1% (or Yen 15.9 billion) to Yen 1,427.5 billion from Yen 1,411.6 billion for fiscal year 2007. The increase in operating expenses was due primarily to the increase in sales as well as the increase in R&D expenses. As a result, operating income for fiscal year 2008 decreased by 2.2% (or Yen 2.3 billion) to Yen 107.9 billion from Yen 110.3 billion for fiscal year 2007. The Americas Net sales in the Americas for fiscal year 2008 increased by 1.5% (or Yen 6.5 billion) to Yen 435.7 billion from Yen 429.2 billion for fiscal year 2007. Despite sluggish economic conditions in the Americas due to the slowdown in growth in the United States, Ricoh recorded increased sales of value-added color PPCs/MFPs in the Americas for fiscal year 2008. The increase in sales of such PPCs/MFPs reflects Ricoh's introduction of new models that responded to the diverse range of customer needs for color, networking and high-speed products in this geographic segment. Furthermore, sales of production printing products from the newly consolidated subsidiary InfoPrint Solutions Company and its subsidiaries contributed favorably to the overall sales in the Americas. Operating expenses in this geographic segment for fiscal year 2008 increased by 6.2% (or Yen 25.2 billion) to Yen 433.4 billion from Yen 408.1 billion for fiscal year 2007. Despite the increase in sales of value-added color PPCs/MFPs, operating expenses increased at a higher percentage of increase than the increase in net sales as the increasingly competitive business environment in the Americas required Ricoh to increase its strategic sales promotions and incur greater marketing related expenses. As a result, operating income for fiscal year 2008 decreased by 88.8% (or Yen 18.7 billion) to Yen 2.3 billion from Yen 21.1 billion for fiscal year 2007. Europe Sales in Europe for fiscal year 2008 increased by 18.2% (or Yen 93.0 billion) to Yen 604.8 billion from Yen 511.7 billion for fiscal year 2007, due primarily to an increase in sales of value-added color PPCs/MFPs reflecting Ricoh's continuing efforts to replace monochrome products at customer sites with color products, and color laser printers and GELJET printers reflecting Ricoh's sales promotional efforts to improve TCO. Operating expenses in this geographic segment for fiscal year 2008 increased by 18.3% (or Yen 87.3 billion) to Yen 565.7 billion from Yen 478.3 billion for fiscal year 2007 due primarily to the increase in sales in this geographic segment. As a result, operating income for fiscal year 2008 increased by 16.9% (or Yen 5.6 billion) to Yen 39.0 billion from Yen 33.4 billion for fiscal year 2007 due primarily to increased sales of value-added products such as color PPCs/MFPs, color and monochrome laser printers and GELJET printers. -62- Other Net sales in the Other geographic segment, including China, South East Asia and Oceania, increased for fiscal year 2008 by 18.0% (or Yen 48.5 billion) to Yen 317.5 billion from Yen 269.0 billion for fiscal year 2007. This increase was due primarily to the increase in sales of color PPCs/MFPs, color laser printers and GELJET printers. Sales of these products increased in this geographic segment as customer demand shifted from monochrome products toward color products. In addition, products manufactured in this geographic segment were exported to other geographic segments, reflecting increased demand of Ricoh's office solution products worldwide, which in turn contributed to the increase in sales in this geographic segment. Operating expenses in this geographic segment for fiscal year 2008 increased by 15.8% (or Yen 39.6 billion) to Yen 291.1 billion from Yen 251.4 billion for fiscal year 2007 due primarily to the increase in net sales in this geographic segment. As a result, operating income for fiscal year 2008 increased by 50.7% (or Yen 8.9 billion) to Yen 26.4 billion from Yen 17.5 billion for fiscal year 2007 due primarily to the increase in net sales in this geographic segment. -63- B. Liquidity and Capital Resources Cashflows --------- The following table summarizes our cashflows for each of the three fiscal years ended March 31, 2007, 2008 and 2009, as reported in our Consolidated Statements of Cashflows in the accompanying Consolidated Financial Statements.
(Billions of Yen) For the year ended March 31, ---------------------------- 2007 2008 2009 ------ ------ ------ Net cash provided by operating activities 167.2 194.3 87.4 Net cash used in investing activities (115.4) (198.3) (283.1) Net cash provided by (used in) financing activities 9.2 (72.1) 295.9 Net increase in cash and cash equivalents from discontinued operations 0.8 -- -- Increase (decrease) in cash and cash equivalents 68.6 (85.1) 87.8 Cash and cash equivalents at beginning of year 187.0 255.7 170.6 Cash and cash equivalents at end of year 255.7 170.6 258.4
Operating Cashflows For fiscal year 2009, net cash provided by operating activities consisted primarily of depreciation and amortization of Yen 101.8 billion, a decrease in trade receivables of Yen 37.9 billion, loss on impairment of securities of Yen 26.8 billion and net income from continuing operations of Yen 6.5 billion, which were partially offset by a decrease in trade payables of Yen 97.3 billion, accrued income taxes and accrued expenses and other of Yen 14.0 billion, deferred income taxes of Yen 5.1 billion and an increase in finance receivables of Yen 3.0 billion. As compared to fiscal year 2008, net cash provided by operating activities in fiscal year 2009 decreased mainly because net income decreased by Yen 99.9 billion. For fiscal year 2008, net cash provided by operating activities consisted primarily of net income from continuing operations of Yen 106.4 billion, depreciation and amortization of Yen 95.7 billion, an increase in accrued income taxes and accrued expenses and other of Yen 5.2 billion and deferred income taxes of Yen 4.9 billion, which were partially offset by an increase in finance receivables of Yen 17.1 billion and an increase in trade receivables of Yen 16.5 billion. As compared to fiscal year 2007, net cash provided by operating activities in fiscal year 2008 increased mainly because (1) depreciation and amortization increased for fiscal year 2008 reflecting the financial effect of new companies becoming subsidiaries of the Company in fiscal year 2008 (such as InfoPrint Solutions Company) and (2) the depreciation of the U.S. Dollar in relation to the Japanese Yen in fiscal year 2008 resulted in an increase in Other, net. -64- For fiscal year 2007, net cash provided by operating activities consisted primarily of net income from continuing operations of Yen 106.2 billion, depreciation and amortization of Yen 89.6 billion, and an increase in accrued income taxes and accrued expenses and other of Yen 11.1 billion, which were partially offset by an increase in finance receivables of Yen 28.0 billion and an increase in trade receivables of Yen 15.9 billion. As compared to fiscal year 2006, net cash provided by operating activities in fiscal year 2007 decreased mainly because the increase in net sales, especially in Japan, during the fourth quarter as compared to such period during fiscal year 2006 resulted in an increase in Ricoh's finance receivables and trade receivables for fiscal year 2007. Investing Cashflows For fiscal year 2009, net cash used in investing activities consisted mainly of, Yen 157.4 billion for the acquisition of new subsidiaries, net of cash acquired, Yen 96.9 billion of expenditures for property, plant and equipment and Yen 27.1 billion of other, net. Net cash used in investing activities increased in fiscal year 2009 mainly because Ricoh used cash in connection with the establishment and commencement of IKON's operations. For fiscal year 2008, net cash used in investing activities consisted mainly of, Yen 97.9 billion in payments for purchases of available-for-sale securities, Yen 96.7 billion for acquisitions of new subsidiaries, net of cash acquired, Yen 85.2 billion of expenditures for property, plant and equipment and Yen 19.3 billion of other, net. Ricoh realized Yen 100.0 billion from the sale of available-for-sale securities that were held by the Company and certain subsidiaries. Net cash used in investing activities increased in fiscal year 2008 mainly because Ricoh used cash in connection with the establishment and commencement of operations of InfoPrint Solutions Company. For fiscal year 2007, net cash used in investing activities consisted mainly of, Yen 97.1 billion in payments for purchases of available-for-sale securities, Yen 85.7 billion of expenditures for property, plant and equipment, Yen 23.2 billion for acquisitions of new subsidiaries, net of cash acquired, and Yen 17.9 billion of other, net. Ricoh realized Yen 96.0 billion from the sale of available-for-sale securities that were held by the Company and certain subsidiaries and Yen 12.0 billion from sales of discontinued operations. As compared to fiscal year 2006, net cash used in investing activities decreased in fiscal year 2007 mainly because Ricoh did not incur the capital expenditures that incurred in fiscal year 2006. Financing Cashflows For fiscal year 2009, net cash provided by financing activities consisted primarily of Yen 237.1 billion of proceeds from long-term indebtedness, Yen 110.2 billion of net increase in short-term borrowings and Yen 85.0 billion of proceeds from the issuance of long-term debt securities. Ricoh repaid Yen 59.5 billion of long-term indebtedness, Yen 50.5 billion of long-term debt securities and Yen 25.3 billion of dividends. As compared to fiscal year 2008, net cash provided from financing activities increased in fiscal year 2009 as Ricoh increased its short-term borrowings and received proceeds from the issuance of long-term debt. -65- For fiscal year 2008, net cash used in financing activities consisted primarily of Yen 75.7 billion to repay long-term indebtedness and Yen 22.6 billion to pay dividends, which were partially offset by Yen 67.1 billion of proceeds received from long-term indebtedness. As compared to fiscal year 2007, net cash used in financing activities increased in fiscal year 2008 as Ricoh reduced its interest-bearing indebtedness provided by external parties by Yen 32.3 billion and acquired Yen 15.7 billion of treasury stock. For fiscal year 2007, net cash provided by financing activities consisted primarily of Yen 65.2 billion of proceeds from the issuance of long-term debt securities, of which Yen 55.2 billion of consisted of cash proceeds from the issuance of Euro Yen zero coupon convertible bonds due 2011, and Yen 60.1 billion of proceeds from long-term indebtedness. Ricoh repaid Yen 55.0 billion of long-term debt securities, Yen 49.1 billion of long-term indebtedness and paid Yen 18.2 billion of dividends. As compared to fiscal year 2006, net cash from financing activities increased in fiscal year 2007 as Ricoh received proceeds from the issuance of Yen 55.2 billion aggregate principal amount of the Euro Yen zero coupon convertible bonds and reduced the amount of its outstanding long-term indebtedness. Cash and Asset-Liability Management Ricoh has in recent years tried to achieve greater efficiencies in the utilization of cash balances held by its subsidiaries pursuant to its policy of ensuring adequate financing and liquidity for its operations and growth, and maintaining the strength of its balance sheet. One of the methods that Ricoh has implemented to achieve greater efficiency is building up its cash management system in Japan, the United States and Europe. This cash management system functions as an arrangement whereby Ricoh's funds are pooled together and cash resources are lent and borrowed from one group company to another company, with finance companies located in Japan, the United States and the Netherlands coordinating this arrangement. This pooling-of-funds arrangement has reduced the occurrence of excess accumulation of cash in one group company while another group company engages in unnecessary borrowing from third party institutions to meet its cash requirements. As such, the pooling-of-funds arrangement has reduced interest expense and related costs paid to third parties in connection with borrowings to finance operations. Ricoh also enters into various derivative financial instrument contracts in the normal course of its business and in connection with the management of its assets and liabilities. In order to hedge against the potentially adverse impacts of foreign currency fluctuations on its assets and liabilities denominated in foreign currencies, Ricoh enters into foreign exchange contracts and foreign currency options. Another form of derivative financial contracts that Ricoh enters into is interest rate swap agreements to hedge against the potentially adverse impacts of fair value or cashflow fluctuations on its outstanding debt interests. Ricoh uses derivative instruments to reduce its risk and to protect the market value of its assets and liabilities in conformity with Ricoh's policy. Ricoh does not use derivative financial instruments for trading or speculative purposes, nor is it a party to leveraged derivatives. Detailed discussion of these derivative contracts is provided in Item 11. Quantitative and Qualitative Disclosures About Market Risk. -66- Ricoh also engages in securitization activities through its domestic leasing affiliate, Ricoh Leasing Co., Ltd. For a discussion of such activities, see Item 5.E. Off-Balance Sheet Arrangements. 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, medium-term notes and long-term debt securities. 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. As of March 31, 2009, lines of credit and Ricoh's available short-term and medium-term borrowing facilities were as follows: (Billions of Yen) Average Interest Rate (%) Amount Available ----------------- ---------------- Bank loans 1.0 227.3 Commercial paper 0.5 158.4 Medium-term notes -- 98.2 -------------------------------------------------------- Total -- 483.9 -------------------------------------------------------- As of March 31, 2009, Ricoh had Yen 258.4 billion in cash and cash equivalents and Yen 664.3 billion in aggregate borrowing facilities. Of the Yen 664.3 billion in aggregate borrowing facilities, Yen 483.9 billion was available to be borrowed by Ricoh as of March 31, 2009. Ricoh Leasing Co., Ltd. has a Yen 27.0 billion committed credit line with several banks having credit ratings satisfactory to Ricoh. This Yen 27.0 billion committed credit line amount is included in the Yen 664.3 billion figure for aggregate borrowing facilities. Almost all such borrowings from financial institutions and outstanding securities are unsecured. Ricoh believes that its working capital used to repay indebtedness and execute new transactions is sufficient, due to its diverse funding sources and the inflow of cash generated from its operating activities. Even if Ricoh is unable to access these markets on acceptable terms, Ricoh has access to other sources of liquidity, including bank borrowings, cash flows from operations and sales of assets. In addition, its subsidiaries may be restricted from paying dividends for various reasons, such as capital adequacy requirements. However, Ricoh does not expect such restrictions to have a significant impact on its ability to meet its cash obligations. The Company, Ricoh Leasing Co., Ltd. and certain overseas subsidiaries raise capital by issuing commercial paper, medium-term notes and long-term debt securities. Ricoh Leasing Co., Ltd. and certain overseas subsidiaries of the Company issue commercial paper to meet their short-term funding requirements. Utilization of such capacity depends on Ricoh's financing needs, investor demand and market conditions, as -67- well as the ratings outlook for Ricoh's securities, as discussed below. Interest rates for commercial paper issued by the Company and its subsidiaries ranged from 0.43% to 1.15% and interest rates for long-term debt securities ranged from 1.10% to 7.30% during fiscal year 2009. For fiscal year 2009, the Company and its subsidiaries did not have any medium-term notes outstanding. 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, 2009, S&P assigned long-term and short-term credit ratings for the Company of A+ and A-1, respectively, and Moody's assigned a long-term credit rating for the Company of A1. As is customary in Japan, substantially all of the bank loans are subject to general agreements with each lending bank which provide, among other things, that the bank may request additional security for loans if there is reasonable and probable cause for the necessity of such additional security and the bank may treat any security furnished, as well as any cash deposited in such bank, as security for all present and future indebtedness. The Company has never been requested to furnish such additional security. In some cases, the Company's long-term debt securities contain customary covenants, including a "limitation on liens" covenant. The Company was in compliance with the covenants in its bank agreements and securities as of March 31, 2009. The Company is not subject to any covenants limiting its ability to incur additional indebtedness. For additional detail regarding these securities, see Note 11 to the Consolidated Financial Statements. 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 2010. Even if there were a decrease in cashflows from operations as a result of fluctuations in customer demands from one year to another due to unexpected changes in global economic conditions, Ricoh believes that current funds on hand along with funds available under existing borrowing facilities would be sufficient to finance its anticipated operations. In addition, Ricoh believes that it is able to secure adequate resources to fund ongoing operating requirements and investments related to the expansion of existing businesses and the development of new projects through its access to the financial and capital markets. Interest rates may fluctuate as it may be affected by the financial market turbulence resulting in part from the global economic recession. However, Ricoh believes that the effect of such fluctuations will not significantly affect Ricoh's liquidity, mainly due to the fact that Ricoh has sufficient amounts of cash and cash equivalents on hand, a continuous cashflow generated from its operating activities and a group-wide cash management system. Ricoh expects that its capital expenditures for fiscal year 2010 will amount to approximately Yen 95.0 billion, principally for investments in manufacturing facilities of digital and networking equipment with new engines, toners, semiconductor and thermal -68- media. More specifically, Ricoh plans to complete the construction of a manufacturing plant in Thailand, which is expected to commence its operations during fiscal year 2010 and manufacture MFPs and laser printers. Ricoh anticipates that this plant in Thailand will strengthen its manufacturing network in Asia. In addition, one of Ricoh's subsidiaries, Tohoku Ricoh Co., Ltd., is expected to establish a manufacturing plant in Japan during fiscal year 2010 for PxP toners, which are toners that are capable of producing higher quality images. In addition, Ricoh is obligated to repay long-term indebtedness in the aggregate principal amount of Yen 85.5 billion during fiscal year 2010, and in the aggregate principal amount of Yen 301.7 billion during fiscal years 2011 through 2013. 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 153.2 billion, as of March 31, 2009. The unfunded amount was recorded as an asset of Yen 10.1 billion and a liability of Yen 163.4 billion on the consolidated balance sheet of Ricoh as of March 31, 2009. The amounts contributed to pension plans for fiscal years 2007, 2008 and 2009 were Yen 14.7 billion, Yen 14.5 billion and Yen 14.7 billion, respectively. Ricoh believes that its 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's basic management philosophy has been to contribute to society by developing and providing innovative and useful products with an emphasis on the relationship between people and information. Based on this management philosophy, Ricoh undertakes a variety of R&D activities to develop new technologies, products and systems to facilitate better communication. The Research and Development Group and the Corporate Technology Development Group (collectively, the "R&D Groups") function as the headquarters of Ricoh's R&D activities, which are conducted at its R&D bases throughout Japan and certain satellite R&D bases overseas. Ricoh conducts a wide range of R&D activities, from seeds research (i.e., early stage research) to research in elemental technologies, product applications and manufacturing technologies, including environmental technologies. In Japan, we conduct basic and advanced research in connection with optical technologies, new materials, devices, information electronics, environmental technologies and software technologies as well as elemental development for new products. In addition, Ricoh has established satellite R&D bases in the United States and China. All aspects of Ricoh's research efforts are focused on developing products and services that are suitable for the new work environment in the Web2.0 era (known as the second generation of web development and web design). Ricoh also engages in R&D activities to protect the environment in every stage of each of its products' life cycle to -69- realize Ricoh's three core values of "harmonizing with the environment (i.e., reducing and minimizing environmental impact)," "simplifying your life and work (i.e., enhancing user friendliness and striving towards simplification)," and "supporting knowledge management (i.e., offering solutions to process information)." For fiscal years 2007, 2008 and 2009, Ricoh's consolidated R&D expenditures totaled Yen 114.9 billion, Yen 126.0 billion and Yen 124.4 billion, respectively. Out of total consolidated R&D expenditures of Yen 124.4 billion for fiscal year 2009, Yen 98.6 billion were for R&D activities related to the Imaging and Solutions segment . Ricoh conducted development activities in the Imaging and Solutions segment for (1) optical design for copiers, printers and product printing products, (2) imaging data processing technology, (3) electrophotographic supply technology, (4) elemental technology for the next-generation of image producing engines, (5) cutting edge software technology and (6) applications for the advancement of system solutions. Out of total consolidated R&D expenditures of Yen 124.4 billion for fiscal year 2009, Yen 10.7 billion were for R&D activities related to the Industrial Products segment. In the Industrial Products segment, Ricoh's R&D activities continued to include (1) designing ASICs and ASSPs for imaging, audio and communication use, (2) developing methods to utilize electronic design automation, (3) developing optical element technologies and new recording methods and (4) R&D for supply parts such as thermal media. More specifically, in the electronic devices business, Ricoh continued to develop devices that are compatible with next-generation interfaces that have improved data transmission rates and reduced pin numbers. In addition, Ricoh continued to develop voltage regulator ICs that contribute to lower-power consumption current, improved operational stability and further miniaturization of various information equipment. Out of total consolidated R&D expenditures of Yen 124.4 billion for fiscal year 2009, Yen 1.9 billion were for R&D activities related to the Other segment. In this segment, Ricoh continued to develop its image capturing device technology for digital cameras and its related applications technology. In addition, Ricoh continues to engage in the development of its fundamental research fields, which focus on R&D activities that can be applied to various products and that are difficult to categorize into a specific operating segment. Out of total consolidated R&D expenditures of Yen 124.4 billion for fiscal year 2009, Yen 13.0 billion were for R&D activities relating to fundamental research fields. Such R&D activities include R&D in nanotechnology, micro-machining, general technologies in measuring, analysis and simulation, new materials and devices, next-generation recording technologies, production techniques, system software modules, photonics technology for high speed and high quality image processing, the next-generation of office systems and office solutions, and environmental technologies. For a summary of Ricoh's R&D expenditures for fiscal years 2007, 2008 and 2009, see Note 19 to the Consolidated Financial Statements. -70- Patents and Licenses -------------------- Ricoh owns approximately 31,200 patents as of March 31, 2009, on a worldwide basis, and has a large number of licenses under various agreements with Japanese and foreign companies. Although patents and licenses are important to Ricoh, it does not believe that the expiration of any single patent or group of related patents or of any license agreements will materially affect its business. The following table lists some of the important patent and licensing agreements which the Company is currently a party to:
Counterparty Country Summary of the Contract Contract Term ------------------------------- ------- ------------------------------------------- ------------------------------------------ International USA Comprehensive cross license patent March 28, 2007 to expiration date of the Business Machines agreement relating to the information patent subject to the agreement Corporation processing technology area (reciprocal agreement) ADOBE Systems Incorporated USA Patent licensing agreements relating to January 1, 1999 to December 31, 2009 development on printer software and sales (the counterparty as the licensee) Lemelson Medical, USA Patent licensing agreement relating to March 31, 1993 to expiration date of the Education & Research Foundation computer image analysis and other products patent subject to the agreement Limited Partnership (the counterparty as the licensee) Canon Inc. Japan Patent licensing agreement relating to October 1, 1998 to expiration date of the office equipment (reciprocal agreement) patent subject to the agreement Brother Industries, Ltd. Japan Patent licensing agreement relating to October 1, 2004 to September 30, 2009 digital photography (the Company as the licensor) Kyocera Mita Corporation Japan Patent licensing agreement relating to January 1, 2007 to December 31, 2011 method of controlling multi function peripheral (the Company as the licensor) Hitachi, Ltd. Japan Patent licensing agreement relating to January 1, 2007 to December 31, 2013 optical record and playback equipment, and multi function peripheral (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 5 to the Consolidated Financial Statements, Ricoh, through its domestic leasing affiliate, has certain procedures in place to sell some of its lease receivables through securitization programs; however, no lease receivables have been securitized during the last three fiscal years. Securitization involves the creation of -71- special purpose entities ("SPEs") for purposes of holding pooled assets. The SPEs are designed to place the pooled assets beyond the reach of Ricoh and its creditors in the event of bankruptcy and when structured in this manner (and subject to certain other conditions), the pooled assets are removed from Ricoh's consolidated balance sheets. The SPEs are also designed so that investors have no recourse to Ricoh in the event of any failure of payment on the pooled assets. Therefore, when securitizing assets in this manner, Ricoh does not have any exposed assets or contingent liabilities other than those recognized as subordinated residual interests on Ricoh's consolidated balance sheets. As of March 31, 2009, Ricoh had one SPE, which held assets that Ricoh sold in a securitization totaling Yen 25.4 billion. Ricoh does not dispose of troubled leases, loans or other problem assets by means of nonconsolidated SPEs. None of our officers, directors or employees holds any equity interests in the SPE noted above or receives any direct or indirect compensation from the SPE. The SPE does not own shares or equity interests in Ricoh or any of Ricoh's affiliates, and there are no agreements in place to do so. In addition to the above, Ricoh acts as a guarantor for some of its employees' housing loans. As of March 31, 2009, the total amount of such guarantees was Yen 59 million. F. Tabular Disclosure of Contractual Obligations The following table sets forth Ricoh's contractual obligations as of March 31, 2009.
Millions of Yen Payments due by period ------------------------------------------------------------------- Less than 1 More than 5 CONTRACTUAL OBLIGATIONS Total year 1-3 years 3-5 years years --------------------------------------------------------------------------------------------------------------------------------- Long-term Debt Obligations Yen 593,014 Yen 84,651 Yen 244,280 Yen 214,872 Yen 49,211 Interest Expense Associated with Long-term Debt Obligations 30,054 8,839 10,803 9,077 1,335 Capital (Finance) Lease Obligations 1,758 854 518 365 21 Operating Lease Obligations 99,443 24,208 37,904 23,932 13,399 Purchase Obligations 36,485 36,485 -- -- -- --------------------------------------------------------------------------------------------------------------------------------- TOTAL Yen 760,754 Yen 155,037 Yen 293,505 Yen 248,246 Yen 63,966 ---------------------------------------------------------------------------------------------------------------------------------
Ricoh expects to contribute Yen 15.7 billion to its pension plan during fiscal year 2010 and is currently unable to predict funding requirements for periods beyond fiscal year 2010 due to uncertainties related to changes in actuarial assumptions, return on plan assets, and changes to plan membership. Ricoh had operating lease commitments with rental payments totaling Yen 54.3 billion for fiscal year 2009. G. Safe Harbor See "Cautionary Statement With Respect to Forward-Looking Statements." -72- Item 6. Directors, Senior Management and Employees ------------------------------------------ A. Directors and Senior Management Directors and Corporate Auditors of the Company as of June 25, 2009 were as follows:
Name Current Position (Date of Birth) (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- Masamitsu Sakurai Chairman of the Board and Apr. 1966 Joined the Company (January 8, 1942) Representative Director May 1984 President of Ricoh UK Products Ltd. Apr. 1990 General Manager of Purchasing Division June 1992 Director Apr. 1993 President of Ricoh Europe B.V. June 1994 Managing Director Apr. 1996 President and Representative Director June 2005 Representative Director (Current) June 2005 President June 2005 Chairman of the Board (Current) Apr. 2007 Chairman (Current) Principal business activities and other principal directorships performed outside of Ricoh: Chairman of Japan Association of Corporate Executives Director of Tokio Marine Holdings, Inc. Director of COCA-COLA WEST COMPANY, LIMITED Director of Saga Television Station Co., Ltd. Director of Omron Corporation. Shiro Kondo Representative Director Apr. 1973 Joined the Company (October 7, 1949) July 1999 Deputy General Manager of Imaging System Business Group June 2000 Senior Vice President Oct. 2000 General Manager of Imaging System Business Group June 2002 Executive Vice President June 2003 Managing Director Oct. 2004 In charge of Imaging Engine Solution Development Oct. 2004 General Manager of MFP Business Group June 2005 Director June 2005 Corporate Executive Vice President Apr. 2007 Representative Director (Current) Apr. 2007 President (Current) Apr. 2007 CEO (Chief Executive Officer) (Current) Principal business activities and other principal directorships performed outside of Ricoh: Representative of Asahi Insurance Company Koichi Endo Director Apr. 1966 Joined the Company (February 16, 1944) Apr. 1987 President of Ricoh Electronics, Inc. Oct. 1990 General Manager of Components Division June 1992 Director
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Name Current Position (Date of Birth) (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- June 1997 Managing Director Apr. 1998 General Manager of Production Business Group June 2000 Executive Managing Director June 2000 Executive Vice President Apr. 2004 General Manager of Fact Base Management Innovation Office June 2005 Director (Current) June 2005 Corporate Executive Vice President Apr. 2008 Deputy President (Current) Apr. 2008 In charge of Business Process Innovation(Current) Principal business activities and other principal directorships performed outside of Ricoh: Director of San-Ai Plant Construction Co., Ltd. Katsumi Yoshida Director Apr. 1967 Joined the Company (August 20, 1944) Feb. 1996 Chairman of Ricoh Electronics, Inc. Apr. 2000 President of Ricoh Corporation Apr. 2001 Executive Vice President June 2002 Managing Director Oct. 2003 General Manager of International Marketing Group Oct. 2003 Chairman of Ricoh China Co., Ltd. June 2004 Executive Managing Director June 2005 Director (Current) June 2005 Corporate Executive Vice President Jan. 2008 Chairman and CEO (Chief Executive Officer) of Ricoh Americas Corporation Apr. 2008 Deputy President (Current) Apr. 2009 In charge of Business Process Innovation(Current) Masayuki Matsumoto Director Apr. 1970 Joined the Company (December 10, 1944) July 1993 Manager of Tokyo Branch of Imaging Equipment Marketing Division of Marketing Group June 1994 Director Oct. 1998 Managing Director Oct. 1998 General Manager of Marketing Group June 2000 Executive Vice President June 2002 Executive Managing Director Apr. 2005 General Manager of Corporate Social Responsibility Division June 2005 Director (Current) June 2005 Corporate Executive Vice President (Current) CMO (Chief Marketing Officer) (Japan) June 2005 (Current) Apr. 2007 In charge of Corporate Social Responsibility (Current) Takashi Nakamura Director Apr. 1972 Joined the Company
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Name Current Position (Date of Birth) (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- (September 2, 1946) Apr. 1990 President of Ricoh UK Products Ltd. Jan. 1995 President of Ricoh Europe B.V. May 1998 Deputy General Manager of Corporate Planning Division June 1998 Director June 2000 Senior Vice President June 2002 President of Ricoh Elemex Corporation June 2004 Managing Director June 2005 Director (Current) Jan. 2006 Corporate Executive Vice President (Current) Jan. 2006 CHO (Chief Human Resource Officer) (Current) Apr. 2008 General Manager of Personnel Division (Current) Principal business activities and other principal directorships performed outside of Ricoh: Corporate Auditor of TOYO KANETSU K.K. Kazunori Azuma Director Apr. 1971 Joined the Company (February 11, 1949) Oct. 1994 President of Hokkaido Ricoh Co., Ltd. June. 2000 Senior Vice President Oct. 2000 President of Ricoh Technosystems Co., Ltd. June 2003 Managing Director June 2003 Executive Vice President Oct. 2003 Chairman of Ricoh Technosystems Co., Ltd. Nov. 2003 General Manager of Marketing Group (Current) June 2005 Director (Current) June 2005 Corporate Executive Vice President (Current) Apr. 2009 General Manager of Global Marketing Taskforce June 2009 General Manager of Global Marketing Group (Current) Zenji Miura Director Apr. 1976 Joined the Company (January 5, 1950) Jan. 1993 President of Ricoh France S.A. Apr. 1998 Deputy General Manager of Finance and Accounting Division Oct. 2000 Senior Vice President Oct. 2000 General Manager of Finance and Accounting Division June 2003 Executive Vice President June 2004 Managing Director June 2005 Director (Current) June 2005 Corporate Executive Vice President (Current) June 2005 CFO (Chief Financial Officer) (Current)
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Name Current Position (Date of Birth) (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- Apr. 2006 CIO (Chief Information Officer) (Current) General Manager of Corporate Planning Division Feb. 2008 In charge of Internal Management and Control Division (Current) July. 2008 General Manager of Finance and Accounting Division Apr. 2009 CSO (Chief Strategy Officer) (Current) General Manager of CRGP Office (Current) Deputy General Manager of Global Marketing Taskforce June 2009 General Manager of Global Marketing Support Division (Current) General Manager of Trade Affairs & Export/Import Administration Division (Current) Principal business activities and other principal directorships performed outside of Ricoh: Corporate Auditor of COCA-COLA WEST COMPANY, LIMITED Kiyoshi Sakai Director Apr. 1970 Joined the Company (December 25, 1945) Jan. 1996 General Manager of Corporate Planning Division June 1996 Director Apr. 1999 General Manager of Research and Development Group June 2000 Senior Vice President June 2002 Managing Director June 2002 Executive Vice President Aug. 2002 General Manager of Corporate Technology Planning Division June 2005 Corporate Senior Vice President Apr. 2006 In charge of Corporate Environment (Current) June 2006 Director (Current) June 2006 Corporate Executive Vice President (Current) June 2006 Chief Technology Officer (Current) Apr. 2008 President of Ricoh Innovation, Inc. (Current) Apr. 2008 In charge of Legal Affairs and Intellectual Property (Current) Takaaki Wakasugi Director June 1985 Professor, Faculty of Economics, the University of (March 11, 1943) Tokyo Sep. 1990 Co-director of Mitsui Life Financial Research Center, University of Michigan Ross School of Business (Current) Apr. 2003 Director and General Manager of Japan Corporate Governance Research Institute, Inc. (Current)
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Name Current Position (Date of Birth) (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- Apr. 2004 Professor, Faculty of Business Administration, Tokyo Keizai University (Current) June 2004 Professor Emeritus, the University of Tokyo June 2005 Director (Current) Takuya Goto Director Apr. 1964 Joined Kao Soap Company (renamed Kao Corporation (August 19, 1940) in 1985) May 1990 General Manager of Chemical Business Division of Kao Corporation June 1990 Director of Kao Corporation July 1991 Managing Director of Kao Corporation June 1996 Executive Managing Director of Kao Corporation June 1997 President of Kao Corporation June 2002 Representative Director and President of Kao Corporation June 2004 Chairman of Kao Corporation June 2006 Director (Current) Sep. 2007 Chairman of Japan Marketing Association (Current) June 2008 Adviser of Kao Corporation (Current) Principal business activities and other principal directorships performed outside of Ricoh: Chairman of Japan Marketing Association Yuji Inoue Corporate Auditor Apr. 1971 Joined the Company (April 4, 1948) Jan. 1997 Deputy General Manager of Finance and Accounting Division Apr. 1998 General Manager of Finance and Accounting Division Oct. 1998 General Manager of Business Department of Ricoh Leasing Co., Ltd June 1999 Managing Director of Ricoh Leasing Co., Ltd Apr. 2000 President of Ricoh Leasing Co., Ltd. June 2000 Senior Vice President June 2004 Managing Director June 2005 Corporate Senior Vice President President and Chief Executive Officer of Ricoh Leasing Co., Ltd June 2009 Corporate Auditor (Current)
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Name Current Position (Date of Birth) (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- Shigekazu Iijima Corporate Auditor Apr. 1972 Joined the Company (July 7, 1948) Oct. 1990 General Manager of Accounting Department of Finance and Accounting Division Apr. 1993 General Manager of Administration Department of Electronic Device Division June 1996 Leader of Management Planning Group of Corporate Planning Division June 1999 Director of Ricoh Elemex Corporation Apr. 2004 General Manager of Business Planning Department of International Business Group July 2005 General Manager of Business Strategy & Planning Center of International Business Group June 2006 Corporate Auditor (Current) Kenji Matsuishi Corporate Auditor Apr. 1965 Graduated from the National Legal Training and Research (July 24, 1937) Institute Apr. 1965 Legal registration as a Japanese attorney Apr. 1965 Joined Takano & Higuchi Legal Services Feb. 1972 General Manager of Matsuishi Legal Services (Current) June 1994 Corporate Auditor (Current) Takao Yuhara Corporate Auditor Apr. 1969 Joined Nippon Chemical Industrial Co., Ltd. (June 7, 1946) May. 1971 Joined Sony Corporation Mar. 1988 Vice President of Sony International (Singapore) Ltd. Apr. 1996 Vice President of Display Company of Sony Corporation June 2002 Corporate Vice President and General Manager of Corporate Planning Division of Sony Corporation June 2003 Corporate Vice President and Group CFO (Chief Financial Officer) of Sony Corporation June 2004 In charge of Corporate Executive Finance and IR of Sony Corporation Dec. 2007 Managing Executive Officer and Senior General Manager, Group Business Management Division of ZENSHO CO., LTD. Apr. 2008 Officer in charge of Group Finance of ZENSHO CO., LTD. June 2008 Managing Executive Director of ZENSHO CO., LTD. (Current) June 2008 Corporate Auditor (Current)
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Name Current Position (Date of Birth) (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- Nov. 2008 Senior General Manager, Group Business Management Division, Group Finance and Accounting Division of ZENSHO CO., LTD. (Current) Kiyohisa Horie Substitute Corporate Auditor Apr. 1970 Joined Horie Morita Audit Office (now: Meiji Audit (March 7, 1948) Corporation) Joined Showa Accounting Office Aug. 1980 Registered as Certified Public Accountant Mar. 1988 Registered as Tax Accountant Apr. 1988 Senior Partner of Meiji Audit Corporation (Current) May. 1988 Representative Director of Showa Accounting Office (Current) May. 1988 Managing Partner of Meiji Audit Corporation (Current) May. 1998 Vice-Chairman & Managing Partner of Meiji Audit Corporation (Current)
Directors and Corporate Auditors are elected at a general meeting of shareholders for two and four years terms, respectively, and may serve any number of consecutive terms. The Board of Directors appoints from among its members a Chairman and one or more Representative Directors in accordance with the Corporation Law of Japan. The Company maintains an executive officer system and under such system there are 44 such officers each with one of the following roles: . Executive officers: Oversee operations under the authority granted from the president and report to the president. . Group executive officers: Assist the president with the management of Ricoh group. Executive Officers of the Company as of June 25, 2009 were as follows:
Current Position Name (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- Masamitsu Sakurai Chairman and See above for his business experience and other information. (January 8, 1942) Chairman of the Board Shiro Kondo President and See above for his business experience and other information. (October 7, 1949) Chief Executive Officer Koichi Endo Deputy President See above for his business experience and other information. (February 16, 1944) Business Process Innovation
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Current Position Name (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- Katsumi Yoshida Deputy President See above for his business experience and other information. (August 20, 1944) Business Process Innovation Masayuki Matsumoto Corporate Executive Vice See above for his business experience and other information (December 10, 1944) President (Chief Marketing Officer for Japan) (Corporate Social Responsibility) Takashi Nakamura Corporate Executive Vice See above for his business experience and other information. (September 2, 1946) President (Chief Human Resource Officer) General Manager of Personnel Division Kazunori Azuma Corporate Executive Vice See above for his business experience and other information. (February 11, 1949) President (General Manager of Global Marketing Taskforce Zenji Miura Corporate Executive Vice See above for his business experience and other information. (January 5, 1950) President (Chief Financial Officer) (Chief Information Officer) (Chief Strategy Officer) (Internal Management and Control Division) (General Manager of CRGP Office) (General Manager of Global Marketing Support Division) (General Manager of Trade Affairs & Export/Import Administration Division) Kiyoshi Sakai Corporate Executive Vice See above for his business experience and other information. (December 25, 1945) President (Chief Technology Officer) (Corporate Environment) President of Ricoh Innovation, Inc. (Legal & Intellectual Property) Terumoto Nonaka Corporate Senior Vice President Jan. 1988 Joined the Company (October 28, 1947) (General Manager of Research Jan. 1990 Deputy General Manager of Electronic Devices Division and Development Group) June 2000 Senior Vice President Oct. 2000 President of Electronic Devices Company June 2002 Executive Vice President June 2005 Corporate Senior Vice President (Current)
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Current Position Name (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- July 2006 Chairman of Ricoh Electronics Devices Shanghai Co., Ltd. (Current) Apr. 2009 General Manager of Research and Development Group (Current) Kenji Hatanaka Corporate Senior Vice President Apr. 1969 Joined the Company (July 1, 1946) (General Manager of Marketing June 2000 Senior Vice President Group June 2003 General Manager of Tokyo Branch of Marketing Group June 2003 General Manager of Kanto Branch of Marketing Group June 2004 Executive Vice President Jan. 2005 President of Ricoh Sales Co., Ltd. June 2005 Corporate Senior Vice President (Current) June 2009 General Manager of Marketing Group (Current) Hiroshi Kobayashi Corporate Senior Vice President Apr. 1974 Joined the Company (July 2, 1948) (General Manager of Corporate Apr. 2002 General Manager of Corporate Planning Division Technology Development Group) June 2002 Senior Vice President (Chairman of Ricoh Software Apr. 2003 General Manager of Corporate Communication Center Research Center (Beijing), June 2004 Executive Vice President Co., Ltd.) Oct. 2004 General Manager of LP Business Group June 2005 Corporate Senior Vice President (Current) Apr. 2007 General Manager of Printer Business Group Apr. 2008 General Manager of Office Business Planning Center Apr. 2009 General Manager of Corporate Technology Development Group (Current) Chairman of Ricoh Software Research Center (Beijing), Co., Ltd (Current) Yoshimasa Matsuura Corporate Senior Vice President Apr. 1971 Joined the Company (June 23, 1947) (General Manager of MFP May 1999 General Manager of Supply Chain Management Planning Business Group) Division Apr. 2004 General Manager of Imaging System Business Strategy Center June 2004 Senior Vice President Oct. 2004 General Manager of Office Business Planning Center June 2005 Deputy General Manager of MFP Business Group June 2005 General Manager of Business Strategy Center of MFP Business Group June 2005 Corporate Vice President
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Current Position Name (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- Oct. 2006 General Manager of Products Management & Planning Center of MFP Business Group Apr. 2007 Corporate Senior Vice President (Current) Apr. 2007 General Manager of MFP Business Group (Current) Apr. 2008 General Manager of Controller Development Division Norio Tanaka Corporate Senior Vice President Feb. 1978 Joined the Company (March 22, 1948) (General Manager of Office Apr. 2004 Deputy General Manager of Imaging System Business Business Planning Center) Strategy Center Apr. 2004 General Manager of Imaging Products Business Center of International Business Center June 2004 Senior Vice President June 2004 Deputy General Manager of International Business Group Oct. 2004 Deputy General Manager of MFP Business Group Oct. 2004 General Manager of Products Management & Planning Center of MFP Business Group Oct. 2004 General Manager of Marketing Center of MFP Business Group June 2005 Corporate Vice President Apr. 2007 Corporate Senior Vice President (Current) Apr. 2007 General Manager of Production Printing Business Group Apr. 2007 General Manager of Marketing Center of Production Printing Business Group Apr. 2007 General Manager of Products Strategy Center of Production Printing Business Group Apr. 2009 General Manager of Office Business Planning Center (Current) Hiroshi Adachi Corporate Senior Vice President Apr. 1968 Joined the Company (January 8, 1946) (President of Thermal Media Oct. 2000 President of Thermal Media Company (Current) Company) (Chairman of Ricoh Thermal Nov.2001 Chairman of Ricoh Thermal Media (Beijing) Co., Ltd. Media (Beijing) Co., Ltd. (Current) (Chairman of Ricoh Thermal June 2002 Senior Vice President Media (Wuxi) Co., Ltd.) (Chairman of Ricoh June 2004 Chairman of Ricoh International (Shanghai) Co., Ltd. International (Shanghai) (Current) Co., Ltd.) June 2005 Corporate Vice President Dec. 2005 Chairman of Ricoh Thermal Media (Wuxi) Co., Ltd. (Current) Apr. 2008 Corporate Senior Vice President (Current) Kenichi Kanemaru Corporate Senior Vice President Apr. 1973 Joined the Company
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Current Position Name (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- (November 19, 1952) (General Manager of Production Apr. 1998 General Manager of Production Strategic Center Business Group) (General Manager of Procurement June 1999 President of Ricoh UK Products Ltd. Control Center of June 2004 Senior Vice President Production Business Group) June 2005 Deputy General Manager of Imaging System Production (General Manager of Office Business Group Machine Division of Production Business Group) June 2005 General Manager of Procurement Control Center of Production Business Group (Current) June 2005 Corporate Vice President Apr. 2006 General Manager of Imaging System Production Business Group Apr. 2008 Corporate Senior Vice President (Current) Apr. 2008 General Manager of Production Business Group (Current) Apr. 2008 General Manager of Office Machine Division of Production Business Group (Current) Hisashi Takata Corporate Senior Vice President Apr. 1974 Joined the Company (May 20, 1951) (Deputy General Manager of Apr. 1999 General Manager of Business Strategy Division of Global Marketing Group) International Marketing Group (General Manager of GM Strategy Oct. 2004 Deputy General Manager of GJ (GEL JET) Business Center of Global Marketing Division Group) Oct. 2004 General Manager of Marketing Center of GJ (GEL JET) (Chairman of Ricoh China Business Division Co., Ltd.) June 2005 Corporate Vice President Oct. 2005 General Manager of GJ Marketing Division of Marketing Group Apr. 2007 Deputy General Manager of Printing Business Division Apr. 2008 General Manager of Printer Business Group Jan. 2009 General Manager of Printer Sales Promotion Center of Printer Business Group Apr. 2009 Corporate Senior Vice President (Current) June 2009 Deputy General Manager of Global Marketing Group (Current) General Manager of GM Strategy Center of Global Marketing Group (Current) Chairman of Ricoh China Co., Ltd. (Current) Kiyoto Nagasawa Corporate Vice President Apr. 1973 Joined the Company (August 16, 1948) (President of Electronic Apr. 2001 General Manager of C&F Business Division 2 Devices Company
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Current Position Name (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- (Chairman of Ricoh Electronics June 2002 Senior Vice President Devices Shanghai Co., Ltd.) June 2005 General Manager of Quality of Management Division June 2005 Corporate Vice President (Current) Apr. 2009 President of Electronic Devices Company (Current) Chairman of Ricoh Electronics Devices Shanghai Co., Ltd. (Current) Yutaka Ebi Corporate Vice President Apr. 1972 Joined the Company (October 20, 1949) (General Manager of Legal & Apr. 2001 General Manager of Imaging Technology Division Intellectual Property Division) June 2002 Senior Vice President Oct. 2004 General Manager of Legal & Intellectual Property Division (Current) June 2005 Corporate Vice President (Current) Norihisa Goto Corporate Vice President Apr. 1972 Joined the Company (March 8, 1949) (General Manager of Production Oct. 1997 President of Ricoh Deutschland GmbH Printing Business Group) Mar. 2001 Chairman of Lanier Worldwide, Inc. Jan. 2003 President of Lanier Worldwide, Inc. June 2003 Senior Vice President June 2005 Corporate Vice President (Current) June 2006 Vice Chairman of Ricoh Corporation (now Ricoh Americas Corporation) June 2006 CEO of Ricoh U.S. - Ricoh Corporation (now Ricoh U.S. - Ricoh Americas Corporation) Oct. 2008 Deputy General Manager of Production Printing Business Group Apr. 2009 General Manager of Production Printing Business Group (Current) Mitsuhiko Ikuno Corporate Vice President May 1975 Joined the Company (March 26, 1953) General Manager of Information June 2000 President of Ricoh Asia Industry Ltd. Technology and Solution June 2004 President of Shanghai Ricoh Facsimile Co., Ltd. Division June 2004 Senior Vice President June 2005 Corporate Vice President (Current) Oct. 2006 President of Shanghai Ricoh Digital Equipment Co., Ltd. Apr. 2008 General Manager of Information Technology and Solution Division (Current) Kenichi Matsubayashi Corporate Vice President Apr. 1971 Joined the Company (June 5, 1948) (General Manager of RS Products Apr. 1995 Manager of RS Business Planning Department Division of Production Business Group) Oct. 2003 General Manager of RS Products Division of Production Business Group (Current) June 2005 Corporate Vice President (Current)
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Current Position Name (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- Soichi Nagamatsu Corporate Vice President July 2004 Joined the Company (March 25, 1951) (General Manager of Corporate July 2004 Vice General Manager of Research and Development Group Planning Division) Apr. 2006 Corporate Vice President (Current) Apr. 2006 General Manager of Research and Development Group Apr. 2006 General Manager of Corporate Technology Planning Division Apr. 2007 General Manager of Office System Development Center of Research and Development Group Apr. 2008 General Manager of Corporate Technology Development Group Apr. 2008 General Manager of Office Solution Technology Development Center of Corporate Technology Development Group Apr. 2008 General Manager of Advanced Technology R&D Center of Research and Development Group Apr. 2008 Chairman of Ricoh Software Research Center (Beijing) Co., Ltd. Apr. 2009 General Manager of Corporate Planning Division (Current) Kazuhiro Yuasa Corporate Vice President Apr. 1977 Joined the Company (September 1, 1952) (President of Personal Multi Apr. 2001 Deputy General Manager of ICD Division of Personal Media Company) Multi Media Company Oct. 2002 Deputy General Manager of ICS Division of Personal Multi Media Company Nov. 2002 General Manager of ICS Division of Personal Multi Media Company Apr. 2006 Associate Director Apr. 2006 President of Personal Multi Media Company (Current) Apr. 2008 Corporate Vice President (Current) Yohzoh Matsuura Corporate Vice President Apr. 1980 Joined the Company (April 15, 1956) (General Manager of Imaging Oct. 2004 General Manager of Imaging Engine Development Division Engine Development Division) (Current) Apr. 2006 Associate Director Apr. 2007 Deputy General Manager of MFP Business Group Corporate Vice President (Current) Apr. 2008 General Manager of Fundamental & Control Technology Center of Apr. 2008 Imaging Engine Development Division
Group Executive Officers of the Company as of June 25, 2009 were as follows: -85-
Current Position Name (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- Kazuo Togashi Corporate Senior Vice Apr. 1972 Joined the Company (November 28, 1949) President (Chairman and CEO Apr. 1998 President of Ricoh Europe B.V. (Chief Executive Officer) of June 2000 Senior Vice President Ricoh Americas Corporation) Apr. 2002 Chairman of said company (General Manager of Americas Apr. 2002 Chairman of NRG Group PLC Marketing Group) June 2002 Executive Vice President June 2003 Managing Director June 2005 Corporate Senior Vice President (Current) Apr. 2006 General Manager of International Business Group Apr. 2006 General Manager of Regional Business Support Center of International Business Group Apr. 2006 General Manager of Trade Affairs & Export/Import Administration Center of International Business Group Chairman of Ricoh China Co., Ltd. Jan. 2008 General Manager of Business Strategy & Planning Center Apr. 2009 of International Business Group Deputy General Manager of Global Marketing Taskforce June 2009 Chairman and CEO (Chief Executive Officer) of Ricoh Americas Corporation (Current) General Manager of Americas Marketing Group (Current) Shiro Sasaki Corporate Senior Vice President Apr. 1972 Joined the Company (December 23, 1949) (Chairman of Ricoh Apr. 2000 President of Gestetner Holdings PLC Europe, PLC.) Apr. 2002 President of NRG Group PLC (Chairman of Ricoh Europe June 2004 Senior Vice President (Netherlands) B.V.) June 2005 Corporate Vice President (General Manager of Europe Apr. 2006 Corporate Senior Vice President (Current) Marketing Group) Apr. 2006 Chairman of Ricoh Europe B.V. Apr. 2006 Chairman of NRG Group PLC Apr. 2007 Chairman of Ricoh Europe PLC (Current) Apr. 2007 President of Ricoh Europe (Netherlands) B.V. (Current) June 2009 General Manager of Europe Marketing Group (Current) Sadahiro Arikawa Corporate Senior Vice President Apr. 1971 Joined the Company (March 31, 1949) (President of Ricoh Leasing Apr. 2001 General Manager of Fukuoka Branch of Marketing Group Co., Ltd.) Dec. 2001 President of Ricoh Kyusyu Co., Ltd. Apr. 2004 General Manager of Major Accounts Marketing Division June 2004 Senior Vice President
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Current Position Name (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- June 2005 Corporate Vice President Apr. 2009 Associate Director Apr. 2009 Corporate Senior Vice President of Ricoh Leasing Co., Ltd. June 2009 President of Ricoh Leasing Co., Ltd. (Current) June 2009 Corporate Senior Vice President (Current) Hiroshi Tsuruga Corporate Vice President Apr. 1971 Joined the Company (November 18, 1948) (President of Tohoku Ricoh Apr. 1999 General Manager of Information Technology and Solution Co., Ltd.) Division June 2002 Senior Vice President June 2005 Deputy President of Tohoku Ricoh Co., Ltd. June 2005 Corporate Vice President (Current) Apr. 2006 President of Tohoku Ricoh Co., Ltd. (Current) Kohji Sawa Corporate Vice President Apr. 1971 Joined the Company (June 5, 1948) (President of Ricoh Elemex Apr. 1998 General Manager of Imaging System Component Production Corporation) Division Apr. 2000 General Manager of Procurement Control Center July 2001 General Manager of Optical Component Development Center June 2002 Senior Vice President June 2005 Corporate Vice President (Current) General Manager of Information Technology and Solution Division Apr. 2008 Corporate Senior Vice President of Ricoh Elemex Corporation June 2008 President of Ricoh Elemex Corporation (Current) Yoshihiro Niimura Corporate Vice President Apr. 1975 Joined the Company (May 22, 1951) (President of Ricoh China June 2004 President of Ricoh China Co., Ltd. (Current) Co., Ltd.) (Chairman and President of June 2004 Chairman and President of Ricoh Electronic Technology Ricoh Electronic Technology (China) Co., Ltd. (Current) (China) Co., Ltd.) June 2004 Senior Vice President (General Manager of China June 2005 Corporate Vice President (Current) Marketing Group) June 2009 General Manager of China Marketing Group (Current) Michel De Bosschere Corporate Vice President June 1993 Managing Director of Nashua/tec Benelux (June 16, 1948) (Chairman of Ricoh Jan. 2000 President of NRG Benelux B.V. Belgium N.V.) June 2004 Senior Vice President (President of Ricoh France June 2005 Corporate Vice President (Current) S.A.S.)
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Current Position Name (Function/Business area) Date Business Experience -------------------- ------------------------------- ---------------- ------------------------------------------------------- Aug. 2007 President of Ricoh Nederland B.V. Nov. 2007 Chairman of NRG Benelux B.V. Chairman of Ricoh Nederland B.V. Nov. 2007 Chairman of Ricoh Belgium N.V. (Current) Chairman of NRG Belgium S.A. Mar. 2009 President of Ricoh France S.A.S. (Current) Daisuke Segawa Corporate Vice President Mar. 1980 Joined the Company (July 21, 1954) (President and CEO (Chief Dec. 1998 General Manager of Treasury Department Executive Officer) of InfoPrint Oct. 2004 General Manager of Corporate Planning Division Solutions Company, LLC) June 2005 Corporate Vice President Apr. 2006 General Manager of Finance and Accounting Division (Current) July 2008 Senior Vice President of InfoPrint Solutions Company, LLC Apr. 2009 Associate Director May 2009 President and CEO (Chief Executive Officer) of InfoPrint Solutions Company, LLC (Current) June 2009 Corporate Vice President (Current) Nobuaki Majima Corporate Vice President Apr. 1981 Joined the Company (May 24, 1952) (President of Ricoh Asia Mar. 2001 President of Ricoh Deutschland GmbH Pacific, Pte. Ltd.) (General Manager of Asia Apr. 2006 President of Ricoh Asia Pacific, Pte. Ltd. (Current) Pacific Marketing Group) Apr. 2008 Associate Director Apr. 2009 Corporate Vice President (Current) June 2009 General Manager of Asia Pacific Marketing Group (Current)
There are no family relationships between any Director, Corporate Auditor or Executive Officer and any other Director, Corporate Auditor or Executive Officer of the Company. There are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any person named above was selected as a Director, Corporate Auditor, Executive Officer, or a Group Executive Officer. B. Compensation The aggregate remuneration, including bonuses but excluding retirement allowances, paid by the Company for fiscal year 2009 to all Directors, Corporate Auditors, Executive Officers and Group Executive Officers of the Company who served during fiscal year 2009 was Yen 1,072 million. Bonuses to be received by the director are determined by a resolution of an ordinary general meeting of shareholders of the Company. Bonuses so paid are not -88- deductible by the Company for tax purposes and, for financial reporting purposes, are reported under selling, general and administrative expenses as a charge against income and are based on the Company's financial performance for the fiscal year. During fiscal year 2010, the Company will pay bonuses in the total amount of Yen 84 million to Directors as a group in their capacity as such (excluding bonuses for their services as employees) in respect of fiscal year 2010, as approved by the Company's shareholders at the Ordinary General Meeting of Shareholders held on June 25, 2009. 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. At the Ordinary General Meeting of Shareholders held on June 27, 2007, the shareholders approved the abolishment of this retirement allowance system. Accordingly, the Company will pay incumbent Directors and Corporate Auditors their final retirement allowances corresponding to their tenure through June 27, 2007 in accordance with standards prescribed by the Company. The amount of such final retirement allowance through June 27, 2007 is Yen 498 million, for which the Company has established a reserve as of March 31, 2009. The Company abolished the retirement system as described above, in its place the Company introduced stock price-linked remuneration for its Directors by enhancing of the bonuses for directors with the Company's financial performance. Under this new system, the Company will pay a specified amount of remuneration to Directors each month, which amount will be contributed to the stock purchasing system to purchase the Company's stock. Each Director will be required to hold the Company's stock purchased under this system for the tenure of their office. One of the objectives of this system is to align the interests of the Directors with the interests of the shareholders on a long-term basis, which Ricoh believes will also strengthen the incentives to enhance shareholder value. C. Board Practices Under the Corporation Law of Japan, all Directors and Corporate Auditors shall be elected at the General Meeting of Shareholders. In general, under the Articles of Incorporation of the Company, the terms of office of Directors shall expire at the conclusion of the Ordinary General Meeting of Shareholders held with respect to the last fiscal year ending within two years after their election, and the terms of office of Corporate Auditors shall expire at the conclusion of the Ordinary General Meeting of Shareholders held with respect to the last fiscal year ending within four years after their election. However, both the Directors and Corporate Auditors may serve any number of consecutive terms. -89- From among the Directors, the Board of Directors shall elect one or more Representative Directors. Each of the Representative Directors has the statutory authority to represent the Company in the conduct of its affairs. The Corporate Auditors of the Company are not required to be and are not certified public accountants. However, at least half of the Corporate Auditors must be a person who has not been a Director, executive officer, manager, or employee of the Company or any of its subsidiaries prior to his or her election as a Corporate Auditor. The Corporate Auditors may not at the same time be Directors, executive officers, managers, or employees of the Company or any of its subsidiaries. Each Corporate Auditor has the statutory duty to examine the financial statements and business reports to be submitted by the Board of Directors at the General Meeting of Shareholders and also to supervise the administration by the Directors of the Company's affairs. Corporate Auditors are entitled and obligated to participate in meetings of the Board of Directors but are not entitled to vote. Under the Corporation Law, the Board of Corporate Auditors has a statutory duty to prepare and submit its audit report to the Board of Directors each year. A Corporate Auditor may note his or her opinion in the audit report if it is different from the opinion of the Board of Corporate Auditors that is expressed in the audit report. The Board of Corporate Auditors is empowered to establish audit principles, the method of examination by the Corporate Auditors of the Company's affairs and financial position, and other matters concerning the performance of the Corporate Auditors' duties. The Company does not have an audit committee. There are no Director's service contracts with Ricoh providing for benefits upon termination of service. For additional information regarding director compensation, see Item 6.B. D. Employees The table below provides information about employees. As of March 31, ------------------------- 2007 2008 2009 ------ ------ ------- Categorized by Operating Segment Imaging and Solutions 73,845 75,254 100,302 Industrial Products 3,340 3,421 3,150 Other 3,645 3,751 3,911 Headquarters 1,109 1,030 1,114 Total 81,939 83,456 108,477 Categorized by Geographic Location Domestic 40,342 40,385 40,865 Overseas 41,597 43,071 67,612 Total 81,939 83,456 108,477 -90- 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 fiscal year 2009 and Ricoh knows of no efforts to organize a union. Ricoh generally believes its employee relations to be good. -91- E. Share Ownership The following table lists the number of Common Stock owned by each Director, Corporate Auditor and Executive Officer of the Company as of June 25, 2009. 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 0.03% of the total Company Common Stock issued.
Name Position Number of Shares -------------------- ------------------------------------------------- ---------------- Masamitsu Sakurai Chairman of the Board and Representative Director 20,000 Shiro Kondo Representative Director 12,000 Koichi Endo Director 20,747 Katsumi Yoshida Director 9,100 Masayuki Matsumoto Director 9,000 Takashi Nakamura Director 17,693 Kazunori Azuma Director 11,000 Zenji Miura Director 10,000 Kiyoshi Sakai Director 6,000 Takaaki Wakasugi Director 5,000 Shigekazu Iijima Corporate Auditor 5,000 Yuji Inoue Corporate Auditor 10,000 Terumoto Nonaka Corporate Senior Vice President 8,050 Kenji Hatanaka Corporate Senior Vice President 3,000 Hiroshi Kobayashi Corporate Senior Vice President 5,000 Yoshimasa Matsuura Corporate Senior Vice President 5,000 Norio Tanaka Corporate Senior Vice President 3,000 Hiroshi Adachi Corporate Senior Vice President 9,000 Kenichi Kanemaru Corporate Senior Vice President 5,000 Hisashi Takata Corporate Vice President 1,000 Kiyoto Nagasawa Corporate Vice President 5,000 Yutaka Ebi Corporate Vice President 2,000 Kenichi Matsubayashi Corporate Vice President 4,000 Soichi Nagamatsu Corporate Vice President 3,000 Kazuo Togashi Corporate Senior Vice President 7,000 Shiroh Sasaki Corporate Vice President 4,000 Sadahiro Arikawa Corporate Vice President 4,000 Hiroshi Tsuruga Corporate Vice President 4,000 Kohji Sawa Corporate Vice President 5,000 Yoshihiro Niimura Corporate Vice President 1,000 Nobuaki Majima Corporate Vice President 4,000 ------- Total 217,590 =======
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, 2009. -92- 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, 2009 are as follows:
Number of Percentage of Shares Owned Outstanding Title of Class Name (in thousands) Shares Owned -------------- ------------------------------------ -------------- ------------- Common Stock Japan Trustee Services Bank, Ltd. 102,365 14.10% Common Stock The Master Trust Bank of Japan, Ltd. 70,093 9.65
The Master Trust Bank of Japan, Ltd. is a joint venture managed by Mitsubishi UFJ Trust and Banking Corporation, Nippon Life Insurance Company, Meiji Yasuda Life Insurance Company and the Norinchukin Trust and Banking Co., Ltd. Japan Trustee Services Bank, Ltd. is a joint venture managed by Resona Bank, Ltd., the Sumitomo Trust and Banking Co., Ltd. and Chuo Mitsui Trust Holdings, Inc. As far as is known to the Company, there has not been any significant change in the percentage ownership held by any major shareholders during fiscal year 2009. 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, 2009, 1,008,926 American Depositary Shares were held of record by one institutional registered holder 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 7 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. -93- 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-52. Legal or arbitration proceedings -------------------------------- There are no material pending legal or arbitration proceedings to which Ricoh is a party. Dividend Policy --------------- Ricoh endeavors to provide stable dividends to its shareholders by boosting profitability. At the same time, Ricoh undertakes to increase retained earnings to reinforce its corporate structure and to cultivate new businesses. Ricoh uses such retained earnings to strengthen its core businesses and invest in new fields with medium- and long-term perspectives. See Item 10 "Dividends" for important information on the Company's dividend payment procedure and restrictions. B. Significant Changes 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 exchange: Euronext 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 on the Over-the-Counter Market. -94-
Over-the-Counter Market Price Per Tokyo Stock Exchange Price 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 2005 2,345 1,782 107.50 84.80 Fiscal Year 2006 2,360 1,646 110.00 73.00 Fiscal Year 2007 2,775 1,991 116.50 88.00 Fiscal Year 2008 2,950 1,395 121.25 69.55 Fiscal Year 2009 1,986 770 93.50 41.50 Quarterly highs and lows ------------------------ Fiscal Year 2008 1st quarter 2,950 2,550 121.25 106.00 2nd quarter 2,915 2,185 119.50 95.25 3rd quarter 2,545 1,905 109.50 87.00 4th quarter 1,977 1,395 95.00 69.55 Fiscal Year 2009 1st quarter 1,986 1,558 93.50 78.10 2nd quarter 1,983 1,441 92.20 65.00 3rd quarter 1,534 770 70.50 41.50 4th quarter 1,359 931 71.43 48.00 Monthly highs and lows ---------------------- December 2008 1,142 911 63.00 48.50 January 2009 1,359 1,027 71.43 57.00 February 2009 1,204 1,029 64.85 54.75 March 2009 1,272 931 63.25 48.00 April 2009 1,359 1,171 68.49 59.74 May 2009 1,361 1,194 69.71 61.55
Notes: (1) Price per share of Common Stock is as reported by the TSE. (2) Price per ADSs is based upon one ADS representing 5 shares of Common Stock as reported by the Over-the-Counter Market Bulletin Board(R). B. Plan of Distribution Not applicable. C. Markets See Item 9.A. for a list of the stock exchanges on which the securities are listed. -95- See Item 10.B. for certain information relating to the Common Stock of the Company. D. Selling Shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the Issue Not applicable. Item 10. Additional Information ---------------------- A. Share Capital Not applicable. B. Memorandum and Articles of Association ORGANIZATION Ricoh Company, Ltd. was incorporated in Japan under the Commercial Code of Japan and is deemed to remain to exist under the Corporation Law (Kaisha-ho; Law No. 86 of 2005) which took effect as of May 1, 2006. It is registered in the Commercial Register (shogyo tokibo) maintained by the Tokyo Legal Affairs Bureau of the Ministry of Justice. OBJECTIVES AND PURPOSES Article 3 of the Articles of Incorporation of the Company provides that its purpose is to engage in the following business activities: 1. Manufacture, sale and installation work and electrical communication work of optical, office, audio, electric and measuring equipment, other general machinery and equipment and accessories and supplies therefor. 2. Manufacture and sale of photographic sensitive materials and duplicating papers. 3. Manufacture and sale of various raw materials for photographic sensitive materials, and various chemical materials for chemical industries. 4. Manufacture, processing and sale of papers, pulps, textiles, general merchandise and by-products thereof. 5. Investment in, or sale of the products of, other companies. -96- 6. Import and Export of the goods described in any of the foregoing items and other goods of every kind and description. ] 7. Brokerage business for casualty insurance and insurance brokerage under the Automobile Liability Security Law of Japan. 8. Direct marketing through the Internet, facsimile, telephone, etc. 9. Any and all business incidental or relating to any of the foregoing items. DIRECTORS Under the Corporation Law, the Board of Directors has executive powers and duties to manage the affairs of the Company and each Representative Director, who is elected from among the Directors by the Board of Directors, has the statutory authority to represent the Company in all respects. Under the Corporation Law, the Directors must refrain from engaging in any business competing with the Company unless approved by the Board of Directors and any Director who has a material interest in the subject matter of a resolution to be taken by the Board of Directors cannot vote in such resolution. The total amount of remuneration to Directors and to Corporate Auditors is subject to approval at the General Meeting of Shareholders. Within such authorized amounts the Board of Directors and the Board of Corporate Auditors respectively determine the compensation to each Director and Corporate Auditor. Except as stated below, neither the Corporation Law nor the Company's Articles of Incorporation make a special provision as to the Director's or Corporate Auditor's power to vote in connection with their compensation, borrowing powers exercisable by a Representative Director (or a Director who is given power by a Representative Director to exercise such powers), their retirement age or requirement to hold any shares of capital stock of the Company. The Corporation Law specifically requires the resolution of the Board of Directors for a corporation to acquire or dispose of material assets; to borrow substantial amounts of money; to employ or discharge from employment important employees, such as managers (shihainin); to establish, change or abolish a material corporate organization such as a branch office; to decide certain important matters related to the offering as to subscription of bonds; to establish a system necessary to ensure appropriateness of business operations of a joint stock corporation (kabushiki kaisha), including compliance with the laws and regulations and the Articles of Incorporation by the Directors in performing their duties. The Regulations of the Board of Directors of the Company require a resolution of the Board of Directors for the Company's borrowing or lending of a significant amount of money or giving of a guarantee in a large amount. Set forth below is certain information relating to the Common Stock of the Company, including brief summaries of certain provisions of the Company's Articles of Incorporation and Share Handling Regulations, as currently in effect, and of the Corporation Law of Japan relating to a joint stock company (kabushiki kaisha) and certain related legislation. -97- GENERAL The presently authorized capital stock of the Company is 1,500,000,000 shares. Under the Corporation Law, shares of the Company (which chose under Article 7 of its Articles of Incorporation to issue share certificates) are transferable by delivery of share certificates, but in order to assert shareholders' rights against the Company, the transferee must generally have his name registered in the Company's register of shareholders. Shareholders are required to file their names, addresses and seals with The Chuo Mitsui Trust & Banking Co., Ltd., the custodian of the shareholders' register (kabu-nushi meibo kanrinin), transfer agent for the Company's Common Stock, and shareholders not resident in Japan are required to file a mailing address in Japan or appoint a resident proxy in Japan. These requirements do not apply to the holders of ADRs. The central clearing system of share certificates under the Law Concerning Central Clearing of Share Certificates and Other Securities of Japan applies to the shares of Common Stock of the Company. Pursuant to this system a holder of shares of Common Stock is able to choose, at his discretion, to participate in this system and all certificates of shares of Common Stock elected to be put into this system are deposited with the central clearing system and all such shares are registered in the name of the clearing house in the Company's register of shareholders. Each participating shareholder is in turn registered in the register of beneficial shareholders and treated the same way as shareholders registered in the Company's register of shareholders. DIVIDENDS The Articles of Incorporation of the Company provide that the accounts shall be closed on March 31 of each year and that dividends, if any, shall be paid to the shareholders of record as of the end of such fiscal period. After the close of the fiscal period, the Board of Directors prepares, among other things, accounting documents (financial statements) and the attachments thereto for dividends and other purposes; these documents are to be submitted to the Corporate Auditors of the Company and to the Accounting Auditors and then submitted for approval by an annual Ordinary General Meeting of Shareholders, which is normally held in June of each year and the distribution of surplus (joyo-kin) is to be decided upon by shareholders at such Meeting. In addition to provisions for dividends, if any, and for the reserve, bonuses to Directors and Corporate Auditors will also be decided upon at this Meeting. In addition to a distribution of annual dividends, the Board of Directors of the Company may by its resolution declare an interim dividend pursuant to Article 454, paragraph 5 of the Corporation Law to shareholders who are registered in the Company's register of shareholders at the end of each September 30, subject to the limitations described below. The Corporation Law provides that the Company may not make any distribution of surplus by way of dividends in cash unless it has set aside in its reserve an amount equal to at least one-tenth of any amount paid out as an appropriation of retained earnings (including any payment by way of annual dividend and bonuses to Directors and Corporate Auditors) or equal to one-tenth of any interim dividend. The Corporation Law permits the Company to distribute surplus by way of dividends. First, surplus is -98- calculated by adding (i), (ii), (iii) and (iv) described below and subtracting (v), (vi) and (vii) described below from such aggregate of (i) through (iv): (i) amount determined by subtracting the aggregate of (c), (d) and (e) described below from the aggregate of (a) and (b) described below as of the final date of the last fiscal year; (a) amount of assets, (b) the aggregate amount of the book value of the treasury stock, (c) amount of liabilities, (d) the aggregate amount of the stated capital and the reserve and (e) the aggregate of each amount entered under respective accounting titles (kanjo kamoku) set forth under the relevant Ordinance of the Ministry of Justice, (ii) amount determined by subtracting the book value of the treasury stock from the consideration for the treasury stock disposed of, if any, after the final date of the last fiscal year, (iii) amount of reduction of the stated capital, if any, after the final date of the last fiscal year, (iv) amount of reduction of the reserve, if any, after the final date of the last fiscal year, (v) book value of the treasury stock, if any, cancelled after the final date of the last fiscal year, (vi) amount determined by adding (a) through (c) described below in the event that surplus is distributed after the final date of the last fiscal year: (a) the aggregate of the book value of assets for distribution set forth under Article 454, paragraph 1, item 1 of the Corporation Law (regarding distribution of surplus), (b) the aggregate of each sum of the money given to the shareholders who exercised the right to monetary distribution set forth under Article 454, paragraph 4, item 1 of the Corporation Law (regarding distribution in kind) and (c) the aggregate of each sum of the money given to each shareholder holding shares of which number is less than a certain number to be set forth by the Company pursuant to Article 454, paragraph 4, item 2 of the Corporation Law (regarding distribution in kind), (vii) the aggregate of each amount entered under respective accounting titles set forth under the relevant Ordinance of the Ministry of Justice. Second, the distributable amount is calculated by subtracting the aggregate of (iii), (iv), (v) and (vi) described below from the aggregate of (i) and (ii) described below: (i) surplus; (ii) the aggregate of the following items (a) and (b) in the event that extraordinary accounting documents are approved by the shareholders' meeting or by the Board of Directors, as the case may be; (a) the aggregate of each amount entered as profit under respective accounting titles set forth under the relevant Ordinance of the Ministry of Justice during a period of time in question, (b) consideration for the treasury stock disposed of, if any, during such period; (iii) the book value of the treasury stock; (iv) the consideration for treasury stock disposed of, if any, after the final date of the last fiscal year; (v) the aggregate of each amount entered as loss under respective accounting titles set forth under the relevant Ordinance of the Ministry of Justice during the same period as stated in (ii) above; and (vi) the aggregate of each amount entered under the respective accounting titles set forth under the relevant Ordinance of Ministry of Justice. The Company may distribute such distributable amount to shareholders. The Corporation Law does not provide for stock dividends but provides for "free share allotment" under Article 185. The Board of Directors may by resolution issue and allot new shares to the shareholders on a prorated basis without receiving any consideration/contribution as issue price. In addition, under the Corporation Law, the Board of Directors may by resolution issue additional shares by way of a stock split, while the General Meeting of Shareholders by resolution transfers any amount which is distributable as dividends to stated capital, and thus the same effect as a stock dividend can be achieved. -99- In Japan, the "ex-dividend" date and the record date for dividends precede the date of determination of the amount of the dividend to be paid. In accordance with the Company's Articles of Incorporation, once a right to any dividends is accrued and has become due and payable, such right to dividends will lapse after three years from the due date. TRANSFER OF RESERVE TO STATED CAPITAL AND STOCK SPLITS When the Company issues new shares of Common Stock, the entire amount of the issue price of such new shares is required to be accounted for as stated capital, although the Company may account for an amount not exceeding one-half of such issue price as capital surplus. The General Meeting of Shareholders may by resolution transfer the whole or any part of reserve to stated capital. On the other hand, the Board of Directors may by resolution issue to shareholders additional shares of Common Stock without receiving any consideration/contribution as issue price by way of free allotment of shares or stock split without referring to the whole or any part of the amount of reserve so transferred to stated capital. GENERAL MEETING OF SHAREHOLDERS The Ordinary General Meeting of Shareholders to settle accounts of the Company for each fiscal period is normally held in June each year in Ota-ku, Tokyo, Japan. In addition, the Company may hold an extraordinary General Meeting of Shareholders whenever necessary by giving at least two weeks' advance notice to shareholders. Notice of a Shareholders' Meeting setting forth the place, time and purpose thereof, must be mailed to each shareholder having voting rights (or, in the case of a non-resident shareholder, to his resident proxy or mailing address in Japan) at least two weeks prior to the date set for the meeting. Such notice may also be furnished to shareholders by electronic means with such shareholders' consent. Any shareholders' holding at least 300 voting shares or 1% of the total number of outstanding voting shares for six months or more may propose a matter to be considered at a General Meeting of Shareholders by submitting a written request to Directors at least eight weeks prior to the date set for such Meeting. Such request may be submitted by electronic means with the Company's consent. VOTING RIGHTS A shareholder is entitled to one vote per share subject to the limitations on voting rights set forth in the following paragraph below and in the sections entitled "Unit share system" through "Voting rights of a holder of shares representing less than one unit" below. Except as otherwise provided by law or by the Company's Articles of Incorporation, a resolution can be adopted at a General Meeting of Shareholders by a majority of the shares having voting rights represented at the meeting. Special resolutions provided for in paragraph 2, Article 309 of the Corporation Law shall be adopted by the vote of the shareholders not less than two-thirds (2/3) of those present at a -100- meeting whereby one-third (1/3) of voting rights of all of the shareholders shall constitute a quorum. The Corporation Law and the Company's Articles of Incorporation provide, however, that the quorum for the election of Directors and Corporate Auditors shall not be less than one-third of the total number of outstanding shares having voting rights. The Company's shareholders are not entitled to cumulative voting in the election of Directors. A corporate shareholder, more than one-quarter of whose outstanding voting shares are directly or indirectly owned by the Company, may not exercise its voting rights in respect of the shares of the Company. The Company has no voting rights with respect to its own Common Stock. Shareholders may exercise their voting rights through proxies provided that the proxies are also shareholders holding voting rights. The Company's shareholders also may cast their votes in writing. The Corporation Law provides that in order to amend the Articles of Incorporation and in certain other instances, including an increase in the total number of shares authorized to be issued, a reduction of the stated capital, the removal of a Director or Corporate Auditor, dissolution, merger (with an exception of a merger with a company of very small business) or consolidation of a corporation, the transfer of the whole or an important part of the business, the taking over of the whole of the business of any other corporation (with an exception of a merger with a company of very small business), any offering of new shares at a "specially favorable" price (or any offering of convertible bonds or debentures with "specially favorable" conversion conditions or of bonds or debentures with warrants or rights to subscribe for new shares with "specially favorable" conditions) to persons other than shareholders, the quorum shall be one-third of the total number of shares having voting rights outstanding and the approval of the holders of at least two-thirds of the shares having voting rights represented at the Meeting is required (the "special shareholders resolution"). SUBSCRIPTION RIGHTS (KABUSHIKI WARIATEWO UKERU KENRI) Holders of the Company's Common Stock have no preemptive rights under its Articles of Incorporation. Authorized but unissued shares may be issued at such times and upon such terms as the Board of Directors determines, subject to the limitations as to the offering of new shares at a "specially favorable" price mentioned above. The Board of Directors may, however, determine that shareholders shall be given subscription rights regarding a particular issue of new shares, in which case such rights must be given on uniform terms to all shareholders and a notice must be given to shareholders not less than two weeks prior to the date when such rights are to be vested to shareholders. The Corporation Law provides that if a shareholder to whom such rights are given does not apply for subscription by a certain date of subscription, such shareholder will lose such rights. Rights to subscribe for new shares may be made generally transferable by the Board of Directors. In such case, such transferable right is called "call option of new shares (shinkabu yoyakuken). Whether the Company will make subscription rights generally transferable in future rights offerings will depend upon the circumstances at the time of such offerings. If subscription rights are not made generally transferable, transfers by a non-resident of Japan or a corporation organized under the laws of a -101- foreign country or whose principal office is located in a foreign country will be enforceable against the Company and third parties only if the Company's consent to each such transfer is obtained. When such consent is necessary in the future for the transfer of subscription rights, the Company intends to consent, on request, to all such transfers by such a non-resident or foreign corporation. DILUTION In the future it is possible that market conditions and other factors might make a rights offering to shareholders substantially below the market price of shares of Common Stock desirable. If the number of shares offered in a rights offering is substantial in relation to the number of shares outstanding and the market price exceeds the subscription price at the time of the offering, a shareholder who does not exercise and is unable otherwise to realize the full value of his subscription rights would suffer economic dilution of his equity interest in the Company. LIQUIDATION RIGHTS In the event of a liquidation of the Company, the assets remaining after payment of all debts and liquidation expenses and taxes will be distributed among the shareholders in proportion to the respective numbers of shares held. LIABILITY TO FURTHER CALLS OR ASSESSMENTS All the Company's presently outstanding shares of Common Stock including shares represented by the American Depository Shares are fully paid and non-assessable. CUSTODIAN OF THE SHAREHOLDERS' REGISTER The Chuo Mitsui Trust and Banking Co., Ltd. is the custodian of the shareholders' register of the Company's Common Stock; as such custodian, it keeps the Company's register of shareholders and register of the lost share certificates in its office at 33-1, Shiba 3-chome, Minato-ku, Tokyo, Japan, and makes transfer of record ownership upon presentation of the certificates representing the transferred shares. RECORD DATE March 31 is the record date for the Company's year-end dividends. The shareholders who are registered as the holders of 1,000 shares or more in the Company's register of shareholders at the end of each March 31 are also entitled to exercise shareholders' rights at the Ordinary General Meeting of Shareholders with respect to the fiscal period ending on such March 31. September 30 is the record date for interim dividends. In addition, the Company may set a record date for determining the shareholders entitled to other rights and for other purposes by giving at least two weeks' public notice. The price of the shares generally goes ex-dividend or ex-rights on Japanese stock exchanges on the third business day prior to a record date (or if the record date is not a -102- business day, the fourth business day prior thereto), for the purpose of dividends or rights offerings. PURCHASE BY THE COMPANY OF ITS COMMON STOCK The Company may purchase its own shares only in case of the events falling under Article 155 of the Corporation Law. As a matter of manner of such purchase, the Company may purchase of its own shares (i) through the Tokyo Stock Exchange or other stock exchange on which the shares are listed or by way of tender offer, if authorized by a resolution of the Board of Directors, (ii) from a specific party, if authorized by a special resolution of an Ordinary General Meeting of Shareholders, or (iii) from the Company's own subsidiary, if authorized by a resolution of the Board of Directors. When a repurchase is made by the Company from a specified party pursuant to an authorization by a special resolution of an Ordinary General Meeting of Shareholders as noted above, shareholders may make a demand to a Representative Director, five days or more prior to the relevant Shareholders' Meeting, that the Company also repurchase the shares held by that shareholder. Purchase of shares falling under Article 461, paragraph 1 of the Corporation Law must satisfy, among others, the requirement that the total amount of the repurchase price (of book value) may not exceed the distributable amount as described in "Dividends" above. The Company may hold its own shares as treasury stock so purchased without restriction as to a period of time to hold. However, the Company is not entitled to any voting rights or right to dividends as to such treasury stock. The Company may cancel its treasury stock that it holds by a resolution of the Board of Directors. The Company may otherwise dispose of its treasury stock by a resolution of the Board of Directors. "UNIT" SHARE SYSTEM (TANGENKABU SEIDO) Pursuant to the Corporation Law the Company has adopted 1,000 shares as one unit of shares. TRANSFERABILITY OF SHARES REPRESENTING LESS THAN ONE UNIT As adopted in the Company's Articles of Incorporation, the Company will not issue certificates for shares representing less than one unit. Since the transfer of shares normally requires delivery of the certificates therefor, fractions of a unit for which no share certificates are issued are not transferable. Shares representing less than one unit for which share certificates have been issued continue to be transferable. RIGHT OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT TO REQUIRE THE COMPANY TO PURCHASE SUCH SHARES A holder of shares representing less than one unit may at any time require the Company to purchase such shares at their last reported sale price on the Tokyo Stock Exchange on the day when such request is made less applicable brokerage commission. The usual securities transfer tax is applicable to such transactions. -103- RIGHT OF THE HOLDER OF SHARES TO DEMAND THE PURCHASE OF SHARES REPRESENTING LESS THAN ONE UNIT As adopted in the Company's Articles of Incorporation and set forth in the Share Handling Regulations, a holder of shares of less-than-one-unit may request the Company to sell additional shares so that their less-than-one-unit can share constitute one unit of shares. OTHER RIGHTS OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT A holder of shares representing less than one unit has certain rights in respect of such shares, including the following: (i) the right to receive dividends (including interim dividends), (ii) the right to receive shares and/or cash by way of a stock split or upon consolidation or subdivision of shares or upon a capital decrease or merger of the Company, (iii) the right to be allotted subscription rights with respect to new shares, convertible bonds and bonds with warrants to subscribe for shares when such rights are granted to shareholders and (iv) the right to participate in the distribution of surplus assets in the event of the liquidation of the Company. Other rights, including voting rights, cannot be exercised with respect to shares representing less than one unit. VOTING RIGHTS OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT A holder of shares representing less than one unit cannot exercise any voting rights with respect to such shares. A holder of shares representing one or more whole units will have one vote for each such unit, except as stated in "Voting rights" above. C. Material Contracts All contracts entered into by Ricoh or any member of the Ricoh group during the two years preceding this report were entered into in the ordinary course of business. D. Exchange Controls The Foreign Exchange and Foreign Trade Law of Japan, as amended, and the cabinet orders and ministerial ordinances thereunder (the "Exchange Law") govern certain matters relating to the issuance of equity-related securities by the Company and the acquisition and holding of shares of Common Stock or ADSs representing such shares by "exchange non-residents" and by "foreign investors" as hereinafter defined. The Exchange Law currently in effect does not affect the right of an exchange non-resident to purchase or sell an ADS outside of 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 of Japan. Generally branches and other offices of Japanese corporations located outside of 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 -104- outside of Japan, and (iii) corporations of which (a) 50% or more of the shares are held by (i) and/or (ii) above, (b) a majority of officers consists of non-resident individuals or (c) a majority of the officers having the power of representation consists of non-resident individuals. Dividends and Proceeds of Sales Under the Exchange Law, dividends paid on, and the proceeds of sales in Japan of, shares of Common Stock held by exchange non-residents in general may be converted into any foreign currency and repatriated abroad. The acquisition of shares of Common Stock by exchange non-resident shareholders by way of stock splits is not subject to any requirements under the Exchange Law. Acquisition of Shares Under the Exchange Law, acquisition of shares of a Japanese company listed on any Japanese stock exchange or traded on the over-the-counter market in Japan ("listed shares") by an exchange non-resident from a resident of Japan is generally not subject to a prior filing requirement. In case a foreign investor acquires listed shares (whether from a resident of Japan or an exchange non-resident, from another foreign investor or from or through a designated securities company) and as a result of such acquisition the number of shares held directly or indirectly by such foreign investor would become 10% or more of the total outstanding shares of the company, the foreign investor is required to make a subsequent report on such acquisition to the Minister of Finance and other Ministers having jurisdiction over the business of the subject company (the "Competent Ministers"). In certain exceptional cases, a prior filing is required and the Competent Ministers may recommend the modification or abandonment of the proposed acquisition and, if the foreign investor does not accept the recommendation, order its modification or prohibition. The deposit of shares of Common Stock by an exchange non-resident of Japan, the issuance of ADRs in exchange therefor and the withdrawal of the underlying shares of Common Stock by an exchange non-resident upon surrender of ADRs are not subject to any requirements under the Exchange Law, except where as a result of such deposit or withdrawal the aggregate number of shares of Common Stock held by the Depositary (or its nominee) or the holder surrendering ADRs, as the case may be, would be 10% or more of the total outstanding shares of Common Stock, in which event a subsequent reporting may be required as described above. E. Taxation JAPANESE TAXATION Generally, a non-resident of Japan or a non-Japanese corporation is subject to Japanese withholding tax on dividends paid by a Japanese corporation. Generally, stock splits are not subject to Japanese income tax. According to the Income Tax Law of Japan, the rate of Japanese national withholding tax applicable to dividends paid on listed shares issued by the Company to non-residents of Japan or non-Japanese corporations is (i) 7% for the period from January 1, 2004 to March 31, 2008, and (ii) 15% thereafter, except for -105- dividends paid to any individual shareholder who holds 5% or more of the outstanding total of the shares issued by the Company, for which the applicable rate is 20%. Under the new income tax convention between the U.S. and Japan (the "Convention") ratified in March 2004, the maximum rate of Japanese withholding tax that may be imposed on dividends paid to a U.S. resident or corporation not having a "permanent establishment" (as defined therein) in Japan is generally 10%. This 10% withholding tax rate is applicable to dividends declared on or after July 1, 2004. The 15% withholding tax rate under the old income tax convention is still applicable to dividends declared before July 1, 2004. If the tax rate under the domestic tax law is lower than that under the Convention, the domestic tax rate is still applicable. Gains derived by a non-resident of Japan or a non-Japanese corporation from the sale of Common Stock or ADRs outside of 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; -106- . a person whose functional currency for U.S. federal income tax purposes is not the U.S. Dollar; or . a person that actually or constructively owns or is deemed to own 10% or more of any class of our stock. This summary is based on laws, treaties, and regulatory interpretations in effect on the date hereof, all of which are subject to change, possibly on a retroactive basis. Moreover, this summary assumes that the Company will not be treated as a passive foreign investment company (a "PFIC") for U.S. federal income tax purposes. See the summary below under the heading "PFIC Rules." Please consult your own tax advisers concerning the U.S. federal, state, local, and other tax consequences of purchasing, owning, and disposing of shares of Common Stock or American Depositary Shares in your particular circumstances. For purposes of this summary, you are a "U.S. holder" if you are a beneficial owner of a share of Common Stock or an American Depositary Share that is for U.S. federal income tax purposes: (i) a citizen or a resident of the United States, (ii) a corporation or a partnership (including an entity treated as a corporation or a partnership for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia (unless, in the case of a partnership, Treasury regulations are adopted that provide otherwise), (iii) an estate whose income is subject to U.S. federal income tax regardless of its source, or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. Certain trusts not described in clause (iv) above in existence on August 20, 1996 that elect to be treated as a United States person will also be a U.S. holder for purposes of this discussion. In general, if you hold ADRs evidencing American Depositary Shares, you will be treated as the owner of the shares of Common Stock represented by those American Depositary Shares for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an American Depositary Share for the shares of Common Stock represented by that American Depositary Share. Dividends The gross amount of cash dividends paid out of the Company's current or accumulated earnings and profits, as determined for U.S. federal income tax purposes, that a U.S. holder receives (prior to deduction of Japanese taxes) generally will be subject to U.S. federal income taxation as foreign source ordinary dividend income. However, in certain circumstances, all or a portion of the cash dividends paid by the Company may be treated as U.S. source dividend income. You should consult your tax advisers regarding the U.S. federal income tax consequences of all or a portion of the cash dividends paid by the Company being treated as U.S. source dividend income. -107- Dividends paid in Japanese Yen will be included in your income in a U.S. Dollar amount calculated by reference to the exchange rate in effect on the date of your (or, in the case of American Depositary Shares, the depositary's) receipt of the dividend, regardless of whether the payment is in fact converted into U.S. Dollars. If such a dividend is converted into U.S. Dollars on the date of receipt, you generally should not be required to recognize a foreign currency gain or loss in respect of the dividend income. You should consult your own tax adviser regarding the treatment of any foreign currency gain or loss realized with respect to any Japanese Yen received by you (or, in the case of American Depositary Shares, the depositary) that are converted into U.S. Dollars on a date subsequent to receipt. Dividends paid by the Company generally will not be eligible for the dividends-received deduction allowed to corporations that are U.S. holders. Notwithstanding the foregoing, pursuant to recently enacted legislation, certain dividends received by individual U.S. holders that constitute "qualified dividend income" will be subject to a reduced maximum marginal U.S. federal income tax rate. Qualified dividend income generally includes, among other dividends, dividends received during the taxable year from "qualified foreign corporations." In general, the term "qualified foreign corporation" includes a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States which the U.S. Treasury Department determines to be satisfactory, and which includes an exchange of information program. In addition, a foreign corporation is treated as a qualified foreign corporation with respect to any dividend paid by the corporation with respect to stock of the corporation that is readily tradable on an established securities market in the United States. Notwithstanding this previous rule, dividends received from a foreign corporation that was a foreign investment company (as defined in section 1246(b) of the Code), a passive foreign investment company (as defined in section 1297 of the Code), or a foreign personal holding company (as defined in section 552 of the Code) in either the taxable year of the corporation in which the dividend was paid or the preceding taxable year will not constitute qualified dividend income. In addition, the term qualified dividend income will not include, among other dividends, any (i) dividends on any share of stock which is held by a taxpayer for 60 days or less during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividends (as measured under section 246(c) of the Code) or (ii) dividends to the extent that the taxpayer is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respects to positions in substantially similar or related property. Moreover, special rules apply in determining a taxpayer's foreign tax credit limitation under section 904 of the Code in the case of qualified dividend income. Individual U.S. holders should consult their own tax advisors to determine whether or not amounts received as dividends from the Company will constitute qualified dividend income subject to a reduced maximum marginal U.S. federal income tax rate and, in such case, the effect, if any, on the individual U.S. holder's foreign tax credit. In addition to the foregoing, you should consult your own tax advisers to determine whether any rules limit your ability to make effective use of foreign tax credits, including the possible adverse impact of failing to take advantage of benefits under the income tax treaty between the United States and Japan. If no such rules apply, you -108- generally may claim a credit against your U.S. federal income tax liability for Japanese taxes withheld from dividends on shares of Common Stock or American Depositary Shares, so long as you have owned the shares of Common Stock or American Depositary Shares (and not entered into specified kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, you may, at your election, deduct such Japanese taxes in computing your taxable income, subject to generally applicable limitations under U.S. federal income tax law. The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend, in part, on a U.S. holder's particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes. Sales and Other Dispositions A U.S. holder will recognize a gain or loss on the sale or other disposition of shares of Common Stock or American Depositary Shares evidenced by ADRs in an amount equal to the difference between the U.S. Holder's adjusted tax basis in such shares of Common Stock or American Depositary Shares (in U.S. Dollars) and the amount realized on the disposition (in U.S. Dollars, generally determined at the spot rate on the date of disposition if the amount realized is denominated in a foreign currency). For U.S. federal income tax purposes, a gain or loss realized by a U.S. holder on a sale or other disposition of shares of Common Stock or American Depositary Shares will be a capital gain or loss, and will be a long-term capital gain or loss if the shares of Common Stock or American Depositary Shares were held for more than one year. Such gain or loss generally will be treated as U.S. source gain or loss for U.S. foreign tax credit purposes. Your ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at a reduced maximum marginal U.S. federal income tax rate. PFIC Rules The Company believes that it will not be treated as a PFIC for U.S. federal income tax purposes. However, that is a factual determination made annually and therefore may be subject to change. If the Company was treated as a PFIC, a U.S. holder of shares of Common Stock or American Depositary Shares evidenced by ADRs would be subject to certain adverse U.S. federal income tax consequences. U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING RULES Payments in respect of the shares of Common Stock or American Depositary Shares that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (i) is a corporation or other exempt recipient or (ii) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred (and certain other conditions are met). -109- F. Dividends and Paying Agents Not applicable. G. Statement by Experts Not applicable. H. Documents on Display The Company is subject to the informational requirements of the Securities and Exchange Act of 1934, as amended. In accordance with these requirements, the Company files reports and other information with the U.S. Securities and Exchange Commission (the "SEC"). These materials, including this annual report and exhibits thereto, may be inspected and copied at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of the materials may be obtained from the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. The documents filed via the Electronic Data Gathering, Analysis, and Retrieval system are also available for inspection on the SEC's website (http://www.sec.gov). I. Subsidiary Information Not Applicable. Item 11. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Ricoh is exposed to market risks primarily from changes in foreign currency exchange rates and interest rates, which affect outstanding debt and certain assets and liabilities denominated in foreign currencies. To a lesser extent, Ricoh is also exposed to equity price risk. In order to manage these risks that arise in the normal course of business, Ricoh enters into various hedging transactions pursuant to its policies and procedures covering such areas as counterparty exposure and hedging practices. Ricoh does not hold or issue derivative financial instruments for trading purposes or to generate income. Ricoh regularly assesses these market risks based on the policies and procedures established to protect against adverse effects of these risks and other potential exposures, primarily by reference to the market value of the financial instruments. As a result of the latest assessment, Ricoh does not anticipate any material losses in these areas for the fiscal year 2009, and there are no material quantitative changes in market risk exposure at March 31, 2009 when compared to March 31, 2008. 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. -110- FOREIGN CURRENCY RISK In the ordinary course of business, Ricoh uses foreign exchange forward contracts to manage the effects of foreign currency exchange risk on monetary assets and liabilities denominated in foreign currencies. The contracts with respect to the operating activities generally have maturities of less than six months, while the contracts with respect to the financing activities have the same maturities as the underlying assets and liabilities. The table below provides information about Ricoh's material derivative financial instruments that are sensitive to foreign currency exchange rates. The table below relating to foreign exchange forward contracts presents the notional amounts, weighted average exchange rates and estimated fair value. These notional amounts generally are used to calculate the contractual payments to be exchanged under the contracts. Foreign Exchange Forward Contracts
Year Ended March 31, ---------------------------------------------------------------------------- 2008 2009 ------------------------------------ ------------------------------------- Estimated Estimated Contract fair Contract fair Average amounts value Average amounts value contractual (Millions (Million contractual (Millions (Million rates of Yen) of Yen) rates of Yen) of Yen) -------------------------------------------------------------------------------------- US$/Yen 109.74 Yen (295) Yen (135) 92.25 Yen 15,959 Yen (1,023) EUR/Yen 163.20 (3,418) (120) 127.25 17,576 (347) US$/EUR 0.67 1,581 (93) -- -- --
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 table below 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. -111-
LONG-TERM INDEBTEDNESS Year ended March 31, 2008 -------------------------------------------------------------------------------------------------------------------------------- Millions of Yen ----------------------------------------------------------------------------------------------- (Excluding Capital Expected maturity date Lease Obligations and ---------------------------------------------------------------------------------- SFAS No. 133 fair Average Fair value adjustment) pay rate Total 2009 2010 2011 2012 2013 Thereafter Value -------------------------------------------------------------------------------------------------------------------------------- Bonds 1.43% Yen 54,999 Yen 25,000 Yen 20,000 Yen 9,999 Yen -- Yen -- Yen -- Yen 54,577 Convertible Bonds -- 55,202 -- -- -- 55,202 -- -- 51,865 Loans 1.66 196,818 57,377 56,690 57,072 24,643 1,033 3 196,438 -------------------------------------------------------------------------------------------------------------------------------- TOTAL Yen 307,019 Yen 82,377 Yen 76,690 Yen 67,071 Yen 79,845 Yen 1,033 Yen 3 Yen 302,880 --------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INDEBTEDNESS Year ended March 31, 2009 ----------------------------------------------------------------------------------------------------------------------------------- Millions of Yen -------------------------------------------------------------------------------------------------- (Excluding Capital Expected maturity date Lease Obligations ------------------------------------------------------------------------------------- and SFAS No. 133 fair Average Fair value adjustment) pay rate Total 2010 2011 2012 2013 2014 Thereafter Value ----------------------------------------------------------------------------------------------------------------------------------- Bonds 2.71% Yen 149,206 Yen 20,000 Yen 9,999 Yen 20,000 Yen -- Yen 50,000 Yen 49,207 Yen 146,211 Convertible Bonds -- 55,147 -- -- 55,147 -- -- -- 52,747 Loans 1.42 388,661 64,652 88,442 70,691 56,700 108,172 4 385,427 ----------------------------------------------------------------------------------------------------------------------------------- TOTAL Yen 593,014 Yen 84,652 Yen 98,441 Yen 145,838 Yen 56,700 Yen 158,172 Yen 49,211 Yen 584,385 -----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS Year ended March 31, 2008 ------------------------------------------------------------------------------------------------------------------------------- Millions of Yen ---------------------------------------------------------------------------------- Expected maturity date Notional Average Average ---------------------------------------------------------------------- amounts receive pay Fair (Millions) Type of swap rate rate Total 2009 2010 2011 2012 2013 Thereafter Value ------------------------------------------------------------------------------------------------------------------------------- Yen 130,000 Receive floating /Pay fixed 1.04% 0.96% Yen 130,000 Yen 45,000 Yen 15,000 Yen 54,000 Yen 16,000 Yen -- Yen -- Yen (368) Receive fixed 18,000 /Pay floating 2.04 1.08 18,000 -- 10,000 8,000 -- -- -- 392 Receive floating US$ 190 /Pay fixed 3.00% 4.64% Yen 19,036 Yen -- Yen 19,036 Yen -- Yen -- Yen -- Yen -- Yen (380) Receive fixed 4 /Pay fixed 6.00 5.92 366 366 -- -- -- -- -- (238)
INTEREST RATE SWAPS Year ended March 31, 2009 ----------------------------------------------------------------------------------------------------------------------------------- Millions of Yen -------------------------------------------------------------------------------------- Expected maturity date Notional Average Average -------------------------------------------------------------------------- amounts receive pay Fair (Millions) Type of swap rate rate Total 2010 2011 2012 2013 2014 Thereafter Value ----------------------------------------------------------------------------------------------------------------------------------- Yen 267,800 Receive floating /Pay fixed 1.13% 1.23% Yen 267,800 Yen 15,000 Yen 54,000 Yen 52,300 Yen 25,000 Yen 58,000 Yen 63,500 Yen (798) Receive fixed 18,000 /Pay floating 2.04 1.09 18,000 10,000 8,000 -- -- -- -- 213 Receive floating US$ -- /Pay fixed --% --% Yen -- Yen -- Yen -- Yen -- Yen -- Yen -- Yen -- Yen -- Receive fixed 1 /Pay fixed 6.00 6.00 98 98 -- -- -- -- -- (39)
-112- 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.
(Millions of Yen) Year ended March 31, ---------------------------------------------- 2008 2009 ---------------------- ---------------------- Cost Fair Value Cost Fair Value ---------------------------------------------- Debt Securities Due within one year Yen -- Yen -- Yen -- Yen -- Due after one year through five years 6,000 5,246 1,279 1,279 Equity Securities 62,208 64,716 43,002 45,062 Other 0 0 -- -- ---------------------------------------------------------------------------------------- TOTAL Yen 68,208 Yen 69,962 Yen 44,281 Yen 46,341 ----------------------------------------------------------------------------------------
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. -113- Item 15. Controls and Procedures ----------------------- Disclosure Controls and Procedures Ricoh's disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed by Ricoh in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to Ricoh's management, including its Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of its management, including the CEO and CFO, Ricoh evaluated its disclosure controls and procedures. Based on this evaluation, the CEO and the CFO concluded that Ricoh's disclosure controls and procedures were effective as of March 31, 2009 at a reasonable assurance level, provided that it be understood that any system of control is based in part upon certain assumptions designed to obtain reasonable (but not absolute) assurance as to its effectiveness, and there can be no assurance that Ricoh's system of control will succeed in achieving its stated objectives. Management's Report on Internal Control Over Financial Reporting Ricoh's management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and Rule 15d-15(f) of the Securities Exchange Act of 1934, as amended. Ricoh's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Ricoh; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Ricoh are being made only in accordance with authorizations of management and directors of Ricoh; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Ricoh's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with internal control policies or procedures may deteriorate. Ricoh's management excluded from its assessment of the effectiveness of Ricoh's internal control over financial reporting as of March 31, 2009 an assessment of internal control over financial reporting of IKON Office Solutions, Inc. (a company that Ricoh acquired on October 31, 2008). IKON Office Solutions, Inc. had total assets of Yen -114- 319,651 million and total sales of Yen 141,941 million that were reflected in the consolidated financial statements of the Company as of and for the year ended March 31, 2009. Ricoh's management assessed the effectiveness of Ricoh's internal control over financial reporting as of March 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Management's assessment included evaluating the design of Ricoh's internal control over financial reporting and testing of the operational effectiveness of Ricoh's internal control over financial reporting. Based on such assessment, management concluded that, as of March 31, 2009, Ricoh's internal control over financial reporting was effective based on the criteria set forth by COSO. Ricoh's independent registered accounting firm, KPMG AZSA & Co., has issued an audit report on the effectiveness of Ricoh's internal control over financial reporting as of March 31, 2009, such report is included in the Consolidated Financial Statements attached hereto. Changes in Internal Control Over Financial Reporting There has been no change in Ricoh's internal control over financial reporting that occurred during the period covered by this Form 20-F that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. Item 16. [RESERVED] Item 16A. 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 -115- Corporate Auditors will keep under active review the financial expert matter during fiscal year 2009 as part of their overall risk management and compliance program. Item 16B. 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. Item 16C. Principal Accountant Fees and Services -------------------------------------- The aggregate fees for professional services and other services rendered by KPMG AZSA & Co. and the various member firms of KPMG International to Ricoh for the years ended March 31, 2008 and 2009, were: (Millions of Yen) Year ended March 31, -------------------- 2008 2009 ----- ----- Audit Fees 1,629 1,901 Audit-related Fees 15 164 Tax Fees 185 935 All Other Fees 4 8 ------------------------------------ TOTAL 1,833 3,008 ------------------------------------ Audit Fees consist of fees for the annual audit of Ricoh's consolidated financial statements, and audit services that are normally provided by our independent accountants. Audit-related Fees consist of fees for assurance and related services that are reasonably related to due diligence related to mergers and acquisitions and consultation concerning financial accounting and reporting standards. Tax Fees consist of fees for tax compliance, tax advice and tax consulting associated with international transfer prices. All Other Fees consist of fees for all other services not included in any of the categories noted above. -116- AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES In accordance with Japanese law, the Company's independent accountants (Kaikei Kansanin) ("Accounting Auditors") are appointed by the shareholders at the Ordinary General Meeting of Shareholders with the consent of the Company's Board of Corporate Auditors. In addition, the Board of Corporate Auditors may, by its resolution, request the Company's Board of Directors to submit a proposal as to the appointment of Accounting Auditors at the Ordinary General Meeting of Shareholders. Subsequent to the appointment of the Accounting Auditors, the Board of Corporate Auditors is responsible, among other matters, for the oversight of the Accounting Auditors, subject to the requirements of Japanese law. No proposal was submitted to discharge KPMG AZSA & Co. as the Company's Accounting Auditors at the most recent Ordinary General Meeting of Shareholders held on June 25, 2009. The Board of Corporate Auditors has adopted policies and procedures to pre-approve all audit and permissible non-audit services provided by the Accounting Auditor ("Pre-approval Policies"). Under the Pre-approval Policies, proposed services either (i) may be pre-approved by the Board of Corporate Auditors without specific consideration on a case-by-case basis if such services do not exceed pre-approved fee levels ("general pre-approval"), or (ii) require the specific pre-approval of the Board of Corporate Auditors ("specific pre-approval"). The Board of Corporate Auditors may delegate its specific pre-approval authority to one or more of its independent members who shall be designated by the Board of Corporate Auditors. Under the Pre-approval Policies, the Accounting Auditors are not allowed to perform any non-audit services which may impair the auditors independence under the rules of the SEC. The appendices to the Pre-approval Policies set out the audit, audit-related, tax and other services, including those described above, that have received the general pre-approval of the Board of Corporate Auditors. The term of any general pre-approval is twelve months from the date of pre-approval, unless the Board of Corporate Auditors specifically provides for a different period and sets forth such different period in the relevant appendix to the Pre-approval Policies. The Board of Corporate Auditors will annually review the Pre-approval Policies and revise the list of services that it has provided general pre-approval. Requests or applications to provide services that require specific pre-approval by the Board of Corporate Auditors will be submitted to the Board of Corporate Auditors by the Chief Officer of a company or division to which services are provided, accompanied by a draft engagement letter from the Accounting Auditor. During fiscal year 2009, none of the services provided to the Company by KPMG AZSA & Co. were approved by the Board of Corporate Auditors pursuant to the de minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. Item 16D. Exemptions from the Listing Standards for Audit Committees ---------------------------------------------------------- Not applicable. -117- Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers ---------------------------------------------------------------------- Not applicable. Item 16F. Change in Registrant's Certifying Accountant -------------------------------------------- Not applicable. Item 16G. Corporate Governance -------------------- 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 -118- 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. By: /s/ ZENJI MIURA --------------------------------------- Zenji Miura Director, Corporate Executive Vice President and Chief Financial Officer Date: June 26, 2009 RICOH COMPANY, LTD. Consolidated Financial Statements and Schedule For the years ended March 31, 2007, 2008 and 2009 With Reports of Independent Registered Public Accounting Firm Thereon Ricoh Company, Ltd. and Consolidated Subsidiaries INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ------------ Reports of Independent Registered Public Accounting Firm ................ F-2 to F-3 Consolidated Balance Sheets as of March 31, 2008 and 2009 .............................................. F-4 to F-5 Consolidated Statements of Income for the years ended March 31, 2007, 2008 and 2009 .................... F-6 Consolidated Statements of Shareholders' Investments for the years ended March 31, 2007, 2008 and 2009 .................... F-7 to F-8 Consolidated Statements of Cash Flows for the years ended March 31, 2007, 2008 and 2009 .................... F-9 Notes to Consolidated Financial Statements .............................. F-10 to F-58 Schedule: II. Valuation and Qualifying Accounts and Reserves ................... F-59
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 The Board of Directors and Shareholders of Ricoh Company, Ltd.: We have audited the accompanying consolidated balance sheets of Ricoh Company, Ltd. (a Japanese corporation) and subsidiaries as of March 31, 2009 and 2008, and the related consolidated statements of income, shareholders' investment, and cash flows for each of the years in the three-year period ended March 31, 2009. In connection with our audits of the consolidated financial statements, we also have audited the related financial statement schedule. We also have audited Ricoh Company, Ltd.'s internal control over financial reporting as of March 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Ricoh Company, Ltd.'s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule and an opinion on the Company's internal control over financial reporting 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. F-2 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, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also in our opinion, Ricoh Company, Ltd. maintained, in all material respects, effective internal control over financial reporting as of March 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Ricoh Company, Ltd. acquired IKON Office Solutions, Inc. during the year ended March 31, 2009, and management excluded from its assessment of the effectiveness of Ricoh Company, Ltd.'s internal control over financial reporting as of March 31, 2009, IKON Office Solutions, Inc.'s internal control over financial reporting associated with total assets of Yen 319,651 million and total revenues of Yen 141,941 million included in the consolidated financial statements of Ricoh Company, Ltd. and subsidiaries as of and for the year ended March 31, 2009. Our audit of internal control over financial reporting of Ricoh Company, Ltd. also excluded an evaluation of the internal control over financial reporting of IKON Office Solutions, Inc. The accompanying consolidated financial statements as of and for the year ended March 31, 2009 have been translated into United States dollars solely for the convenience of the reader. We have audited the translation and, in our opinion, the consolidated financial statements, expressed in yen, have been translated into dollars on the basis set forth in Note 2 to the consolidated financial statements. KPMG AZSA & Co. Tokyo, Japan June 26, 2009 F-3 Ricoh Company, Ltd. and Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS March 31, 2008 and 2009
Thousands of Millions of Yen U.S. Dollars ----------------------------- ------------ ASSETS 2008 2009 2009 ---------------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents Yen 170,607 Yen 258,484 $ 2,610,949 Time deposits 1,531 2,043 20,636 Trade receivables: Notes 57,068 45,781 462,434 Accounts 463,999 460,519 4,651,707 Less - Allowance for doubtful receivables (16,666) (21,533) (217,505) Current maturities of long-term finance receivables, net 194,642 195,617 1,975,929 Inventories: Finished goods 117,658 123,798 1,250,485 Work in process and raw materials 74,365 67,772 684,566 Deferred income taxes and other 60,936 79,385 801,869 ---------------------------------------------------------------------------------------------------------- Total current assets 1,124,140 1,211,866 12,241,070 ---------------------------------------------------------------------------------------------------------- Property, plant and equipment, at cost: Land 46,681 45,693 461,545 Buildings 235,106 235,905 2,382,879 Machinery and equipment 587,956 613,879 6,200,798 Construction in progress 12,884 23,459 236,960 ---------------------------------------------------------------------------------------------------------- Total 882,627 918,936 9,282,182 Less - accumulated depreciation (627,994) (649,600) (6,561,616) ---------------------------------------------------------------------------------------------------------- Net property, plant and equipment 254,633 269,336 2,720,566 ---------------------------------------------------------------------------------------------------------- Investments and other assets: Long-term finance receivables, net 445,436 465,262 4,699,616 Investment securities 71,244 47,815 482,980 Investments in and advances to affiliates 1,977 1,248 12,606 Goodwill 112,538 250,330 2,528,586 Other intangible assets 114,402 165,126 1,667,939 Lease deposits and other 89,998 102,512 1,035,475 ---------------------------------------------------------------------------------------------------------- Total investments and other assets 835,595 1,032,293 10,427,202 ---------------------------------------------------------------------------------------------------------- Total Yen 2,214,368 Yen 2,513,495 $25,388,838 ==========================================================================================================
F-4
Thousands of Millions of Yen U.S. Dollars ----------------------------- ------------ LIABILITIES AND SHAREHOLDERS' INVESTMENT 2008 2009 2009 ---------------------------------------------------------------------------------------------------------- Current liabilities: Short-term borrowings Yen 75,784 Yen 184,210 $ 1,860,707 Current maturities of long-term indebtedness 82,658 85,582 864,465 Trade payables: Notes 18,942 12,914 130,444 Accounts 341,627 272,499 2,752,515 Accrued income taxes 28,909 10,317 104,212 Accrued expenses and other 165,836 207,969 2,100,697 ---------------------------------------------------------------------------------------------------------- Total current liabilities 713,756 773,491 7,813,040 ---------------------------------------------------------------------------------------------------------- Long-term liabilities: Long-term indebtedness 225,930 509,403 5,145,485 Accrued pension and severance costs 99,830 156,625 1,582,071 Deferred income taxes and other 36,373 49,626 501,273 ---------------------------------------------------------------------------------------------------------- Total long-term liabilities 362,133 715,654 7,228,829 ---------------------------------------------------------------------------------------------------------- Minority interests 58,283 48,977 494,717 ---------------------------------------------------------------------------------------------------------- Commitments and contingent liabilities (Note 17) Shareholders' investment: Common stock; Authorized - 1,500,000,000 shares in 2008 and 2009 Issued and outstanding - 744,912,078 shares and 720,951,250 shares in 2008 and 744,912,078 shares and 725,679,726 shares in 2009 135,364 135,364 1,367,313 Additional paid-in capital 186,448 186,083 1,879,626 Retained earnings 835,238 815,725 8,239,646 Accumulated other comprehensive loss (31,005) (125,121) (1,263,848) Treasury stock at cost; 23,960,828 shares in 2008 and 19,232,352 shares in 2009 (45,849) (36,678) (370,485) ---------------------------------------------------------------------------------------------------------- Total shareholders' investment 1,080,196 975,373 9,852,252 ---------------------------------------------------------------------------------------------------------- Total Yen 2,214,368 Yen 2,513,495 $25,388,838 ==========================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. F-5 Ricoh Company, Ltd. and Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF INCOME For the Years Ended March 31, 2007, 2008 and 2009
Thousands of Millions of Yen U.S. Dollars --------------------------------------------- ------------ 2007 2008 2009 2009 ------------------------------------------------------------------------------------------------------------------------- Net sales: Products Yen 1,189,548 Yen 1,292,228 Yen 1,027,694 $10,380,747 Post sales and rentals 768,965 817,230 955,490 9,651,414 Other revenue 110,412 110,531 108,512 1,096,081 ------------------------------------------------------------------------------------------------------------------------- Total 2,068,925 2,219,989 2,091,696 21,128,242 ------------------------------------------------------------------------------------------------------------------------- Cost of sales: Products 783,681 855,852 710,892 7,180,727 Post sales and rentals 335,444 346,945 440,510 4,449,596 Other revenue 87,394 89,465 85,908 867,758 ------------------------------------------------------------------------------------------------------------------------- Total 1,206,519 1,292,262 1,237,310 12,498,081 ------------------------------------------------------------------------------------------------------------------------- Gross profit 862,406 927,727 854,386 8,630,162 Selling, general and administrative expenses 688,026 746,221 779,850 7,877,273 ------------------------------------------------------------------------------------------------------------------------- Operating income 174,380 181,506 74,536 752,889 ------------------------------------------------------------------------------------------------------------------------- Other (income) expenses: Interest and dividend income (5,501) (6,341) (5,227) (52,798) Interest expense 7,350 4,835 5,863 59,222 Foreign currency exchange loss, net 1,199 10,901 15,575 157,323 Losses on impairment of securities 270 142 26,837 271,081 Other, net (3,457) (2,700) 549 5,546 ------------------------------------------------------------------------------------------------------------------------- Total (139) 6,837 43,597 440,374 ------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes, minority interests and equity in earnings of affiliates 174,519 174,669 30,939 312,515 Provision for income taxes: Current 66,523 58,426 27,321 275,970 Deferred (2,197) 4,970 (5,163) (52,152) ------------------------------------------------------------------------------------------------------------------------- Total 64,326 63,396 22,158 223,818 ------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before minority interests and equity in earnings of affiliates 110,193 111,273 8,781 88,697 Minority interests 5,508 6,057 2,322 23,454 Equity in earnings of affiliates 1,539 1,247 71 717 ------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 106,224 106,463 6,530 65,960 Income from discontinued operations, net of tax 5,500 -- -- -- ------------------------------------------------------------------------------------------------------------------------- Net income Yen 111,724 Yen 106,463 Yen 6,530 $ 65,960 =========================================================================================================================
Yen U.S. Dollars --------------------------------------------- ------------ Per share of common stock: 2007 2008 2009 2009 ------------------------------------------------------------------------------------------------------------------------- Basic: Income from continuing operations Yen 145.56 Yen 146.04 Yen 9.02 $ 0.09 Income from discontinued operations, net of tax 7.54 -- -- -- ------------------------------------------------------------------------------------------------------------------------- Net income 153.10 146.04 9.02 0.09 ------------------------------------------------------------------------------------------------------------------------- Diluted: Income from continuing operations Yen 144.41 Yen 142.15 Yen 8.75 $ 0.09 Income from discontinued operations, net of tax 7.48 -- -- -- ------------------------------------------------------------------------------------------------------------------------- Net income 151.89 142.15 8.75 0.09 ========================================================================================================================= Cash dividends paid per share Yen 25.00 Yen 31.00 Yen 35.00 $ 0.35 ========================================================================================================================= Per American Depositary Share, each representing 5 shares of common stock: Basic: Income from continuing operations Yen 727.80 Yen 730.20 Yen 45.10 $ 0.46 Income from discontinued operations, net of tax 37.70 -- -- -- ------------------------------------------------------------------------------------------------------------------------- Net income 765.50 730.20 45.10 0.46 ------------------------------------------------------------------------------------------------------------------------- Diluted: Income from continuing operations Yen 722.05 Yen 710.75 Yen 43.75 $ 0.44 Income from discontinued operations, net of tax 37.40 -- -- -- ------------------------------------------------------------------------------------------------------------------------- Net income 759.45 710.75 43.75 0.44 ========================================================================================================================= Cash dividends paid per share Yen 125.00 Yen 155.00 Yen 175.00 $ 1.77 =========================================================================================================================
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 SHAREHOLDERS' INVESTMENT For the Years Ended March 31, 2007, 2008 and 2009
Millions of Yen ------------------------------------------------------------------------------------ Accumulated Additional other Total Common paid-in Retained comprehensive Treasury shareholders' stock capital earnings income (loss) stock investment ------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 2006 Yen 135,364 Yen 186,450 Yen 665,394 Yen 4,099 Yen (31,062) Yen 960,245 Cumulative effect of adjustment from applying SAB 108, net of tax -- -- (6,464) -- -- (6,464) ------------------------------------------------------------------------------------------------------------------------------- Balance at April 1, 2006, as adjusted 135,364 186,450 658,930 4,099 (31,062) 953,781 ------------------------------------------------------------------------------------------------------------------------------- Gain (loss) on disposal of treasury stock 4 4 Dividends declared and approved (18,256) (18,256) Comprehensive income (loss) Net income 111,724 111,724 Net unrealized holding gains (losses) on available-for-sale securities 73 73 Minimum pension liability adjustments 970 970 Net unrealized gains (losses) on derivative instruments (185) (185) Cumulative translation adjustments 24,774 24,774 ------------- Total comprehensive income (loss) 137,356 Adjustment to initially apply SFAS 158 (2,733) (2,733) Net changes in treasury stock 761 761 ------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 2007 Yen 135,364 Yen 186,454 Yen 752,398 Yen 26,998 Yen (30,301) Yen 1,070,913 ------------------------------------------------------------------------------------------------------------------------------- Cumulative effect of adjustment from applying EITF 06-2, net of tax -- -- (995) -- -- (995) ------------------------------------------------------------------------------------------------------------------------------- Balance at April 1, 2007, as adjusted 135,364 186,454 751,403 26,998 (30,301) 1,069,918 ------------------------------------------------------------------------------------------------------------------------------- Gain (loss) on disposal of treasury stock (6) (6) Dividends declared and approved (22,628) (22,628) Comprehensive income (loss) Net income 106,463 106,463 Net unrealized holding gains (losses) on available-for-sale securities (7,685) (7,685) Pension liability adjustments (11,382) (11,382) Net unrealized gains (losses) on derivative instruments (380) (380) Cumulative translation adjustments (38,556) (38,556) ------------- Total comprehensive income (loss) 48,460 Net changes in treasury stock (15,548) (15,548) ------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 2008 Yen 135,364 Yen 186,448 Yen 835,238 Yen (31,005) Yen (45,849) Yen 1,080,196 ------------------------------------------------------------------------------------------------------------------------------- Cumulative effect of adjustment from applying measurement date provisions of SFAS No.158, net of tax -- -- (643) (6) -- (649) ------------------------------------------------------------------------------------------------------------------------------- Balance at April 1, 2008, as adjusted 135,364 186,448 834,595 (31,011) (45,849) 1,079,547 ------------------------------------------------------------------------------------------------------------------------------- Gain (loss) on disposal of treasury stock (365) (80) (445) Dividends declared and approved (25,320) (25,320) Comprehensive income (loss) Net income 6,530 6,530 Net unrealized holding gains (losses) on available-for-sale securities 532 532 Pension liability adjustments (33,507) (33,507) Net unrealized gains (losses) on derivative instruments 35 35 Cumulative translation adjustments (61,170) (61,170) ------------- Total comprehensive income (loss) (87,580) Net changes in treasury stock 9,171 9,171 ------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 2009 Yen 135,364 Yen 186,083 Yen 815,725 Yen (125,121) Yen (36,678) Yen 975,373 ===============================================================================================================================
F-7
Thousands of U.S. Dollars ------------------------------------------------------------------------------- Accumulated Additional other Total Common paid-in Retained comprehensive Treasury shareholders' stock capital earnings income (loss) stock investment ------------------------------------------------------------------------------------------------------------------------------ Balance at March 31, 2008 $1,367,313 $1,883,313 $8,436,748 $ (313,182) $(463,121) $10,911,071 ----------------------------------------------------------------------------------------------------------------------------- Cumulative effect of adjustment from applying measurement date provisions of SFAS No.158, net of tax -- - (6,495) (61) - (6,556) ----------------------------------------------------------------------------------------------------------------------------- Balance at April 1, 2008, as adjusted 1,367,313 1,883,313 8,430,253 (313,243) (463,121) 10,904,515 ----------------------------------------------------------------------------------------------------------------------------- Gain (loss) on disposal of treasury stock (3,687) (808) (4,495) Dividends declared and approved (255,758) (255,758) Comprehensive income (loss) Net income 65,960 65,960 Net unrealized holding gains (losses) on available-for-sale securities 5,374 5,374 Pension liability adjustments (338,455) (338,455) Net unrealized gains (losses) on derivative instruments 354 354 Cumulative translation adjustments (617,879) (617,879) ----------- Total comprehensive income (loss) (884,646) Net changes in treasury stock 92,636 92,636 ----------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 2009 $1,367,313 $1,879,626 $8,239,646 $(1,263,848) $(370,485) $ 9,852,252 =============================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. F-8 Ricoh Company, Ltd. and Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended March 31, 2007, 2008 and 2009
Thousands of Millions of Yen U.S. Dollars --------------------------------------- ------------ 2007 2008 2009 2009 ----------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income Yen 111,724 Yen 106,463 Yen 6,530 $ 65,960 Income from discontinued operations, net of tax (5,500) -- -- -- ------------------------------------------------------ Income from continuing operations 106,224 106,463 6,530 65,960 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 89,632 95,788 101,817 1,028,455 Equity in earnings of affiliates, net of dividends received (711) (622) 117 1,182 Deferred income taxes (2,197) 4,970 (5,163) (52,152) Losses on disposals and sales of property, plant and equipment 3,722 2,174 1,885 19,040 Losses on impairment of securities 270 142 26,837 271,081 Pension and severance costs, less payments (773) (320) 2,031 20,515 Changes in assets and liabilities, net of effects from acquisition- (Increase) decrease in trade receivables (15,919) (16,567) 37,913 382,960 (Increase) decrease in inventories (1,494) 129 2,836 28,646 Increase in finance receivables (28,047) (17,183) (3,050) (30,808) (Decrease) increase in trade payables 2,199 (7,491) (97,372) (983,556) (Decrease) increase in accrued income taxes and accrued expenses and other 11,175 5,216 (14,094) (142,364) Other, net 3,216 21,664 27,201 274,758 ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 167,297 194,363 87,488 883,717 ----------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of property, plant and equipment 463 1,194 454 4,586 Expenditures for property, plant and equipment (85,747) (85,205) (96,945) (979,242) Payments for purchases of available-for-sale securities (97,158) (97,958) (1,781) (17,990) Proceeds from sales of available-for-sale securities 96,087 100,025 243 2,455 (Increase) decrease in time deposits 64 (240) (615) (6,212) Proceeds from sales of discontinued operations 12,000 -- -- -- Purchase of business, net of cash acquired (23,200) (96,796) (157,404) (1,589,939) Other, net (17,941) (19,370) (27,124) (273,981) ----------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (115,432) (198,350) (283,172) (2,860,323) ----------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term indebtedness 60,157 67,166 237,116 2,395,111 Repayment of long-term indebtedness (49,115) (75,716) (59,500) (601,010) (Decrease) increase in short-term borrowings, net 8,362 (14,598) 110,211 1,113,242 Proceeds from issuance of long-term debt securities 65,274 - 85,000 858,586 Repayment of long-term debt securities (55,000) (10,000) (50,539) (510,495) Dividends paid (18,240) (22,628) (25,320) (255,758) Payment for purchase of treasury stock (799) (15,770) (644) (6,505) Other, net (1,357) (639) (410) (4,141) ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 9,282 (72,185) 295,914 2,989,030 ----------------------------------------------------------------------------------------------------------------------------- CASH FLOWS OF DISCONTINUED OPERATIONS: Net, operating cash flows 838 -- -- -- Net, investing cash flows (13) -- -- -- Net, financing cash flows -- -- -- -- Effect of exchange rate change on cash and cash equivalents from discontinued operations -- -- -- -- ----------------------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents from discontinued operations 825 -- -- -- ----------------------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS 6,710 (8,958) (12,353) (124,778) ----------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 68,682 (85,130) 87,877 887,646 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 187,055 255,737 170,607 1,723,303 ----------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR Yen 255,737 Yen 170,607 Yen 258,484 $ 2,610,949 ============================================================================================================================= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: CASH PAID DURING THE YEAR FOR- Interest Yen 8,222 Yen 8,619 Yen 9,352 $ 94,465 Income taxes 66,603 76,220 56,764 573,374 =============================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. F-9 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 Lanier, Savin and Infotec. Ricoh manufactures its products primarily in 16 plants in Japan and 9 plants overseas, which are located in the United States, United Kingdom, France and China. 2. SIGNIFICANT ACCOUNTING AND REPORTING POLICIES The accompanying consolidated financial statements of Ricoh have been prepared in conformity with U.S. generally accepted accounting principles. Significant accounting and reporting policies are summarized below: (A) BASIS OF PRESENTATION The accompanying consolidated financial statements for each of the years in the three year period ended March 31, 2009 are presented in Japanese yen, the functional currency of the Company and its domestic subsidiaries. The translation of Japanese yen amounts into U.S. Dollar equivalents as of and for the year ended March 31, 2009 is included solely for the convenience of readers outside Japan and has been made using the exchange rate of Yen 99 to US$1, the approximate rate of exchange prevailing at the Federal Reserve Board on March 31, 2009. The books of the Company and its domestic subsidiaries are maintained in conformity with Japanese accounting principles and practices, while foreign subsidiaries maintain their books in conformity with the standards of their country of domicile. The accompanying consolidated financial statements reflect necessary adjustments, not recorded in the books, to present them in conformity with U.S. generally accepted accounting principles. F-10 (B) PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. The accounts of variable interest entities as defined by the FASB Interpretation ("FIN") No. 46 (revised December 2003), "Consolidated of Variable Interest Entities" are included in the consolidated financial statements, if applicable. Investments in entities in which Ricoh has the ability to exercise significant influence over the entities' operating and financial policies, but not control (generally 20 to 50 % ownership) are accounted for on an equity basis. All significant intercompany balances and transactions have been eliminated in consolidation. The accounts of certain consolidated subsidiaries have been included on the basis of fiscal periods ended within three months prior to March 31. (C) REVENUE RECOGNITION Ricoh generates revenue principally through the sale of equipment, supplies and related services under separate contractual arrangements for each. Ricoh recognizes revenue when (1) it has a firm contract, (2) the product has been shipped to and accepted by the customer or the service has been provided, (3) the sales price is fixed or determinable and (4) amounts are reasonably assured of collection. Product sales are generally recognized at the time of delivery and installation at the customer location. Equipment revenues are based on established prices by product type and model and are net of discounts. A sales return is accepted only when the equipment is defective and does not meet Ricoh's product performance specifications. Other than installation, there are no customer acceptance clauses in the sales contract. Post sales and rentals result primarily from maintenance contracts that are normally entered into at the time the equipment is sold. Standard service fee prices are established depending on equipment classification and include a cost value for the estimated services to be performed based on historical experience plus a profit margin thereon. As a matter of policy, Ricoh does not discount such prices. On a monthly basis, maintenance service revenues are earned and recognized by Ricoh and billed to the customer in accordance with the contract and include a fixed monthly fee plus a variable amount based on usage. The length of the contract ranges up to five-years, however, most contracts are cancelable at any time by the customer upon a short notice period. Leases not qualifying as sales-type leases or direct financing leases are accounted for as operating leases and related revenue is recognized over the lease term. Ricoh also 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 Emerging Issues Task Force ("EITF") Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." Pursuant to EITF 00-21, the delivered item in a multiple element arrangement should be considered a separate unit of accounting if all of the following criteria are met: (1) a delivered item has value to customers on a stand-alone basis, (2) there is objective and reliable evidence of fair value of an undelivered item, and (3) the delivery of the undelivered item must be probable and controlled by Ricoh if the arrangement includes the right of return. The price charged when the element is sold separately generally determines fair value. Otherwise, revenue is deferred until the undelivered elements are fulfilled as a single unit of accounting. Revenue from the sale of equipment under sales-type leases is recognized as product sales at the inception of the lease. Other revenue consists primarily of interest income on sales-type leases and direct-financing leases, which are recognized as Other revenue over the life of each respective lease using the interest method. F-11 (D) FOREIGN CURRENCY TRANSLATION For foreign operations with functional currencies other than the Japanese yen, assets and liabilities are translated at the exchange rates in effect at each fiscal year-end, and income and expenses are translated at the average rates of exchange prevailing during each fiscal year. The resulting translation adjustments are included as a part of accumulated other comprehensive income (loss) in shareholders' investment. All foreign currency transaction gains and losses are included in other income and expenses in the period incurred. (E) CASH EQUIVALENTS Cash and cash equivalents include highly liquid investments with maturities of three months or less at the date of purchase such as time deposits and short-term investment securities which are available-for sale at any time, present insignificant risk of changes in value due to being readily convertible into cash and have an original maturity of three months or less, such as money management funds and free financial funds. (F) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES As discussed further in Note 16, Ricoh manages its exposure to certain market risks, primarily foreign currency and interest rate risks, through the use of derivative instruments. As a matter of policy, Ricoh does not enter into derivative contracts for trading or speculative purposes. In accordance with Statement of Financial Accounting Standards ("SFAS") No.133, as amended, Ricoh recognizes all derivative instruments as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. When Ricoh enters into a derivative contract, it makes a determination as to whether or not for accounting purposes the derivative is part of a hedging relationship. In general, a derivative may be designated as either (1) a hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment ("fair value hedge"), (2) a hedge of the variability of the expected cash flows associated with an existing asset or liability or a forecasted transaction ("cash flow hedge"), or (3) a foreign currency fair value or cash flow hedge ("foreign currency hedge"). Ricoh formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value, cash flow, or foreign currency hedges to specific assets and liabilities on the consolidated balance sheets or to specific firm commitments or forecasted transactions. For derivative contracts that are designated and qualify as fair value hedges including foreign currency fair value hedges, the derivative instrument is marked-to-market with gains and losses recognized in current period earnings to offset the respective losses and gains recognized on the change in fair value of the hedged item. For derivative contracts that are designated and qualify as cash flow hedges including foreign currency cash flow hedges, the effective portion of gains and losses on these contracts is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period the hedged item or transaction affects earnings. Any hedge ineffectiveness on cash flow hedges is immediately recognized in earnings. For all derivative instruments that are not designated as part of a hedging relationship and for designated derivative instruments that do not qualify for hedge accounting, the contracts are recorded at fair value with the gain or loss recognized in current period earnings. F-12 (G) ALLOWANCE FOR DOUBTFUL TRADE RECEIVABLES AND FINANCE RECEIVABLES Ricoh records allowances for doubtful receivables that are based upon historical experience and specific customer collection issues. The estimated amount of probable credit losses in its existing receivables is determined from write-off history adjusted to reflect current economic conditions and specific allowances for receivables including nonperforming leases, impaired loans or other accounts for which Ricoh has concluded it will be unable to collect all amounts due according to original terms of the lease or loan agreement. Account balances net of expected recovery from available collateral are charged-off against the allowances when collection is considered remote. (H) SECURITIES Ricoh applies SFAS No.115, "Accounting for Certain Investments in Debt and Equity Securities" which requires all investments in debt and marketable equity securities to be classified as either held-to-maturity, trading, or available-for-sale securities. As of March 31, 2008 and 2009, Ricoh's investments in debt and marketable equity securities are classified as trading or available-for-sale securities. Trading securities are reported at fair value with gains and losses recognized in current earnings. Available-for-sale securities are reported at fair value with unrealized gains and losses, net of related taxes, reported in accumulated other comprehensive income (loss). Available-for-sale securities, which mature or are expected to be sold in one year, are classified as current assets. Individual securities classified as available-for-sale securities are reduced to fair market value by a charge to income for other than temporary declines in value. Factors considered in assessing whether an indication of other than temporary impairment exists with respect to available-for-sale securities include: length of time and extent of decline, financial condition and near term prospects of issuer and intent and ability of Ricoh to retain its investments for a period of time sufficient to allow for any anticipated recovery in market value. The cost of the securities sold is computed based on the average cost of each security held at the time of sale. Investments in affiliated companies over which Ricoh has the ability to exercise significant influence, but does not hold a controlling financial interest, are accounted for by the equity method. Non-marketable equity securities owned by Ricoh primarily relate to less than 20% owned companies and are stated at cost unless indication of impairment exist, which require the investment to be written down to its estimated fair value. (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. F-13 (J) PROPERTY, PLANT AND EQUIPMENT For the Company and its domestic subsidiaries, depreciation of property, plant and equipment is computed principally by using the declining-balance method over the estimated useful lives. Most of the foreign subsidiaries have adopted the straight-line method for computing depreciation, which currently accounts for approximately 33% 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, 2007, 2008 and 2009 are summarized below: 2007 2008 2009 ----- ---- ---- Buildings 9.8% 10.1% 10.7% Machinery and equipment 40.8 43.1 44.4 Effective rates of depreciation increased for the year ended March 31, 2009 mainly due to the commencement of the new manufacturing facilities of the Company. 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, 2008 and 2009 are as follows: Thousands of Millions of Yen U.S. Dollars --------------------- ------------ 2008 2009 2009 --------- --------- ------- Aggregate cost Yen 7,269 Yen 6,003 $60,636 Accumulated depreciation 6,072 5,161 52,131 The related future minimum lease payments and the present value of the net minimum lease payments as of March 31, 2009 were Yen 1,815 million ($18,333 thousand) and Yen 1,758 million ($17,758 thousand), respectively. Ordinary maintenance and repairs are charged to expense as incurred. Major replacements and improvements are capitalized. When properties are retired or otherwise disposed of, the property and related accumulated depreciation accounts are relieved of the applicable amounts, and any differences are included in earnings. (K) CAPITALIZED SOFTWARE COSTS In accordance with Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," Ricoh capitalizes qualifying cost of computer software. Costs incurred during the application development stage as well as upgrades and enhancements that results in additional functionality are capitalized. The capitalized software is amortized on a straight line basis generally from 3 years to 5 years. F-14 (L) GOODWILL AND OTHER INTANGIBLE ASSETS SFAS No.141, "Business Combinations" requires the use of the purchase method of accounting for business combinations and refines the definition of intangible assets acquired in a purchase business combination. SFAS No.142, "Goodwill and Other Intangible Assets" eliminates the amortization of goodwill and instead requires goodwill to be tested at least annually for impairment. SFAS 142 also requires acquired intangible assets with a definite useful life to be amortized over their respective estimated useful lives and reviewed for impairment when an indication of impairment is identified in accordance with SFAS No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Other intangible assets with definite useful lives, consisting primarily of software, patents, customer relationships and trademarks are amortized on a straight line basis over 1 year to 20 years. Any acquired intangible assets determined to have an indefinite useful life are not amortized, but instead are tested annually for impairment based on its fair value until its life would be determined to no longer be indefinite. In performing the test, Ricoh utilizes the two-step approach prescribed under SFAS 142. The first step requires a comparison of the carrying value of the reporting units to the fair value of these units. If the carrying value of a reporting unit exceeds its fair value, Ricoh will perform the second step of the goodwill impairment test to measure the amount of impairment loss, if any. Pursuant to the adoption of SFAS 142 on April 1, 2002, Ricoh selected an annual goodwill impairment date of September 30. In the fourth quarter of fiscal year 2009, Ricoh changed its annual impairment measurement date to December 31. The change was made to better align the impairment test date with Ricoh' acquisition of IKON Office Solutions, Inc. on October 31, 2008, which had a significant impact on Ricoh's financial statements. This change to the date of Ricoh's annual goodwill impairment test constitutes a change in the method of applying an accounting principle, as discussed in SFAS No.154, "Accounting Changes and Error Corrections" (SFAS 154). Ricoh believes that this change in accounting principle is preferable. SFAS 154 requires reporting a change in accounting principle through retrospective application of the new accounting principle to all periods, unless it is impractical to do so. However, the change in the impairment measurement date had no impact on Ricoh's prior period financial statements, as no goodwill impairment changes had been recorded in any prior period financial statements nor did the change in annual impairment test date cause any impairments. Furthermore, there were no impairment charges that resulted from the December 31, 2008 impairment test, and no event indicating an impairment has occurred subsequent to December 31, 2008. Ricoh completed its annual impairment assessment of indefinite-lived intangible assets for the years ended March 31, 2007, 2008 and 2009 and determined that no impairment charge was necessary. (M) PENSION AND RETIREMENT ALLOWANCES PLANS The measurement of pension costs and liabilities is determined in accordance with SFAS No.87, "Employers' Accounting for Pensions" as amended by SFAS No.158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans". Under SFAS 158 which was adopted effective March 31, 2007, Ricoh recognizes the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of its pension fund plans as of the end of fiscal year, with a corresponding adjustment to accumulated other comprehensive income (loss), net of tax, and a charge to other comprehensive income for periods subsequent to adoption. 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 F-15 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. For periods prior to the year ended March 31, 2009, Ricoh used a December 31 measurement date for determining benefit obligations and fair value of plan assets. Ricoh adopted the measurement date provisions of SFAS No. 158 as of March 31, 2009. (N) INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. On April 1, 2007, Ricoh adopted FIN 48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109", which requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. Ricoh recognizes interest and penalties related to unrecognized tax benefits in provision for income taxes in the consolidated statements of income. (O) RESEARCH AND DEVELOPMENT EXPENSES AND ADVERTISING COSTS Research and development expenses and advertising costs are expensed as incurred. (P) SHIPPING AND HANDLING COSTS Shipping and handling costs, which mainly include transportation to customers, are included in selling, general and administrative expenses in the consolidated statements of income. (Q) IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS Long-lived assets and acquired intangible assets with a definite life are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group 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 asset group. If an asset or asset group is considered to be impaired, the impairment charge to be recognized is measured as the amount by which the carrying amount of the asset or asset group exceeds fair value. Long-lived assets meeting the criteria to be considered as held for sale are reported at the lower of their carrying amount or fair value less costs to sell. (R) EARNINGS PER SHARE Basic net income per share of common stock is calculated by dividing net income by the weighted-average number of shares of common stock outstanding during the period. The calculation of diluted net income per share of common stock 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. F-16 (S) NON-CASH TRANSACTIONS There were no significant non-cash transactions for the years ended March 31, 2007 or 2008. The following non-cash transactions have been excluded from the consolidated statements of cash flows:
Thousands of Millions of Yen U.S. Dollars ---------------------------------- 2007 2008 2009 2009 -------------------------------------------------------------------------------------------------- Debt assumed in connection with business acquisition -- -- 81,737 825,626 Issuance of treasury stock in exchange for subsidiary's stock -- -- 9,138 92,303
(T) USE OF ESTIMATES Management of Ricoh has made a number of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, including impairment losses of long-lived assets and the disclosures of fair value of financial instruments and contingent assets and liabilities, to prepare these financial statements in conformity with U.S. generally accepted accounting principles. Actual results could differ from those estimates. Ricoh has identified seven areas where it believes assumptions and estimates are particularly critical to the consolidated financial statements. These are determination of the allowance for doubtful receivables, impairment of securities, impairment of long-lived assets including goodwill, uncertain tax positions, realizability of deferred tax assets, the valuation of assets and liabilities in purchase business combinations and pension accounting. (U) DISCONTINUED OPERATIONS On May 31, 2006, the Company's subsidiary San-Ai Co., Ltd. sold its digital content distribution business to Giga Networks Co., Ltd. (former Mobile Alliance Co., Ltd.). Because Ricoh has no significant continuing involvement in the operation sold, the operating result of the business units sold were reclassified to a discontinued operation pursuant to the requirement of SFAS 144. (V) ADOPTION OF SAB 108 The Securities and Exchange Commission of the U.S. issued Staff Accounting Bulletin ("SAB") No.108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" in September 2006. SAB 108 requires companies to quantify misstatements using both the balance sheet approach and the income statement approach ("dual" method), and to evaluate the importance of misstatements taking into account relevant quantitative and qualitative factors. Historically, Ricoh used the income statement ("rollover") approach to quantify misstatements. Upon adoption, Ricoh recorded adjustment for the cumulative effect of misstatements that were previously considered immaterial under the rollover method that were considered material under the dual method. Ricoh adopted SAB 108 in the fourth quarter of the fiscal year ended March 31, 2007. F-17 The Company and some of its domestic consolidated subsidiaries previously set the residual value of tangible fixed assets at 5% of acquisition cost in principle using the standards provided in the Corporate Tax Law. However, based on an evaluation of residual values realized from disposition of property, plant and equipment, Ricoh concluded that the residual value of substantially all long lived assets is negligible at the end of useful life. This misstatement had been considered immaterial to Ricoh's historical consolidated financial statements using the income statement approach prior to the adoption of SAB 108. Accordingly, upon adoption of SAB 108, Ricoh recorded an increase in accumulated depreciation of Yen 11,464 million and an increase in deferred tax assets (included in "Lease deposits and other") of Yen 4,675 million as of April 1, 2006 with a net reduction of the beginning balance of retained earnings of Yen 6,464 million. (W) RECENTLY ADOPTED NEW ACCOUNTING STANDARDS In September 2006, the FASB issued SFAS No.157, "Fair Value Measurements," which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, where fair value is the relevant measurement attribute. SFAS 157 does not require any new fair value measurements. In February 2008, the FASB issued Staff Positions ("FSP") No. FAS 157-2, "Effective Date of FASB Statement No. 157," which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) and remove certain leasing transactions from its scope. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and was adopted by Ricoh in fiscal year beginning April 1, 2008. The adoption of SFAS 157 did not have a material effect on Ricoh's consolidated financial position or results of operations. In September 2006, the FASB issued SFAS 158. SFAS 158 requires companies to recognize an asset or liability for the overfunded or underfunded status of their benefit plans in their financial statements and to recognize changes in that funded status in comprehensive income (loss) in the year in which the changes occur. SFAS 158 also requires the measurement date for plan assets and liabilities to coincide with the sponsor's year-end. The standard provides two transition alternatives related to the change in measurement date provisions. The recognition of an asset and liability related to the funded status provision is effective for fiscal years ending after December 15, 2006. Ricoh adopted the recognition and disclosure provisions and the measurement date provisions of SFAS 158 as of March 31,2007 and 2009, respectively. The change in measurement date provisions is effective for fiscal years ending after December 15, 2008. The adoption of the measurement date provisions resulted in adjustments to decrease retained earnings by Yen 643 million, and increase other comprehensive loss by Yen 6 million as of April 1, 2008. In March 2008, the FASB issued SFAS No.161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133". SFAS 161 requires disclosures of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early adoption permitted. Ricoh adopted SFAS161 as of January 1, 2009. (X) NEW ACCOUNTING STANDARDS NOT YET ADOPTED In December 2007, the FASB issued SFAS No.141 (revised 2007), "Business Combinations " ("SFAS 141R"). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable F-18 the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning on or after December 15, 2008 and is required to be adopted by Ricoh in the first quarter beginning April 1, 2009. Ricoh will apply prospectively to all business combinations subsequent to the effective date. In December 2007, the FASB issued SFAS No.160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51." This Statement requires that the noncontrolling interest in the equity of a subsidiary be accounted for and reported as equity, provides revised guidance on the treatment of net income and losses attributable to the noncontrolling interest and changes in ownership interests in a subsidiary and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also requires additional disclosures that identify and distinguish between the interests of the controlling and noncontrolling owners. Pursuant to the transition provisions of SFAS 160, Ricoh will adopt SFAS 160 in fiscal year 2010 via retrospective application of the presentation and disclosure requirements. Ricoh is currently evaluating the effect the adoption of SFAS 160 will have on its consolidated results of operations and financial condition. In May 2009, the FASB issued SFAS No.165, "Subsequent Events." SFAS 165 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date -- that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS 165 is effective for fiscal years beginning after June 15, 2009, and for subsequent interim and annual reporting periods. SFAS 165 will be adopted by Ricoh in the second quarter beginning July 1, 2009. In June 2009, the FASB issued SFAS No.166, "Accounting for Transfers of Financial Assets-an amendment of FASB Statement No. 140." This statement eliminates the concept of a qualifying special-purpose entity ("QSPE"), establishes conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies the financial-asset derecognition criteria, revises how interests retained by the transferor in a sale of financial assets initially are measured, removes the guaranteed mortgage securitization recharacterization provisions and requires additional disclosures. SFAS 166 is effective for fiscal years beginning after November 15, 2009, and for subsequent interim and annual reporting periods. SFAS 166 will be adopted by Ricoh in the first quarter beginning April 1, 2010. Ricoh is currently evaluating the effect that the adoption of SFAS 166 will have on its consolidated results of operations and financial condition. In June 2009, the FASB issued SFAS No.167, "Amendments to FASB Interpretation No. 46(R). " This statement requires reporting entities to evaluate former QSPEs for consolidation, changes the approach to determining a VIE' s primary beneficiary from a mainly quantitative assessment to an exclusively qualitative assessment designed to identify a controlling financial interest, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a VIE. SFAS 167 is effective for fiscal years beginning after November 15, 2009, and for subsequent interim and annual reporting periods. Earlier application is prohibited. SFAS 167 will be adopted by Ricoh in the first quarter beginning April 1, 2010. Ricoh is currently evaluating the effect that the adoption of SFAS 167 will have on its consolidated results of operations and financial condition. In April 2008, the FASB finalized FSP 142-3, "Determination of the Useful Life of Intangible Assets". The position amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. The position applies to intangible assets that are acquired individually or with a group of other assets and both intangible assets acquired in business combinations and asset acquisitions. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. FSP142-3 will be adopted by Ricoh in the first quarter beginning April 1, 2009. Ricoh is currently evaluating the effect that the adoption of FSP 142-3 will have on its consolidated results of operations and financial condition. F-19 In December 2008, the FASB issued FSP No. FAS 132(R)-1, "Employer's Disclosures about Postretirement Benefit Plan Assets." FSP FAS 132(R)-1 requires additional disclosures about assets held in an employer's defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009 and will be adopted by Ricoh in the first quarter beginning April 1, 2010. Ricoh will present the required disclosures in the prescribed format on a prospective basis upon adoption. The principal impact from FSP FAS 132(R)-1 will be to require Ricoh to expand disclosures regarding benefit plan assets. (Y) RECLASSIFICATIONS Certain reclassifications have been made to the prior years' financial statements to conform with the current year's presentation. 3. ACQUISITION In October 2008, Ricoh acquired IKON Office Solutions, Inc. ("IKON") through the Company's wholly owned U.S. distribution subsidiary, Ricoh Americas Corporation ("RAC") for total cash consideration of Yen 170,310 million ($1,720,303 thousand), including transaction costs. This acquisition was financed with bank loans. IKON supplies and services a wide range of office equipment, such as MFPs, fax machines and printers, in the North America and the Western European markets. With this acquisition, Ricoh aims to strengthen and broaden its business opportunities and infrastructure in the North America and Europe by capitalizing on IKON's broad sales and service network and gaining access to IKON's customer relationships, which includes large private corporations as well as government and public sector entities/organizations. Ricoh applied the purchase method of accounting to account for the acquisition and, accordingly, the purchase price has been allocated to the tangible and intangible net assets of IKON based on the estimated fair value of such net assets. The amount of consideration paid in excess of the estimated fair value of the net identifiable assets acquired of Yen 143,278 million ($1,447,253 thousand) was recorded as goodwill that is not tax deductible. Ricoh reflected certain preliminary estimates with respect to the value of the underlying net assets of IKON in determining amounts of the goodwill. Therefore, the amount of intangible assets and goodwill could possibly be adjusted upon the completion of the purchase price allocation. Assets, liabilities and operations of IKON has been included in the accompanying consolidated financial statements since the acquisition date. In connection with the acquisition of IKON, Ricoh recorded certain liabilities in accordance with EITF 95-3 "Recognition of Liabilities in Connection with a Purchase Business Combination." These liabilities included those for workforce reductions and facilities consolidation, intended to align the company's capacity and infrastructure, and promote synergies within the business to provide more effective services to customers. The liabilities include mainly accrual for severance of Yen 2,029 million ($20,495 thousand), and property exit cost Yen 1,008 million ($10,182 thousand) associated with the acquisition of IKON. The following table reflects the October 31, 2008 condensed balance sheet of IKON, as adjusted to give effect to the purchase method accounting adjustments: Thousands of Millions of Yen U.S. Dollars ------------------------------------------------------------------------------- Receivables and other assets Yen 138,532 $ 1,399,313 Property and equipment 18,798 189,879 Identifiable intangible assets 55,566 561,273 Goodwill 143,278 1,447,253 Liabilities (185,864) (1,877,415) ------------------------------------------------------------------------------- Total cash consideration Yen 170,310 $ 1,720,303 =============================================================================== F-20 Identifiable intangible assets of IKON included a trademark of Yen 1,968 million ($19,879 thousand) which was estimated to have remaining useful life of 3 years, customer relationships of Yen 53,136 million ($536,727 thousand) which were estimated to have remaining useful life of 10 years to 20 years, and other intangible assets of Yen 462 million ($4,667 thousand). Goodwill arising from the acquisition of IKON has been allocated to the Imaging & Solutions segment. The primary items that generated the goodwill are the value of the synergies between IKON and Ricoh and the acquired assembled workforce, neither of which qualify as an (amortizable) intangible asset. Supplemental unaudited pro forma information, as if the IKON acquisition were consummated at the beginning of fiscal years 2008 and 2009, is as follows: Millions of yen --------------------- 2008 2009 -------------------------------------------------------------------------------- Net sales 2,640,126 2,301,087 Net income 112,218 3,326 Yen --------------------- 2008 2009 -------------------------------------------------------------------------------- Earnings per share: Basic 153.93 4.59 Diluted 149.84 4.44 The supplemental unaudited pro forma information is based on estimates and assumptions, which Ricoh believes are reasonable; it is not necessarily indicative of the consolidated financial position or results for future periods or the results that actually would have been realized had IKON has been a combined company as of the beginning of the periods presented. The unaudited pro forma results for all periods presented include amortization charges for acquired intangible assets, eliminations of intercompany transactions, adjustments to interest expenses and related tax effects. Furthermore, Ricoh acquired other immaterial entities during the year ended March 31, 2009 for a consideration of Yen 4,777 million ($48,253 thousand), net of cash acquired. In June 2007, Ricoh and International Business Machines Corporation ("IBM") completed formation of a joint venture company (now known as InfoPrint Solutions Company, LLC) which was spun-out from IBM's Printing Systems Division to provide output solutions for production printing area. InfoPrint Solutions Company, LLC has benefited from access to IBM's powerful worldwide distribution and sales network, as well as extensive printer development capabilities. The consideration was paid in a form of cash for the initial 51% acquisition of InfoPrint Solutions Company, LLC by Ricoh as well as a prepayment for the remaining 49% to be acquired and certain royalties and services to be provided by IBM to InfoPrint Solutions Company, LLC. Ricoh has progressively acquired the remaining 49% over the next three years since the acquisition, approximately 4% per each quarter, as InfoPrint Solutions Company, LLC becomes a wholly owned subsidiary. Ricoh had an approximately 80% equity in InfoPrint Solutions Company, LLC as of March 31, 2009. Ricoh applied the purchase method of accounting to account for the acquisition. Final consideration for this transaction will be determined at the end of the three-year period based upon the participation in the profits and losses recorded by the equity partners. Therefore, the amount of goodwill may be adjusted at the determination of final consideration. Assets, liabilities and operations of InfoPrint F-21 Solutions Company, LLC have been included in the accompanying consolidated financial statements since the acquisition date. The following table reflects the condensed balance sheet of InfoPrint Solutions Company, LLC, as adjusted to give effect to the purchase method accounting adjustments: Millions of Yen Receivables and other assets Yen 18,121 Property and equipment 2,214 Identifiable intangible assets 38,091 Goodwill 50,301 Liabilities (15,772) -------------------------------------------------------------------------------- Total cash consideration Yen 92,955 ================================================================================ Identifiable intangible assets of InfoPrint Solutions Company, LLC primarily included trademarks of Yen 16,852 million which were estimated to have remaining useful lives of 5 years to 7 years, existing maintenance contracts of Yen 8,289 million which were estimated to have remaining useful life of 9 years, outsourcing agreement of Yen 5,162 million which were estimated to have remaining useful lives of 1 year to 6 years, and other intangible assets of Yen 7,788 million. Goodwill arising from the acquisition of InfoPrint Solutions Company, LLC has been allocated to the Imaging & Solutions segment, and deductible for tax purposes. . Furthermore, Ricoh acquired other immaterial entities during the year ended March 31, 2008 for a consideration of Yen 3,840 million, net of cash acquired. In January 2007, Ricoh Europe B.V., a wholly-owned subsidiary of the Company, acquired the European operations of Danka Business Systems PLC ("Danka's European operations") for total cash consideration of Yen 27,132 million including direct acquisition costs. Ricoh made the acquisition to strengthen its sales and service network in major countries in Europe. Ricoh applied the purchase method of accounting to account for the acquisition and, accordingly, the purchase price has been allocated to the tangible and intangible net assets of Danka's European operations based on the estimated fair value of such net assets. A part of this acquisition cost was financed with Euro Yen Zero Coupon Conversion Bonds issued in December 2006. The amount of consideration paid in excess of the estimated fair value of the net assets acquired of Yen 18,658 million was recorded as goodwill which is not tax deductible. Assets, liabilities and operations of Danka's European operations have been included in the accompanying consolidated financial statements since the acquisition date. Millions of Yen Cash and cash equivalents Yen 3,839 Receivables and other assets 22,385 Property and equipment 1,434 Identifiable intangible assets 4,883 Goodwill 18,658 Liabilities (24,067) -------------------------------------------------------------------------------- Total cash consideration Yen 27,132 ================================================================================ Identifiable intangible assets of Danka's European operations primarily comprised customer relationships of Yen 4,700 million, which were estimated to have a remaining useful life of 10 years to 18 years. Goodwill arising from the acquisition of Danka's European operations has been allocated to the Imaging & Solutions segment. F-22 4. DISCONTINUED OPERATIONS Summarized selected financial information for the years ended March 31, 2007 for the discontinued operations is as follows: Millions of Yen ----------- 2007 ------------------------------------------------------------- Net sales Yen 1,487 ------------------------------------------------------------- Income from discontinued operations before gain on disposal of discontinued operations and provision for income taxes 866 Gain on disposal of discontinued operations 8,830 Provision for income taxes 4,196 ------------------------------------------------------------- Income from discontinued operations, net of tax Yen 5,500 5. FINANCE RECEIVABLES Finance receivables as of March 31, 2008 and 2009 are comprised primarily of lease receivables and installment loans. Ricoh's products are leased to domestic customers primarily through Ricoh Leasing Company, Ltd., a majority-owned domestic subsidiary, and to overseas customers primarily through certain overseas subsidiaries. These leases are accounted for as sales-type leases in conformity with SFAS 13. Sales revenue from sales-type leases is recognized at the inception of the leases. Information pertaining to Ricoh's lease receivables as of March 31, 2008 and 2009 is as follows:
Thousands of Millions of Yen U.S. Dollars --------------------------- ------------ 2008 2009 2009 ----------------------------------------------------------------------------------------------- Minimum lease payments receivable Yen 645,198 Yen 645,890 $ 6,524,141 Estimated non-guaranteed residual value 6,358 8,303 83,869 Unearned income (56,408) (43,701) (441,424) Allowance for doubtful receivables (9,935) (10,394) (104,990) ----------------------------------------------------------------------------------------------- Lease receivables, net 585,213 600,098 6,061,596 Less - Current portion of lease receivable, net (193,497) (194,348) (1,963,111) ----------------------------------------------------------------------------------------------- Amounts due after one year, net Yen 391,716 Yen 405,750 $ 4,098,485 ===============================================================================================
F-23 As of March 31, 2009, 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 ------------------------------------------------------ 2010 Yen 219,536 $2,217,535 2011 180,968 1,827,960 2012 130,530 1,318,485 2013 76,480 772,525 2014 30,017 303,202 2015 and thereafter 8,359 84,434 ------------------------------------------------------ Total Yen 645,890 $6,524,141 ====================================================== 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 current or former employees and private 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, 2008 and 2009 was Yen 54,863 million and Yen 60,781 million ($613,949 thousand), respectively. The current portion of loans receivable was Yen 1,145 million and Yen 1,269 million ($12,818 thousand), respectively, as of March 31, 2008 and 2009, and was included in short-term finance receivables, net in the accompanying consolidated balance sheets. Loan activity for the years ended March 31, 2007, 2008 and 2009 is as follows:
Thousands of Millions of Yen U.S. Dollars ------------------------------------ ------------ 2007 2008 2009 2009 ------------------------------------------------------------------------------------ Extension of new loans Yen 11,883 Yen 14,356 Yen 15,324 $154,788 Repayment of outstanding loans 11,621 12,319 9,670 97,677
Ricoh sold certain finance lease receivables in prior years through revolving securitization transactions, which were structured as special purpose entities ("SPE"). The value assigned to undivided interests retained in these transactions was based on the fair value of retained interests as of a transfer of these receivables and was reflected in its consolidated balance sheets. Ricoh expects certain unrecoverable amount for lease receivables and reflects such unrecoverable amount in measuring fair value of retained interest. Ricoh's retained interests are subordinate to the investors' interests. Their value is subject to credit, prepayment and interest rate risk on the sold financial assets. The investors and SPE that hold the lease receivables have limited recourse to Ricoh's retained interest in such receivables for failure of debtors to pay. Ricoh determines the fair 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. Servicing assets or liabilities related to securitization transactions initiated were not recorded, because the servicing fees adequately compensate Ricoh. The amount of lease receivable transferred, net of retained interest, for the year ended March 31, 2007, 2008 and 2009 was Yen 19,381 million, Yen 13,937 million and Yen 9,143 million ($92,354 thousand), respectively. Key economic assumptions used in measuring the fair value of retained interests related to securitization transactions completed during the years ended March 31, 2008 and 2009 are as follows: 2008 2009 -------------------------------------------------- Expected credit losses 0.70% -0.95% 1.23% -1.26% Discount rate 2.00% -3.00% 2.00% -3.00% Annual prepayment rate 4.01% -5.37% 4.35% -8.76% F-24 The impacts of 10% and 20% adverse changes to the key economic assumptions on the fair value of retained interests as of March 31, 2009 are presented below.
Thousands of Millions of Yen U.S. Dollars --------------- ------------ 2009 2009 ----------------------------------------------------------------------------------------- Carrying value of retained interests (included in lease deposits and other in the consolidated balance sheet) Yen 4,293 $43,364 Expected credit losses: +10% (55) (556) +20% (111) (1,121) Discount rate: +10% (14) (141) +20% (29) (293) Annual prepayment rate: +10% (209) (2,111) +20% (419) (4,232)
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 SPE for all securitization activity for the years ended March 31, 2007, 2008 and 2009:
Thousands of Millions of Yen U.S. Dollars ---------------------------------- ------------ 2007 2008 2009 2009 -------------------------------------------------------------------------------------------------------------- Servicing fees received Yen 21 Yen 20 Yen 13 $ 131 Repurchases of delinquent or ineligible assets 2,776 2,527 2,037 20,576 Repurchases of terminated securitization of assets -- -- 10,000 101,010 Payments by terminating revolving securitization of assets -- 2,779 3,608 36,444
The components of all receivables managed and securitized, amounts of delinquencies and the components of net credit losses as of March 31, 2008 and 2009, and for the years then ended, are as follows:
Millions of Yen ------------------------------------------------------------------------------------------- 2008 2009 -------------------------------------------- -------------------------------------------- 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 Yen 635,095 Yen 1,977 Yen 3,383 Yen 635,965 Yen 2,710 Yen 4,048 Less - Receivables securitized (40,442) (25,473) ----------- ----------- Receivables held in portfolio Yen 594,653 Yen 610,492
F-25
Principal amount of Total principal receivables amount of 4 months or more Net credit receivables past due losses -------------------------------------------------------------------------------------- Principal amount outstanding $6,423,889 $27,374 $40,889 Less - Receivables securitized (257,303) ---------- Receivables held in portfolio $6,166,586
6. SECURITIES Securities as of March 31, 2008 and 2009 consist of the following: Thousands of Millions of Yen U.S. Dollars ----------------------- ------------ 2008 2009 2009 ---------------------------------------------------------------------------- Current: Trading securities Yen -- Yen 725 $ 7,323 Available-for-sale securities 0 -- -- Non-current: Available-for-sale securities Yen 69,962 Yen 46,341 $468,091 Non-marketable equity securities 1,282 1,474 14,889 ---------------------------------------------------------------------------- Yen 71,244 Yen 47,815 $482,980 ============================================================================ All of available-for-sale securities as of March 31, 2009 are classified as non-current securities. 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, 2008 and 2009 are as follows:
Millions of Yen ----------------------------------------------------------------------------------------------- 2008 2009 ---------------------------------------------- ----------------------------------------------- Gross Gross Gross Gross unrealized unrealized unrealized unrealized holding holding Fair holding holding Fair Cost gains losses value Cost gains losses value ----------------------------------------------------------------------------------------------------------------------------- Current: Other Yen 0 Yen -- Yen -- Yen 0 Yen -- Yen -- Yen -- Yen -- Non-current: Equity securities Yen 62,208 Yen 6,231 Yen 3,723 Yen 64,716 Yen 43,002 Yen 2,650 Yen 590 Yen 45,062 Corporate debt securities 6,000 -- 754 5,246 1,279 0 -- 1,279 ----------------------------------------------------------------------------------------------------------------------------- Yen 68,208 Yen 6,231 Yen 4,477 Yen 69,962 Yen 44,281 Yen 2,650 Yen 590 Yen 46,341 ============================================================================================================================= Thousands of U.S. Dollars ------------------------------------------ 2009 ------------------------------------------ Gross Gross unrealized unrealized holding holding Fair Cost gains losses value ------------------------------------------------------------------------ Current: Other $ -- $ -- $ -- $ -- Non-current: Equity securities $434,364 $26,768 $5,960 $455,172 Corporate debt securities 12,919 0 -- 12,919 ------------------------------------------------------------------------ $447,283 $26,768 $5,960 $468,091 ========================================================================
F-26 Gross unrealized holding losses and the fair value of available-for-sale securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2009 are as follows:
Millions of Yen --------------------------------------------------------------------------------------------- Less than 12 months 12 months or longer Total ----------------------------- ----------------------------- ----------------------------- Gross unrealized Gross unrealized Gross unrealized Fair value holding losses Fair value holding losses Fair value holding losses ---------------------------------------------------------------------------------------------------------------------- 2009: Noncurrent: Available-for-sale: Equity securities Yen 1,753 Yen 481 Yen 492 Yen 109 Yen 2,244 Yen 590
Thousands of U.S. Dollars --------------------------------------------------------------------------------------------- Less than 12 months 12 months or longer Total ----------------------------- ----------------------------- ----------------------------- Gross unrealized Gross unrealized Gross unrealized Fair value holding losses Fair value holding losses Fair value holding losses ---------------------------------------------------------------------------------------------------------------------- 2009: Noncurrent: Available-for-sale: Equity securities $17,707 $4,859 $4,970 $1,101 $22,667 $5,960
Ricoh judged the decline in fair value of investment securities at yearend to be temporary, with considering such factors as financial and operating conditions of issuer, the industry in which the issuer operates and other relevant factors. The contractual maturities of debt securities classified as available-for-sale as of March 31, 2009, regardless of their balance sheet classification, are as follows:
Thousands of Millions of Yen U.S. Dollars ---------------------- ------------------- Cost Fair value Cost Fair value ------------------------------------------------------------------------------------- Due after one year through five years Yen 269 Yen 269 $ 2,717 $ 2,717 Over five years 1,010 1,010 10,202 10,202 ------------------------------------------------------------------------------------- Yen 1,279 Yen 1,279 $12,919 $12,919 =====================================================================================
Proceeds from the sales of available-for-sale securities were Yen 96,087 million, Yen 100,025 million and Yen 243 million ($2,455 thousand) for the years ended March 31, 2007, 2008 and 2009, respectively. There were no significant realized gains and losses from the sales of available-for-sale securities for the years ended March 31, 2007, 2008 or 2009. There were no significant realized gains and losses on valuation of available-for-sale securities for the years ended March 31, 2007 and 2008. The losses on impairment of available-for-sale securities for the years ended March 31, 2009 were Yen 26,543 million ($268,111 thousand). F-27 As for unrealized gains (losses) on securities in accumulated other comprehensive income (loss) and related reclassification adjustments for (gains) losses realized in net income for the years ended March 31, 2008 and 2009, refer to note 14 other comprehensive income (loss). 7. INVESTMENTS IN AND ADVANCES TO AFFILIATES The investments in and advances to affiliates primarily relate to 20% to 50% owned companies. Ricoh's equity in the underlying net book values of the companies is approximately equal to their individual carrying values of Yen 1,977 million and Yen 1,248 million ($12,606 thousand) at March 31, 2008 and 2009, respectively. On July 1, 2006, Coca-Cola West Japan Co., Ltd. (former affiliate company) and Kinki Coca-Cola Bottling Co., Ltd. (former unrelated company) established a joint holding company Coca-Cola West Holdings Co., Ltd. by means of an exchange of shares. As a result, proportion of ownership interest of Coca-Cola West Holdings Co., Ltd. by Ricoh decreased under 20% and Ricoh no longer has significant influence, and according to Accounting Principles Board ("APB") Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock," Ricoh excluded these companies from affiliate companies on October 1, 2006. On November 30, 2007, Ricoh sold the part of shares of common stock of Sindoh Co., Ltd. The gain on sale of the shares was not material. As a result, proportion of ownership interest Sindoh Co., Ltd. by Ricoh decreased under 20% and Ricoh no longer has significant influence, and according to Accounting Principles Board ("APB") Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock," Ricoh excluded these companies from affiliate companies on February 29, 2008. Those securities are classified into available for sale security and accounted in accordance with SFAS 115 and presented in Investment securities in the balance sheet on March 31, 2008 and 2009. Summarized financial information for all affiliates as of March 31, 2008 and 2009 and for the years ended March 31, 2007, 2008 and 2009 is as follows (some operation data for entities reflect only the period the current affiliates and former affiliates were affiliates of Ricoh and its subsidiaries' affiliates):
Thousands of Millions of Yen U.S. Dollars ------------------- ------------ FINANCIAL POSITION 2008 2009 2009 ------------------------------------------------------------------------------ Assets: Current assets Yen 4,088 Yen 375 $3,788 Other assets 1,581 99 1,000 ------------------------------------------------------------------------------ Yen 5,669 Yen 474 $4,788 ============================================================================== Liabilities and shareholders' investment: Current liabilities Yen 3,489 Yen 273 $2,757 Other liabilities 581 6 61 Shareholders' investment 1,599 195 1,970 ------------------------------------------------------------------------------ Yen 5,669 Yen 474 $4,788 ==============================================================================
Thousands of Millions of Yen U.S. Dollars ------------------------------------ ------------ OPERATIONS 2007 2008 2009 2009 ------------------------------------------------------------------------ Sales Yen 193,753 Yen 68,662 Yen 4,617 $46,636 Costs and expenses 186,199 64,013 4,785 48,333 ------------------------------------------------------------------------ Net income (loss) Yen 7,554 Yen 4,648 Yen (168) $(1,697) ======================================================================== F-28 The significant transactions of Ricoh with these affiliates for the years ended March 31, 2007, 2008 and 2009, and the related account balances at March 31, 2008 and 2009 are summarized as follows: Thousands of Millions of Yen U.S. Dollars ----------------------------------- ------------ 2007 2008 2009 2009 ----------------------------------------------------------------------- Transactions: Sales Yen 16,158 Yen 20,184 Yen 6,677 $67,444 Purchases 28,993 21,274 1,773 17,909 Dividend income 828 625 188 1,899 Unrealized profits regarding the above transactions were eliminated in the consolidated financial statements. Thousands of Millions of Yen U.S. Dollars ----------------------- ------------ 2008 2009 2009 ----------------------------------------------------------- Account balances: Receivables Yen 3,080 Yen 422 $4,263 Payables 1,930 32 323 As of March 31, 2009, consolidated retained earnings included undistributed earnings of 20% to 50% owned companies accounted for by the equity method in the amount of Yen 26,610 million ($268,788 thousand). This amount included undistributed earnings of Yen 22,241 million ($224,657 thousand) million of Coca-Cola West Holdings Co., Ltd. and of Yen 4,428 million ($44,727 thousand) of Sindoh Co., Ltd. as of the date that Ricoh ceased applying the equity method. F-29 8. GOODWILL AND OTHER INTANGIBLE ASSETS The information for intangible assets subject to amortization and for intangible assets not subject to amortization as of March 31, 2008 and 2009 is as follows:
Millions of Yen ------------------------------------------------------------------------------ 2008 2009 ------------------------------------------------------------------------------ Gross Net Gross Net carrying Accumulated carrying carrying Accumulated carrying amount amortization amount amount amortization amount --------------------------------------------------------------------------------------------------------------- Other intangible assets subject to amortization: Software Yen 113,072 Yen (61,383) Yen 51,689 Yen 128,142 Yen (68,774) Yen 59,368 Trademarks and customer relationships 56,201 (20,385) 35,816 110,867 (29,793) 81,074 Other 36,360 (10,750) 25,610 31,973 (8,501) 23,472 ----------- ------------ ----------- ----------- ------------ ----------- Total 205,633 (92,518) 113,115 270,982 (107,068) 163,914 Other intangible assets not subject to amortization 1,287 1,212 ----------- ----------- Total other intangible assets Yen 114,402 Yen 165,126
Thousands of U.S. Dollars ------------------------------------ 2009 ------------------------------------ Gross Net carrying Accumulated carrying amount amortization amount --------------------------------------------------------------------- Other intangible assets subject to amortization: Software $1,294,364 $ (694,687) $ 599,677 Trademarks and customer relationships 1,119,869 (300,939) 818,929 Other 322,959 (85,869) 237,091 ---------- ------------ ---------- Total 2,737,192 (1,081,495) 1,655,697 Other intangible assets not subject to amortization 12,242 ---------- Total other intangible assets $1,667,939 Gross carrying amount of trademarks and customer relationships increased during the year ended March 31, 2009 mainly due to the acquisition of IKON Office Solutions, Inc. The aggregate amortization expense of other intangible assets subject to amortization for the years ended March 31, 2007, 2008 and 2009 was Yen 17,200 million, Yen 23,026 million and Yen 26,931 million ($272,030 thousand), respectively. The future amortization expense for each of the next five years relating to existing intangible assets is estimated to be the following at March 31, 2009:
Thousands of Years ending March 31 Millions of Yen U.S. Dollars ------------------------------------------------------ 2010 Yen 27,391 $276,677 2011 25,120 253,737 2012 23,183 234,172 2013 18,236 184,202 2014 14,497 146,434
F-30 The changes in the carrying amounts of goodwill for the years ended March 31, 2008 and 2009, are as follows: Millions of Yen Thousands of ------------------------- U.S. Dollars 2008 2009 2009 ---------------------------------------------------------------------------- Balance at beginning of year Yen 72,048 Yen 112,538 $1,136,747 Goodwill acquired during the year 53,971 145,625 1,470,960 Foreign exchange impact (13,481) (7,833) (79,121) ---------------------------------------------------------------------------- Balance at end of year Yen 112,538 Yen 250,330 $2,528,586 ============================================================================ As of March 31, 2009, all of the carrying value of goodwill was allocated to the Imaging & Solutions segment. 9. INCOME TAXES Income (loss) from continuing operations before income taxes, minority interests and equity in earnings of affiliates and provision for income taxes for the years ended March 31, 2007, 2008 and 2009 are as follows:
Thousands of Millions of Yen U.S. Dollars -------------------------------------- ------------ 2007 2008 2009 2009 -------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes, minority interests and equity in earnings of affiliates: Domestic Yen 107,749 Yen 110,986 Yen 31,861 $321,828 Foreign 66,770 63,683 (922) (9,313) -------------------------------------------------------------------------------------------------- Yen 174,519 Yen 174,669 Yen 30,939 $312,515 -------------------------------------------------------------------------------------------------- Provision for income taxes: Current: Domestic Yen 47,530 Yen 38,199 Yen 20,077 $202,798 Foreign 18,993 20,227 7,244 73,172 -------------------------------------------------------------------------------------------------- Yen 66,523 Yen 58,426 Yen 27,321 $275,970 -------------------------------------------------------------------------------------------------- Deferred: Domestic Yen (741) Yen 6,694 Yen (4,473) $(45,182) Foreign (1,456) (1,724) (690) (6,970) -------------------------------------------------------------------------------------------------- Yen (2,197) Yen 4,970 Yen 5,163) $(52,152) -------------------------------------------------------------------------------------------------- Consolidated provision for income taxes Yen 64,326 Yen 63,396 Yen 22,158 $223,818 --------------------------------------------------------------------------------------------------
F-31 Total income taxes are allocated as follows:
Thousands of Millions of Yen U.S. Dollars ------------------------------------- ------------ 2007 2008 2009 2009 -------------------------------------------------------------------------------------------------- Provision for income taxes relating to continuing operations Yen 64,326 Yen 63,396 Yen 22,158 $ 223,818 Provision for income taxes relating to discontinued operations 4,196 -- -- -- Shareholders' investment: Foreign currency translation adjustments (50) 78 (19) (192) Unrealized gains (losses) on securities 25 (4,879) 366 3,697 Unrealized gains (losses) on derivatives (128) (259) (4) (40) Minimum pension liability adjustments 693 -- -- -- Adjustment to initially apply SFAS 158 1,066 -- -- -- Pension liability adjustments -- (10,014) (22,879) (231,101) -------------------------------------------------------------------------------------------------- Yen 70,128 Yen 48,322 Yen (378) $ (3,818) --------------------------------------------------------------------------------------------------
The Company and its domestic subsidiaries are subject to a National Corporate tax of 30%, an inhabitant tax of approximately 6% and a deductible Enterprise tax approximately 8%, which in the aggregate resulted in the normal statutory tax rate of approximately 41%. The normal statutory tax rate differs from the effective tax rate for the years ended March 31, 2007, 2008 and 2009 as a result of the following:
2007 2008 2009 --------------------------------------------------------------------------------------------------------- Normal statutory tax rate 41% 41% 41% Nondeductible expenses and tax-exempt income 0 1 1 Tax benefits not recognized on operating losses of certain consolidated subsidiaries 1 2 45 Utilization of net operating loss carryforwards not previously recognized (1) (3) (8) Tax credit for increased research and development expense (3) (4) (3) Unrecognized tax benefits - 3 13 Taxes on undistributed earnings of overseas subsidiaries 1 (1) (8) Prior period tax accrual adjustment 0 0 (5) Other, net (2) (3) (4) --------------------------------------------------------------------------------------------------------- Effective tax rate 37% 36% 72% ---------------------------------------------------------------------------------------------------------
Nondeductible expenses include directors' bonuses and entertainment expenses. The tax effects of temporary differences and carryforwards giving rise to the consolidated deferred tax assets and liabilities as of March 31, 2008 and 2009 are as follows:
Thousands of Millions of Yen U.S. Dollars ------------------------- ------------ 2008 2009 2009 ----------------------------------------------------------------------------------------------------------------- Deferred tax assets: Accrued expenses Yen 24,263 Yen 23,830 $ 240,707 Property, plant and equipment 3,858 2,892 29,212 Accrued pension and severance costs 40,341 61,632 622,545 Net operating loss carryforwards 12,684 26,308 265,737 Other 23,193 23,713 239,525 ----------------------------------------------------------------------------------------------------------------- Total gross deferred tax assets Yen 104,339 Yen 138,375 $1,397,727
F-32
Thousands of Millions of Yen U.S. Dollars ------------------------- ------------ 2008 2009 2009 ----------------------------------------------------------------------------------------------------------------- Less - Valuation allowance (10,661) (24,172) (244,161) ----------------------------------------------------------------------------------------------------------------- Total deferred tax assets Yen 93,678 Yen 114,203 $1,153,566 ================================================================================================================= Deferred tax liabilities: Sales-type leases Yen (6,555) Yen (5,657) $ (57,141) Undistributed earnings of foreign subsidiaries and affiliates (20,664) (11,574) (116,909) Net unrealized holding gains on available-for-sale securities (333) (278) (2,808) Basis difference of acquired intangible assets (10,498) (24,194) (244,384) Other (7,673) (7,151) (72,233) ----------------------------------------------------------------------------------------------------------------- Total deferred tax liabilities Yen (45,723) Yen (48,854) $ (493,475) ================================================================================================================= Net deferred tax assets Yen 47,955 Yen 65,349 $ 660,091 =================================================================================================================
Net deferred tax assets as of March 31, 2008 and 2009 are included in the consolidated balance sheets as follows:
Thousands of Millions of Yen U.S. Dollars ------------------------- ------------ 2008 2009 2009 ----------------------------------------------------------------------------------------------------------------- Deferred income taxes and other (Current Assets) Yen 41,581 Yen 43,774 $ 442,162 Lease deposits and other (Non-current Assets) 43,528 53,740 542,828 Accrued expenses and other (Current Liabilities) (781) (1,701) (17,182) Deferred income taxes and other (Long-Term Liabilities) (36,373) (30,464) (307,717) ----------------------------------------------------------------------------------------------------------------- Yen 47,955 Yen 65,349 $ 660,091 =================================================================================================================
The net changes in the total valuation allowance for the years ended March 31, 2007, 2008 and 2009 were an increase of Yen 4,202 million, a decrease of Yen 1,738 million and an increase of Yen 13,511 million ($136,475 thousand), respectively. The valuation allowance primarily relates to deferred tax assets of the consolidated subsidiaries with net operating loss carryforwards for tax purposes that are not expected to be realized. In assessing the realizability of deferred tax assets, Ricoh considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and whether loss carryforwards are utilizable. Ricoh considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, Ricoh believes it is more likely than not that the benefits of these deductible differences, net of the existing valuation allowance will be realized. The amount of the deferred tax asset considered realizable, however, would be reduced if estimates of future taxable income during the carryforward period are reduced. As of March 31, 2009, certain subsidiaries had net operating losses carried forward for income tax purposes of approximately Yen 98,028 million ($990,182 thousand) which were available to reduce future taxable income, if any. Approximately Yen 1,576 million ($15,919 thousand) of the operating losses will expire within 3 years, Yen 12,151 million ($122,737 thousand) will expire within 4 years to 7 years and Yen 63,060 million ($636,970 thousand) will expire over 7 years. The remainder have indefinite carryforward period. Ricoh has not recognized a deferred tax liability for certain portion of the undistributed earnings of its foreign subsidiaries of Yen 167,769 million ($1,694,636 thousand) as of March 31, 2009 because Ricoh F-33 considers these earnings to be indefinitely reinvested. The calculation of the related unrecognized deferred tax liability is not practicable. Ricoh adopted FIN48 effective April 1, 2007. Total unrecognized tax benefits as of the date of adoption were Yen 8,508 million, and a cumulative-effect adjustment was not required as a result of the adoption of FIN 48. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Thousands of Millions of Yen U.S. Dollars ------------------------- ------------ 2008 2009 2009 -------------------------------------------------------------------------------------- Beginning balance Yen 8,508 Yen 5,623 $56,798 Additions due to acquisition -- 1,917 19,364 Additions for tax positions of current year 2,972 4,350 43,939 Additions for tax positions of prior years 2,456 1,538 15,535 Reductions for tax positions of prior years (1,768) (546) (5,515) Settlements (5,662) (721) (7,283) Other (883) (345) (3,484) -------------------------------------------------------------------------------------- Ending balance Yen 5,623 Yen 11,816 $119,354 ======================================================================================
Total amount of unrecognized tax benefits as of March 31, 2008 and 2009 that would reduce the effective tax rate, if recognized, are Yen 4,503 and Yen 11,071 million ($111,828 thousand), respectively. Although Ricoh believes its estimates and assumptions of unrecognized tax benefits are reasonable, uncertainty regarding the final determination of tax audit settlements and any related litigation could affect the effective tax rate in the future periods. Based on each of the items of which Ricoh is aware as of March 31, 2009, no significant changes to the unrecognized tax benefits are expected within the next twelve months. Ricoh recognizes interest and penalties related to unrecognized tax benefits in provision for income taxes in the consolidated statements of income. Both interest and penalties accrued as of March 31, 2008 and 2009 and interest and penalties included in provision for income taxes for the years ended March 31, 2008 and 2009 are not material. Ricoh files income tax returns in Japan and various foreign tax jurisdictions. In Japan, Ricoh is no longer subject to regular income tax examinations by the tax authority for fiscal years before 2007. While there has been no specific indication by the tax authority that Ricoh will be subject to a transfer pricing examination in the near future, the tax authority could conduct a transfer pricing examination for fiscal years after 2003. In other major foreign tax jurisdictions, including the United States and United Kingdom, Ricoh is no longer subject to income tax examinations by tax authorities for fiscal years before 2006 with few exceptions. F-34 10. SHORT=TERM BORROWINGS Short=term borrowings as of March 31, 2008 and 2009 consist of the following:
Weighted average Thousands of interest rate Millions of Yen U.S. Dollars ---------------- --------------------------------------- 2008 2009 2008 2009 2009 ----------------------------------------------------------------------------------------------- Borrowings, principally from banks 1.3% 1.0% Yen 5,599 Yen 63,127 $ 637,646 Commercial paper 2.3 0.5 67,070 121,083 1,223,061 Medium-Term Notes 3.5 -- 3,114 -- -- ----------------------------------------------------------------------------------------------- Yen 75,784 Yen 184,210 $1,860,707 ===============================================================================================
These short=term borrowings included borrowings, principally from banks, commercial paper and medium=term notes denominated in foreign currencies amounting to Yen 41,413 million and Yen 63,474 million ($641,152 thousand) as of March 31, 2008 and 2009, respectively. The Company and certain of its subsidiaries enter into the contracts with financial institutions regarding lines of credit and overdrawing. Those same financial institutions hold the issuing programs of commercial paper and medium=term notes. Ricoh had aggregate lines of credit of Yen 784,645 million and Yen 664,314 million ($6,710,242 thousand) as of March 31, 2008 and 2009, respectively. Unused lines of credit amounted to Yen 675,959 million and Yen 483,901 million ($4,887,889 thousand) as of March 31, 2008 and 2009, respectively, of which Yen 232,023 million and Yen 158,386 million ($1,599,859 thousand) related to commercial paper and Yen 101,957 million and Yen 98,230 million ($992,222 thousand) related to medium=term notes programs at prevailing interest rates and the unused portion is available for immediate borrowings. F-35 11. LONG-TERM INDEBTEDNESS Long-term indebtedness as of March 31, 2008 and 2009 consists of the followings:
Thousands of Millions of Yen U.S. Dollars ------------------------- ------------ 2008 2009 2009 ------------------------------------------------------------------------------------------------------- Bonds: 1.34%, straight bonds, payable in yen, due March 2009 Yen 25,000 Yen -- $ -- 1.10%, straight bonds, payable in yen, due March 2012 -- 20,000 202,020 1.39%, straight bonds, payable in yen, due March 2014 -- 50,000 505,051 2.08%, straight bonds, payable in yen, due March 2019 -- 15,000 151,515 2.10%, straight bonds, payable in yen, due October 2009 issued by a consolidated subsidiary 10,000 10,000 101,010 1.10%, straight bonds, payable in yen, due March 2010 issued by a consolidated subsidiary 10,000 10,000 101,010 1.30%, straight bonds, payable in yen, due December 2010 issued by a consolidated subsidiary 9,999 9,999 101,000 6.75%, straight bonds, payable in yen, due December 2025 issued by a consolidated subsidiary -- 25,149 254,030 7.30%, straight bonds, payable in yen, due November 2027 issued by a consolidated subsidiary -- 9,058 91,495 Euro Yen Zero Coupon Convertible Bonds, due December 2011 55,202 55,147 557,040 ------------------------------------------------------------------------------------------------------- Total bonds 110,201 204,353 2,064,171 ------------------------------------------------------------------------------------------------------- Unsecured loans- Banks and insurance companies, 1.30% weighted average, due through 2017 196,353 375,494 3,792,869 ------------------------------------------------------------------------------------------------------- Secured loans- Banks, insurance companies and other financial institution, 4.73% weighted average, due through 2013 465 13,167 133,000 ------------------------------------------------------------------------------------------------------- Capital lease obligations (see Note 2(j)) 1,177 1,758 17,758 ------------------------------------------------------------------------------------------------------- Total 308,196 594,772 6,007,798 SFAS 133 fair value adjustment 392 213 2,152 Less - Current maturities included in current liabilities (82,658) (85,582) (864,465) ------------------------------------------------------------------------------------------------------- Yen 225,930 Yen 509,403 $5,145,485 =======================================================================================================
Secured loans are collateralized by land, buildings and lease receivables with a book value of Yen 14,664 million ($148,121 thousand) as of March 31, 2009. All bonds outstanding as of March 31, 2009 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 was in compliance with such covenants as of March 31, 2009. The Company issued Euro Yen Zero Coupon Convertible Bonds of Yen 55,275 million in December 2006. Bondholders are able to convert their holdings into common stock under certain circumstances. As of March 31, 2009, the conversion price was Yen 2,800 per share and 19,741 thousand shares would have been issued on conversion of all convertible debt. The conversion price shall be adjusted for certain events such as a stock split, consolidation of stock or issuance of stock at less than the current market price of the shares. 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 F-36 deposited as security for all present and future indebtedness. Ricoh has never been requested to submit such additional security with respect to any material borrowings. F-37 The aggregate annual maturities of long-term indebtedness subsequent to March 31, 2009 are as follows: Thousands of Years ending March 31 Millions of Yen U.S. Dollars ------------------------------------------------------ 2010 Yen 85,505 $ 863,687 2011 98,556 995,515 2012 146,242 1,477,192 2013 56,933 575,081 2014 158,304 1,599,030 2015 and thereafter 49,232 497,293 ------------------------------------------------------ Total Yen 594,772 $6,007,798 ====================================================== 12. PENSION AND RETIREMENT ALLOWANCE PLANS The Company and certain of its subsidiaries have various contributory and noncontributory employees' pension fund plans in trust covering substantially all of their employees. Under the plans, employees are entitled to lump-sum payments at the time of termination or retirement, or to pension payments. Contributions to these plans have been made to provide future pension payments in conformity with an actuarial calculation determined by the current basic rate of pay. On March 31, 2007, Ricoh adopted the recognition and disclosure provisions of SFAS No.158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," for the measurement of pension liabilities. Upon adoption, Ricoh recognized the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of its pension fund plans in the consolidated balance sheets as of March 31, 2007, with a corresponding adjustment in initially applying SFAS 158 to accumulated other comprehensive income, net of tax. The adjustment to accumulated other comprehensive income at adoption represents the unrecognized net actuarial loss, unrecognized prior service cost, and unrecognized transition obligations, all of which were previously netted against the plans' funded status in the consolidated balance sheets pursuant to the provisions of SFAS 87. These amounts will be subsequently recognized as net periodic benefit cost pursuant to Ricoh's historical accounting policy for amortizing such amounts. Furthermore, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit cost in the same periods will be recognized as a component of other comprehensive income (loss). Those amounts will be subsequently recognized as a component of total net periodic benefit cost on the same basis as the amounts recognized in accumulated other comprehensive income (loss) at adoption of SFAS 158. For periods prior to the year ended March 31, 2009, Ricoh used a December 31 measurement date for determining benefit obligations and fair value of plan assets. Ricoh adopted the measurement date provisions of SFAS No. 158 as of March 31, 2009. The adoption of the measurement date provisions resulted in adjustments to decrease retained earnings by Yen 643 million, and increase other comprehensive loss by Yen 6 million as of April 1, 2008. F-38 The changes in the benefit obligations and plan assets of the pension plans for the years ended March 31, 2008 and 2009 are as follows:
Thousands of Millions of Yen U.S. Dollars -------------------------- ------------ 2008 2009 2009 -------------------------------------------------------------------------------------------------------- Change in benefit obligations: Benefit obligations at beginning of year Yen 397,971 Yen 388,404 $ 3,923,273 Adjustment to apply measurement date provisions of SFAS No.158 -- 2,030 20,505 Service cost 15,592 14,700 148,485 Interest cost 12,335 13,427 135,626 Plan participants' contributions 780 683 6,899 Actuarial loss (7,394) (4,814) (48,626) Settlement (23) (217) (2,192) Benefits paid (19,512) (22,267) (224,919) Foreign exchange impact (13,563) (20,892) (211,030) Benefit obligations assumed in connection with business acquisition 2,218 51,767 522,898 -------------------------------------------------------------------------------------------------------- Benefit obligations at end of year Yen 388,404 Yen 422,821 $ 4,270,919 -------------------------------------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets at beginning of year Yen 320,580 Yen 291,425 $ 2,943,687 Actual return on plan assets (20,781) (53,592) (541,333) Employer contribution 14,505 14,753 149,020 Plan participants' contributions 780 683 6,899 Partial withdrawal of plan assets -- (759) (7,667) Settlement (9) -- -- Benefits paid (12,447) (14,864) (150,141) Foreign exchange impact (13,081) (19,759) (199,586) Plan assets acquired in connection with business acquisition 1,878 51,662 521,838 -------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year Yen 291,425 Yen 269,549 $ 2,722,717 -------------------------------------------------------------------------------------------------------- Funded status Yen (96,979) Yen (153,272) $(1,548,202) ========================================================================================================
Net amounts recognized in the consolidated balance sheet as of March 31, 2008 and 2009 consist of:
Thousands of Millions of Yen U.S. Dollars -------------------------- ------------ 2008 2009 2009 -------------------------------------------------------------------------------------------------------- Lease deposits and other Yen 9,085 Yen 10,152 $ 102,545 Accrued expenses and other (7,441) (8,311) (83,949) Accrued pension and severance costs (98,623) (155,113) (1,566,798) -------------------------------------------------------------------------------------------------------- Net amount recognized Yen (96,979) Yen (153,272) $(1,548,202) ========================================================================================================
F-39 Net amounts recognized in accumulated other comprehensive loss as of March 31, 2008 and 2009 consist of: Thousands of Millions of Yen U.S. Dollars ------------------------- ------------ 2008 2009 2009 -------------------------------------------------------------------------------- Net actuarial loss Yen 82,328 Yen 133,922 $1,352,747 Prior service credit (46,895) (42,103) (425,283) -------------------------------------------------------------------------------- Net amount recognized Yen 35,433 Yen 91,819 $ 927,465 ================================================================================ The accumulated benefit obligations are as follows: Thousands of Millions of Yen U.S. Dollars ------------------------- ------------ 2008 2009 2009 -------------------------------------------------------------------------------- Accumulated benefit obligations Yen 371,460 Yen 414,537 $4,187,242 Weighted-average assumptions used to determine benefit obligations as of March 31, 2008 and 2009 are as follows: Domestic plans Foreign plans -------------- ------------- 2008 2009 2008 2009 -------------------------------------------------------------------------------- Discount rate 2.2% 1.9% 5.1% 6.9% Rate of compensation increase 6.5% 6.5% 3.7% 3.9% Weighted-average assumptions used to determine the net periodic benefit cost for the years ended March 31, 2007, 2008 and 2009 are as follows: Domestic plans Foreign plans ------------------ ------------------ 2007 2008 2009 2007 2008 2009 -------------------------------------------------------------------------------- Discount rate 2.2% 2.2% 2.2% 4.3% 4.8% 5.7% Rate of compensation increase 6.5% 6.5% 6.5% 3.5% 3.7% 3.8% Expected long-term return on plan assets 1.7% 1.6% 1.4% 6.6% 6.2% 6.0% The net periodic benefit costs of the pension plans for the years ended March 31, 2007, 2008 and 2009 consist of the following components: Thousands of Millions of Yen U.S. Dollars -------------------------------------- ------------ 2007 2008 2009 2009 -------------------------------------------------------------------------------- Service cost Yen 15,687 Yen 15,592 Yen 14,700 $ 148,485 Interest cost 11,121 12,335 13,427 135,626 Expected return on plan assets (9,186) (10,234) (10,158) (102,606) Net amortization (1,420) (982) 1,015 10,253 Settlement benefit (18) -- (87) (879) -------------------------------------------------------------------------------- Total net periodic pension cost Yen 16,184 Yen 16,711 Yen 18,897 $ 190,879 ================================================================================ F-40 The projected benefit obligations and the fair value of plan assets for the pension plans with projected benefit obligations in excess of plan assets, and the accumulated benefit obligations and the fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets are as follows:
Thousands of Millions of Yen U.S. Dollars ---------------------------------------- 2008 2009 2009 ------------------------------------------------------------------------------------- Plans with projected benefit obligations in excess of plan assets: Projected benefit obligations Yen 379,662 Yen 418,332 $4,225,576 Fair value of plan assets 284,268 265,816 2,685,010 Plans with accumulated benefit obligations in excess of plan assets: Accumulated benefit obligations Yen 362,827 Yen 408,348 $4,124,727 Fair value of plan assets 279,585 262,501 2,651,525
Ricoh's benefit plan asset allocation as of March 31, 2008 and 2009 are as follows: 2008 2009 --------------------------------------------------------- Equity securities 45.7% 33.6% Debt securities 20.9% 40.4% Life insurance company general accounts 15.1% 17.5% Other 18.3% 8.5% --------------------------------------------------------- Total 100.0% 100.0% ========================================================= Common stock and bonds of the Company and certain of its domestic subsidiaries included in plan assets were immaterial at March 31, 2008 and 2009. 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 speculative investment in derivative financial instruments. Ricoh addresses diversification by the use of mutual fund investments whose underlying investments are in domestic and international fixed income securities and domestic and international equity securities. These mutual funds are readily marketable and can be sold to fund benefit payment obligations as they become payable. Ricoh expects to contribute Yen 15,760 million to its pension plans for the year ending March 31, 2010. The estimated net actuarial loss and prior service credit for Ricoh's pension fund plans that will be amortized from accumulated other comprehensive income (loss) into net periodic pension cost over the next year ending March, 2010 are Yen 9,732 million and Yen (4,078) million, respectively. F-41 The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: Thousands of Years ending March 31 Millions of Yen U.S. Dollars ------------------------------------------------------ 2010 Yen 23,803 $ 240,434 2011 21,518 217,354 2012 21,866 220,869 2013 23,255 234,899 2014 21,837 220,576 2015- 2019 127,939 1,292,313 Ricoh and certain subsidiaries have defined contribution plans. The cost of defined contribution plans for the years ended March 31, 2007, 2008 and 2009 were Yen 3,795 million, Yen 5,108 million and Yen 6,768 million ($68,364 thousand), respectively. 13. SHAREHOLDERS' INVESTMENT The Corporation Law of Japan provides that an amount equal to 10% of cash dividends and other distributions from retained earnings paid by the Company and its domestic subsidiaries be appropriated as additional paid-in capital or legal reserve. No further appropriation is required when the total amount of the additional paid-in capital and legal reserve equals to 25% of common stock. Certain foreign subsidiaries are also required to appropriate their earnings to legal reserves under the laws of the respective countries. Legal reserves included in retained earnings as of March 31, 2008 and 2009 were Yen 17,462 million and Yen 18,345 million ($185,303 thousand), respectively, and are restricted from being used as dividends. The Corporation Law of Japan requires a company to obtain the approval of shareholders for transferring on amount between common stock and additional paid-in capital. The Law also permits a company to transfer an amount of common stock or additional paid-in capital to retained earnings in principle upon approval of shareholders. 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 Ordinary General Meeting of Shareholders held on June 25, 2009, the shareholders approved the declaration of a cash dividend (Yen 15 per share) on the common stock totaling Yen 10,885 million ($109,949 thousand), which would be paid to shareholders of record as of March 31, 2009. The declaration of this dividend has not been reflected in the consolidated financial statements as of March 31, 2009. The amount of retained earnings legally available for dividend distribution is that recorded in the Company's non-consolidated books and amounted to Yen 430,717 million ($4,350,677 thousand) as of March 31, 2009. F-42 14. 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 --------------------------------------------------------------------------------------------------------- 2007: Foreign currency translation adjustments Yen 24,724 Yen 50 Yen 24,774 Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year 197 (65) 132 Less - Reclassification adjustment for (gains) losses realized in net income (99) 40 (59) Net unrealized gains (losses) 98 (25) 73 Unrealized gains (losses) on derivatives: Unrealized holding gains (losses) arising during the year (749) 307 (442) Less - Reclassification adjustment for (gains) losses realized in net income 436 (179) 257 Net unrealized gains (losses) (313) 128 (185) Minimum pension liability adjustments 1,663 (693) 970 --------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) Yen 26,172 Yen (540) Yen 25,632 --------------------------------------------------------------------------------------------------------- 2008: Foreign currency translation adjustments Yen (38,478) Yen (78) Yen (38,556) Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year (12,147) 4,709 (7,438) Less - Reclassification adjustment for (gains) losses realized in net income (417) 170 (247) Net unrealized gains (losses) (12,564) 4,879 (7,685) Unrealized gains (losses) on derivatives: Unrealized holding gains (losses) arising during the year (767) 311 (456) Less - Reclassification adjustment for (gains) losses realized in net income 128 (52) 76 Net unrealized gains (losses) (639) 259 (380) Pension liability adjustments: Unrealized holding gains (losses) arising during the year (20,361) 9,556 (10,805) Less - Reclassification adjustment for (gains) losses realized in net income (1,035) 458 (577) Net unrealized gains (losses) (21,396) 10,014 (11,382) --------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) Yen (73,077) Yen 15,074 Yen (58,003) --------------------------------------------------------------------------------------------------------- 2009: Foreign currency translation adjustments Yen (61,189) Yen 19 Yen (61,170) Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year (25,601) 10,440 (15,161) Less - Reclassification adjustment for (gains) losses realized in net income 26,499 (10,806) 15,693 Net unrealized gains (losses) 898 (366) 532 Unrealized gains (losses) on derivatives: Unrealized holding gains (losses) arising during the year (655) 250 (405) Less - Reclassification adjustment for (gains) losses realized in net income 686 (246) 440 Net unrealized gains (losses) 31 4 35 Pension liability adjustments: Unrealized holding gains (losses) arising during the year (57,401) 23,293 (34,108) Less - Reclassification adjustment for (gains) losses realized in net income 1,015 (414) 601 Net unrealized gains (losses) (56,386) 22,879 (33,507) --------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) Yen (116,646) Yen 22,536 Yen (94,110) ---------------------------------------------------------------------------------------------------------
F-43
Thousands of U.S. Dollars --------------------------------------- Before-tax Tax Net-of-tax amount expense amount --------------------------------------------------------------------------------------------------------- 2009 Foreign currency translation adjustments $ (618,071) $ 192 $ (617,879) Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year (258,596) 105,455 (153,141) Less - Reclassification adjustment for (gains) losses realized in net income 267,667 (109,152) 158,515 Net unrealized gains (losses) 9,071 (3,697) 5,374 Unrealized gains (losses) on derivatives: Unrealized holding gains (losses) arising during the year (6,616) 2,525 (4,091) Less - Reclassification adjustment for (gains) losses realized in net income 6,929 (2,485) 4,444 Net unrealized gains (losses) 313 40 3534 Pension liability adjustments: Unrealized holding gains (losses) arising during the year (579,808) 235,283 (344,525) Less - Reclassification adjustment for (gains) losses realized in net income 10,253 (4,182) 6,071 Net unrealized gains (losses) (569,555) 231,101 (338,454) --------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) $(1,178,242) $ 227,636 $ (950,606) ---------------------------------------------------------------------------------------------------------
For fiscal year 2009, pension liability adjustments included Yen (57,401) million ($(579,808) thousand) of gains (losses) arising during the year, Yen (5,807) million ($(58,657) thousand) of amortization of gains (losses) and Yen 4,792 million ($48,404 thousand) of amortization of prior service cost - net of deferred taxes of Yen 23,293 million ($235,283 thousand), Yen 2,367 million ($23,909 thousand) and Yen (1,953) million ($(19,727) thousand), respectively. F-44 Changes in accumulated other comprehensive income (loss) are as follows:
Thousands of Millions of Yen U.S. Dollars --------------------------------------- ------------ 2007 2008 2009 2009 ------------------------------------------------------------------------------------------------------------ Foreign currency translation adjustments: Beginning balance Yen 2,657 Yen 27,431 Yen (11,125) $ (112,374) Change during the year 24,774 (38,556) (61,170) (617,879) ------------------------------------------------------------------------------------------------------------ Ending balance Yen 27,431 Yen (11,125) Yen (72,295) $ (730,253) ------------------------------------------------------------------------------------------------------------ Unrealized gains (losses) on securities: Beginning balance Yen 8,928 Yen 9,001 Yen 1,316 $ 13,293 Change during the year 73 (7,685) 532 5,374 ------------------------------------------------------------------------------------------------------------ Ending balance Yen 9,001 Yen 1,316 Yen 1,848 $ 18,667 ------------------------------------------------------------------------------------------------------------ Unrealized gains (losses) on derivatives: Beginning balance Yen 157 Yen (28) Yen (408) $ (4,121) Change during the year (185) (380) 35 354 ------------------------------------------------------------------------------------------------------------ Ending balance Yen (28) Yen (408) Yen (373) $ (3,767) ------------------------------------------------------------------------------------------------------------ Minimum pension liability adjustments: Beginning balance Yen (7,643) Yen -- Yen -- $ -- Change during the year 970 -- -- -- Adjustment to initially apply SFAS 158 6,673 -- -- -- ------------------------------------------------------------------------------------------------------------ Ending balance Yen -- Yen -- Yen -- $ -- ------------------------------------------------------------------------------------------------------------ Pension liability adjustments: Beginning balance Yen -- Yen (9,406) Yen (20,788) $ (209,980) Adjustment to apply measurement date provisions of SAFS No.158 -- -- (6) (61) ------------------------------------------------------ Adjusted beginning balance -- (9,406) (20,794) (210,041) Change during the year -- (11,382) (33,507) (338,455) Adjustment to initially apply SFAS 158 (9,406) -- -- -- ------------------------------------------------------------------------------------------------------------ Ending balance Yen (9,406) Yen (20,788) Yen (54,301) $ (548,496) ------------------------------------------------------------------------------------------------------------ Total accumulated other comprehensive income (loss) Beginning balance Yen 4,099 Yen 26,998 Yen (31,005) $ (313,182) Adjustment to apply measurement date provisions of SAFS No.158 -- -- (6) (61) ------------------------------------------------------ Adjusted beginning balance 4,099 26,998 (31,011) (313,243) Change during the year 25,632 (58,003) (94,110) (950,606) Adjustment to initially apply SFAS 158 (2,733) -- -- -- ------------------------------------------------------------------------------------------------------------ Ending balance Yen 26,998 Yen (31,005) Yen (125,121) $(1,263,849) ------------------------------------------------------------------------------------------------------------
F-45 15. 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 net income are as follows: Thousands of shares --------------------------- 2007 2008 2009 ---------------------------------------------------------------------------- Weighted average number of shares of common stock outstanding 729,745 729,010 723,925 Effect of dilutive securities: Euro Yen Zero Coupon Convertible Bonds - Due December 2011 5,758 19,741 19,741 ---------------------------------------------------------------------------- Diluted shares of common stock outstanding 735,503 748,752 743,666 ============================================================================
Thousands of Millions of Yen U.S. Dollars ------------------------------------- ------------ 2007 2008 2009 2009 ------------------------------------------------------------------------------------------------------ Income from continuing operations Yen 106,224 Yen 106,463 Yen 6,530 $65,960 Income from discontinued operations, net of tax 5,500 -- -- -- ------------------------------------------------------------------------------------------------------ Net income 111,724 106,463 6,530 65,960 ------------------------------------------------------------------------------------------------------ Effect of dilutive securities: Euro Yen Zero Coupon Convertible Bonds - Due December 2011 (8) (25) (25) (253) ------------------------------------------------------------------------------------------------------ Diluted net income Yen 111,716 Yen 106,438 Yen 6,505 $65,707 ======================================================================================================
Yen U.S. Dollars --------------------------------- ------------ 2007 2008 2009 2009 ---------------------------------------------------------------------------------------------- Earnings per share: Basic: Income from continuing operations Yen 145.56 Yen 146.04 Yen 9.02 $0.09 Income from discontinued operations, net of tax 7.54 -- -- -- ---------------------------------------------------------------------------------------------- Net income 153.10 146.04 9.02 0.09 ---------------------------------------------------------------------------------------------- Diluted: Income from continuing operations Yen 144.41 Yen 142.15 Yen 8.75 $0.09 Income from discontinued operations, net of tax 7.48 -- -- -- ---------------------------------------------------------------------------------------------- Net income 151.89 142.15 8.75 0.09 ==============================================================================================
F-46 16. 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 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 those assets and liabilities denominated in foreign currencies. Interest Rate Risk Management Ricoh enters into interest rate swap agreements to hedge against the potential adverse impacts of changes in fair value or cash flow fluctuations on interest of its outstanding debt. Fair Value Hedges Changes in the fair value of derivative instruments and the related hedged items designated and qualifying as fair value hedges are included in other (income) expenses on the consolidated statements of income. There is no hedging ineffectiveness nor are net gains or losses excluded from the assessment of hedge effectiveness for the years ended March 31, 2007, 2008 and 2009 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, 2007, 2008 and 2009 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 expenses during the next 12 months approximately Yen 116 million ($1,172 thousand) of the balance of accumulated other comprehensive income as of March 31, 2009. 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 statements of income. F-47 Contract amounts of derivative instruments at March 31, 2009 are shown in the following tables: Thousands of March 31, 2009 Millions of Yen U.S. Dollars -------------------------------------------------------------- Interest rate swap agreements Yen 298,665 $3,016,818 Foreign currency contracts 110,196 1,113,091 Foreign currency options 30,744 310,545 The location and fair value amounts of derivatives in consolidated balance sheet are shown in the following tables: Derivatives designated as hedging instruments under SFAS No. 133
Thousands of Thousands of Millions of Yen U.S. Dollars Millions of Yen U.S. Dollars ----------------------------- ------------ -------------------------- ------------ Current Long-term -------------------------------------------- ----------------------------------------- Balance Sheet Balance Sheet Location Fair Value Fair Value Location Fair Value Fair Value ---------------------------------------------------------------------------------------------------------------- Asset Derivatives Interest rate swap Deferred income Lease deposits agreements taxes and other Yen 77 $778 and other Yen 139 $1,404 Liability Derivatives Interest rate swap Accrued expenses Deferred income agreements and other Yen 19 $192 taxes and other Yen 795 $8,030
Derivatives not designated as hedging instruments under SFAS No. 133
Thousands of Thousands of Millions of Yen U.S. Dollars Millions of Yen U.S. Dollars ----------------------------- ------------ -------------------------- ------------ Current Long-term -------------------------------------------- ----------------------------------------- Balance Sheet Balance Sheet Location Fair Value Fair Value Location Fair Value Fair Value --------------------------------------------------------------------------------------------------------------------------- Asset Derivatives Interest rate swap agreements Deferred income Yen 16 $ 162 Yen -- $ -- Foreign currency contracts taxes and other 1,102 11,131 Lease deposits -- -- Foreign currency options 25 253 and other -- -- --------------------------------------------------------------------------------------------------------------------------- Total Yen 1,143 $11,546 Yen -- -- --------------------------------------------------------------------------------------------------------------------------- Liability Derivatives Interest rate swap agreements Accrued expenses Yen 54 $ 545 Deferred income Yen 395 $ 3,990 Foreign currency contracts and other 1,826 18,444 taxes and other 2,270 22,929 Foreign currency options 1,468 14,828 -- -- --------------------------------------------------------------------------------------------------------------------------- Total Yen 3,348 $33,817 Yen 2,665 $26,919 ===========================================================================================================================
Thousands of Millions of Yen U.S. Dollars --------------- ------------ Fair Value Fair Value ------------------------------------------------------------ Total Asset Derivatives Yen 1,359 $13,727 ----------------------- --------- ------- Total Liability Derivatives Yen 6,827 $68,960 --------------------------- --------- ------- F-48 The location and amount of gains and losses related to derivatives reported in the consolidated statement of income for the 4th quarter of fiscal year 2009 are shown in the following tables: Derivatives designated as hedging instruments under SFAS No. 133
Millions of Yen --------------------------------------------------------------------------------- Gain or (Loss) Recognized in OCI on Derivative Gain or (Loss) Reclassified from Gain or (Loss) Recognized in (Effective Accumulated OCI Into Income Income on Derivative Portion) (Effective Portion) (Ineffective Portion) --------------------------------------------------------------------------------- Amount Location Amount Location Amount ---------------------------------------------------------------------------------------------------------------- Cash flow hedge Interest rate swap agreements Yen (165) Interest expense Yen (13) -- Yen --
Thousands of U.S. Dollars --------------------------------------------------------------------------------- Gain or (Loss) Recognized in OCI on Derivative Gain or (Loss) Reclassified from Gain or (Loss) Recognized in (Effective Accumulated OCI Into Income Income on Derivative Portion) (Effective Portion) (Ineffective Portion) --------------------------------------------------------------------------------- Amount Location Amount Location Amount ---------------------------------------------------------------------------------------------------------------- Cash flow hedge Interest rate swap agreements $(1,667) Interest expense $(131) -- $--
Millions of Yen -------------------------------------------------------- Gain or (Loss) Recognized Gain or (Loss) on Hedged Item in Income on Derivative Recognized in Income -------------------------------------------------------- Location Amount Location Amount --------------------------------------------------------------------------------------- Fair value hedge Interest rate swap agreements Interest income Yen 44 Interest expense Yen (92)
Thousands of U.S. Dollars ---------------------------------------------------- Gain or (Loss) Recognized Gain or (Loss) on Hedged in Income on Derivative Item Recognized in Income ---------------------------------------------------- Location Amount Location Amount ----------------------------------------------------------------------------------- Fair value hedge Interest rate swap agreements Interest income $444 Interest expense $(929)
Derivatives not designated as hedging instruments under SFAS No. 133
Thousands of Millions of Yen U.S. Dollars -------------------------- ------------ Location Amount Amount ----------------------------------------------------------------------- Interest rate swap agreements Other income Yen 291 $ 2,939 Foreign currency contracts Other expenses (3,072) (31,030) Foreign currency options Other expenses (570) (5,758) ----------------------------------------------------------------------- Total Yen (3,351) $(33,849) -----------------------------------------------------------------------
F-49 17. COMMITMENTS AND CONTINGENT LIABILITIES As of March 31, 2009, Ricoh had outstanding contractual commitments for acquisition or construction of property, plant and equipment and other assets aggregating Yen 36,485 million ($368,535 thousand). As of March 31, 2009, Ricoh was also contingently liable for certain guarantees including employees housing loans of Yen 318 million ($3,212 thousand). Ricoh made rental payments totaling Yen 40,722 million, Yen 45,379 million and Yen 54,347 million ($548,960 thousand) for the years ended March 31, 2007, 2008 and 2009, respectively, under cancelable and non-cancelable operating lease agreements for office space and machinery and equipment. The minimum rental payments required under operating lease that have lease terms in excess of one year as of March 31, 2009 are as follows: Thousands of Years ending March 31 Millions of Yen U.S. Dollars ---------------------------------------------------- 2010 Yen 24,208 $ 244,525 2011 20,894 211,051 2012 17,010 171,818 2013 13,916 140,566 2014 10,016 101,172 2015 and thereafter 13,399 135,343 ---------------------------------------------------- Total Yen 99,443 $1,004,475 ---------------------------------------------------- As of March 31, 2009, 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. F-50 18. 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 interest 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 present value of future cash flows associated with each instrument discounted using the current borrowing rate for similar instruments of comparable maturity. (E) INTEREST RATE SWAP AGREEMENTS The fair value of interest rate swap agreements is estimated by obtaining quotes from brokers. (F) FOREIGN CURRENCY CONTRACTS AND FOREIGN CURRENCY OPTIONS The fair value of foreign currency contracts and foreign currency options is estimated by obtaining quotes from brokers. The estimated fair value of the financial instruments as of March 31, 2008 and 2009 is summarized as follows:
Millions of Yen Thousands of U.S. Dollars --------------------------------------------------------- ------------------------- 2008 2009 2009 --------------------------- --------------------------- ------------------------- Carrying Estimated Carrying Estimated Carrying Estimated amount fair value amount fair value amount fair value -------------------------------------------------------------------------------------------------------------------------- Marketable securities and Investment securities Yen 71,244 Yen 71,244 Yen 48,540 Yen 48,540 $ 490,303 $ 490,303 Installment loans 54,863 54,852 60,781 60,754 613,949 613,677 Long-term indebtedness (225,930) (221,792) (509,403) (500,774) (5,145,485) (5,058,323) Interest rate swap agreements, net (594) (594) (1,031) (1,031) (10,414) (10,414) Foreign currency contracts, net 1,349 1,349 (2,994) (2,994) (30,242) (30,242) Foreign currency options, net 100 100 (1,443) (1,443) (14,576) (14,576)
F-51 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. 19. FAIR VALUE MEASUREMENTS In September 2006, the FASB issued SFAS 157, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, where fair value is the relevant measurement attribute. SFAS 157 does not require any new fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and was adopted by Ricoh in the fiscal year beginning April 1, 2008. Pursuant to the provisions of FSP 157-2, Ricoh have decided to defer adoption of SFAS 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows: Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data. Level 3 - Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable. The following table presents the fair-value hierarchy levels of Ricoh's assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2009.
Millions of Yen ------------------------------------- March 31, 2009 ------------------------------------- Level 1 Level 2 Level 3 Total ------------------------------------------------------------------------------------ Assets: Trading and Available-for-sale securities 45,761 -- -- 45,761 Derivative instruments -- 1,359 -- 1,359 Other investments -- -- 4,293 4,293 ------------------------------------------------------------------------------------ Total assets 45,761 1,359 4,293 51,413 ==================================================================================== Liabilities: Derivatives instruments -- 6,827 -- 6,827 ------------------------------------------------------------------------------------ Total liabilities -- 6,827 -- 6,827 ====================================================================================
F-52
Thousands of Dollars ------------------------------------- March 31, 2009 ------------------------------------- Level 1 Level 2 Level 3 Total ------------------------------------------------------------------------------------ Assets: Trading and Available-for-sale securities 462,232 -- -- 462,232 Derivative instruments -- 13,727 -- 13,727 Other investments -- -- 43,364 43,364 ------------------------------------------------------------------------------------ Total assets 462,232 13,727 43,364 519,323 ==================================================================================== Liabilities: Derivatives instruments -- 68,960 -- 68,960 ------------------------------------------------------------------------------------ Total liabilities -- 68,960 -- 68,960 ====================================================================================
Trading and Available-for-sale securities Trading and Available-for-sale securities classified Level 1 in the fair value hierarchy contains marketable securities and bonds. Marketable securities and bonds are valued using a market approach based on the quoted market prices of identical instruments in active markets. Derivative instruments Ricoh uses foreign exchange contracts, foreign currency options and interest rate swap agreements to manage exposure to the variability of cash flow. These derivative instruments are classified as Level 2 in the fair value hierarchy, since they are valued using observable market data such as LIBOR--based yield curves. Other investments Other investments classified as Level 3 in the fair value hierarchy represent the retained interests in securitizations of finance lease receivables in which Ricoh valued using cash flows discounted by an estimated interest rate reflecting underlying risks. The following table presents a reconciliation of activity for such retained interests on a net basis.
Millions of yen Thousands of Dollars --------------- -------------------- Other investments 2009 2009 -------------------------------------------------------------------------------------------- Balance at beginning of period 5,887 59,465 Total gains or losses (realized and unrealized) Included in net income -- -- Included in other comprehensive income (loss) -- -- Sales, collections and repurchases, net (1,594) (16,101) -------------------------------------------------------------------------------------------- Balance at end of period 4,293 43,364 ============================================================================================
20. 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 Imaging & Solutions, including copiers and related supplies, communications and information systems, Industrial Products, including thermal media and semiconductors, and Other, including digital cameras and so on. F-53 The following tables present certain information regarding Ricoh's operating segments and operations by geographic areas for the years ended March 31, 2007, 2008 and 2009. During the year ended March 31, 2007, a subsidiary of the Company sold its content distribution business. As a result of such sale, sales and operating income of such business were reclassified as a discontinued operation and was excluded from the segment data for the years ended March 31, 2007. F-54 (a) OPERATING SEGMENT INFORMATION
Thousands of Millions of Yen U.S. Dollars --------------------------------------------------------- 2007 2008 2009 2009 ---------------------------------------------------------------------------------------------------- Sales: Imaging & Solutions Yen 1,774,467 Yen 1,909,573 Yen 1,833,098 $18,516,141 Industrial Products 138,112 148,883 119,671 1,208,798 Other 161,071 166,076 143,048 1,444,929 Intersegment transaction (4,725) (4,543) (4,121) (41,626) ---------------------------------------------------------------------------------------------------- Consolidated Yen 2,068,925 Yen 2,219,989 Yen 2,091,696 $21,128,242 ---------------------------------------------------------------------------------------------------- Operating expenses: Imaging & Solutions Yen 1,549,156 Yen 1,674,940 Yen 1,687,732 $17,047,798 Industrial Products 135,164 144,708 124,597 1,258,555 Other 158,868 163,529 142,690 1,441,313 Intersegment transaction (4,727) (4,545) (4,128) (41,697) Unallocated expense 56,084 59,851 66,269 669,384 ---------------------------------------------------------------------------------------------------- Consolidated Yen 1,894,545 Yen 2,038,483 Yen 2,017,160 $20,375,353 ---------------------------------------------------------------------------------------------------- Operating income: Imaging & Solutions Yen 225,311 Yen 234,633 Yen 145,366 $ 1,468,343 Industrial Products 2,948 4,175 (4,926) (49,757) Other 2,203 2,547 358 3,616 Elimination and unallocated expense (56,082) (59,849) (66,262) (669,313) ---------------------------------------------------------------------------------------------------- Consolidated Yen 174,380 Yen 181,506 Yen 74,536 $ 752,889 ---------------------------------------------------------------------------------------------------- Other income (expenses) Yen 139 Yen (6,837) Yen (43,597) $ (440,374) ---------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes, minority interests and equity in earnings of affiliates Yen 174,519 Yen 174,669 Yen 30,939 $ 312,515 ====================================================================================================
Thousands of Millions of Yen U.S. Dollars --------------------------------------------------------- 2007 2008 2009 2009 ---------------------------------------------------------------------------------------------------- Total assets: Imaging & Solutions Yen 1,570,757 Yen 1,643,500 Yen 1,870,110 $18,890,000 Industrial Products 93,346 91,635 83,411 842,535 Other 112,255 106,233 97,092 980,727 Elimination (1,327) (1,063) (612) (6,182) Corporate assets 468,375 374,063 463,494 4,681,758 ---------------------------------------------------------------------------------------------------- Consolidated Yen 2,243,406 Yen 2,214,368 Yen 2,513,495 $25,388,838 ---------------------------------------------------------------------------------------------------- Expenditure for segment assets: Imaging & Solutions Yen 72,465 Yen 74,758 Yen 87,658 $ 885,434 Industrial Products 8,580 6,503 4,581 46,273 Other 2,630 2,140 2,776 28,040 Corporate assets 2,125 1,814 1,943 19,626 ---------------------------------------------------------------------------------------------------- Consolidated Yen 85,800 Yen 85,215 Yen 96,958 $ 979,373 ====================================================================================================
F-55 Thousands of Millions of Yen U.S. Dollars ------------------------------------ ------------ 2007 2008 2009 2009 ---------------------------------------------------------------------------- Depreciation: Imaging & Solutions Yen 62,862 Yen 63,162 Yen 64,356 $650,060 Industrial Products 6,099 5,820 6,131 61,929 Other 2,072 2,128 2,442 24,667 Corporate assets 1,399 1,652 1,957 19,768 ---------------------------------------------------------------------------- Consolidated Yen 72,432 Yen 72,762 Yen 74,886 $756,424 ============================================================================ Unallocated expense represents expenses for corporate headquarters. Intersegment sales are not separated by operating segment because they are immaterial. Corporate assets consist primarily of cash and cash equivalents and marketable securities maintained for general corporate purposes. (B) GEOGRAPHIC INFORMATION Sales which are attributed to countries based on location of customers and long-lived assets by location for the years ended March 31, 2007, 2008 and 2009 are as follows:
Thousands of Millions of Yen U.S. Dollars --------------------------------------------- ------------ 2007 2008 2009 2009 --------------------------------------------------------------------------------------------- Sales: Japan Yen 1,002,251 Yen 1,016,034 Yen 938,331 $ 9,478,091 The Americas 426,453 434,799 502,862 5,079,414 Europe 507,158 603,219 523,407 5,286,939 Other 133,063 165,937 127,096 1,283,798 ============================================================================================= Consolidated Yen 2,068,925 Yen 2,219,989 Yen 2,091,696 $21,128,242 --------------------------------------------------------------------------------------------- Property, plant and equipment: Japan Yen 199,308 Yen 197,290 Yen 204,761 $ 2,068,293 The Americas 18,102 17,552 27,115 273,889 Europe 28,345 20,505 16,830 170,000 Other 18,913 19,286 20,630 208,384 --------------------------------------------------------------------------------------------- Consolidated Yen 264,668 Yen 254,633 Yen 269,336 $ 2,720,566 =============================================================================================
(C) ADDITIONAL INFORMATION The following information shows net sales and operating income recognized by geographic origin for the years ended March 31, 2007, 2008 and 2009. In addition to the disclosure requirements under SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," Ricoh discloses this information as supplemental information in light of the disclosure requirements of the Japanese Financial Instrument and Exchange Law, which a Japanese public company is subject to. F-56
Thousands of Millions of Yen U.S. Dollars --------------------------------------------- ------------ 2007 2008 2009 2009 ------------------------------------------------------------------------------------------------------- Sales: Japan External customers Yen 1,026,663 Yen 1,050,923 Yen 960,658 $ 9,703,616 Intersegment 495,304 484,590 432,538 4,369,071 ------------------------------------------------------------------------------------------------------- Total 1,521,967 1,535,513 1,393,196 14,072,687 ------------------------------------------------------------------------------------------------------- The Americas External customers 426,009 432,287 502,338 5,074,121 Intersegment 3,253 3,496 4,451 44,959 ------------------------------------------------------------------------------------------------------- Total 429,262 435,783 506,789 5,119,080 ------------------------------------------------------------------------------------------------------- Europe External customers 508,200 602,224 521,062 5,263,253 Intersegment 3,595 2,585 2,477 25,020 ------------------------------------------------------------------------------------------------------- Total 511,795 604,809 523,539 5,288,273 ------------------------------------------------------------------------------------------------------- Other External customers 108,053 134,555 107,638 1,087,253 Intersegment 160,990 183,043 158,006 1,596,020 ------------------------------------------------------------------------------------------------------- Total 269,043 317,598 265,644 2,683,273 ------------------------------------------------------------------------------------------------------- Elimination of intersegment sales (663,142) (673,714) (597,472) (6,035,071) ------------------------------------------------------------------------------------------------------- Consolidated Yen 2,068,925 Yen 2,219,989 Yen 2,091,696 $21,128,242 ------------------------------------------------------------------------------------------------------- Operating expenses: Japan Yen 1,411,653 Yen 1,427,575 Yen 1,331,638 $13,450,889 The Americas 408,150 433,429 532,734 5,381,151 Europe 478,380 565,736 504,116 5,092,081 Other 251,486 291,141 252,951 2,555,061 ------------------------------------------------------------------------------------------------------- Elimination of intersegment sales (655,124) (679,398) (604,279) (6,103,828) ------------------------------------------------------------------------------------------------------- Consolidated Yen 1,894,545 Yen 2,038,483 Yen 2,017,160 $20,375,354 ------------------------------------------------------------------------------------------------------- Operating income: Japan Yen 110,314 Yen 107,938 Yen 61,558 $ 621,798 The Americas 21,112 2,354 (25,945) (262,071) Europe 33,415 39,073 19,423 196,192 Other 17,557 26,457 12,693 128,212 ------------------------------------------------------------------------------------------------------- Elimination of intersegment profit (8,018) 5,684 6,807 68,758 ------------------------------------------------------------------------------------------------------- Consolidated Yen 174,380 Yen 181,506 Yen 74,536 $ 752,889 ------------------------------------------------------------------------------------------------------- Other expenses income (expenses) Yen 139 Yen (6,837) Yen (43,597) $ (440,374) ------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes, minority interests and equity in earnings of affiliates Yen 174,519 Yen 174,669 Yen 30,939 $ 312,515 ======================================================================================================= Total assets: Japan Yen 1,282,085 Yen 1,272,110 Yen 1,240,775 $12,533,081 The Americas 256,049 310,028 524,511 5,298,091 Europe 314,815 326,824 318,032 3,212,444 Other 101,550 102,451 91,875 928,030 Elimination (179,468) (171,108) (125,192) (1,264,566) Corporate assets 468,375 374,063 463,494 4,681,758 ------------------------------------------------------------------------------------------------------- Consolidated Yen 2,243,406 Yen 2,214,368 Yen 2,513,495 $25,388,838 =======================================================================================================
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. F-57 No single customer accounted for 10% or more of the total revenues for - the periods ended as of March 31, 2007, 2008 and 2009. 21. SUPPLEMENTARY INFORMATION TO THE STATEMENT OF INCOME The following amounts are charged to selling, general and administrative expenses for the years ended March 31, 2007, 2008 and 2009:
Thousands of Millions of Yen U.S. Dollars --------------------------------------- ------------ 2007 2008 2009 2009 --------------------------------------------------------------------------------------- Research and development costs Yen 114,985 Yen 126,033 Yen 124,406 $1,256,626 Advertising costs 14,456 16,700 13,453 135,889 Shipping and handling costs 19,280 23,970 19,914 201,152 =======================================================================================
22. SIGNIFICANT SUBSEQUENT EVENTS Subsidiary of the Company, Ricoh Leasing Company, Ltd. issued unsecured straight bonds on April 22, 2009 based on the resolution passed at its Board of Directors' meeting held on March 27, 2009 to issue corporate bonds. Unsecured Bonds No. 11 (with Limited Inter-Bond Pari Passu Clause) (i) Issue amount: Yen 35.0 billion (ii) Issue price: Full price: Yen 100 per Yen 100 bond (iii) Payment date: April 22, 2009 (iv) Redemption date: April 22, 2014 (v) Interest rate: 1.473% per annum (vi) Appropriation of proceeds: To redeem CP (commercial paper) F-58 Ricoh Company, Ltd. and Consolidated Subsidiaries SCHEDULE II. - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Three Years Ended March 31, 2009
(Millions of Yen) Additions ----------------------- Balance at Charged to Charged to Deduction Balance at beginning of costs and other from Translation end of Description period expenses accounts reserves/(2)/ /(3)/ adjustment period ------------------------------------------------------------------------------------------------------------------------------------ For the year ended March 31, 2007: Allowance for doubtful receivables(1): Trade receivables Yen 16,031 Yen 716 Yen 2,224 Yen (3,076) Yen 660 Yen 16,555 Finance receivables 16,394 324 -- (3,016) 77 13,779 Deferred tax assets valuation allowance 8,197 2,160 2,483 (1,136) 695 12,399 For the year ended March 31, 2008: Allowance for doubtful receivables(1)- Trade receivables 16,555 2,473 -- (1,734) (628) 16,666 Finance receivables 13,779 449 -- (3,542) (151) 10,535 Deferred tax assets valuation allowance 12,399 3,545 -- (4,692) (591) 10,661 For the year ended March 31, 2009: Allowance for doubtful receivables(1)- Trade receivables 16,666 7,254 604 (1,451) (1,540) 21,533 Finance receivables 10,535 3,013 638 (2,459) (201) 11,526 Deferred tax assets valuation allowance 10,661 14,041 3,368 (2,414) (1,484) 24,172
Notes: (1) See Note 2(g) to Consolidated Financial Statements. (2) Receivables - Write-offs (3) Deferred tax - Realization of tax benefits F-59