SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2003
Commission file number 2 - 68279
KABUSHIKI KAISHA RICOH
(Exact name of registrant as specified in its charter)
RICOH COMPANY, LTD.
(Translation of registrant's name into English)
Japan
(Jurisdiction of incorporation or organization)
15-5, Minami-Aoyama 1-chome, Minato-ku, Tokyo 107-8544, Japan
(Address of principal executive offices)
Securities registered or to be registered pursuant to
Section 12(b) of the Act.
Title of each class Name of each exchange on
which registered
None None
Securities registered or to be registered pursuant to
Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.
Common Stock*
(Title of Class)
*American Depositary Shares evidenced by 228,043 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, 2003: 742,608,635 shares (excluding
2,303,443 shares of Treasury Stock)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_].
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 [_] Item 18 [X].
Defined Terms, Conventions and Presentation of Financial Information
On June 26, 2003, the noon buying rate for cable transfers in New York
City as certified for customs purposes by the Federal Reserve Bank of New York
for the Japanese Yen to the U.S. dollar was Yen 119.32 = 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
2003" refers to Ricoh's fiscal year ended March 31, 2003, and other fiscal years
of Ricoh are referred to in a corresponding manner.
Cautionary Statement With Respect to Forward-Looking Statements
Statements made in this annual report with respect to Ricoh's current
plans, estimates, strategies and beliefs and other statements that are not
historical facts are forward-looking statements about the future performance of
Ricoh. Forward-looking statements include but are not limited to those using
words such as "believe," "expect," "plans," "strategy," "prospects," "forecast,"
"estimate," "project," "anticipate," "may" or "might" and words of similar
meaning in connection with a discussion of future operations or financial
performance. From time to time, oral or written forward-looking statements may
also be included in other materials released to the public. These statements are
based on management's assumptions and beliefs in light of the information
currently available to it. Ricoh cautions you that a number of important risks
and uncertainties could cause actual results to differ materially from those
discussed in the forward-looking statements, and therefore you should not place
undue reliance on them. You also should not rely on any obligation of Ricoh to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. Ricoh disclaims any such obligation.
Risks and uncertainties that might affect Ricoh include, but are not
limited to (i) general economic conditions in Ricoh's markets, particularly
levels of consumer spending; (ii) exchange rates, particularly between the
Japanese Yen and the U.S. dollar, the Euro, and other currencies in which Ricoh
makes significant sales or in which Ricoh's assets and liabilities are
denominated; (iii) Ricoh's ability to continue to design and develop products
and services, and win acceptance of its products and services which are offered
in highly competitive markets characterized by continual introduction of new
products, rapid development in new technology, and consumer preferences that are
subjective and likely to change; (iv) Ricoh's ability to successfully implement
strategies for its Office Equipment business, such as further globalization of
its operations to increase account sales to corporate clients, reinforcement of
the color printer lineup to meet growing demand for color products among its
office users, implementation of optimal printing solutions for customers'
digitally networked offices and enhancement of printing capabilities centered on
multi-functional printers ("MFPs"), and implementation of optimal localization
of manufacturing operations so that such operations are closer to its customer;
(v) Ricoh's ability to continuously devote sufficient resources to research and
development, and capital expenditures for digital and networking equipment, such
as digital plain paper copiers ("PPCs"), MFPs and laser printers; (vi) the
success of Ricoh's joint ventures and alliances with various computer
manufacturers which Ricoh is in preliminary discussions with and may engage in
alliances with in the near future; and (vii) the outcome of contingencies.
Important information regarding risks and uncertainties is also set
forth elsewhere in this annual report, including in "Risk Factors" included in
"Item 3. Key Information," "Item 4. Information on the Company," "Item 5.
Operating and Financial Review and Prospects" and "Item 11. Quantitative and
Qualitative Disclosures About Market Risk."
TABLE OF CONTENTS
PART I
Item 1. Identity of Directors, Senior Management and Advisers .............. 1
Item 2. Offer Statistics and Expected Timetable ............................ 1
Item 3. Key information .................................................... 1
Item 4. Information on the Company ......................................... 9
Item 5. Operating and Financial Review and Prospects ....................... 25
Item 6. Directors, Senior Management and Employees ......................... 57
Item 7. Major Shareholders and Related Party Transactions .................. 70
Item 8. Financial Information .............................................. 71
Item 9. The Offer and Listing .............................................. 72
Item 10. Additional Information ............................................. 74
Item 11. Quantitative and Qualitative Disclosures About Market Risk ......... 88
Item 12. Description of Securities Other Than Equity Securities ............. 90
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies .................... 90
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds ........................................................... 90
Item 15. Controls and Procedures ............................................ 90
Item 16. [RESERVED] ......................................................... 91
PART III
Item 17. Financial Statements ............................................... 91
Item 18. Financial Statements ............................................... 91
Item 19. Exhibits ........................................................... 91
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key information
A. Selected financial data.
The following selected consolidated financial data has been derived
from the audited consolidated financial statements of Ricoh prepared in
accordance with accounting principles generally accepted in the United States as
of each of the dates and for each of the periods indicated below. This
information should be read in conjunction with Ricoh's audited consolidated
balance sheets as of March 31, 2002 and 2003, the related consolidated
statements of income, shareholders' investment and cash flows for the three
years ended March 31, 2001, 2002 and 2003 and the notes thereto that appear
elsewhere in this annual report.
Millions of Japanese Yen except per share amounts and number of shares
Year ended March 31,
--------------------------------------------------------------------------------
1999 2000 2001 2002 2003
------------- ------------- ------------- ------------- ------------
INCOME STATEMENT DATA:
Net sales: Yen 1,425,999 Yen 1,447,157 Yen 1,538,262 Yen 1,672,340 Yen 1,738,358
Operating income 73,547 88,921 105,105 129,695 133,654
Net income 30,655 41,928 53,228 61,614 72,513
PER AMERICAN DEPOSITARY SHARE:
Net income (Basic) 221.65 303.05 384.25 441.35 498.95
Net income (Diluted) 204.70 280.30 355.10 412.30 484.05
BALANCE SHEET DATA:
Total Assets 1,628,017 1,543,320 1,704,791 1,832,928 1,884,922
Shareholder's investment 487,459 541,506 556,728 633,020 657,514
Common Stock 102,849 103,112 103,434 120,461 135,364
Weighted Average Number
of shares outstanding 691,591,721 691,744,901 692,616,894 698,025,167 726,659,698
Cash dividends declared
Per American Depositary Share:
Interim 27.50 27.50 30.00 30.00 35.00
($0.23) ($0.29) ($0.27) ($0.24) ($0.28)
Year-end 27.50 27.50 30.00 35.00 35.00
($0.23) ($0.26) ($0.28) ($0.29) ($0.29)
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Millions of Japanese Yen except per share amounts and number of shares
Year ended March 31,
--------------------------------------------------------------------------------
1999 2000 2001 2002 2003
------------- ------------- ------------- ------------- ------------
At year-end:
Cash and cash equivalents 157,446 152,622 107,746 170,172 189,243
Capital investments 70,469 58,356 73,329 75,676 73,956
Long-term indebtedness 344,580 307,962 217,743 332,995 345,902
Notes:
1. Each American Depositary Share represents five shares of Ricoh Common
Stock.
2. Long-term indebtedness includes convertible bonds and debentures. (See
Note 10 to the Consolidated Financial Statements.)
3. Effective from April 1, 2002, Ricoh changed its policy for definition
of cash and cash equivalents on its consolidated balance sheets and
consolidated statements of cash flow. Results for prior years have
been restated to conform to the Company's current policy. (See Note 2
to the Consolidated Financial Statements.)
In the preceding table, cash dividends declared in U.S. dollars are based
on the exchange rates at each respective payment date, using the noon buying
rates for cable transfer in Japanese Yen in New York City as certified for
customs purposes by the Federal Reserve Bank of New York.
On June 26, 2003, the noon buying rate for cable transfers in New York City
as certified for customs purposes by the Federal Reserve Bank of New York for
the Japanese Yen to the U.S. dollar was Yen 119.32 = U.S.$1.00.
The following table sets forth the exchange rates for the Japanese Yen and
the U.S. dollar based on the noon buying rate for cable transfers in Japanese
Yen in New York City as certified for customs purposes by the Federal Reserve
Bank of New York during the previous six months and prior five fiscal years:
December January February March April May
2002 2003 2003 2003 2003 2003
---------- --------- -------- -------- -------- --------
High 118.38 117.80 117.14 116.47 118.25 115.94
Low 124.99 120.18 121.30 121.42 120.55 119.50
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Year ended March 31,
-----------------------------------------
1999 2000 2001 2002 2003
------- ------ -------- ------ ------
Year-end 118.43 102.73 125.54 132.70 118.07
Average* 128.19 109.96 111.65 125.64 121.10
High 108.83 101.53 104.19 115.89 115.71
Low 147.14 124.45 125.54 134.77 133.40
*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;
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. No assurances can be made that the introduction of more advanced products
that also possess the capabilities of existing products will not adversely
affect the sales performance of each such product;
. No assurances can be made that Ricoh will be able to procure raw materials
and parts necessary for new products or technologies from its suppliers at
competitive prices;
. No assurances can be made that Ricoh will be able to successfully manage
the distribution system for its new products to eliminate the risk of loss
resulting from a failure to take advantage of market opportunities;
. No assurances can be made that Ricoh will succeed in marketing any newly
developed product or technology; and
. No assurances can be given that Ricoh will be able to respond adequately to
changes in the industry.
Ricoh's failure to respond to any risks associated with this industry,
including those described above, may reduce Ricoh's future growth and
profitability and may adversely affect Ricoh's financial results and condition.
In addition to the above general risks, Ricoh is exposed to the
following specific risks relating to the document imaging and management
industry:
Digital Technology
Among the various technologies used in the document imaging and
management industry, Ricoh believes the successful development of digital
technology is one of the most essential factors in attaining a competitive
advantage. Ricoh currently is a leader in digital technology and believes that
the importance of digital technology used in office equipment, including
copiers, printers, facsimiles and scanners, will continue to grow in the future.
While most of Ricoh's PPCs sold in Japan and the majority of PPCs sold overseas
are already digital, Ricoh believes that the digital technology used in
connection with digital copiers and other digital products will continue to
develop and that competition with respect to digital products will intensify.
There is no assurance that Ricoh will continue to be in the forefront of digital
technology despite its commitment to invest in research and development
activities in this area. Failure of Ricoh to adequately develop digital
technology may adversely affect Ricoh's financial results and condition.
Multi-Functional Equipment
Ricoh believes that the document imaging and management industry is
moving towards a multi-functional office environment where various office
equipment (including copiers, facsimiles, computers, printers and scanners)
become more interdependent on each other due to the increasing use of digital
technology and initiatives taken by many offices to eventually become a
"paperless office." As a result, certain existing office equipment may either be
consolidated into a multi-functional equipment or may be linked together
electronically to perform various office functions. Although Ricoh already
manufactures certain multi-functional equipment, as a result of this trend
towards multi
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functional equipment, some of Ricoh's products may become obsolete while other
products may require substantial product enhancements, requiring technologies
currently unavailable within Ricoh. No assurances can be made that Ricoh will be
able to successfully adjust to such changes.
RICOH MUST SUCCESSFULLY OPERATE IN HIGHLY COMPETITIVE MARKETS.
The document imaging and management industry, including the copier
industry, is intensely competitive. Ricoh expects to face increased competition
in the various markets in which it operates. Currently, Ricoh's competitors
include other large manufacturers and distributors of office equipment as well
as office superstores and consumer electronics chains. In addition, as digital
and other new technology develops and as new office equipment products using
these newly developed technologies gain increased market acceptance, Ricoh may
find itself competing with new competitors that develop such new technologies,
including computer software and hardware manufacturers and distributors.
Accordingly, it is possible that new competitors or alliances among existing and
new competitors may emerge and rapidly acquire significant market share. While
Ricoh believes it is a leading manufacturer and distributor in the document
imaging and management industry and it intends to maintain its position, no
assurances can be made that it will continue to compete effectively in the
future. Pricing pressures or loss of potential customers resulting from Ricoh's
failure to compete effectively may adversely affect Ricoh's financial results
and condition.
RICOH IS SUBJECT TO THE RISKS OF INTERNATIONAL OPERATIONS AND THE RISKS OF
OVERSEAS EXPANSION.
A substantial portion of Ricoh's manufacturing and marketing activity
is conducted outside of Japan, including in the United States, Europe, and in
developing and emerging markets such as China. There are a number of risks
inherent in doing business in such overseas markets, including the following:
. unexpected legal or regulatory changes;
. unfavorable political or economical factors;
. less developed infrastructure;
. difficulties in recruiting and retaining personnel, and managing
international operations;
. fluctuations in foreign currency exchange rates;
. lack of sufficient protection for intellectual property rights; and
. potentially adverse tax consequences.
Ricoh's inability to manage successfully the risks inherent in its
international activities could adversely affect its business, financial
condition and operating results. In addition, while Ricoh plans to continue to
expand its business worldwide and increase overseas sales, because of the risks
associated with conducting an international operation (including the risks
listed above), there can be no assurances that Ricoh's overseas expansion will
be successful or have a positive effect on Ricoh's financial results and
condition.
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ECONOMIC TRENDS IN RICOH'S MAJOR MARKETS MAY ADVERSELY AFFECT RICOH'S SALES.
Demand for Ricoh's products are affected by cyclical changes in the
economy of Ricoh's major markets, including Japan, the United States and Europe.
Economic downturns and declines in consumption in Ricoh's major markets may
adversely affect Ricoh's financial results and condition.
FOREIGN EXCHANGE FLUCTUATIONS CAN AFFECT RICOH'S RESULTS.
Local currency-denominated financial results in each of the Company's
subsidiaries around the world are translated into Japanese Yen by applying the
average market rate during each financial period and recorded on Ricoh's
consolidated profit and loss statement. Local currency-denominated assets and
liabilities and stockholder's equity 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, and stockholders' equity are subject to foreign exchange
fluctuations. In recent periods, operating results reported in Japanese Yen in
accordance with U.S. GAAP have generally been less favorable than those results
in the local currency.
In addition, operating profits and losses are highly sensitive to the
appreciation in the value of Japanese Yen because Ricoh's research and
development, production activities and headquarter functions are concentrated in
Japan so that the ratio of Japanese Yen-denominated costs is quite high.
Although Ricoh engages in hedging transactions such as forward contracts with
several financial institutions having credit ratings satisfactory to Ricoh to
minimize the negative effects of short-term fluctuations in foreign exchange
rates among major currencies such as the U.S. dollar, Euro and Japanese Yen,
mid-to-long-term volatile changes in the exchange rate levels make it difficult
for Ricoh to execute planned procurement, production, logistics, and sales
activities and may adversely affect Ricoh's financial results and condition.
RISKS ASSOCIATED WITH RICOH'S EQUIPMENT FINANCING BUSINESS MAY ADVERSELY AFFECT
RICOH'S FINANCIAL CONDITION.
Ricoh provides financing to some of its customers in connection with
its equipment sales and leases. Ricoh evaluates the creditworthiness and the
amount of credit extended to a customer prior to the financing arrangement and
during the financing term on a regular basis. Depending on such evaluations,
Ricoh makes adjustments to such extensions of credit as it deems necessary to
minimize any potential risks of concentrating credit risk or non-payment of
credit. Despite the application of these monitoring procedures, no assurances
can be made that Ricoh will be able to fully collect on such extensions of
credit due to unforeseeable defaults by its customers.
In addition, these financing arrangements that Ricoh enters into with
its customers result in long-term receivables bearing a fixed rate of interest.
However, Ricoh finances these financing arrangements primarily with short-term
borrowings subject to a variable
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interest rate. Although Ricoh engages in hedging activities, Ricoh is not able
to fully hedge this interest rate mismatch.
If Ricoh is unable to successfully manage these risks associated with
its equipment financing business, Ricoh's financial results and condition may be
adversely affected.
RICOH IS SUBJECT TO GOVERNMENT REGULATION THAT CAN LIMIT ITS ACTIVITIES OR
INCREASE ITS COST OF OPERATIONS.
Ricoh is subject to various governmental regulations and approval
procedures in the countries in which it operates. For example, Ricoh may be
required to obtain 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. If Ricoh is unable to comply with any of
these regulations or fails to obtain the requisite approvals, Ricoh's activities
in such countries may be restricted. In addition, even if Ricoh is able to
comply with these regulations, compliance can result in increased costs. In
either event, Ricoh's financial results and condition may be adversely affected.
RICOH MAY BE ADVERSELY AFFECTED BY ITS EMPLOYEE BENEFIT OBLIGATIONS.
With respect to its employee benefit obligations and plan assets, Ricoh
accrues the cost of such benefits based on applicable accounting policies and
funds such benefits in accordance with governmental regulations. Currently,
there is no immediate and significant funding requirement, however, if returns
from investment assets decrease due to unforeseeable market conditions, such as
the fluctuations in the stock or bond markets, additional funding and accruals
may be required. Such additional funding and accruals may adversely affect
Ricoh's financial position and results of operation.
RICOH IS DEPENDENT ON SECURING AND RETAINING SPECIALLY SKILLED PERSONNEL.
Ricoh believes that it can continue to remain competitive by securing
and retaining additional personnel who are highly skilled in the fields of
management and information technology. However, the number of skilled personnel
is limited and the competition for attracting and retaining such personnel is
intense, particularly in the information technology industry. Securing and
retaining skilled personnel in the information technology industry is especially
important for Ricoh to compete effectively with its competitors as expectations
and market standards for office equipment become more technologically advanced.
Ricoh cannot assure that it will be able to successfully secure and retain
additional skilled personnel.
RICOH'S OPERATIONS ARE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS.
Ricoh's operations are subject to many environmental laws and
regulations governing, among other things, air emissions, wastewater discharges,
the use and handling of hazardous substances, waste disposal, product recycling,
and soil and ground-water contamination. Ricoh faces risks of environmental
liability in our current and
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historical manufacturing activities. Costs associated with future additional
environmental compliance or remediation obligations could adversely affect
Ricoh's business, operating results, and financial condition.
RICOH'S PERFORMANCE IN THE OFFICE EQUIPMENT SEGMENT CAN BE AFFECTED BY JOINT
VENTURES OR ALLIANCES WITH OTHER ENTITIES.
In the office equipment segment, Ricoh currently is in preliminary
joint venture or alliance discussions with other entities such as computer
manufacturers to develop its network system solutions business so that it can
increase its office equipment sales. It is possible that Ricoh may engage in
these joint ventures or alliances in the near future; however, if these
discussions are not successful, Ricoh may be required to expend additional
resources for its office equipment segment to continue being profitable. In
addition, even if Ricoh is able to establish these joint ventures or alliances,
failure by Ricoh to attain each original objective of these joint ventures or
alliances may adversely affect Ricoh's performance in the office equipment
segment.
RICOH MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD SIGNIFICANTLY AFFECT
ITS FINANCIAL CONDITION.
Ricoh may be held responsible for any defects that occur with respect
to its products and services. Based on the defect, Ricoh may be liable for
significant damages, which may adversely affect its financial results and
condition. Furthermore, as Ricoh increasingly provides products and services
utilizing sophisticated and complex technologies, such defects may occur more
frequently. Such potential increase in defects, which could result in an
increase in Ricoh's liability, may adversely affect its financial results and
condition.
In addition, negative publicity concerning these defects could make it
more difficult for Ricoh to attract and maintain customers to purchase Ricoh
products and services. As a result, Ricoh's financial results and condition may
be adversely affected.
RICOH'S BUSINESS DEPENDS ON PROTECTING ITS INTELLECTUAL PROPERTY RIGHTS.
Ricoh owns or licenses a number of intellectual property rights in the
field of office equipment automation and, when Ricoh believes it is necessary or
desirable, obtains additional licenses for the use of other parties'
intellectual property rights. If Ricoh fails to protect, maintain or obtain such
rights, its performance and ability to compete may be adversely affected.
RICOH MAY SUFFER LOSS AS A RESULT OF CATASTROPHIC DISASTER, INFORMATION
TECHNOLOGY PROBLEMS OR INFECTIOUS DISEASES.
Several of Ricoh's manufacturing facilities in Japan could be subject
to a catastrophic loss caused by earthquakes as such facilities are located in
areas with above average seismic activity. If any of these facilities were to
experience a catastrophic loss, Ricoh could experience disruptions in its
operations and delays in its production and shipments. If such occurred, Ricoh
is likely to record a decrease in revenue, and require
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large expenditures to repair or replace the damaged facility, which could affect
Ricoh's financial results and condition.
As Ricoh becomes increasingly dependent on information technology,
software and hardware defects, computer viruses, as well as internal database
problems (i.e., leaks, falsifications or disappearance of information relating
to its customers, etc.) pose a greater risk to its operations. Although Ricoh
has taken various precautionary measures, such as installing firewalls and
anti-virus software to detect and eliminate computer viruses, Ricoh may not be
able to completely prevent or mitigate the effects of such problems, which may
affect Ricoh's performance.
In addition, the Ricoh Group is continually expanding its worldwide
operations to set in place a global supply chain of its products and services so
that it can satisfy its local customer needs faster, more effectively and on a
regular basis. As Ricoh expands its operations worldwide, additional risks, such
as infectious diseases and epidemics (i.e., Severe Acute Respiratory Syndrome
("SARS")), may adversely affect Ricoh's operations and financial positions.
Item 4. Information on the Company
A. History and Development of the Company
The Company was originally incorporated as a joint stock corporation
(kabushiki kaisha) on February 6, 1936 in accordance with Japanese law under the
name Riken Kankoshi Co., Ltd. as a manufacturer and distributor of sensitized
paper for use in copiers. Since its incorporation, Ricoh has expanded its
business into related businesses in the office equipment field. It now
manufactures and markets copiers, facsimile machines, MFPs, printers, optical
drives and discs, personal computers and servers, network related software and
other equipment, including semiconductors, metering instruments, educational
equipment and cameras.
Historical highlights
February 1936 Riken Kankoshi Co., Ltd. is formed in Kita-kyushu to
manufacture and market sensitized paper.
March 1938 The Company's name is changed to Riken Optical Co., Ltd., and
starts manufacturing and selling optical devices and equipment.
May 1949 The Company lists its securities on the Tokyo and Osaka Stock
Exchanges. April 1954 The Company establishes an optical device
and equipment plant in Ohmori, Ohta-ku, Tokyo (now known as the
plant).
May 1955 The Company begins manufacturing and selling desktop copiers.
April 1960 The Company starts operations at a paper plant in Numazu,
Shizuoka, which integrates everything from raw to sensitized
paper production (now known as the Numazu plant).
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March 1961 The Company establishes a sensitized paper plant in Ikeda,
Osaka (now known as the Osaka plant).
October 1961 The Company lists its securities on the First Sections of the
Tokyo and Osaka Stock Exchanges.
February 1963 The Company establishes Ricoh of America, Inc. (a subsidiary,
now known as Ricoh Corporation).
April 1963 The Company changes its corporate name to Ricoh Company, Ltd.
July 1967 The Company establishes Tohoku Ricoh Co., Ltd. (a subsidiary)
in Shibata-gun, Miyagi.
March 1971 The Company completes its manufacturing facility in Atsugi,
Kanagawa (now known as the Atsugi plant), to which it transfers
some of its office equipment production from the Ohmori plant.
November 1971 The Company establishes Ricoh Nederland B.V. (a subsidiary, now
known as Ricoh Europe B.V.).
January 1973 The Company establishes Ricoh Electronics, Inc. (a subsidiary)
in the United States.
September 1973 The Company lists its securities on the Amsterdam Stock
Exchange.
December 1976 The Company forms Ricoh Leasing Co., Ltd. (a subsidiary).
March 1977 The Company relocates its headquarters to Minato-ku, Tokyo.
July 1978 The Company lists its securities on the Frankfurt Stock
Exchange.
December 1978 The Company establishes Ricoh Business Machines, Ltd. (a
subsidiary, now known as Ricoh Hong Kong Ltd.).
March 1981 The Company constructs the Electronic Technologies Development
Center (now known as the Ikeda plant) to develop and
manufacture electronic devices.
October 1981 The Company lists its securities on the Paris Stock Exchange.
May 1982 The Company establishes a copier manufacturing facility in
Fukui (now known as the Fukui plant), which takes over some of
the sensitized paper production from the Osaka plant.
October 1983 The Company launches its information technology equipment
facility in Hatano, Kanagawa (now known as the Hatano plant).
December 1983 The Company establishes Ricoh UK Products Ltd. (a subsidiary).
October 1985 The Company builds a copier manufacturing plant in Gotenba,
Shizuoka (now known as the Gotenba plant), which takes over
some of the Atsugi plant's production.
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April 1986 The Company opens a research and development facility in
Yokohama, Kanagawa (now known as the Ricoh Research and
Development Center), to which it transfers some of its research
and development operations from the Ohmori plant.
April 1987 The Company establishes Ricoh Industrie France S.A. (a
subsidiary).
April 1989 The Company sets up an electronic devices facility in
Yashiro-cho, Kato-gun, Hyogo (now known as the Yashiro plant).
January 1991 The Company establishes Ricoh Asia Industry (Shenzhen) Ltd. (a
subsidiary) in China.
March 1995 Ricoh Corporation acquires Savin Corporation, an American
office equipment sales company.
September 1995 The Company acquires Gestetner Holdings PLC (now known as NRG
Group PLC), a British office equipment sales company.
January 1996 Ricoh Leasing Co., Ltd. lists its securities on the Second
Section of the Tokyo Stock Exchange (currently listed on the
First Section of the Tokyo Stock Exchange).
December 1996 The Company establishes Ricoh Asia Pacific Pte. Ltd. (a
subsidiary) in Singapore.
March 1997 The Company establishes Ricoh Silicon Valley, Inc. (now known
as Ricoh Innovations, Inc.) in the United States.
August 1999 Ricoh Hong Kong Ltd. acquires Inchcape NRG Ltd., a Hong
Kong-based office equipment sales company.
March 2000 Tohoku Ricoh Co., Ltd. lists its securities on the Second
Section of the Tokyo Stock Exchange.
January 2001 Ricoh Corporation acquires Lanier Worldwide, Inc., an American
office equipment sales company.
October 2002 The Company establishes Ricoh China Co., Ltd. (a subsidiary).
April 2003 Tohoku Ricoh Co., Ltd. becomes a wholly-owned subsidiary of the
Company.
Our registered office and head office are as follows:
Address Telephone number
---------------------------------------------- --------------------
Registered Head office 3-6 Naka Magome 1-chome, Ohta-ku, Tokyo +81-3-3777-8111
143-8555, Japan
Executive office 15-5, Minami Aoyama 1-chome, Minato-ku, Tokyo +81-3-3479-3111
107-8544, Japan
-11-
In accordance with an agreement signed by the respective boards of directors on
December 17, 2002, Tohoku Ricoh Co., Ltd. ("Tohoku Ricoh") became a wholly-owned
subsidiary of the Company through a share exchange as of April 1, 2003. Tohoku
Ricoh has been striving in the past several years to contribute to Ricoh Group's
strategies as one of Ricoh Group's core corporations. The Company and Tohoku
Ricoh agreed that for the sake of both companies' further growth and expansion,
the integration of both companies' development, design and production functions
would enhance competitiveness. Thus, the Company's management decided to turn
Tohoku Ricoh into a wholly-owned subsidiary. It is expected that Tohoku Ricoh
will strive to expand its own businesses, such as the digital duplicator
business. Also, Tohoku Ricoh is expected to continue playing a significant role
in strengthening and expanding the image processing business, which consists of
the Image Solutions business and the Network Input/Output Systems business, as
well as its related Network System Solutions business in its capacity as a Ricoh
Group company. With respect to the share exchange, an allocation of 0.345 shares
of the Company's stock was made per share of Tohoku Ricoh stock. However, there
was no change in the Company's capital since the Company used its treasury stock
which it purchased in accordance with the resolution of its 102nd ordinary
general shareholders meeting held on June 27, 2002, for the shares to be
allocated for the share exchange. The share exchange did not have any material
effect on Ricoh's consolidated financial results, since Tohoku Ricoh was already
a consolidated subsidiary of Ricoh.
Principal Capital Investments
Ricoh's capital expenditures for the fiscal years 2003, 2002 and 2001
were Yen 73.9 billion, Yen 75.6 billion and Yen 73.3 billion, respectively.
Ricoh directs a significant portion of its capital expenditures towards digital
and networking equipment, such as digital plain paper copiers ("PPCs"),
multi-functional printers ("MFPs") and laser printers, and manufacturing
facilities to maintain or enhance competitiveness in the industry. In fiscal
year 2003, Ricoh also invested a significant amount of capital to upgrade its
information systems for its back-office operations, such as procurement,
accounting, and the management of intellectual property. With this upgrade in
the information systems, Ricoh began installing a new accounting system and a
new intellectual property management system during the fiscal year 2003 to
better track and manage its operations. Ricoh projects that for the fiscal year
ending March 31, 2004 its capital expenditures will amount to approximately Yen
75.0 billion.
B. Business overview
Ricoh is a leading manufacturer of office automation equipment. Ricoh's
products include copiers, printers, facsimile machines, optical drives and
discs, and related supplies and services. Ricoh is also a prominent manufacturer
of digital and conventional cameras and advanced electronic devices. In recent
years, Ricoh is rapidly building a solid presence worldwide as a comprehensive
document solutions provider that helps its customers streamline their businesses
and cut operating costs.
-12-
PRODUCTS
SALES BY PRODUCT
-----------------------------------------------------------------------------------------------------------
Millions of Japanese Yen (except for percentages)
For the Year Ended March 31,
-----------------------------------------------------------------------------------------------------------
2001 2002 2003
-------------------------------------------------------------------------
OFFICE EQUIPMENT
Imaging Solutions Yen 867,033 56.4% Yen 934,180 55.8% Yen 859,713 49.5%
Network Input/Output Systems 261,838 17.0 344,247 20.6 463,379 26.7
Network System Solutions 209,503 13.6 206,962 12.4 197,482 11.3
OTHER BUSINESSES 199,888 13.0 186,951 11.2 217,784 12.5
-----------------------------------------------------------------------------------------------------------
Total Yen 1,538,262 100.0% Yen 1,672,340 100.0% Yen 1,738,358 100.0%
-----------------------------------------------------------------------------------------------------------
Note: Ricoh reclassified its product categories in the Office Equipment
segment commencing fiscal year 2002. The sales amounts in the Office
Equipment segment noted above for the fiscal year 2001 have been
restated using the new categorization.
OFFICE EQUIPMENT
This segment consists of products that are widely used in the office
environment, and is categorized as follows:
(1) Imaging Solutions
The primary function of products in this category is to produce copies
or duplications of images that are already in existence. This product category
consist of both stand-alone equipment and equipment that can be connected to a
network. Products in this category can be distinguished from products in the
Network Input/Output Systems category which can serve multiple functions (e.g.,
laser printers that also can serve as facsimile machines and scanners).
This category is further separated into two sub-categories: (i) Digital
Imaging Solutions, which consist of all digital imaging solutions products, and
(ii) Other Imaging Solutions, which consist of other imaging solutions products
that are not included in Digital Imaging Solutions. The principal products in
each of these sub-categories are as follows:
Digital Imaging Solutions: Monochrome and color digital copiers,
digital duplicators and facsimile machines.
Other Imaging Solutions: Analog plain paper copiers ("PPCs"), diazo
copiers, and thermal paper.
In fiscal year 2003, the Imaging Solutions product category accounted
for 49.5% of Ricoh's net sales. Ricoh has been a global leader in PPCs and a
pioneer in the development of digital machines. Ricoh manufactures a wide range
of PPCs and digital
-13-
copiers with a variety of copying speeds and functions such as double-sided
printing, sorting, reducing and enlarging, and zoom adjustment of copy sizes. In
the last few years, sales of PPCs have accounted for substantially all of
Ricoh's copier sales. PPCs use a drum or other medium coated with a photo
conductive material on which an image of the original document is projected
optically and developed by applying a dry powder form toner.
In recent years, Ricoh has strengthened its digital PPC product lineup
with new product offerings that range from low-end digital PPC models such as
the Aficio 1013/1015 series (Imagio MF1340/1540 in Japan) to high-end digital
PPC models such as the Aficio 1105 (Imagio MF 105 ProII in Japan). More
specifically, the Aficio 1013/1015 series is designed for customers who require
outputs of 13 and 15 copies per minute, respectively. This series has been very
well received by our customers for their price competitiveness, as well as for
their digital features, which include electronic collating and stapling as well
as sorting of the originals. On the other hand, the Aficio 1105 is designed for
customers who have high-volume copying needs. The Aficio 1105 delivers up to 105
copies per minute and employs a toner that is 70% finer than its predecessor for
an even better resolution. As such, Aficio 1105 has earned especially high marks
among companies with high-volume needs.
As the office environment becomes more computer-networked to maximize
efficiency, demand for digital black-and-white copiers and digital color copiers
has been rapidly increasing. Ricoh offers a full line of PC-connective models
that draw on our expertise in digital and color technologies to respond to
customer demand, which also continues to shift towards increased printing speed,
networking capabilities, decrease in the total costs of ownership, and
enhancements to raise office productivity. Overseas, Ricoh has rapidly forged a
solid position in digital copier sales by releasing many new models under the
Aficio brand.
Ricoh also supplies a comprehensive line of wide-format copiers and
duplicators. These machines have also sold well for their digital and networking
capabilities.
With respect to facsimile equipment, Ricoh marketed the world's first
high-speed facsimile equipment in 1973 with a transmission speed of one minute
per page. Since then, Ricoh has been manufacturing various high-speed facsimile
machines, including compact, low-priced models that feature multiple functions
(such as copying capabilities) and higher memory capacities. The market for
facsimile machines continues to mature, with demand shifting to small and home
offices seeking low-cost models. Corporate users tend to prefer multifunctional,
networkable fax machines and printers. In addition, corporate users also are
moving towards electronic forms of transmitting images using portable document
formats that were not widely used or available in the past.
(2) Network Input/Output Systems
The primary function of products in this category is to print or
produce images using a network. This category includes products such as MFPs,
laser printers and optical disks. This category is further separated into two
sub-categories: (i) Printing
-14-
Systems, which consist of all printer and related products and (ii) Other
Input/Output Systems, which consist of other products that are not included in
Printing Systems. The principal products in each of these sub-categories are as
follows:
Printing Systems: MFPs, laser printers, and related software.
Other Input/Output Systems: Optical discs and systems, and scanners.
In fiscal year 2003, the Network Input/Output Systems product category
accounted for 26.7% of Ricoh's net sales. Ricoh continues to strengthen its
capabilities in color laser printers and mid- and high-volume or high-speed
laser printers that can be connected to a network to meet its customer needs in
the office environment. In fiscal 2003, Ricoh had the highest market share in
Japan in these printer categories as it greatly broadened its product lineup in
this category, reinforced its sales structure and expanded its marketing
activities. One of the laser printer products that contributed to such
achievement was the increase in sales volume of the color laser printer AP
3800C, which is a full-color, networkable printer and one of the fastest A3
color laser printers in its class. The AP 3800C is also capable of outputting 28
full-color single- or double-sided A4 size pages per minute through the use of
our innovative tandem drum system. The AP 3800C machine is particularly useful
for preparing color conference materials and presentation materials with its
full document finishing capabilities that include sorting, stapling and hole
punching. With respect to MFPs, the sales of the Aficio 1075/1060 and the Aficio
1150 contributed to sales growth. These MFP products are designed to provide
information technology support for all types of office environment by delivering
enhanced basic features (i.e., reduction, enlargements, etc.), simpler
operation, reduced paper consumption through electronic storage, and better
connectivity with document distribution and storage systems.
In addition, Ricoh has placed significant focus on CD-related
technologies for storing multimedia data in recent years. Ricoh helped establish
the global standard for CD-RW drives and discs and is a major player in both of
these areas worldwide. For the fiscal year 2003, Ricoh enjoyed success with the
MP5125A drive, which can handle CD-ROM, CD-R, CD-RW, DVD-ROM, DVD+R and DVD+RW
media.
(3) Network System Solutions
The primary function of products in this category is to assist in
establishing a network environment. The principal products in this category
include personal computers and servers, network systems, application software,
and related services and support.
For the fiscal year 2003, this product category accounted for 11.3% of
Ricoh's net sales. Although Ricoh has enjoyed steady growth in its document
solutions software and useware (custom software developed in consultation with
customers), which allow customers to seamlessly manage electronic and
paper-based information, in recent years Ricoh sales in personal computers and
servers have decreased due to constrained
-15-
corporate spending on information technology in Japan as a result of the
continuing recession.
OTHER BUSINESSES
This segment, which accounted for 12.5% of Ricoh's net sales in fiscal
year 2003, includes electronic semiconductor devices, optical equipment, such as
digital cameras, and measuring equipment. In addition, Ricoh also includes its
financing and logistics services in this segment.
Ricoh is one of the pioneers of commercializing digital cameras, which
have tremendous potential as "image capturing devices." Because of its potential
as an input tool, Ricoh expects that sales in digital cameras will continuously
grow. In addition, Ricoh offers a wide range of electronic devices used to
process images, such as mobile and cellular phones. Ricoh also makes application
specific integrated circuits (ASICs) and application specific standard products
(ASSPs) that are often used in digital copiers, printers, personal computers and
mobile phones.
SALES AND DISTRIBUTION
Ricoh's distribution to end user customers in Japan is conducted
through three distribution channels: (i) direct sales by Ricoh to the end user
customer through approximately 50 subsidiaries and affiliates; (ii) sales
through independent office machine dealers; and (iii) sales through independent
stationery wholesalers, which in turn sell Ricoh's copiers to stationery
retailers. Ricoh estimates that over one-half of its unit sales of copiers in
Japan are through direct sales to the end user customer, with the balance being
divided between sales through independent office machine dealers and independent
stationery wholesalers. These sales channels are coordinated by Ricoh's five
regional headquarters located in Tohoku, Chubu, Kansai, Chugoku and Kyushu areas
and the Company's three regional branch offices.
Ricoh's overseas marketing activities can be distinguished from the
marketing channels in Japan and can be classified into two classes: (1) sales of
Ricoh brand name products by overseas sales subsidiaries, affiliates and
independent dealers, and (2) sales of original equipment manufacturing ("OEM")
brands products. The successful acquisition of several office equipment sales
companies in the 1990's in various locations around the world has enhanced
Ricoh's own marketing channel in the overseas market. Ricoh has organized sales
and distribution channels to accommodate four operating regions outside of
Japan: (1) the Americas; (2) Europe, Africa, and the Middle East; (3) Asia and
Oceania; and (4) China.
Almost all of Ricoh's dealers sell Ricoh's products exclusively. This
exclusive sales and distribution network was originally established in the
1950s, when Ricoh introduced diazo copiers in Japan. With the subsequent
introduction of electrostatic copiers in the 1960s and PPCs in the 1970s, the
distribution and service network was strengthened and enlarged into a worldwide
system. The full line of copying products which Ricoh offers provide incentives
for the dealers to maintain an exclusive
-16-
relationship with Ricoh. With a view to maintaining a spirit of loyalty and
cooperation, Ricoh frequently communicates with its dealers and provides
continuous education programs to its sales and service personnel to keep them
abreast of the changing technology and new products. Over the past ten years
there have been almost no terminations by dealers of their exclusive
relationship with Ricoh. As a result, Ricoh's management believes that Ricoh has
the largest distribution and service network for copiers in both Japan and
overseas.
Ricoh recognizes revenue for sales upon equipment delivery and
installation to the end user customers. A certain portion of Ricoh's sales
through dealers are made on a trade-in basis, which are accounted for by Ricoh
as discounted sales. Equipment sales revenue generated under sales-type leases
accounts for approximately 15% of Ricoh's total sales revenues. Important
information regarding the methods in which Ricoh recognizes revenue is also set
forth in Item 5.G. Critical Accounting Policies and Note 2 to the Consolidated
Financial Statements which are a part of this annual report.
AFTER-SALES SERVICE
Ricoh offers maintenance and repair services for all of its products.
Ricoh believes that periodic and timely maintenance services are important for
Ricoh to keep its market shares. As such, Ricoh provides repair and maintenance
services to its end user customers for its products. These maintenance services
are furnished to its customers pursuant to maintenance service contracts
normally entered into at the time the equipment is sold.
In Japan, employees of Ricoh basically provide the repair and
maintenance services. Ricoh's service network in Japan includes service centers
operated by Ricoh and its affiliates and service outlets operated by other
companies. Recently, Ricoh began building nationwide capabilities for the
Customer Support System to enhance customer satisfaction and service efficiency.
This system allows Ricoh to remotely monitor copiers in the field and provide
immediate service. Ricoh's total number of sales and service personnel in Japan
is approximately 23,000. Similar to Japan, Ricoh employees and contracted
maintenance providers provide repair and maintenance services to end user
customers who own Ricoh products in the overseas market. Overseas, Ricoh
provides services through its own service network and service outlets. Ricoh's
total number of sales and service personnel overseas is approximately 21,000.
Additional information regarding how Ricoh accounts for after-sales
services is set forth in Item 5.G. Critical Accounting Policies and Note 2 to
the Consolidated Financial Statements which are a part of this annual report.
PRINCIPAL MARKETS
Ricoh distributes its products and competes in the following four
geographic areas: Japan, the Americas, Europe and Other. In the aggregate,
Ricoh's sales expanded in fiscal year 2003. As noted below, for the fiscal year
2003, sales in Japan, the Americas, Europe and Other as a percentage of total
sales was 51.5%, 19.8%, 20.4% and
-17-
8.3%, respectively. The below table breaks down for each geographic area the
total sales amount and percentage of such sales amount as compared against total
net sales for the last three fiscal years.
SALES BY GEOGRAPHIC AREA
-----------------------------------------------------------------------------------------------------------
Millions of Japanese Yen (except for percentages to net sales)
For the Year Ended March 31,
-----------------------------------------------------------------------------------------------------------
2001 2002 2003
-----------------------------------------------------------------------------
JAPAN Yen 930,433 60.5% Yen 902,655 54.0% Yen 896,022 51.5%
THE AMERICAS 252,698 16.4 341,747 20.4 343,940 19.8
EUROPE 247,449 16.1 311,312 18.6 354,477 20.4
OTHER 107,682 7.0 116,626 7.0 143,919 8.3
-----------------------------------------------------------------------------------------------------------
Total Yen 1,538,262 100.0% Yen 1,672,340 100.0% Yen 1,738,358 100.0%
-----------------------------------------------------------------------------------------------------------
Note: Sales amounts set forth in the above table are based on the location of
the purchaser of the product. For example, if the product is manufactured
in Japan and sold to a purchaser located in the United States, such sale
would be recorded as a sale in the Americas geographic segment.
(1) Japan
As the outlook for the Japanese economy remains very unfavorable, many
companies have limited their information technology spending. In order to
succeed in such a severe environment, Ricoh strategically replaced its analog
stand-alone equipment with digital networkable equipment, and its monochrome
products with color products. Another strategy used by Ricoh was to help
customers manage the total document volume more effectively and offer business
solutions with more functional equipment and networking systems so as to
increase efficiency in the office. As a result of these strategies, the sale of
certain products, such as MFPs and color laser printer, increased significantly
despite the continuing economic recession.
(2) The Americas
In fiscal year 2003, Ricoh further broadened and reinforced its sales
network, especially in North America, against a background of a slowing U.S.
economy and severe competition. The Company stepped up its sales efforts for new
printing systems to match customer demand to replace analog equipment with
networked digital PPCs and color copiers and printers. The Company also strove
to expand sales to major corporate accounts. In addition, DVD drives recorded
solid sales figures in this region, as a result of increased popularity of DVDs
in North America. Further, Ricoh continues to strengthen its marketing efforts
to major corporate clients in this geographic segment by taking advantage of
Ricoh's worldwide production and distribution network, and high-quality
products.
-18-
(3) Europe
With economic conditions in Europe remaining relatively stable, sales of
digital PPCs and printing systems increased as Ricoh continued in its efforts to
introduce new products in such product lines. Ricoh also strengthened its sales
network by continuously reinforcing its office equipment product offerings so
that customers may fulfill all of their office equipment needs through Ricoh.
Further, Ricoh maximized its business opportunity by increasing sales in
networked digital PPCs and color models since these products are able to satisfy
many customer needs and bring about profit to Ricoh. All of these efforts helped
the Company maintain its top share position in the European market for copiers
and MFPs for fiscal year 2003. Ricoh intends to solidify this position with
reinforcement to the above strategies.
(4) Other
In China and other Asian markets, a full-fledged shift during fiscal year
2003 in business equipment from analog models to digital networked and color
models led to increased sales of digital PPCs and printing systems. Demand for
optical discs also continued to improve, while semiconductor sales remained
solid. Because the Chinese market is expected to continue its expansion, Ricoh
has placed significant importance on the Chinese market not only as a production
site but also as a potential market to expand its sales share in the future. In
line with this strategy, during fiscal year 2003 Ricoh established a new
regional headquarters office in Shanghai to support and reinforce its operations
in the promising Chinese market. Ricoh aims to further integrate its production,
sales, and services while focusing even more on customer needs in China to
strengthen its revenues and earnings in this geographic segment.
COMPETITION
Ricoh competes primarily in the office equipment industry which is highly
competitive. In each of the product categories in the office equipment segment,
Ricoh encounters intense competition. Ricoh expects competition in each of these
product categories to increase in the future as existing competitors enhance and
expand their product and service offerings. Increased competition may result in
price reductions, reduced profitability and loss of market share. Ricoh cannot
provide assurances that it will be able to compete successfully against existing
or future competitors. Some of our customers and companies with which we have
strategic relationships with also are, or may become in the future, competitors
of ours.
The size and number of our competitors varies across our product
categories, as do the resources allocated by our competitors to the markets we
target. Our competitors may have greater financial, personnel, and other
resources than we have in a particular market or overall. Competitors with
greater financial resources may be able to offer lower prices, additional
products or services or other incentives that we cannot match or offer. These
competitors may be in a stronger position to respond quickly to new technologies
and may be able to undertake more extensive marketing campaigns. They may also
adopt more aggressive pricing policies and make more attractive offers to
potential customers,
-19-
employees, and strategic partners. These competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties to increase their ability to gain market share.
Despite the intense competition in the office equipment industry, Ricoh's
management believes that we will be able to maintain and enhance our position in
the world market because of our experience, expertise and technical capabilities
as a leading provider of office equipment, and our dedication to meet our
customers' needs.
SEASONALITY
Especially in Japan, sales for the office equipment segment generally
increase in March of each year due to the increase demand arising at the end of
the fiscal year for most Japanese companies as many Japanese companies and
government entities try to expend their allotted capital expenditure budget for
the fiscal year. Approximately 10% of Ricoh's domestic sales in Japan are
generated during the month of March each year due to this seasonality. However,
the effect of this seasonality on a consolidated basis is minimal, as
approximately 5% of Ricoh's total consolidated sales are generated during the
month of March from domestic sales in Japan.
SOURCES OF SUPPLY
Ricoh procures raw materials, parts, and components to be used in the
production of its products on a global basis. Generally, Ricoh maintains
multiple suppliers for the most significant categories of raw materials, parts
and components. In light of the fact that Japan produces very few of the raw
materials Ricoh uses in its manufacturing process, most of the raw materials
used by Ricoh come from outside of Japan. Ricoh monitors the availability of raw
materials on a regular basis to ensure that it will not encounter any shortages.
Ricoh has not experienced any significant difficulty in obtaining raw materials,
parts and components and believes that it will be able to continue to obtain
comparable raw materials, parts and components in sufficient quantities to meet
its manufacturing needs in the future. Ricoh also believes that there is little
risk of price volatility with respect to obtaining raw materials, parts and
components that it uses in manufacturing its products.
INTELLECTUAL PROPERTY
Ricoh holds a large number of patents and trademark rights. While Ricoh
considers such intellectual property rights to be valuable assets and important
for its operations, it believes that its business is not dependent to any
material extent upon any single patent or trademark right, or any related group
of such rights it holds.
Ricoh also has many licenses and technical assistance agreements covering
a wide variety of products. Such agreements grant Ricoh the right to use certain
Japanese and foreign patents or the right to receive certain technical
information. However, Ricoh is not materially dependent on any single such
agreement.
In addition, Ricoh has granted licenses and technical assistance to
various
-20-
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.
GOVERNMENT REGULATIONS
Ricoh's business activities are subject to various governmental
regulations in the various countries in which it operates, including regulations
relating to business and investment approvals, export regulations, tariffs,
antitrust, intellectual property, consumer and business taxation, exchange
controls, and environmental and recycling requirements. Ricoh is also subject to
environmental regulations in the jurisdictions in which it operates,
particularly in those in which it has manufacturing, research, or similar
operations. Currently, Ricoh operates its business without having significant
difficulty complying with such government regulations, and it hopes to do so in
the future.
C. Organizational structure
As of March 31, 2003, the Ricoh Group is comprised of 371 subsidiaries and
24 affiliates located worldwide. Ricoh's research and development,
manufacturing, sales, and service activities center on office equipment, optical
equipment, and other devices.
The Company is the parent of the Ricoh Group. The Company heads the
research and development of Ricoh products with assistance from its
subsidiaries. The Company and its subsidiaries and affiliates maintain an
integrated domestic and international manufacturing and distribution structure.
The following is a list of the principal subsidiaries and affiliates of Ricoh:
-------------------------------------------------------------------------------------------------------------------
Company Name Country of Proportion of Main businesses
Formation ownership
interest
-------------------------------------------------------------------------------------------------------------------
(SUBSIDIARIES)
Ricoh Optical Industries Co., Ltd. Japan 100.0 Manufacturing optical equipment
-------------------------------------------------------------------------------------------------------------------
Tohoku Ricoh Co., Ltd. Japan 65.7 Manufacturing office equipment
(66.1)
-------------------------------------------------------------------------------------------------------------------
Ricoh Unitechno Co., Ltd. Japan 100.0 Manufacturing parts for office equipment
-------------------------------------------------------------------------------------------------------------------
Ricoh Elemex Corporation Japan 49.8 Manufacturing and sales of office
(50.9) 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 Tohoku Co., Ltd. Japan 100.0 Sale of office equipment
-------------------------------------------------------------------------------------------------------------------
-21-
-------------------------------------------------------------------------------------------------------------------
Company Name Country of Proportion of Main businesses
Formation ownership
interest
-------------------------------------------------------------------------------------------------------------------
Ricoh Chubu Co., Ltd. Japan 100.0 Sale of office equipment
-------------------------------------------------------------------------------------------------------------------
Ricoh Kansai Co., Ltd. Japan 100.0 Sale of office equipment
-------------------------------------------------------------------------------------------------------------------
Ricoh Chugoku Co., Ltd. Japan 100.0 Sale of office equipment
-------------------------------------------------------------------------------------------------------------------
Ricoh Kyushu Co., Ltd. Japan 100.0 Sale of office equipment
-------------------------------------------------------------------------------------------------------------------
Hokkaido Ricoh Co., Ltd. Japan 97.8 Sale of office equipment
-------------------------------------------------------------------------------------------------------------------
Tokyo Ricoh Co., Ltd. Japan 100.0 Sale of office equipment
-------------------------------------------------------------------------------------------------------------------
Ricoh Technosystems Co., Ltd. Japan 100.0 Maintenance, service and sale of office
equipment
-------------------------------------------------------------------------------------------------------------------
Ricoh Logistics System Co., Ltd. Japan 85.2 Logistics services and custom clearances
(87.6)
-------------------------------------------------------------------------------------------------------------------
Ricoh Leasing Co., Ltd. Japan 50.8 General leasing
(51.1)
-------------------------------------------------------------------------------------------------------------------
Ricoh Electronics, Inc. U.S.A. 100.0 Manufacturing office equipment and
related supplies
-------------------------------------------------------------------------------------------------------------------
Ricoh UK Products Ltd. U.K. 100.0 Manufacturing office equipment
-------------------------------------------------------------------------------------------------------------------
Ricoh Industrie France S.A. France 100.0 Manufacturing office equipment and
related supplies
-------------------------------------------------------------------------------------------------------------------
Ricoh Asia Industry (Shenzhen) Ltd. China 91.0 Manufacturing office equipment and
(100.0) related supplies
-------------------------------------------------------------------------------------------------------------------
Shanghai Ricoh Facsimile Co., Ltd. China 94.5 Manufacturing and sale of office
equipment
-------------------------------------------------------------------------------------------------------------------
Ricoh Corporation U.S.A. 100.0 Sale of office equipment
-------------------------------------------------------------------------------------------------------------------
Lanier Worldwide, Inc. U.S.A. 100.0 Sale of office equipment
-------------------------------------------------------------------------------------------------------------------
Ricoh Europe B.V. Netherlands 100.0 Sale of office equipment
-------------------------------------------------------------------------------------------------------------------
NRG Group PLC U.K. 100.0 Sale of office equipment
-------------------------------------------------------------------------------------------------------------------
Ricoh Asia Industry Ltd. Hong Kong, 90.0 Sale of office equipment
China
-------------------------------------------------------------------------------------------------------------------
Ricoh Asia Pacific Pte, Ltd. Singapore 100.0 Sale of office equipment
-------------------------------------------------------------------------------------------------------------------
Ricoh Finance Nederland B.V. Netherlands 100.0 Corporate finance
-------------------------------------------------------------------------------------------------------------------
And 343 other subsidiaries
-------------------------------------------------------------------------------------------------------------------
(AFFILIATES)
-------------------------------------------------------------------------------------------------------------------
Coca-Cola West Japan Co., Ltd. Japan 21.1 Manufacturing and sale of soft drink
(21.3)
-------------------------------------------------------------------------------------------------------------------
Sindo Ricoh Co., Ltd. Korea 20.5 Manufacturing and sale of office
equipment
-------------------------------------------------------------------------------------------------------------------
And 22 other affiliates
-------------------------------------------------------------------------------------------------------------------
Notes:
1. Proportion of ownership interest includes indirect ownership.
2. Figures in parentheses indicate portion of voting power if different
from portion of ownership interest.
-22-
3. Ricoh converted Tohoku Ricoh Co., Ltd. into a wholly-owned
subsidiary on April 1, 2003 by a share exchange.
4. Ricoh Leasing Co., Ltd. is the only subsidiary of Ricoh that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation
S-X.
D. Property, plants and equipment
Ricoh manufactures its products primarily in fifteen plants in Japan
and seven plants overseas. Ricoh owns all of the buildings and the land on which
its plants are located, with the exception of certain leases of land and floor
space of certain by its subsidiaries. None of these leased land and floor spaces
have major encumbrances on them. The following table gives certain information
as of March 31, 2003 regarding the Company's and its subsidiaries' principal
production and other facilities. With the exception of GR Advanced Materials
Ltd., the below production and other facilities have floor space exceeding
10,000 square meters.
---------------------------------------------------------------------------------------------------------------------
Name (Location) Floor space Principal activities and products
manufactured
--------------------------------------------------- ------------------ ------------------------------------------
(in thousands
of square meters)
Japan:
Ricoh Company, Ltd.
Ohmori Plant (Tokyo) 44 Parts relating to copiers
Atsugi Plant (Kanagawa) 68 Office equipment and other products
Numazu Plant (Shizuoka) 76 Paper and toner
Ikeda Plant (Osaka) 17 Electronic devices
Hatano Plant (Kanagawa) 15 Printed circuit boards and electronic
components
Fukui Plant (Fukui) 34 Papers and toner
Gotenba Plant (Shizuoka) 70 Copiers and data processing systems
Yashiro Plant (Hyogo) 31 Electronic devices
Aoyama Head Office (Tokyo) 9 Marketing of office equipment and head
office
Research & Development Center 17 Research and development ("R&D")
(Yokohama)
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 (Yokohama) 40 Marketing of office equipment and other
business, related services and R&D
-23-
---------------------------------------------------------------------------------------------------------------------
Name (Location) Floor space Principal activities and products
manufactured
--------------------------------------------------- ------------------ ------------------------------------------
(in thousands
of square meters)
Subsidiaries:
Ricoh Optical Industries Co., Ltd. (Iwate) 18 Photographic equipment
Tohoku Ricoh Co., Ltd. (Miyagi) 55 Office equipment and parts relating to
copiers
Hasama Ricoh , Inc. (Miyagi) 14 Parts relating to copiers and data
processing equipment
Ricoh Unitechno Co., Ltd. (Saitama) 18 Facsimile and copiers
Ricoh Elemex Corporation. (Aichi) 47 Office equipment and measuring
instruments
Ricoh Microelectronics Co., Ltd. (Tottori) 11 Printed circuit boards
Ricoh Keiki Co., Ltd. (Saga) 10 Parts relating to copiers and data
processing systems
Overseas:
Ricoh Electronics, Inc. 99 Copiers, parts relating to copiers,
(Irvine, Santa Ana and Tustin, California and toner and thermal paper
Lawrenceville, Georgia, U.S.A.)
Ricoh UK Products Ltd. 38 Copiers, parts relating to copiers and
(Telford, United Kingdom) toner
Ricoh Industries France S.A. (Colmar, France) 42 Copiers, facsimile equipment, parts
relating to copiers and thermal paper
Taiwan Ricoh Co., Ltd. (Changhwa, Taiwan) 10 Photographic equipment
Ricoh Asia Industry (Shenzhen) Ltd. (Shenzhen, 52 Copiers, parts relating to copiers, and
China) toner
Shanghai Ricoh Facsimile Co., Ltd. 13 Facsimile
(Shanghai, China)
-24-
---------------------------------------------------------------------------------------------------------------
Name (Location) Floor space Principal activities and products
manufactured
--------------------------------------------------- ------------------ ------------------------------------
(in thousands
of square meters)
GR Advanced Materials Ltd. 4 Supplies relating to duplicators
(Scotland, United Kingdom)
---------------------------------------------------------------------------------------------------------------
Ricoh considers its manufacturing facilities to be well maintained and
believes its plant capacity is adequate for its current needs, though successive
investment in manufacturing facilities is being made for its long-term success.
Item 5. Operating and Financial Review and Prospects
Operating results on a local currency basis described in "Operating
results" show results of net sales and operating income obtained by applying the
Japanese Yen average exchange rate for the previous fiscal year to historical
local currency-denominated sales, cost of sales, and selling, general and
administrative expenses for the fiscal 2003, assuming the value of the Japanese
Yen had remained the same.
-25-
A. Operating results
General
The following table sets forth selected consolidated financial and
operating including data expressed as a percentage of total consolidated net
sales for the periods indicated, and the change in each consolidated financial
and operating data between the indicated fiscal years:
Millions of Yen (except percentages) Thousands
in U.S. %
Year Ended March 31, dollars Change
2002 2003 2003 2003
--------------------------------------------------------------------------------------------------------------------
Net Sales Yen 1,672,340 100.0% Yen 1,738,358 100.0% $14,731,847 3.9
Cost of Sales 972,394 58.1% 993,009 57.1% 8,415,330 2.1
--------------------------------------------------------------------------------------------------------------------
Gross Profit 699,946 41.9% 745,349 42.9% 6,316,517 6.5
Selling, General and
Administrative Expenses 570,251 34.1% 611,695 35.2% 5,183,856 7.3
--------------------------------------------------------------------------------------------------------------------
Operating income 129,695 7.8% 133,654 7.7% 1,132,661 3.1
--------------------------------------------------------------------------------------------------------------------
Other (Income) Expenses:
Interest and dividend income (4,753) (3,772) (31,966)
Interest expense 8,233 6,853 58,076
Foreign currency exchange
(gain) loss, net 5,732 566 4,797
Other, net 6,533 6,537 55,398
--------------------------------------------------------------------------------------------------------------------
Total 15,745 1.0% 10,184 0.6% 86,305 (35.3)
--------------------------------------------------------------------------------------------------------------------
Income before Income Taxes, Minority
Interests and
Equity in earnings of Affiliates 113,950 6.8% 123,470 7.1% 1,046,356 8.4
--------------------------------------------------------------------------------------------------------------------
Provisions for Income Taxes: 51,147 3.1% 51,984 3.0% 440,542 1.6
--------------------------------------------------------------------------------------------------------------------
Income before Minority Interests and
Equity in Earnings of Affiliates 62,803 71,486 605,814
Minority Interests 3,080 1,376 11,661
Equity in Earnings of Affiliates 1,891 2,403 20,364
--------------------------------------------------------------------------------------------------------------------
Net Income 61,614 3.7% 72,513 4.2% 614,517 17.7
--------------------------------------------------------------------------------------------------------------------
-26-
FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002
Net sales. Consolidated net sales for the fiscal year ended March 31,
2003 increased by 3.9% (or Yen 66.0 billion) from Yen 1,672.3 billion to Yen
1,738.3 billion as compared to the fiscal year ended March 31, 2002. The U.S.
dollar depreciated in relation to the Japanese Yen for the fiscal year ended
March 31, 2003 compared to the fiscal year ended March 31, 2002, resulting in a
decrease in U.S. dollar-denominated net sales. The increase in net sales
resulting from the appreciation of the Euro was greater than the decrease in net
sales resulting from the depreciation of the U.S. dollar. Accordingly, net sales
for the fiscal year ended March 31, 2003 increased compared to the net sales for
the fiscal year ended March 31, 2002. The average Japanese Yen/Euro exchange
rates were 121.00 and 110.60 for the fiscal years ended March 31, 2003 and 2002,
respectively, and the average Japanese Yen/U.S. dollar exchange rates were
121.96 and 125.10 for the fiscal years ended March 31, 2003 and 2002,
respectively. Excluding the appreciation of the Euro and the depreciation of the
U.S. dollar, net sales would have increased by 2.7%.
An increase in net sales in the Office Equipment segment, which
resulted primarily from a boost in net sales in the Network Input/Output Systems
product category, also contributed to the increase in consolidated net sales.
More specifically, in the Network Input/Output Systems product category, Ricoh
launched new networkable MFPs and laser printers to meet customer needs during
fiscal year 2003. Sale of higher margin value-added equipment especially
contributed to the increase in net sales in this product category. This increase
in net sales principally in the Network Input/Output Systems product category
was offset by a decrease in domestic sales of products in the Imaging Solutions
product category due to Japan's prolonged recession. The decrease in sales in
the Imaging Solutions product category was primarily due to the shift in
customer needs in Japan towards products that are included in the Network
Input/Output systems category, such as MFPs and laser printers machines. All in
all, net sales in the Office Equipment segment resulting from an increase in net
sales of higher margin value-added digital-based office equipment in the Network
Input/Output Systems product category offset by the domestic decrease in net
sale in the Imaging Solutions product category, accounted for a 2.4% increase in
net sales.
In particular, Ricoh's introduction of new MFPs and laser printers,
which are higher margin value-added digital-based office equipment products, in
the Network Input/Output Systems category contributed to the increase in net
sales for the fiscal year ended March 31, 2003 when compared to the fiscal year
ended March 31, 2002. Printers with color printing capabilities in both of these
Network Input/Output Systems product lines especially contributed to the
increase in net sales, as customers demand for color printers increased. Sales
of MFPs increased by 31.1% and sales of laser printers increased by 44.7% for
the fiscal year ended March 31, 2003 as compared to the fiscal year ended March
31, 2002. Sales in the digital PPC product line in the overseas market increased
by 4.2% as customer needs for digital printing equipment increased. However,
during the fiscal year ended March 31, 2003, sales in the analog PPC product
line decreased by 23.4% as compared to the fiscal year ended March 31, 2002 as
customer needs shifted towards digital equipment. Sales also decreased in the
facsimile machine
-27-
product line by 16.4% for the fiscal year ended March 31, 2003 as compared to
the fiscal year ended March 31, 2002 as alternative methods to facsimile
transmission, such as scanning and emailing documents, became more widespread.
Cost of Sales. Consolidated cost of sales for the fiscal year ended
March 31, 2003 increased by 2.1% (or Yen 20.6 billion) from Yen 972.3 billion to
Yen 993.0 billion as compared to the fiscal year ended March 31, 2002. This
increase was due primarily to an increase in net sales and the appreciation of
the Euro to the Japanese Yen resulting in higher Japanese Yen equivalents of
Euro-denominated cost of sales. These increases were offset by various cost
cutting measures taken by Ricoh as discussed below.
As a percentage of net sales, cost of sales decreased by 1.0% to 57.1%
for the fiscal year ended March 31, 2003 from 58.1% for the fiscal year ended
March 31, 2002. Cost of sales increased by only 2.1% even though net sales
increased by 3.9% for the same periods, primarily due to various cost cutting
measures taken by Ricoh. These cost cutting measures included the following: (1)
procuring materials from suppliers at lower costs, and (2) providing employee
training programs and opportunities to its employees so that they obtain more
experience and become more productive, thereby allowing Ricoh to minimize and
eliminate production line inefficiencies. The increase in sales of higher margin
value-added digital-based products also allowed Ricoh to take advantage of
production efficiencies that result from using standardized equipment parts or
standardized production specifications, thereby attaining higher recovery of
fixed costs.
Gross Profit. Consolidated gross profit for the fiscal year ended March
31, 2003 increased by 6.5% (or Yen 45.4 billion) from Yen 699.9 billion to Yen
745.3 billion as compared to gross profit for the fiscal year ended March 31,
2002.
As a percentage of net sales, gross profit increased by 1.0% to 42.9%
for the fiscal year ended March 31, 2003 from 41.9% for the fiscal year ended
March 31, 2002. This increase in gross profit as a percentage of net sales was
primarily due to the various cost cutting measures taken by Ricoh and the
increase in net sales of the higher margin value-added digital-based products
(notably MFPs and laser printers) in both Japan and abroad, as discussed above,
while the company incurred additional costs to correct quality problems on some
of its metering equipment.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses for the fiscal year ended March 31, 2003
increased by 7.3% (or Yen 41.4 billion) from Yen 570.2 billion to Yen 611.6
billion as compared to the fiscal year ended March 31, 2002, due primarily to
the following reasons: (1) the appreciation of the Euro to the Japanese Yen that
resulted in higher Japanese Yen equivalents of Euro-denominated expenses and (2)
strategic spending on research and development and back-office information
systems development. Research and development expenses for the fiscal year ended
March 31, 2003 increased by 3.4% (or Yen 2.7 billion) from Yen 80.7 billion to
Yen 83.5 billion as compared to the fiscal year ended March 31, 2002. For
additional detail as to expenditures on research and development activities, see
Item 5.C. As a percentage of net sales, selling, general and administrative
expenses increased by 1.1% to 35.2% for the fiscal year ended March 31, 2003
from 34.1% for the fiscal year ended March 31, 2002.
-28-
Operating Income. Consolidated operating income for the fiscal year
ended March 31, 2003 increased by 3.1% (or Yen 3.9 billion) from Yen 129.6
billion to Yen 133.6 billion as compared to the fiscal year ended March 31, 2002
and as a percentage of net sales, operating income decreased by 0.1 % to 7.7%
for the fiscal year ended March 31, 2003 from 7.8% for the fiscal year ended
March 31, 2002. Despite the fact that the percentage increase in selling,
general and administrative expenses between the fiscal years ended March 31,
2002 and 2003 was greater than the percentage increase in gross profit for the
same fiscal years, Ricoh's operating income increased by 3.1% due to the fact
that total gross profit amount was higher than the amount for selling, general
and administrative expenses.
Interest and Dividend Income. Consolidated interest and dividend income
for the fiscal year ended March 31, 2003 decreased by Yen 0.9 billion from Yen
4.7 billion to Yen 3.7 billion as compared to the fiscal year ended March 31,
2002. This decrease in consolidated interest and dividend income resulted
primarily from lower interest rates and difficult economic conditions in Japan.
Interest Expense. Consolidated interest expense for the fiscal year
ended March 31, 2003 decreased by Yen 1.3 billion from Yen 8.2 billion to Yen
6.8 billion as compared to the fiscal year ended March 31, 2002. This decrease
in consolidated interest expense resulted primarily from the decrease in the
amount of Ricoh's interest-bearing debt outstanding for the fiscal year ended
March 31, 2003 as compared to the fiscal year ended March 31, 2002. Ricoh was
able to decrease outstanding interest-bearing debt for the fiscal year 2003 as
it used its cash management systems in Japan, the United States and Europe as an
alternative method of obtaining funds. As a result, Ricoh's interest-bearing
debt as of March 31, 2003 decreased by Yen 76.7 billion from Yen 561.4 billion
to Yen 484.6 billion as compared to the balance as of March 31, 2002.
Foreign Currency Exchange (Gain) Loss, net. Consolidated foreign
currency exchange loss, net included in other (income) expenses for the fiscal
year ended March 31, 2003 decreased by Yen 5.1 billion from a loss of Yen 5.7
billion to a loss of Yen 0.5 billion as compared to the fiscal year ended March
31, 2002. This decrease was primarily due to foreign exchange gains resulting
from the depreciation of the Japanese Yen relative to the Euro.
Other, Net. Consolidated other, net included in other (income) expenses
for the fiscal year ended March 31, 2003 did not change significantly from the
other, net for the fiscal year ended March 31, 2002. Consolidated other, net for
the fiscal year ended March 31, 2003 mainly consisted of valuation loss of
investment securities.
Total Other (Income) Expenses. Consolidated total other expenses, net
for the fiscal year ended March 31, 2003 decreased by 35.3% (or Yen 5.5 billion)
from Yen 15.7 billion to Yen 10.1 billion as compared to the fiscal year ended
March 31, 2002. This significant decrease in total other expenses, net was due
primarily to the significant decrease in foreign currency exchange losses and
the decrease in interest expense as discussed above. Consolidated total other
expenses, net constituted 0.6% and 0.9% of consolidated net sales for the fiscal
years ended March 31, 2003 and 2002, respectively.
-29-
Income Before Income Taxes, Minority Interests and Equity in Earnings
of Affiliates. Consolidated income before income taxes, minority interests and
equity in earnings of affiliates for the fiscal year ended March 31, 2003
increased by 8.4% (or Yen 9.5 billion) from Yen 113.9 billion to Yen 123.4
billion as compared to the fiscal year ended March 31, 2002, even though
operating income increased by only 3.1% for the same periods. This higher
percentage increase of income before income taxes, minority interests and equity
in earnings of affiliates was attributable to the 35.3% decrease in other
expenses, net during the same period.
Total Provisions for Income Taxes. Total consolidated provisions for
income taxes for the fiscal year ended March 31, 2003 increased by 1.6% (or Yen
0.8 billion) from Yen 51.1 billion to Yen 51.9 billion. This lower percentage
increase in provisions for income taxes as compared to the percentage increase
in income before income taxes, minority interests and equity in earnings of
affiliates was primarily due to a decrease in the effective tax rate.
The actual effective tax rate decreased by 2.8% to 42.1% for the fiscal
year ended March 31, 2003 from 44.9% for the previous fiscal year. This 2.8%
decrease in the effective tax rate was attributable to (1) a tax credit being
applied for increased research and development expense and (2) tax benefits
previously not recognized with respect to net operating losses of certain
consolidated subsidiaries. As a result, the effective tax rate is almost the
same as the statutory tax rate.
Minority Interests. Consolidated minority interests for the fiscal year
ended March 31, 2003 decreased by Yen 1.7 billion from Yen 3.0 billion to Yen
1.3 billion as compared to the fiscal year ended March 31, 2002. This decrease
was primarily attributable to the losses generated by Ricoh's manufacturing
affiliates in Japan to resolve quality problems in its measuring equipment.
Equity in Earnings of Affiliates. Consolidated equity in earnings of
affiliates for the fiscal year ended March 31, 2003 increased by Yen 0.5 billion
from Yen 1.8 billion to Yen 2.4 billion as compared to the fiscal year ended
March 31, 2002. This increase was primarily due to the increase in net income of
Ricoh's foreign affiliates.
Net Income. As a result of the factors indicated above, the
consolidated net income for the fiscal year ended March 31, 2003 increased by
17.7% (or Yen 10.8 billion) from Yen 61.6 billion to Yen 72.5 billion as
compared to the fiscal year ended March 31, 2002.
OPERATING SEGMENTS
Office Equipment
Sales in the Office Equipment segment for the fiscal year ended March
31, 2003 increased by 2.4% (or Yen 35.1 billion) from Yen 1,485.3 billion to Yen
1,520.5 billion as compared to the fiscal year ended March 31, 2002. This
increase was primarily due to (i) a boost in sales of Printing Systems as
printers with increased printing speed, network capabilities and color printing
capabilities were introduced and (ii) an increase in sales of
-30-
Other Input/Output Systems mainly due to the increase in sales of DVDs in the
United States and CD-R/RW shipments in other regions. This increase in sales of
Network Input/Output Systems products was partly offset by a decrease in sales
of Imaging Solutions products, as domestic sales of Digital Imaging Solutions
products decreased, and sales of Other Imaging Solutions products decreased both
in Japan and the overseas markets. These sales results are consistent with
Ricoh's effort to support the shift in customers' demand to digital networking
and color-based products from monochrome analog-based stand-alone products.
Sales in the Imaging Solutions product category for the fiscal year
ended March 31, 2003 decreased by 8.0% (or Yen 74.4 billion) from Yen 934.1
billion to Yen 859.7 billion compared to the fiscal year ended March 31, 2002.
In Digital Imaging Solutions, Ricoh strengthened its product lineup with new
digital PPC offerings, which included both low-end models and high-end models.
Despite the introduction of new digital PPC products, sales of digital PPC
products decreased domestically due to the depressed Japanese economy and the
shift towards MFPs included in the Network Input/Output Systems product
category. Sales of digital PPC products increased, however, in Europe and the
other regions. In Other Imaging Solutions, sales decreased reflecting the trend
from analog-type equipment to digital-type equipment and MFPs. The profit margin
of such analog-based office equipment has decreased over the past years in line
with the decrease in sales of this equipment as analog-based equipment are being
replaced by digital-based equipment.
In contrast to the above product lines that have been Ricoh's core
business, the MFP and laser printer product lines under the Network Input/Output
Systems product category have seen an increase in its sales volume in both Japan
and the overseas markets in recent years. During the fiscal year ended March 31,
2003, Ricoh focused on the sale of color products in these product lines
resulting in the replacement of monochrome products in many of our customers'
offices. This sales strategy led to increased sales in this product category.
For the fiscal year ended March 31, 2003, Ricoh also strengthened its
sales of various Network System Solutions products relating to its office
equipment products to assist its customers in optimizing their total printing
costs. Such network system solutions included useware (custom software developed
in consultation with customers), document management applications and related
software. Sales in these Network System Solutions products increased both in
Japan and the overseas market. In contrast, sales of personal computers and
servers, which also fall within the Network System Solutions product category,
continued to decline in Japan for the fiscal year ended March 31, 2003 as
compared to the fiscal year ended March 31, 2002, due to sluggish information
technology spending in Japan. As a result, sales within the Network System
Solutions product category decreased for the fiscal year ended March 31, 2003 as
compared to the fiscal year ended March 31, 2002.
Overall, the increase in sales in the Network Input/Output Systems
product category exceeded the decrease in sales in the Imaging Solutions product
category and the Network System Solutions product category.
-31-
The average Japanese Yen/U.S. dollar exchange rates were 121.96 and
125.10 for the fiscal years ended March 31, 2003 and 2002, respectively, and the
average Japanese Yen/Euro exchange rates were 121.00 and 110.60 for the fiscal
years ended March 31, 2003 and 2002, respectively. Excluding the exchange rate
fluctuations of the U.S. dollar and the Euro, sales in the Office Equipment
segment would have increased by 1.1% (or Yen 16.0 billion) for the fiscal year
ended March 31, 2003 as compared to the fiscal year ended March 31, 2002.
With respect to operating expenses, Ricoh was able to lower operating
expenses for the fiscal year ended March 31, 2003 as production of various
digital-based office equipment was shifted to factories located in China where
production costs are lower than other locations. Ricoh's productivity for its
production lines in China also increased due to the application of continuous
cost cutting efforts. On the other hand, Ricoh increased strategic expenditures
in research and development activities and back-office information systems
development. As a result, operating expenses in the Office Equipment segment for
the fiscal year ended March 31, 2003 increased by 2.0% (or Yen 25.6 billion)
from Yen 1,304.0 billion to Yen 1,329.7 billion as compared to the fiscal year
ended March 31, 2002.
As a result of the above factors, operating income within the Office
Equipment segment for the fiscal year ended March 31, 2003 increased by 5.2% (or
Yen 9.4 billion) from Yen 181.3 billion to Yen 190.7 billion as compared to the
fiscal year ended March 31, 2002. The operating margin for the fiscal year ended
March 31, 2003 rose by 0.3% to 12.5% from 12.2% as compared to the fiscal year
ended March 31, 2002, due primarily to the depreciation of the Japanese Yen to
the Euro, which favorably affected profitability.
Other Business
Sales within the Other Business segment for the fiscal year ended March
31, 2003 increased by 15.6% (or Yen 29.7 billion) from Yen 190.8 billion to Yen
220.5 billion as compared to the fiscal year ended March 31, 2002. As a
percentage of total sales, sales to unaffiliated customers within the Other
Business segment increased by 1.3% from 11.2% for the fiscal year ended March
31, 2002 to 12.5% for the fiscal year ended March 31, 2003. This increase in
sales was due primarily to the recovery in demand for semiconductors in the
domestic market and a buoyant increase in demand in the overseas markets. The
steady performance of the leasing business also contributed to the increase in
sales in this segment. At the same time, however, Ricoh incurred additional
expense to resolve quality problems in its metering equipment, which shortened
the life of such equipment.
As a result, operating income within the Other Business segment for the
fiscal year ended March 31, 2003 decreased by Yen 5.6 billion from Yen 3.3
billion to Yen 2.2 billion net loss as compared to the fiscal year ended March
31, 2002.
-32-
GEOGRAPHIC SEGMENTS
Japan
Sales in Japan for the fiscal year ended March 31, 2003 increased by
2.1% (or Yen 26.2 billion) from Yen 1,248.6 billion to Yen 1,274.9 billion as
compared to the fiscal year ended March 31, 2002. Sales to external customers in
this geographic segment increased by 1.6% (or Yen 15.3 billion) between the
fiscal year ended March 31, 2003 and 2002, due primarily to the depreciation of
the Japanese Yen to the Euro and higher exports of products manufactured in
Japan. Despite the continuing recession in Japan, Ricoh recorded an increase in
sales of its Printing Systems such as MFPs and laser printers, which reflects
the shift in customer demand from stand-alone monochrome products to networkable
color products and extended marketing efforts of such products undertaken by
Ricoh. In addition, sales in the Network System Solutions business such as
useware, document management applications and software also increased. On the
other hand, sales declined for analog PPCs, facsimile machines, and personal
computers and servers, as a result of restrained spending on information
technology equipment. In the Other Business segment, the demand for
semiconductors in Japan increased due to the recovery in demand in the
businesses that use Ricoh's semiconductors, while the demand for metering
equipment decreased due primarily to a low demand cycle of such equipment. In
addition to the increase in sales to external customers in Japan, intersegment
sales increased by 3.5% (or Yen 10.8 billion) for the fiscal year ended March
31, 2003 as compared to the fiscal year ended March 31, 2002 in Japan.
Intersegment sales of office equipment rose amid strong exports and the
appreciation of the Euro relative to the Japanese Yen. Export of high-speed
PPCs, MFPs and laser printers, which are mostly manufactured in Japan,
increased, as demand for such equipment increased in foreign countries.
Operating expenses in this geographic segment for the fiscal year ended
March 31, 2003 increased by 4.0% (or Yen 46.2 billion) from Yen 1,142.5 billion
to Yen 1,188.7 billion as compared to the fiscal year ended March 31, 2002. This
increase in operating expenses was primarily due to an increase in sales volume.
In addition, Ricoh incurred additional expenses to correct the quality problems
that arose with respect to its metering equipment and to comply with changes in
the laws and regulations of Japan affecting social insurance premiums. Although
Ricoh took various cost cutting measures to lower its expenses, such cost
cutting measures did not offset the additional expense incurred by Ricoh in this
geographic segment. The cost cutting measures taken by Ricoh included the
following: (1) reduction of expenses incurred in connection with the procurement
of materials from its suppliers, and (2) minimizing and eliminating
inefficiencies in its production lines as employees became more productive
through enhanced training and as they gained more experience.
As a result of the increase in operating expenses in excess of the
increase in sales described above, operating income in Japan for the fiscal year
ended March 31, 2003 decreased by 18.9% (or Yen 20.0 billion) from Yen 106.1
billion to Yen 86.1 billion as compared to the fiscal year ended March 31, 2002.
As a percentage of sales, operating income in
-33-
Japan declined for the fiscal year ended March 31, 2003 by 1.7% as compared to
the fiscal year ended March 31, 2002.
The Americas
Sales in the Americas for the fiscal year ended March 31, 2002
decreased by 2.1% (or Yen 7.3 billion) from Yen 346.9 billion to Yen 339.5
billion as compared to the fiscal year ended March 31, 2002, primarily due to
the appreciation of the Japanese Yen to the U.S. dollar. Despite the economic
slowdown in the United States and severe competition in the Americas, Ricoh
expanded its existing sales channels to major corporate clients through Lanier
Worldwide, Inc. ("Lanier"), especially in North America, for the fiscal year
ended March 31, 2003. Through such expanded marketing channels, Ricoh increased
sales of its new printing systems to match customer demand that shifted from
analog-based products to networked digital PPC and color models. As a result of
such stepped up sales efforts, sales of digital PPCs and MFPs increased in this
geographic segment for the fiscal year ended March 31, 2003.
Though sales in the Americas decreased, as mentioned above, operating
expenses in this geographic segment for the fiscal year ended March 31, 2003
decreased by a greater percentage as compared to the percentage decrease in
sales, due to the fact that a greater portion of the higher margin value-added
digital based office equipment was sold to wholesalers. This sales strategy was
used by Lanier to increase the sale of digital-based office equipment. The
greater percentage decrease in operating expenses was also due to the
appreciation of the Japanese Yen relative to the U.S. dollar.
As a result, operating income in the Americas for the fiscal year ended
March 31, 2003 increased by 25.3% (or Yen 2.8 billion) from Yen 11.4 billion to
Yen 14.3 billion as compared to the fiscal year ended March 31, 2002.
Europe
Sales in Europe for the fiscal year ended March 31, 2003 increased by
13.6% (or Yen 42.6 billion) from Yen 313.3 billion to Yen 355.9 billion as
compared to the fiscal year ended March 31, 2002, due primarily to the
depreciation of the Japanese Yen to the Euro and an increase in sales of higher
margin value-added digital-based office equipment, such as digital PPC and MFPs,
as customer demand for such products increased in Europe. Continuing the trend
from previous fiscal years, Ricoh was ranked number one in terms of market share
in sales of digital PPCs and MFPs in Europe.
Despite the increase in sales in this geographic segment, as noted
above, operating expenses in this geographic segment for the fiscal year ended
March 31, 2002 increased by a lower percentage amount as compared to the
percentage increase in sales, as Ricoh was able to relocate its production
facilities for higher margin value-added digital based office equipment closer
to its customers, thereby eliminating costs associated with transporting such
finished products.
-34-
As a result, operating income in this segment for the fiscal year ended
March 31, 2003 increased by 49.8% (or Yen 6.0 billion) from Yen 12.1 billion to
Yen 18.2 billion as compared to the fiscal year ended March 31, 2002.
Other
Sales in the Other geographic segment, which includes countries such as
China, for the fiscal year ended March 31, 2003 increased by 15.6% (or Yen 22.8
billion) from Yen 146.9 billion to Yen 169.8 billion as compared to the fiscal
year ended March 31, 2002, due primarily to a full-fledged shift to digital,
networkable and color products from stand-alone, analog and monochrome equipment
in this geographic segment. Demand for optical discs also continued to improve
in response to the strong demand in such products, while semiconductor sales
remained solid.
Ricoh Asia Industry, Ltd., a manufacturing subsidiary in China which
mainly manufactures low-end digital PPCs and MFPs, continues to contribute to
increased sales in this geographic segment. This subsidiary also provides Ricoh
with access to lower labor costs in China. The products manufactured by this
subsidiary have been exported to marketing operations in Japan, the U.S. and
Europe, and its sales volume has increased annually. Ricoh also established a
regional headquarters in China during the fiscal year ended March 31, 2003 to
focus on integrating manufacturing, sales and services, and to support strategic
growth in the promising Chinese market.
As a result, operating income in the Other geographic segment for the
fiscal year ended March 31, 2003 increased by 41.0% (or Yen 2.8 billion) from
Yen 7.0 billion to Yen 9.9 billion as compared to the fiscal year ended March
31, 2002.
FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001
Net sales. Consolidated net sales for the fiscal year ended March 31,
2002 increased by 8.7% (or Yen 134.0 billion) from Yen 1,538.2 billion to Yen
1,672.3 billion as compared to the fiscal year ended March 31, 2001.
Approximately half of this increase in net sales was due to the appreciation of
the U.S. dollar and the Euro to the Japanese Yen that resulted in higher
Japanese Yen equivalents of U.S. dollar and Euro-denominated net sales (which
accounted for a 4.7% increase in net sales). The average Yen/U.S. dollar
exchange rates were 125.10 and 110.60 for the fiscal years ended March 31, 2002
and 2001, respectively, and the average Yen/Euro exchange rates were 110.60 and
100.41 for the fiscal years ended March 31, 2002 and 2001, respectively.
Excluding the appreciation of the U.S. dollar and Euro, net sales would have
increased by 4.0%.
Ricoh's acquisition of Lanier in January 2001 also contributed to the
increase in net sales between the fiscal years ended March 31, 2002 and 2001,
accounting for a 4.2% increase in net sales. This increase in net sales from the
acquisition of Lanier was due to the fact that Lanier's operating results were
reflected in Ricoh's operating results for the entire fiscal year ended March
31, 2002 compared to only two months for the previous fiscal year and the fact
that Ricoh realized Lanier's full profit margins previously
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generated by Lanier through its OEM (original equipment manufacturing)
arrangement with Ricoh prior to the acquisition.
In addition, a boost in net sales in the Office Equipment segment
resulting from the launch and sale of higher margin value-added digital-based
office equipment also contributed to the increase in net sales. However, this
increase in net sales was offset by a decrease in domestic net sales reflecting
retail weakness as a result of Japan's prolonged recession, and by a decrease of
sales in the Other Business segment, which includes items such as semiconductors
and metering equipment. The decrease in sales in the Other Business segment was
primarily due to the stagnant demand in Japan for metering equipment and
decreased demand for semiconductors (particularly large-scale integrated
circuits used in mobile communications equipment). All in all, the increase in
net sales resulting from an increase in net sales of higher margin value-added
digital-based office equipment, which was offset by the decrease in domestic
sales, accounted for a 0.2% decrease in net sales after such offset.
More specifically, Ricoh's introduction of higher margin value-added
digital-based office equipment in the following product lines contributed to the
increase in net sales for the fiscal year ended March 31, 2002 when compared to
the fiscal year ended March 31, 2001: digital PPCs, MFPs and laser printers.
Sales of digital PPCs increased by 12.6%, sales of MFPs increased by 27.8% and
sales of laser printers increased by 40.6% for the fiscal year ended March 31,
2002 as compared to the fiscal year ended March 31, 2001. Conversely, sales in
analog PPCs decreased by 12.5% while sales in facsimile machines decreased by
6.0% for the fiscal year ended March 31, 2002 as compared to the fiscal year
ended March 31, 2001.
Cost of Sales. Consolidated cost of sales for the fiscal year ended
March 31, 2002 increased by 5.1% (or Yen 47.5 billion) from Yen 924.8 billion to
Yen 972.3 billion as compared to the fiscal year ended March 31, 2001, due
primarily to an increase in net sales (which accounted for a 4.0% increase in
cost of sales) and the appreciation of the U.S. dollar and the Euro in relation
to the Japanese Yen that resulted in higher Japanese Yen equivalents of U.S.
dollar and Euro-denominated net sales (which accounted for a 3.6% increase in
cost of sales), which was offset by various cost cutting measures taken by Ricoh
as discussed below.
As a percentage of net sales, cost of sales decreased by 2.0% to 58.1%
for the fiscal year ended March 31, 2002 from 60.1% for the fiscal year ended
March 31, 2001. Cost of sales increased by only 5.1% even though net sales
increased by 8.7% for the periods, primarily due to various cost cutting
measures taken by Ricoh. These cost cutting measures included the following: (1)
reduction of expenses incurred in connection with the procurement of materials
from its suppliers, and (2) minimizing and eliminating inefficiencies in its
production lines as employees became more productive through enhanced training
and after gaining more experience. The increase in sales of higher margin
value-added digital-based products also allowed Ricoh to take advantage of
production efficiencies that result from using standardized equipment parts or
standardized production specifications, thereby attaining higher recovery of
fixed costs.
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Gross Profit. Consolidated gross profit for the fiscal year ended March
31, 2002 increased by 14.1% (or Yen 86.5 billion) from Yen 613.3 billion to Yen
699.9 billion as compared to gross profit for the fiscal year ended March 31,
2001, while net sales for the fiscal year ended March 31, 2002 increased by only
8.7% as compared to net sales for the fiscal year ended March 31, 2001. Among
the 14.1% increase, 6.5% of the increase in gross profit resulted from the
acquisition of Lanier, and 6.5% of the increase in gross profit resulted from
the appreciation of the U.S. dollar and the Euro relative to the Japanese Yen.
The greater percentage increase in gross profit relative to the
percentage increase in net sales was due primarily to the fact that the 5.1%
increase in cost of sales was lower than the 8.7% increase in net sales. As a
percentage of net sales, gross profit increased by 2.0% to 41.9% for the fiscal
year ended March 31, 2002 from 39.9% for the fiscal year ended March 31, 2001.
This increase in gross profit as a percentage of net sales was primarily due to
the decrease in the cost of sales of 2.0% for the fiscal year ended March 31,
2002 as compared to the fiscal year ended March 31, 2001, as discussed above.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses for the fiscal year ended March 31, 2002
increased by 12.2% (or Yen 61.9 billion) from Yen 508.2 billion to Yen 570.2
billion as compared to the fiscal year ended March 31, 2001, due primarily to
the following reasons: (1) the appreciation of the U.S. dollar and the Euro as
compared to the Japanese Yen that resulted in higher Japanese Yen equivalents of
U.S. dollar- and Euro-denominated expenses (which accounted for a 4.5% increase
in selling, general and administrative expenses) and (2) consolidation of
Lanier's operations (which accounted for a 7.8% increase in selling, general and
administrative expenses). As a percentage of net sales, selling, general and
administrative expenses increased by 1.1% to 34.1% for the fiscal year ended
March 31, 2002 from 33.0% for the fiscal year ended March 31, 2001.
Operating Income. Consolidated operating income for the fiscal year
ended March 31, 2002 increased by 23.4% (or Yen 24.5 billion) from Yen 105.1
billion to Yen 129.6 billion as compared to the fiscal year ended March 31,
2001. As a percentage of net sales, operating income increased by 1.0 % to 7.8%
for the fiscal year ended March 31, 2002 from 6.8% for the fiscal year ended
March 31, 2001. This 23.4% percentage increase in operating income was primarily
due to the increase in gross profit and the fact that the percentage increase of
the selling, general and administrative expenses was lower than the percentage
increase of gross profit.
Interest and Dividend Income. Consolidated interest and dividend income
for the fiscal year ended March 31, 2002 decreased by Yen 3.2 billion from Yen
8.0 billion to Yen 4.7 billion as compared to the fiscal year ended March 31,
2001. This decrease in consolidated interest and dividend income resulted
primarily from (1) the sluggish financial market conditions in Japan and (2) the
decrease in interest income resulting from lower cash reserves being available
for short-term investment following the acquisition of Lanier.
Interest Expense. Consolidated interest expense for the fiscal year
ended March 31, 2002 increased by Yen 0.4 billion from Yen 7.7 billion to Yen
8.2 billion as compared to the
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fiscal year ended March 31, 2001. This increase in consolidated interest expense
resulted primarily from the increase in the amount of Ricoh's long-term debt
outstanding for the fiscal year ended March 31, 2002 as compared to the fiscal
year ended March 31, 2001.
Foreign Currency Exchange (Gain) Loss, net. Consolidated foreign
currency exchange loss, net included in other (income) expenses for the fiscal
year ended March 31, 2002 increased by Yen 9.2 billion from a gain of Yen 3.4
billion to a loss of Yen 5.7 billion as compared to the fiscal year ended March
31, 2001. This increase was primarily due to foreign exchange losses resulting
from the depreciation of the Japanese Yen relative to the U.S. dollar and the
Euro.
Other, Net. Consolidated other, net included in other (income) expenses
for the fiscal year ended March 31, 2002 decreased by Yen 4.5 billion from Yen
11.0 billion to Yen 6.5 billion as compared to the fiscal year ended March 31,
2001. Consolidated other, net consisted primarily of unrealized loss of
investment securities and loss on sales and disposition of fixed assets. This
decrease in other, net was primarily due to the fact that Ricoh had no
significant amounts of non-marketable securities which were required to be
written down as had occurred in 2001.
Total Other (Income) Expenses. Consolidated total other expenses, net
for the fiscal year ended March 31, 2002 increased by 114.5% (or Yen 8.4
billion) from Yen 7.3 billion to Yen 15.7 billion as compared to the fiscal year
ended March 31, 2001. This significant increase in total other expenses, net was
due primarily to the significant increase in foreign currency exchange losses
and the decrease in interest income as discussed above. Consolidated total other
expenses, net constituted 0.4% and 1.0% of consolidated net sales for the fiscal
years ended March 31, 2001 and 2002, respectively.
Income Before Income Taxes, Minority Interests and Equity in Earnings
of Affiliates. Consolidated income before income taxes, minority interests and
equity in earnings of affiliates for the fiscal year ended March 31, 2002
increased by 16.6% (or Yen 16.1 billion) from Yen 97.7 billion to Yen 113.9
billion as compared to the fiscal year ended March 31, 2001, even though
operating income increased by 23.4% for the same periods. This lower percentage
increase of income before income taxes, minority interests and equity in
earnings of affiliates was attributable to the 114.5% increase in other
expenses, net during the same period.
Total Provisions for Income Taxes. Total consolidated provisions for
income taxes for the fiscal year ended March 31, 2002 increased by 17.5% (or Yen
7.6 billion) from Yen 43.5 billion to Yen 51.1 billion, in line with the 16.6%
increase in income before income taxes minority interest and equity in earnings
of affiliates.
The actual effective tax rate increased by 0.4% to 44.9% for the fiscal
year ended March 31, 2002 from 44.5% for the previous fiscal year. This 0.4%
increase in the effective tax rate was attributable to the non-deductibility of
certain expenses, such as entertainment and directors' bonus expenses and tax
benefits, not recognized with respect to net operating losses of certain
consolidated subsidiaries.
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Minority Interests. Consolidated minority interests for the fiscal year
ended March 31, 2002 decreased by Yen 0.0 billion from Yen 3.1 billion to Yen
3.0 billion as compared to the fiscal year ended March 31, 2001. This decrease
was primarily attributable to the decrease in net income of Ricoh's
manufacturing affiliates in Japan.
Equity in Earnings of Affiliates. Consolidated equity in earnings of
affiliates for the fiscal year ended March 31, 2002 decreased by Yen 0.2 billion
from Yen 2.0 billion to Yen 1.8 billion as compared to the fiscal year ended
March 31, 2001. This decrease was primarily due to the decrease in net income of
Ricoh's Japanese affiliates, similar to the decrease in minority interests for
the same period.
Net Income. As a result of the factors indicated above, the
consolidated net income for the fiscal year ended March 31, 2002 increased by
15.8% (or Yen 8.3 billion) from Yen 53.2 billion to Yen 61.6 billion as compared
to the fiscal year ended March 31, 2001.
OPERATING SEGMENTS
Office Equipment
Sales in the Office Equipment segment for the fiscal year ended March
31, 2002 increased by 11.0% (or Yen 147.0 billion) from Yen 1,338.3 billion to
Yen 1,485.3 billion as compared to the fiscal year ended March 31, 2001. As a
percentage of total sales, sales in the Office Equipment segment increased by
1.8% from 87.0% for the fiscal year ended March 31, 2001 to 88.8% for the fiscal
year ended March 31, 2002. This percentage increase was due primarily to (i) a
boost in sales of office equipment resulting from the launch of new higher
margin value-added digital-based office equipment products (such as digital
PPCs, MFPs and laser printers), (ii) the full consolidation of Lanier, which
Ricoh acquired in January 2001, and (iii) the appreciation of the U.S. dollar
and the Euro as compared to the Japanese Yen which resulted in higher Japanese
Yen equivalents of U.S. dollar- and Euro-denominated net sales.
In the Imaging Solutions category, sales in digital PPCs grew steadily,
particularly in the overseas markets, reflecting the launch of high-speed
digital or higher margin value-added copiers. The profit margin of analog office
equipment such as analog PPCs, facsimile machines and other stand-alone type
analog equipment has decreased over the past years in line with the decrease in
sales of this equipment as they are replaced by digital-based equipment or have
become obsolete as the method of scanning and emailing documents has become
widespread practice. Overall, the increase in sales in the digital PPC product
line, which launched new products during the fiscal year ended March 31, 2002,
exceeded the decrease in sales in the analog office equipment line. As a result
of the above, sales in the Imaging Solutions category for the fiscal year ended
March 31, 2002 increased by 7.7% (or Yen 67.1 billion) from Yen 867.0 billion to
Yen 934.1 billion as compared to the fiscal year ended March 31, 2001.
In addition to the above products which have been Ricoh's core
products, laser printers and MFPs which are a part of the Network Input/Output
Systems category also increased their sales volume in both Japan and in the
overseas markets. During the fiscal
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year ended March 31, 2002, Ricoh focused its laser printer product line on the
office environment, where high quality and mid- and high-volume color and black
and white printout capabilities were in demand. In addition, Ricoh launched
higher margin value-added office equipment such as MFPs that handle everything
from document input and output to document sharing and administration. The sales
of optical discs, which are also included in the Network Input/Output Systems
category, were up only slightly owing to a switch to new standards in optical
disc related products. Overall, sales in the Network Input/Output Systems
increased the most in the Office Equipment segment, mainly due to the increase
in sales of laser printers and MFPs, which launched new products during the
fiscal year ended March 31, 2002. As a result, sales in the Network Input/Output
Systems category for the fiscal year ended March 31, 2002 increased by 31.5% (or
Yen 82.4 billion) from Yen 261.8 billion to Yen 344.2 billion as compared to
the fiscal year ended March 31, 2001.
In the Network System Solutions category, Ricoh placed greater focus on
useware (custom software developed in consultation with customers), document
management, and other solutions businesses. Ricoh placed greater focus on these
products in response to the shift in customer demand towards networked hardware,
software, and services from stand-alone products. Nonetheless, sales of network
equipment in this category declined due to decreased sales of personal computers
and servers owing to constrained corporate spending on information technology in
Japan. As a result, sales in the Network System Solutions category for the
fiscal year ended March 31, 2002 decreased by 1.2% (or Yen 2.5 billion) from
Yen 209.5 billion to Yen 206.9 billion as compared to the fiscal year ended
March 31, 2001.
Ricoh's acquisition of Lanier also contributed to the increase in net
sales in the Office Equipment segment as Lanier successfully implemented sales
strategy that focused on expanding sales of digital-based office equipment and
increased sales to major corporate clients. More specifically, the increase in
net sales from the acquisition of Lanier was due to two factors: (1) the fact
that Lanier's operating results were reflected in Ricoh's operating results for
the entire fiscal year ended March 31, 2002 compared to only two months for the
previous fiscal year, and (2) the fact that Ricoh fully realized Lanier's profit
margins previously generated by Lanier through its OEM (original equipment
manufacturing) arrangement with Ricoh prior to the acquisition. As a result, the
increase in net sales due to the consolidation of Lanier between the fiscal
years ended March 31, 2002 and 2001, accounted for a 4.8% (or Yen 64.4 billion)
increase in net sales in the Office Equipment segment (which increased by 11.1%
for the fiscal year ended March 31, 2002 as compared to the previous fiscal year
as noted above) and a 8.1% (or Yen 11.5 billion) increase in operating income in
the Office Equipment segment (which increased by 27.2% for the fiscal year ended
March 31, 2002 as compared to the previous fiscal year). In addition, the
increase in sales by Lanier, especially in new higher margin value-added
digital-based office equipment products (such as digital PPCs and MFPs), which
replaced other manufacturer's equipment, indirectly contributed to Ricoh's
consolidated operating results as it increased its production volume in respect
of office equipment and led to greater cost efficiencies being achieved in
Ricoh's factories located in Japan and overseas.
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The average Japanese Yen/U.S. dollar exchange rates were 125.10 and
110.60 for the fiscal years ended March 31, 2002 and 2001, respectively, and the
average Japanese Yen/Euro exchange rates were 110.60 and 100.41 for the fiscal
years ended March 31, 2002 and 2001, respectively. Excluding the appreciation of
the U.S. dollar and the Euro, sales in the Office Equipment segment would have
increased by 5.7% (or Yen 76.4 billion) for the fiscal year ended March 31,
2002 as compared to the fiscal year ended March 31, 2001.
In terms of operating expenses, Ricoh was able to lower operating
expenses since Ricoh's factories in China manufactured various digital-based
office equipment at a low cost. Ricoh's productivity in the production lines in
China also increased by continuous cost cutting efforts. The production volume
in China increased in line with the increase in sales volume of low-end
digital-based office products in the digital PPC and MFP product lines.
As a result of the above, operating income in the Office Equipment
segment for the fiscal year ended March 31, 2002 increased by 27.2% (or
Yen 38.7 billion) from Yen 142.5 billion to Yen 181.3 billion as compared to
the fiscal year ended March 31, 2001.
Other Business
Sales in the Other Business segment for the fiscal year ended March 31,
2002 decreased by 7.0% (or Yen 14.2 billion) from Yen 205.0 billion to
Yen 190.8 billion as compared to the fiscal year ended March 31, 2001. As a
percentage of total sales, sales in the Other Business segment decreased by 1.9%
from 13.3% for the fiscal year ended March 31, 2001 to 11.4% for the fiscal year
ended March 31, 2002. This decrease in sales was due primarily to the continuing
stagnant demand for metering equipment and decrease in demand for semiconductors
(particularly for large-scale integrated circuits used in mobile communications
equipment), which had increased the previous fiscal year.
As a result, operating income in the Other Business segment for the
fiscal year ended March 31, 2002 decreased by 74.3% (or Yen 9.7 billion) from
Yen 13.1 billion to Yen 3.3 billion as compared to the fiscal year ended March
31, 2001.
GEOGRAPHIC SEGMENTS
Japan
Sales in Japan for the fiscal year ended March 31, 2002 increased by
1.2% (or Yen 14.7 billion) from Yen 1,233.9 billion to Yen 1,248.6 billion as
compared to the fiscal year ended March 31, 2001. Sales to external customers
decreased by 1.6% (or Yen 15.1 billion), due primarily to the fact that the
Japanese economy remained in a recession which resulted in Japanese companies to
limit their purchase of information technology equipment. Even under such
economic climate, however, Ricoh recorded an increase in sales of its printing
systems such as MFPs and laser printers. The MFPs and laser printers performed
particularly well, reflecting the introduction and launch of new lines of MFPs
and laser printers that met customer needs and the extended marketing efforts of
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such products. On the other hand, sales declined for analog PPCs, facsimile
machines, and personal computers and servers. In addition, the decline in demand
for semiconductors and metering equipment resulted in the decrease in sales of
such products. In contrast to sales to external customers in Japan, intersegment
sales increased by 10.7% (or Yen 29.9 billion) for the fiscal year ended March
31, 2002 as compared to the fiscal year ended March 31, 2001. Intersegment sales
of office equipment rose amid strong exports and the appreciation of the U.S.
dollar and the Euro relative to the Japanese Yen. Export of high-speed PPCs,
MFPs and laser printers, which are manufactured in Japan, especially increased
as demand in those equipment increased in foreign countries.
Though sales in Japan increased, as mentioned above, operating expenses
in this segment for the fiscal year ended March 31, 2002 decreased due primarily
to an increase in sales of new, higher margin value-added digital-based office
equipment products (such as digital PPCs, MFPs and laser printers), and various
cost cutting measures taken by Ricoh. The increase in sales of higher margin
value-added digital-based products allowed Ricoh to take advantage of production
efficiencies that result from using standardized equipment parts or standardized
production specifications, thereby attaining higher recovery of fixed costs. The
cost cutting measures taken by Ricoh included the following: (1) reduction of
expenses incurred in connection with the procurement of materials from its
suppliers, and (2) minimizing and eliminating inefficiencies in its production
lines as employees became more productive through enhanced training and after
gaining more experience.
As a result of the appreciation of the U.S. dollar and the Euro
relative to the Japanese Yen and an increase in export of higher margin
products, operating income in Japan for the fiscal year ended March 31, 2002
increased by 27.0% (or Yen 22.5 billion) from Yen 83.5 billion to Yen 106.1
billion as compared to the fiscal year ended March 31, 2001. As a percentage of
sales in Japan, operating income increased for the fiscal year ended March 31,
2002 by 1.7% as compared to the fiscal year ended March 31, 2001.
The Americas
Sales in the Americas for the fiscal year ended March 31, 2002
increased by 35.3% (or Yen 90.4 billion) from Yen 256.4 billion to Yen 346.9
billion as compared to the fiscal year ended March 31, 2001, due primarily to
extended marketing efforts on digital office equipment by Lanier and the fact
that Lanier's operating results were reflected in Ricoh's operating results for
the entire fiscal year after its acquisition by Ricoh in January 2001. Despite
the U.S. economic slowdown and intensified competition in the Americas, Ricoh
was able to expand its existing sales channels in the fiscal year ended March
31, 2002. Ricoh offset the effects of lower capital expenditure and the economic
slowdown in the U.S. market by expanding and reinforcing its sales networks,
particularly in the North American market, thus increasing sales of digital PPCs
and MFPs. Ricoh's acquisition of Lanier contributed to the increase in the
amount of sales in the Americas as Lanier was able to increase its sales amount
upon the successful implementation of sales strategies, which focused on
expanding sales of digital-based office equipment and increasing sales to its
major corporate clients.
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Though sales in the Americas increased, as mentioned above, operating
expenses in this segment for the fiscal year ended March 31, 2002 increased more
than sales due primarily to the consolidation of Lanier's operating expenses
since Lanier's operating expenses as a percentage of sales was higher than that
of Ricoh's due to its direct sales business.
As a result, operating income in the Americas for the fiscal year ended
March 31, 2002 increased by 27.3% (or Yen 2.4 billion) from Yen 8.9 billion to
Yen 11.4 billion as compared to the fiscal year ended March 31, 2001.
Europe
Sales in Europe for the fiscal year ended March 31, 2002 increased by
21.6% (or Yen 55.5 billion) from Yen 257.7 billion to Yen 313.3 billion as
compared to the fiscal year ended March 31, 2001, due primarily to the fact that
Ricoh launched higher margin value-added digital-based office equipment, such as
digital PPC and MFPs, in Europe which were in high demand. Continuing from
previous fiscal years, Europe was Ricoh's top share market in both digital PPCs
and MFPs.
Though sales in Europe increased, as mentioned above, operating
expenses in this segment for the fiscal year ended March 31, 2002 increased more
than sales due primarily to an increase in operating expenses incurred by a U.K.
subsidiary as it changed its production line to manufacture new products. As a
result, operating income in this segment for the fiscal year ended March 31,
2002 increased by only 8.0% (or Yen 0.9 billion) from Yen 11.2 billion to Yen
12.1 billion as compared to the fiscal year ended March 31, 2001.
Other
Sales in the Other geographic segment, which includes other countries
such as China, for the fiscal year ended March 31, 2002 increased by 25.5% (or
Yen 29.8 billion) from Yen 117.1 billion to Yen 146.9 billion as compared to the
fiscal year ended March 31, 2001, due primarily to the shift to digital and
network-based products from stand-alone analog equipment.
Ricoh Asia Industry, Ltd., a manufacturing subsidiary in China which
mainly manufactures low-end digital PPCs and MFPs, has particularly contributed
to the increase in sales in this geographic segment. This subsidiary also gives
Ricoh access to lower labor costs in China. The products manufactured by this
subsidiary have been exported to marketing operations in Japan, U.S. and Europe,
and its sales volume has increased year by year. Ricoh intends to increase sales
in this geographic segment in the future by strengthening its sales network in
China as China becomes a member of the World Trade Organization and implements
its policy to deregulate its markets.
As a result, operating income in the Other geographic segment for the
fiscal year ended March 31, 2002 increased by 14.2% (or Yen 0.8 billion) from
Yen 6.1 billion to Yen 7.0 billion as compared to the fiscal year ended March
31, 2001.
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PENSION INFORMATION
Ricoh, like many large corporations in Japan, has an Employee Pension
Plan ("EPP"), which is a defined benefit pension plan established under the
Japanese Welfare Pension Insurance Law ("JWPIL"). This plan is composed of (i) a
substitutional portion based on the pay-related part of the old-age pension
benefits prescribed by JWPIL (similar to social security benefits in the United
States) and (ii) a corporate portion based on a contributory defined benefit
pension arrangement established by Ricoh. The plan assets of the EPP are
invested and managed as a single portfolio for the entire EPP and are not
statutorily attributed to the substitutional and corporate portions. The
substitutional portion represented 39% of the total projected benefit obligation
of Ricoh's EPP as of March 31, 2003.
On June 15, 2001, the JWPIL was amended to permit an employer to elect
to separate the substitutional portion from the EPP and transfer the
substitutional portion to the Japanese government. Upon completion of the
separation and transfer, the employer and the EPP are released from paying the
substitutional portion of the benefits to EPP beneficiaries. One of the steps in
completing a transfer of the substitutional portion to the government is for a
corporation to obtain an exemption from the Minister of Health, Labor and
Welfare from the obligation to make future payments with respect to the
substitutional portion, as set forth in the newly enacted Defined Payment
Corporate Pension Act. Ricoh obtained such approval as of January 1, 2003. In
order for Ricoh to completely separate the substitutional portion, Ricoh will in
the future be required to obtain approval to separate the remaining past
substitutional portion.
With respect to the accounting treatment of this transfer under
generally accepted accounting principles of Japan ("JP GAAP"), based on pension
information available as of March 31, 2003, the extraordinary profit recorded by
Ricoh would have been Yen 13.1 billion if Ricoh had applied JP GAAP. This amount
is significantly lower than the Yen 21.9 billion figure disclosed in the Form
6-K filing on January 23, 2003, as this Yen 21.9 billion figure was based on
pension information available as of March 31, 2002.
With respect to the accounting treatment of this transfer under
generally accepted accounting principles of the United States ("US GAAP"), Ricoh
will account for the transfer in accordance with Emerging Issues Task Force
Issue No. 03-02 "Accounting for the Transfer to the Japanese Government of the
Substitutional Portion of Employee Pension Fund Liabilities" ("EITF 03-02"). As
specified in EITF 03-02, the entire separation process and transfer is to be
accounted for at the time of completion of the transfer to the government of the
substitutional portion of the benefit obligation and related plan assets in
accordance with Statement of Financial Accounting Standards No. 88 "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits". Since this separation and transfer is expected to
occur during the latter part of the current calendar year, there has been no
effect on Ricoh's consolidated financial statements for the fiscal year ended
March 31, 2003.
The aggregate amount of this separation will be determined based on the
Company's aggregate pension benefits obligation as of the date the transfer is
completed
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and the aggregate amount of plan assets required to be transferred. Based on the
Company's current estimates as to the aggregate amount of such pension benefits
obligation and the aggregate amount of plan assets required to be transferred,
Ricoh's management does not expect this separation to significantly affect
Ricoh's results of operation and financial condition. It is expected that the
effect under US GAAP will be a much lower gain than that under JP GAAP or might
even be a loss due to the differences in pension accounting between US GAAP and
JP GAAP, such as the treatment for recognizing actuarial losses. However, no
assurances can be made that the ultimate effect of this separation will not be
significant since Ricoh is unable to estimate the final impact with any
reasonable degree of accuracy at this time, as the data which is used to
determine the amount continues to fluctuate to a significant extent, and the
Japanese government continues to hold discussions that may affect the timing and
method of calculation of this separation and transfer in light of the potential
effect on the Japanese stock market.
MANAGEMENT PLAN
Fiscal year 2003 was the first year of Ricoh's 14th medium-term
management plan, which will continue through fiscal year 2005. Through this
plan, Ricoh will focus on pursuing and building on the reforms of the 13th
medium-term management plan, which was completed in fiscal year 2002. The 13th
medium-term management plan focused on (1) improving the quality of Ricoh Group
management with the aim of increasing corporate value, (2) reforming the
business and profitability structure with the aim of maintaining steady growth,
and (3) reinforcing cash flow management and realizing a lower cost business
structure. Ricoh believes that the 13th medium-term management plan was
instrumental in allowing Ricoh to deliver strong financial results for the
fiscal year 2002.
The basic objectives of the 14th medium-term management plan are to
(1) realize a "vital and motivated culture," (2) strengthen Ricoh's proprietary
technologies to become the World's No.1. product manufacturing company, (3)
build a "customer-friendly" and "environmentally-friendly" company, (4)
strengthen each business unit and revolutionize group business structures, and
(5) strengthen management to attain a competitive advantage. Through this plan,
Ricoh will focus on increasing the total copying or printing volume of its
customers (referred to by Ricoh as "Building Total Document Volume"), as
additional value is provided per each copy or printed page, which we hope will
lead to a broadening of our revenue and earnings base. To attain this goal,
Ricoh's basic strategies include (1) replacing monochrome products with color
models at prices comparable to those of monochrome models, (2) expanding sales
of high-speed models, and (3) deploy printing solutions so that customers can
optimize the total output costs of their copiers and printers.
B. Liquidity and capital resources
Ricoh's principal sources of liquidity are a combination of cash and
cash equivalents on hand, cash provided from operations and various debt with
lines of credit. As of March 31, 2003, Ricoh had Yen 189.2 billion in cash and
cash equivalents and Yen 753.2
-45-
billion in lines of credit. Of the Yen 753.2 billion in lines of credit,
Yen 613.8 billion was unused as of the fiscal year ended March 31, 2003, and
Yen 378.9 billion related to commercial paper and medium-term note programs.
The Company has no committed lines of credit with financial institutions. Ricoh
Leasing Co., Ltd., however, has a Yen 50.0 billion committed credit line with
several banks having credit ratings satisfactory to Ricoh. Under these lines of
credit, the Company and its subsidiaries are able to borrow from financial
institutions at local market-based interest rates. Such local market-based
interest rates ranged from 0% to 11.60% during the fiscal year ended March 31,
2003. Almost all of such borrowings from financial institutions are unsecured.
The Company, Ricoh Leasing Co., Ltd. and certain overseas subsidiaries raise
capital by issuing commercial paper and medium-term notes. Interest rates in
respect of commercial paper and medium-term notes issued by Ricoh and its
subsidiaries ranged from 0.021% to 1.62% and 0.163% to 0.46%, respectively
during the fiscal year ended March 31, 2003.
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 2004. Even if there is a decrease in cash flow from
operations as a result of fluctuations in customer demands from one year to
another, Ricoh believes current funds on hand along with sufficient unused lines
of credit from financial institutions having credit ratings satisfactory to
Ricoh will be sufficient to finance its operations temporarily. 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.
The Company and Ricoh Leasing Co., Ltd. obtain 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, 2003, the Company and
Ricoh Leasing Co., Ltd. were rated A/A-1 by S&P. As of March 31, 2003, the
Company was rated A3 by Moody's. Pursuant to such ratings, Ricoh Leasing Co.,
Ltd. and certain foreign subsidiaries of the Company issue commercial paper to
meet their short-term funding requirements. Outstanding commercial paper totaled
Yen 57.3 billion and Yen 56.2 billion as of March 31, 2002 and 2003,
respectively. Lower long-term debt ratings by any of these major rating agencies
generally increases the commercial paper issuing costs and narrows access to the
commercial paper markets. While the outlook of Ricoh's long-term debt is rated
"Stable" by S&P and "Positive" by Moody's, a change in such rating could affect
the funding capacity of Ricoh thereby affecting its liquidity. In addition, the
Company, Ricoh Leasing Co., Ltd. and certain foreign subsidiaries also have
issued various types of bonds and medium-term notes under these ratings. For
additional detail regarding these bonds, see Note 10 to the Consolidated
Financial Statements.
It is Ricoh's policy to ensure adequate financing and liquidity for its
operations and to maintain the strength of its balance sheet. According to this
policy, Ricoh has in recent years tried to achieve efficiencies in the
utilization of cash balances held by its subsidiaries. One method that Ricoh has
implemented to achieve this efficiency is to build up its cash management
systems in each of its geographic segments. With finance
-46-
companies located within each geographic segment as the center of this cash
management system, Ricoh has established a group pooling-of-funds arrangement in
which cash resources are lent and borrowed from one group company to another
group company. As a result of this pooling-of-funds arrangement, Ricoh has
succeeded in reducing the occurrence of excess accumulation of cash at one group
company and unnecessary borrowings from third party institutions by another
group company. As such, the pooling-of-funds arrangement has reduced interest
expenses and related costs which were previously paid to third parties. For the
fiscal year ended March 31, 2003 alone, Ricoh has managed to reduce
interest-bearing debt by Yen 76.7 billion on a worldwide basis.
Ricoh enters into various derivative financial instrument contracts in
the normal course of business and in connection with the management of its
assets and liabilities. Ricoh enters into foreign exchange contracts and foreign
currency options to hedge against the potentially adverse impacts of foreign
currency fluctuations on the assets and liabilities denominated in foreign
currencies. Ricoh enters into interest rate swap agreements to hedge against the
potential adverse impacts of fair value or cash flow fluctuations on interest of
its outstanding debt. Ricoh uses derivative instruments to reduce risk and
protect market value of assets and liabilities in conformity with Ricoh's
policy. Ricoh does not use derivative financial instruments for trading or
speculative purposes, nor is it a party to leveraged derivatives. Detail
discussion of these derivative contracts is provided in Item11. Quantitative and
Qualitative Disclosures About Market Risk.
The Company and certain of its subsidiaries have various trusted
employee pension plans covering all of their employees. As described in Footnote
11 to the Consolidated Financial Statements, the unfunded portion of these
employee pension plans amounted to Yen 286.9 billion, as of March 31, 2003. The
unfunded portion increased significantly by Yen 102.7 billion during the fiscal
year 2003 as compared to the fiscal year 2002 due to a decrease in the discount
rate and a lower return on plan assets. However, out of this unfunded amount,
Yen 207.9 billion was recorded as a liability on the consolidated balance sheet
of Ricoh, as of March 31, 2003. As described in Section A. above, it is expected
that Ricoh will return the substitutional portion of the EPP in fiscal year 2003
and such return will result in a significant reduction in the unfunded portion
as it represents approximately 39% of the benefit obligation. The Company and
its subsidiaries have contributed to the EPP in conformity with Japanese
governmental regulations which require an employer to systematically fund the
employee pension plans in accordance with a projected benefit cost method and
also contribute special pension premiums to amortize unfunded benefit
obligations basically over a period of 7 to 20 years if such unfunded portion
were to exceed the specified level prescribed in the regulations. Although Ricoh
does not expect its cash funding requirements to increase significantly in the
medium- or short-term, Ricoh's cash funding requirements may be affected by
possible changes in interest rates, actual returns on plan assets and
governmental regulations on a long-term basis. The amount contributed for
domestic pension plans accounted for approximately 88% of the total benefit
liability as of the fiscal year ended March 31, 2003. The amount contributed for
domestic pension plans for the fiscal years ended March 31, 2003, 2002 and 2001
were Yen 11.7 billion, Yen 11.4 billion and Yen 11.2 billion, respectively.
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In addition, at the General Meeting of the Shareholders, held on June
26, 2003, the shareholders authorized the repurchase of up to 32,000,000
ordinary shares or the use of up to Yen 60 billion in funds for such repurchase
in accordance with Article 210 of the Commercial Code. No decision has been made
by Ricoh management as to how many ordinary shares out of the 32,000,000
ordinary shares will be repurchased by the Company.
Cash Flow
FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002
At the close of fiscal year 2003, higher net income, depreciation and
amortization added Yen 13.6 billion to cash flows from operating activities,
which was Yen 149.0 billion. This overall increase also included decreases in
trade receivables (by an amount equal to Yen 22.1 billion) and inventories (by
an amount equal to Yen 14.9 billion) as well as increases in trade payables (by
an amount equal to Yen 5.6 billion) and accrued income taxes and other (by an
amount equal to Yen 11.1 billion), which were partially offset by an increase
in finance receivables (by an amount equal to Yen 33.1 billion). Net cash
provided by operating activities for the fiscal year ended March 31, 2003
increased by 76.7%, from Yen 105.1 billion to Yen 185.7 billion as compared to
the fiscal year ended March 31, 2002.
Net cash used in investing activities increased by 20.6%, from
Yen 81.4 billion to Yen 98.1 billion for the fiscal year end March 31, 2003.
This was mainly due to increased investments in marketable securities that are
highly rated and deemed unlikely to default by rating agencies. Though net cash
used in investing activities increased, cash flow generated by operating and
investing activities for the fiscal year ended March 31, 2003 increased by
269.1%, to Yen 87.5 billion as compared to the fiscal year ended March 31,
2002, due to the fact that net cash provided from operating activities increased
by a greater percentage than net cash used in investing activities.
Net cash used by financing activities for the fiscal year ended March
31, 2003 increased to Yen 67.1 billion, compared with Yen 36.2 billion net
cash provided by financing activities for the fiscal year ended March 31, 2002.
During the fiscal year ended March 31, 2003, the Company repurchased its shares
from the market pursuant to Article 210 of the Commercial Code of Japan. The
total number of shares repurchased during the fiscal year 2003 was 9,111,925
shares, and the aggregate repurchase price totaled Yen 17.2 billion. In Japan
and overseas, Ricoh's subsidiaries tried to minimize borrowings from third
parties to decrease interest expenses incurred. Ricoh's subsidiaries also tried
to minimize borrowing from third parties by managing Ricoh Group's cash flow
position in Japan, the Americas and Europe.
As a result of these factors, cash and cash equivalents as of the close
of the fiscal year ended March 31, 2003 increased by Yen 19.0 billion from
Yen 170.1 billion as of the previous fiscal year-end to Yen 189.2 billion.
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FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001
At the close of fiscal 2002, higher net income and depreciation and
amortization added Yen 20.0 billion to cash flows from operating activities,
which was Yen 135.3 billion. Changes in assets and liabilities reflected an
increase in trade receivables (by an amount equal to Yen 20.0 billion) and
finance receivables (by an amount equal to Yen 13.6 billion) as well as a
decrease in trade payables (by an amount equal to Yen 19.5 billion), which were
offset by a decrease in inventories (by an amount equal to Yen 21.1 billion).
Thus, net cash provided by operating activities for the fiscal year ended March
31, 2002 increased by 2.3% from Yen 102.7 billion to Yen 105.1 billion as
compared to the fiscal year ended March 31, 2001.
Net cash used in investing activities for the fiscal year ended March
31, 2002 increased by 35.3%, from Yen 60.1 billion to Yen 81.4 billion as
compared to the fiscal year ended March 31, 2001. This increase was mainly due
to the decrease in proceeds from sales of available for sale securities.
Consequently, cash flows generated by operating and investing activities for the
fiscal year ended March 31, 2002 decreased by 44.2%, from Yen 42.5 to Yen 23.7
billion as compared to the fiscal year ended March 31, 2001.
Net cash provided by financing activities for the fiscal year ended
March 31, 2002 was Yen 36.2 billion, compared with Yen 88.3 billion used for
such activities during the fiscal year ended March 31, 2001. During the fiscal
year ended March 31, 2002, the Company issued fourth and fifth straight bonds in
preparation for a long-term business expansion, which totaled Yen 60 billion.
In Japan and overseas, Ricoh's subsidiaries minimized borrowings from third
parties to save on interest expense and to effectively manage cash flow. For
example, Ricoh Leasing Co., Ltd. reduced borrowings in Japan, and Ricoh
Corporation (Ricoh's principal operating subsidiary in the Americas) and its
subsidiaries including Lanier cut interest-bearing debt in the Americas.
As a result of these factors, cash and cash equivalents at the close of
the term increased by Yen 62.4 billion from the previous fiscal year at
Yen 170.1 billion.
C. Research and development, patents and licenses
Research and Development
Since its formation, Ricoh has devoted its resources to research and
development ("R&D") activities. As such, Ricoh has established a tradition of
technological innovation and product development. It is this tradition and
Ricoh's continuing emphasis on the importance of R&D activities that allows
Ricoh to produce competitive and high quality products.
Many of Ricoh's R&D activities are conducted at the Ricoh Research and
Development Center, its main R&D facility in Kanagawa, Japan (the "Center"). The
Center's activities include research and development in connection with optics,
new materials, mechatronics, computer simulation and environmental technologies.
Ricoh also conducts various specialized and peripheral R&D activities at its
other facilities located throughout Japan. In addition to the R&D facilities in
Japan, Ricoh Innovations,
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Inc., founded in March 1997, conducts market research to assist in the marketing
of information technologies for the digitally networked office. Ricoh
Innovations, Inc. also conducts extensive research and makes strategic
investments in promising new business fields.
While continuing to serve the needs of today's office environment,
Ricoh is also determined to step up its exploration of new technologies for
tomorrow's office environment. As part of such exploration, Ricoh has recently
established the following three R&D facilities: the Photonics R&D center, the
Optical Memory R&D center, and the Environmental Technology R&D center. Our
primary goals with respect to the R&D activities to be conducted at these new
facilities are twofold:
First, we wish to advance the technology and raise the bar in imaging
equipment. One of the ways in which we intend to achieve this is through the
development of photonics technology developed at the new Photonics R&D center.
In this R&D center, Ricoh is drawing on its decades of experience with optical
(including camera and optical pickups for CDs) and materials technologies,
notable for large-scale photo integrated circuits. The potential for
photonics technologies is enormous, and while there are numerous electronics
companies worldwide, only a handful of companies (including Ricoh) are equipped
to open new horizons in the photonics field. Ricoh also intends to advance the
technology used in imaging equipment through developments in the optical memory
media. In this area, Ricoh has already helped standardize specifications for
CD-RW and DVD+RW discs. Ricoh will draw on its experience and technologies to
develop the next generation of optical discs and discs that can store terabytes
of data. Furthermore, Ricoh is aiming to produce zero emission imaging
equipment, which will eliminate any energy or paper waste. Ricoh is attempting
to achieve this goal by seeking new ways to manage power consumption over
networks, developing systems to ensure its equipment starts up instantly from
sleep, and finding new ways to increase paper recycling. Lastly, Ricoh hopes to
produce in the future imaging equipment that can be personalized to each
individual user's preferences. Ricoh believes personalization is essential in
the emerging ubiquitous networking age, which allows people to access
information from anywhere and at anytime. Ricoh hopes to develop technology to
be installed in its imaging equipment so that the equipment recognizes the usage
patterns and preferences of individual users and can customize itself to each
individual user's preferences.
Second, we wish to devise through these new R&D facilities innovative
solutions that will provide our customers with new methods for managing and
protecting their businesses. Some of the technology projects currently being
developed at these R&D facilities include arranging for the tagging of documents
to ensure selective distribution and protection, and creating paper products
that can be electronically edited so that it can be completely rewritten and be
reused.
Ricoh's research and development expenses for the fiscal years 2001,
2002 and 2003 were Yen 78.2 billion, Yen 80.7 billion and Yen 83.5 billion,
respectively. For a summary of
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Ricoh's research and development expenditures during each of the last three
fiscal years, see Note 19 to the Consolidated Financial Statements.
Patents and Licenses
Ricoh owns approximately 17,000 patents on a worldwide basis, and has a
large number of licenses under various agreements with Japanese and foreign
companies. Although patents and licenses are important to Ricoh, it does not
believe that the expiration of any single patent or group of related patents or
of any license agreements will materially affect its business.
The following table lists some of the important patent and licensing
agreement which the Company is currently a party to:
-------------------------------------------------------------------------------------------------------------------
Counterparty Country Summary of the Contract Contract Term
-------------------------------------------------------------------------------------------------------------------
Xerox Corporation USA Cross license patent agreement relating to October 7, 1980 to expiration
the digital photography area (reciprocal date of the patent subject to
agreement) the agreement
-------------------------------------------------------------------------------------------------------------------
Comprehensive cross license patent
International agreement relating to the information April 1, 1999 to expiration
Business Machines USA processing technology area (reciprocal date of the patent subject to
Corporation agreement) the agreement
-------------------------------------------------------------------------------------------------------------------
Lemelson Medical, USA Patent licensing agreement relating to March 31, 1993 to expiration
Education & Research computer image analysis and other products date of the patent subject to
Foundation Limited (the Company as the licensee) the agreement
Partnership
-------------------------------------------------------------------------------------------------------------------
Texas Instruments USA Comprehensive cross license agreement October 11, 1996 to October 10,
Incorporated relating to copiers, etc. (reciprocal 2006
agreement)
-------------------------------------------------------------------------------------------------------------------
Patent licensing agreement relating to April 1, 1997 to March 31, 2002
Sharp Corporation Japan facsimile machines (the Company as with automatic renewal every 5
licensor) years thereafter
-------------------------------------------------------------------------------------------------------------------
Canon Inc. Japan Patent licensing agreement relating to October 1, 1998 to expiration
office equipment (reciprocal agreement) date of the patent subject to
the agreement
-------------------------------------------------------------------------------------------------------------------
Brother Industries, Japan Patent licensing agreement relating to December 20, 1999 to December
Ltd. digital photography (reciprocal agreement) 19, 2005
-------------------------------------------------------------------------------------------------------------------
D. Trend Information
In the office equipment industry, customer demands have shifted from
monochrome stand-alone products to networkable color products in recent years.
In response to this market trend, Ricoh has increased the production of its
higher margin value-added products, such as MFPs, digital PPCs and digital
printers. This production trend results in an increase in sales margin when
Ricoh maintains the sales price of its
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products as Ricoh is able to take advantage of production efficiencies
previously described in this annual report. As sales volume of these higher
margin value-added products continues to increase, Ricoh will continue to
recognize profit.
On the other hand, because Ricoh conducts its operations on a global
scale, Ricoh is subject to uncertainties of the global economy that result from
the stagnant U.S. economy, the after-effects of the war in Iraq, and the spread
of infectious diseases such as Severe Acute Respiratory Syndrome. Additionally,
fundamental structural problems in the Japanese economy have resulted in a
prolonged economic recession. The depressed domestic equity market, the
continuing rise in unemployment and the uncertain income environment all pose
hurdles to a healthy recovery of the Japanese economy. As a result, information
technology spending continues to decrease in Japan and the already competitive
office equipment market in Japan has become even more competitive as large
office equipment manufacturers struggle to gain and maintain the ever-shrinking
limited demand.
In this environment, timely launch of new products and quality control
of existing products are very important to remain competitive. Failure to timely
launch new products or any quality problem with existing products may quickly
lead to a decrease in market share. To maintain its market share, it is
important for Ricoh to continue to develop innovative products. Ricoh believes
that its research and development activities will allow it to compete
effectively in this current environment.
E. Off-balance sheet arrangements
As disclosed in Note 5 to the Consolidated Financial Statements, Ricoh,
through its domestic leasing affiliate, periodically has sold small amounts of
lease receivables through securitization. The total amount of lease receivables
sold during the fiscal years ended March 31, 2001 and 2002 equaled Yen 29.8
billion and Yen 25.0 billion, respectively, and no lease receivables were sold
during the fiscal year ended March 31, 2003. For the past three fiscal years,
securitization averaged approximately 3% of Ricoh's total funding.
Securitization involves the creation of SPEs to hold the pooled assets. The SPEs
are designed to place the pooled assets beyond the reach of Ricoh and its
creditors in the event of any bankruptcy of Ricoh 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, 2003, Ricoh had five such SPEs that held assets it had
sold in securitizations totaling Yen 64.9 billion.
Ricoh does not dispose of troubled leases, loans or other problem
assets by means of nonconsolidated SPEs. None of our officers, directors or
employees holds any equity interests in our SPEs or receives any direct or
indirect compensation from the SPEs. The SPEs do not own shares or equity
interests in Ricoh or any of Ricoh's affiliates, and there are no agreements in
place to do so.
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F. Contractual Obligations
The following table sets forth Ricoh's contractual obligations as of
March 31, 2003.
--------------------------------------------------------------------------------------------------------------
Millions of yen
Payments due by period
--------------------------------------------------------------------------------------------------------------
Total Less than 1 1-3 years 3-5 years More than 5
CONTRACTUAL OBLIGATION year years
--------------------------------------------------------------------------------------------------------------
Long-term Debt Obligations Yen 391,505 Yen 53,006 Yen 210,146 Yen 82,919 Yen 45,434
--------------------------------------------------------------------------------------------------------------
Capital (Finance) Lease Obligations 4,237 1,476 1,596 344 821
--------------------------------------------------------------------------------------------------------------
Purchase Obligations 2,234 1,464 666 104 -
--------------------------------------------------------------------------------------------------------------
Other Long-term Liabilities - - - - -
Reflected on Ricoh's Balance Sheet
under US GAAP
--------------------------------------------------------------------------------------------------------------
TOTAL Yen 397,976 Yen 55,946 Yen 212,408 Yen 83,367 Yen 46,255
--------------------------------------------------------------------------------------------------------------
Ricoh also had operating lease commitments with rental payments
totaling Yen 50.2 billion for the fiscal year ended March 31, 2003. Ricoh is
unable to disclose additional details with respect to its operating lease
obligations because Ricoh's material operating leases consist primarily of
leases that are cancelable with short notice.
In addition to the above, Ricoh acts as a guarantor for some of its
employees' housing loans. As of March 31, 2003, the total amount of such
guarantees was Yen 461 million.
G. Critical Accounting Policies
The preparation of the consolidated financial statements of Ricoh in
conformity with accounting principles generally accepted in the United States
requires the management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. By their nature, these
estimates and assumptions are subject to an inherent degree of uncertainty, and
are based on Ricoh's historical experience, terms of existing contracts, Ricoh's
observance of trends in the industry, information provided by its customers and
information available from other outside sources, as appropriate. For a summary
of the significant accounting policies, including the critical accounting
policies discussed below, please see Note 2 to the Consolidated Financial
Statements.
Revenue Recognition
Ricoh believes that revenue recognition is critical for its financial
statements because net income is directly affected by the timing of revenue
recognition.
Ricoh generates revenue principally through the sale of equipment,
supplies and related services under separate contractual arrangements for each.
Generally, Ricoh recognizes revenue when (1) it has a firm contract, (2) the
product has been shipped to
-53-
and accepted by the customer or the service has been provided, (3) the sales
price is fixed or determinable and (4) amounts are reasonably assured of
collection.
Most equipment sales require that Ricoh install the product. As such,
revenue is recognized at the time of delivery and installation at the customer
location. Equipment revenues are based on established prices by product type and
model and are net of discounts and trade-in allowances. A sales return is
accepted only when the equipment is defective and does not meet Ricoh's product
performance specifications. Other than installation, there are no customer
acceptance clauses in the sales contract.
Service revenues result primarily from maintenance contracts that are
normally entered into at the time the equipment is sold. Standard service fee
prices are established depending on equipment classification and include a cost
value for the estimated services to be performed based on historical experience
plus a profit margin thereon. As a matter of policy, Ricoh does not discount
such prices. On a monthly basis, maintenance service revenues are earned and
recognized by Ricoh and billed to the customer in accordance with the contract
and include a fixed monthly fee plus a variable amount based on usage. The
length of the contract ranges up to five-years, however, most contracts are
cancelable at any time by the customer upon a short notice period.
Allowance for Doubtful Receivables
Ricoh performs ongoing credit evaluations of its customers and adjust
credit limits based upon payment history and the customer's current
creditworthiness, as determined by Ricoh's review of their current credit
information. Ricoh continuously monitors collections and payments from its
customers and maintains a provision for estimated credit losses based upon its
historical experience and any specific customer collection issues that Ricoh has
identified. While such credit losses have historically been within Ricoh's
expectations and the provisions established, Ricoh cannot guarantee that it will
continue to experience the same credit loss rates that it has in the past.
Changes in the underlying financial condition of our customers could result in a
material impact to Ricoh's consolidated results of operation and financial
position.
Pension Accounting
Ricoh believes that pension accounting is critical for its financial
statements because assumptions used to estimate pension benefit obligations and
pension expenses can have a significant effect on its operating results and
financial condition.
The determination of Ricoh's benefit obligation and net periodic
expense for pension is dependent on its selection of certain assumptions used by
actuaries and management in calculating such amounts. Those assumptions are
described in Note 11 to the Consolidated Financial Statements and include, among
others, the discount rate, expected long-term rate of return on plan assets and
rates of increase in compensation. In accordance with generally accepted
accounting principles, actual results that differ from Ricoh's assumptions are
accumulated and amortized over future periods and therefore, generally affect
Ricoh's recognized expense and recorded obligation in such future
-54-
periods. While Ricoh believes that its assumptions are appropriate,
significant differences in its actual experience or significant changes in its
assumptions may materially affect Ricoh's pension obligation and future expense.
Impairment of Long-Lived Assets and Goodwill
Ricoh believes that impairment of long-lived assets and goodwill is
critical for its financial statements because Ricoh has significant amounts of
property and goodwill, and its recoverability significantly affects its results
of operation.
Ricoh periodically reviews the carrying value of its long-lived assets
and goodwill for continued appropriateness. This review is based upon Ricoh's
projections of anticipated future cash flows. While Ricoh believes that its
estimates of future cash flows are reasonable, different assumptions regarding
such cash flows could materially affect Ricoh's evaluations.
Ricoh reviews long-lived assets and acquired intangible assets with a
definite life for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset or group of assets may not be
recoverable. Recoverability of assets to be held and used is assessed by
comparing the carrying amount of an asset or asset group to the expected future
undiscounted net cash flows of the asset or group of assets. If an asset or
group of assets is considered to be impaired, the impairment charge to be
recognized is measured as the amount by which the carrying amount of the asset
or group of assets exceeds fair value. Long-lived assets meeting the criteria to
be considered as held for sale are reported at the lower of their carrying
amount or fair value less costs to sell.
According to SFAS 141 and SFAS 142, Ricoh amortized goodwill acquired
in business combinations completed before July 1, 2001 until March 31, 2002. In
connection with the transitional impairment evaluation, Ricoh performed an
assessment of whether there was an indication that goodwill was impaired as of
April 1, 2002. To accomplish this, Ricoh (1) identified its reporting units, (2)
determined the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units, and (3) determined the fair value of each reporting unit. Ricoh
completed the transitional assessment by September 30, 2002, and determined
there was no indication that goodwill had been impaired as of April 1, 2002.
Ricoh also completed the annual assessments for the year ended March 31, 2003
and determined that no goodwill impairment charge was necessary.
Realizability of Deferred Tax Assets
As part of the process of preparing Ricoh's consolidated financial
statements, Ricoh is required to estimate its income taxes in each of the
jurisdictions in which Ricoh operates. This process involves Ricoh to estimate
its current tax exposure together with assessing temporary differences resulting
from differing treatment of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which are included
within Ricoh's consolidated balance sheet. Ricoh must then assess the
-55-
likelihood that Ricoh's deferred tax assets will be recovered from future
taxable income, and, to the extent Ricoh believes that recovery is not more
likely than not, Ricoh must establish a valuation allowance. Should Ricoh's
expectations for future levels of taxable income not materialized or occur in
amounts significantly less than what Ricoh forecasted, some or all of the
deferred tax assets may not be recoverable. A significant change in Ricoh's
expectations for future taxable income could have material effect on the
consolidated results of operation and financial position.
H. New Accounting Standards
In June 2001, the FASB issued SFAS No.143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The new standard will be
adopted on April 1, 2003, and is not expected to have a material effect on
Ricoh's consolidated financial position or results of operations. In April 2002,
the FASB issued SFAS No.145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement 13 and Technical Corrections." SFAS 145 requires
gains and losses on extinguishments of debt to be classified as gains or losses
from continuing operations rather than as extraordinary items as previously
required under SFAS 4, unless the gains and losses meet the criteria to be
classified as extraordinary pursuant to APB 30. SFAS 145 also amends SFAS 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-lease back transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-lease back transactions. The rescission of SFAS 4 is effective for
transactions occurring after May 15, 2002. The provisions of SFAS 145 related to
SFAS 13 are effective for transactions occurring after May 15, 2002. The
adoption of these provisions had no impact on Ricoh's consolidated financial
position or results of operations.
In July 2002, the FASB issued SFAS No.146, "Accounting for Costs
Associated with Exit or Disposal Activities." The statement requires that a
liability for costs associated with exit or disposal activities be recognized in
the period in which the costs are incurred if a reasonable estimate of fair
value can be made. Under current accounting guidance, a liability can be
recognized when management has committed to an exit plan. The requirements under
SFAS 146 are effective prospectively for exit or disposal activities initiated
after December 31, 2002. Restatement of previously issued financial statements
is not permitted. The adoption of this Statement did not have a material effect
on Ricoh's consolidated financial position or results of operations.
In November 2002, the Emerging Issue Task Force ("EITF") reached a
final consensus on EITF 00-21, "Revenue Arrangements with Multiple
Deliverables." EITF 00-21 addresses certain aspects of the accounting for
revenue arrangements with multiple deliverables by a vendor. The issue outlines
an approach to determine when a revenue arrangement for multiple deliverables
should be divided into separate units of accounting and, if separation is
appropriate, how the arrangement consideration should be allocated to the
identified accounting units. The consensus reached in the Issue will be
effective for Ricoh in its financial statements beginning July 1, 2003. Ricoh
will adopt EITF 0021
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in the quarter beginning July 1, 2003. Ricoh is currently determining the
impact, if any, of the adoption of EITF 00-21 on Ricoh's consolidated financial
position and results of operations.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness to Others, an interpretation of FASB
Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34."
This Interpretation elaborates on the disclosures to be made by a guarantor in
its financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002. The Interpretation has not had a material effect on Ricoh's
consolidated financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities ("VIEs")," which addresses
consolidation by business enterprises of variable interest entities that either:
(1) do not have sufficient equity investment at risk to permit the entity to
finance its activities without additional subordinated financial support, or (2)
the equity investors lack an essential characteristic of a controlling financial
interest. Ricoh does not anticipate the adoption of this Interpretation will
have any impact on its financial position or results of operations as it
presently does not have investments in VIEs.
Item 6. Directors, Senior Management and Employees
A. Directors and senior management
Directors and Corporate Auditors of the Company as of June 30, 2003 were as
follows:
Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
--------------- ------------------------ --------- --------------------------------------
Hiroshi Hamada Chairman Apr. 1957 Joined the Company
(April 28, 1933) May 1975 General Manager of General Manager
Staff Office in Copiers Division
May 1975 Director
June 1980 Managing Director
Apr. 1981 Executive Managing Director
Apr. 1983 President
Apr. 1996 Chairman (Current)
June 2000 Chief Executive Officer
Principal business activities and other principal directorships performed
outside Ricoh:
Adviser of Japan Business Federation
Member of National Public Service Ethics Board
Member of National Commission on Educational Reform
Director of Saga Television Station Co., Ltd.
Director of Coca-Cola West Japan Co., Ltd.
Director of Nippon Venture Capital Co., Ltd.
Advisory board member of The Nomura Securities Co., Ltd.
Director of UFJ Holdings, Inc.
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Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
--------------- ------------------------ --------- --------------------------------------
Masamitsu Sakurai President, Apr. 1966 Joined the Company
(January 8, 1942) Chief Executive Officer and Apr. 1990 General Manager of Procurement
Chief Operating Officer Division
June 1992 Director
June 1994 Managing Director
Apr. 1996 President (Current)
June 2000 Chief Operating Officer (Current)
June 2003 Chief Executive Officer (Current)
Principal business activities and other principal directorships performed
outside Ricoh:
Vice Chairperson of Japan Association of Corporate Executives
Vice President of Japan Business Machine and Information System
Industries Association
Representative of Asahi Insurance Company
Corporate Auditor of San-Ai Oil Co., Ltd.
Director of Millea Holdings, Inc.
--------------- ------------------------ --------- -------------------------------------
Haruo Kamimoto Deputy President Apr. 1953 Joined the Company
(January 12, 1938) (Corporate Environment) Feb. 1980 Manager of Copiers Division
(Corporate Citizenship June 1980 Director
Promotion and Public June 1990 Managing Director
Relations) June 1994 Executive Managing Director
June 2000 Executive Vice President (Current)
Oct. 2001 Deputy president (Current)
--------------- ------------------------ --------- -------------------------------------
Tatsuo Hirakawa Deputy President Apr. 1960 Joined the Company
(November 17, 1937) (Accounting and Personnel) Jan. 1982 Deputy General Manager of
Accounting and Management Division
June 1983 Director
June 1990 Managing Director
June 1994 Executive Managing Director
June 2000 Executive Vice President (Current)
Oct. 2001 Deputy president (Current)
Principal business activities and other principal directorships performed
outside Ricoh:
Corporate Auditor of Coca-Cola West Japan Co., Ltd.
--------------- ------------------------ --------- -------------------------------------
Naoto Shibata Executive Managing Director Apr. 1961 Joined the Company
(December 16, 1938) (Legal, Intellectual Apr. 1990 General Manager of Accounting
Property and Corporate Division
Social Responsibility)
June 1992 Director
Sep. 1995 Chairman of Gestetner Holdings PLC
(now NRG Group PLC)
June 1996 Managing Director
Apr. 1997 Chairman of Ricoh Europe B.V.
June 2000 Executive Managing Director (Current)
June 2000 Executive Vice President (Current)
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Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
--------------- ------------------------ --------- --------------------------------------
Koichi Endo Executive Managing Director Apr. 1966 Joined the Company
(February 16, 1944) (Corporate Planning, Oct. 1990 General Manager of Component
Investors Relations and Division
Corporate Communication) June 1992 Director
(Restructuring by Supply June 1997 Managing Director
Chain Management) Apr. 1998 General Manager of Production
(IT & Solution) Business Group
June 2000 Executive Managing Director (Current)
June 2000 Executive Vice President (Current)
Principal business activities and other principal directorships performed
outside Ricoh:
Director of Sindo Ricoh Co., Ltd.
Director of San-Ai Plant Construction Co., Ltd.
--------------- ------------------------ --------- --------------------------------------
Masami Takeiri Executive Managing Director Apr. 1962 Joined the Company
(May 3, 1938) (International Marketing) Apr. 1994 General Manager of International
(General Manager of Marketing Group (Current)
International Marketing June 1994 Director
Group) June 1998 Managing Director
June 2000 Executive Vice President (Current)
June 2002 Executive Managing Director
(Current)
Jan. 2003 Chairman of Ricoh China Co., Ltd.
(Current)
--------------- ------------------------ --------- --------------------------------------
Masayuki Matsumoto Executive Managing Director Apr. 1970 Joined the Company
(December 10, 1944) (Domestic sales) July 1993 General Manager of General Manager
(General Manager of Staff Office in Tokyo Branch
Marketing Group) June 1994 Director
Oct. 1998 Managing Director
Oct. 1998 General Manager of Marketing Group
(Current)
June 2000 Executive Vice President (Current)
June 2002 Executive Managing Director
(Current)
--------------- ------------------------ --------- --------------------------------------
Makoto Hashimoto Managing Director Nov. 1972 Joined the Company
(August 26, 1945) (Customer Satisfaction Apr. 1993 General Manager of PPC Division of
and Quality Control Imaging System Business Group
(Production and Procurement) June 1994 Director
(General Manager of Apr. 1998 General Manager of Imaging System
Customer Satisfaction Business Group
Management Division) June 1998 Managing Director (Current)
June 2000 Executive Vice President (Current)
June 2003 General Manager of Customer
Satisfaction Management Division
(Current)
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Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
--------------- ------------------------ --------- --------------------------------------
Katsumi Yoshida Managing Director Apr. 1967 Joined the Company
(August 20, 1944) (Sales in the Americas) Apr. 1989 General Manager of Product Division
Feb. 1996 Chairman of Ricoh Electronics, Inc.
(Current)
Apr. 2000 President of Ricoh Corporation
Apr. 2001 Executive Vice President (Current)
June 2002 Managing Director (Current)
Jan. 2003 Chairman of Ricoh Corporation
(Current)
--------------- ------------------------ --------- --------------------------------------
Kiyoshi Sakai Managing Director Apr. 1970 Joined the Company
(December 25, 1945) (Research and Development) Jan. 1996 General Manger of Corporate
(General Manager of Research Planning Division
and Development Group) June 1996 Director
(General Manager of Group Apr. 1999 General Manager of Research and
technology planning) Development Group (Current)
(General Manager of New June 2000 Senior Vice President
Business Development Group) June 2002 Executive Vice President (Current)
June 2002 Managing Director (Current)
--------------- ------------------------ --------- --------------------------------------
Shiroh Kondoh Managing Director Apr. 1973 Joined the Company
(October 7, 1949) (Imaging System Business) Apr. 1998 Manager of Printing Division of
(Planning, Development and Imaging System Business Group
design of Imaging System) June 2000 Senior Vice President
(General Manger of Imaging Oct. 2000 General Manager of Imaging System
System Business Group) Business Group (Current)
June 2002 Executive Vice President (Current)
June 2003 Managing Director (Current)
--------------- ------------------------ --------- --------------------------------------
Kazuo Togashi Managing Director Apr. 1972 Joined the Company
(November 28, 1949) (Sales in Europe) Apr. 1998 President of Ricoh Europe B.V.
June 2000 Group Senior Vice President
Apr. 2002 Chairman of said company (Current)
Apr. 2002 Chairman of NRG Group PLC (Current)
June 2002 Executive Vice President (Current)
June 2003 Managing Director (Current)
--------------- ------------------------ --------- --------------------------------------
Kazunori Azuma Managing Director Apr. 1971 Joined the Company
(February 11, 1949) (Planning of Domestic Sales) Oct. 1994 President of Hokkaido Ricoh Co., Ltd.
June 2000 Senior Vice President
Oct. 2000 Group Senior Vice President
Oct. 2000 President of Ricoh Technosystems
Co., Ltd. (Current)
June 2003 Executive Vice President (Current)
Managing Director (Current)
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Name Current Position
(Date of Birth) (Function/Business area) Date Business Experience
--------------- ------------------------ --------- --------------------------------------
Josei Itoh Director Mar. 1953 Joined the Nippon Life Insurance
(May 25, 1929) (General Management) Company
July 1981 Director of said company
Mar. 1984 Managing Director of said company
Mar. 1987 Executive Managing Director of said
company
Mar. 1988 Vice President of said company
July 1989 President of said company
Apr. 1997 Chairman of said company (Current
June 2000 Director of the Company (Current)
--------------- ------------------------ --------- --------------------------------------
Nobuo Mii Director Apr. 1955 Joined the Nippon Hoso Kyokai
(July 4, 1931) (Technical of Information (Japan Broadcasting Corporation)
and Communication) Jan. 1969 Joined IBM Japan Ltd.
Jan. 1969 Joined IBM Corporation
Mar. 1977 Director of IBM Japan Ltd.
Apr. 1990 Vice President of IBM Japan Ltd.
Oct. 1997 Managing Partner of IGNITE Group
(Current)
June 2000 Director of the Company (Current)
--------------- ------------------------ --------- --------------------------------------
Hisaaki Koga Corporate Auditor Apr. 1967 Joined the Company
(April 5, 1943) Apr. 1998 General Manager of General Manager
Staff Office in Marketing Group
June 1998 Corporate Auditor of the Company
(Current)
--------------- ------------------------ --------- --------------------------------------
Hideyuki Takamatsu Corporate Auditor Apr. 1966 Joined the Company
(May 21, 1942) Dec. 1997 Executive Managing Director of San-Ai
Co., Ltd.
June 2000 Corporate Auditor of the Company
(Current)
--------------- ------------------------ --------- --------------------------------------
Kenji Matsuishi Corporate Auditor Apr. 1965 Graduated from the National Legal
(July 24, 1937) Training and Research Institute.
Apr. 1965 Legal registration as a Japanese
attorney
Apr. 1965 Joined Takano & Higuchi Legal
Services
Feb. 1972 General Manager of Matsuishi
Legal Services (Current)
June 1994 Corporate Auditor of the Company
(Current)
--------------- ------------------------ --------- --------------------------------------
Takehiko Wada Corporate Auditor Apr. 1958 Joined San-Ai Oil Co., Ltd.
(October 24, 1935) June 1985 Director of said company
June 1990 Managing Director of said company
July 1994 Executive Managing Director of said
company
July 1999 President of said company (Current)
June 2001 Corporate Auditor of the Company
(Current)
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Directors and Corporate Auditors are elected at a general meeting of
shareholders for two and three years terms, respectively, and may serve any
number of consecutive terms.
The Board of Directors has appointed from among its members a Chairman, a
President, and one or more Vice Presidents, Executive Managing Directors and
Managing Directors, in accordance with Japanese commercial law. As of June 30,
2003, the Company maintains an executive officer system and under such system
there are 35 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 30, 2003 were as follows:
Current Position
Name (Function/Business area) Date Business Experience
---------------------------- ------------------------------- ------------- --------------------------------------
Masamitsu Sakurai President and See above for his business experience and other
Chief Operating Officer information.
---------------------------- ------------------------------- ------------- --------------------------------------
Haruo Kamimoto Executive Vice President See above for his business experience and other
(Corporate Environment) information.
(Corporate Citizenship
Promotion and Public
Relations)
---------------------------- ------------------------------- ------------- --------------------------------------
Tatsuo Hirakawa Executive Vice President See above for his business experience and other
(Finance and Personnel) information.
---------------------------- ------------------------------- ------------- --------------------------------------
Naoto Shibata Executive Vice President See above for his business experience and other
(Legal, intellectual information.
property and Corporate
Social Responsibility)
---------------------------- ------------------------------- ------------- --------------------------------------
Koichi Endo Executive Vice President See above for his business experience and other
(Corporate Planning, information.
Investors Relations and
Corporate Communication)
(Restructuring)
(IT & Solution)
---------------------------- ------------------------------- ------------- --------------------------------------
Masami Takeiri Executive Vice President See above for his business experience and other
(General Manager of information.
International Marketing
Group)
(Chairman of Ricoh China
Co., Ltd.)
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Current Position
Name (Function/Business area) Date Business Experience
---------------------------- ------------------------------- ------------- --------------------------------------
Masayuki Matsumoto Executive Vice President See above for his business experience and other
(General Manager of information.
Marketing Group)
---------------------------- ------------------------------- ------------- --------------------------------------
Makoto Hashimoto Executive Vice President See above for his business experience and other
(General Manager of information.
Customer Satisfaction
Management Division)
---------------------------- ------------------------------- ------------- --------------------------------------
Katsumi Yoshida Executive Vice President See above for his business experience and other
(Chairman of Ricoh information.
Corporation)
(Chairman of Ricoh
Electronics, Inc.)
---------------------------- ------------------------------- ------------- --------------------------------------
Kiyoshi Sakai Executive Vice President See above for his business experience and other
(General Manager of information.
Research and Development
Group)
(General Manager of Group
Technology Planning)
(General Manager of New
Business Development Group)
---------------------------- ------------------------------- ------------- --------------------------------------
Shiroh Kondoh Executive Vice President See above for his business experience and other
(General Manger of Imaging information.
System Business Group)
---------------------------- ------------------------------- ------------- --------------------------------------
Kazuo Togashi Executive Vice President See above for his business experience and other
(Chairman of Ricoh Europe information.
B.V.)
(Chairman of NRG Group
PLC)
---------------------------- ------------------------------- ------------- --------------------------------------
Kazunori Azuma Executive Vice President See above for his business experience and other
(President of Ricoh information.
Technosystems Co., Ltd.)
---------------------------- ------------------------------- ------------- --------------------------------------
Terumoto Nonaka Executive Vice President Jan. 1988 Joined the Company
(October 28, 1947) (President of Electronic Oct. 2000 President of Electronic Devices
Devices Company) Company (Current)
June 2002 Executive Vice President of the
Company (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Tadatoshi Sakamaki Executive Vice President Apr. 1967 Joined the Company
(April 23, 1942) (President of June 2000 Senior Vice President of the
Personal MultiMedia Company
Products Company) Apr. 2002 General Manager of Marketing Center
(General Manager of of Personal MultiMedia Products
Marketing Center of Company (Current)
Personal June 2003 President of Personal MultiMedia
MultiMedia Products Products Company (Current)
Company) June 2003 Executive Vice President of the
Company (Current)
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Current Position
Name (Function/Business area) Date Business Experience
---------------------------- ------------------------------- ------------- --------------------------------------
Etsuo Kobayashi Executive Vice President Apr. 1970 Joined the Company
(July 4, 1947) (General Manager of Apr. 1998 General Manager of Personnel
Personnel Division) Division (Current)
June 2000 Senior Vice President of the
Company
June 2003 Executive Vice President of the
Company (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Hiroshi Tategami Executive Vice President Apr. 1962 Joined the Company
(March 31, 1941) (General Manager of June 2000 Senior Vice President of the
Production Business Group) Company
(General Manager of RS Oct. 2000 General Manager of RS Products
Products Division) Division (Current)
June 2003 General Manager of Production
Business Group (Current)
June 2003 Executive Vice President of the
Company (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Zenji Miura Executive Vice President Apr. 1976 Joined the Company
(January 5, 1950) (General Manager of Oct. 2000 Senior Vice President of the
Accounting Division) Company
Oct. 2000 General Manager of Finance and
Accounting Division (Current)
June 2003 Executive Vice President of the
Company (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Kenji Hatanaka Senior Vice President Apr. 1969 Joined the Company
(July 1, 1946) (General Manager of Tokyo June 2000 Senior Vice President of the
Branch) Company (Current)
(General Manager of Kanto June 2003 General Manager of Tokyo Branch
Branch) (Current)
June 2003 General Manager of Kanto Branch
(Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Hideko Kunii Senior Vice President May 1982 Joined the Company
(December 13, 1947) (General Manager of Software Oct. 1999 General Manager of Software
Research and Development) Research Center (Current)
(Chairman of Ricoh Software June 2000 Senior Vice President of the
Technology (Shanghai) Co., Company (Current)
Ltd.) Oct. 2000 Deputy General Manager of P&S
Products Division
June 2002 Chairman of Ricoh Software
Technology (Shanghai) Co., Ltd.
(Current)
Oct. 2002 General Manager of Software
Research and Development (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Kunio Taniguchi Senior Vice President Apr. 1972 Joined the Company
(December 18, 1948) (General Manager of Osaka June 2000 Senior Vice President of the
Branch) Company (Current)
(President of Ricoh Kansai June 2003 General Manager of Osaka Branch
Co., Ltd.) (Current)
June 2003 President of Ricoh Kansai Co., Ltd.
(Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Hiroshi Kobayashi Senior Vice President Apr. 1974 Joined the Company
(July 2, 1948) (General Manager of Apr. 2002 General Manager of Corporate
Corporate Planning Division) Planning Division (Current)
June 2002 Senior Vice President of the
Company (Current)
Apr. 2003 General Manager of Corporate
Communication Center
-64-
Current Position
Name (Function/Business area) Date Business Experience
---------------------------- ------------------------------- ------------- --------------------------------------
Hiroshi Tsuruga Senior Vice President Apr. 1971 Joined the Company
(November 18, 1948) (General Manger of Apr. 1999 General Manger of
Information/Technology and Information/Technology and Service
Service Division) Division (Current)
June 2002 Senior Vice President of the
Company (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Kiyoto Nagasawa Senior Vice President Apr. 1973 Joined the Company
(August 16, 1948) (General Manger of C&F Apr. 2001 General Manger of C&F Business
Business Division 2) Division 2 (Current)
May 2002 Director of Ricoh Creative
Development Co., Ltd. (Current)
June 2002 Senior Vice President of the
Company (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Yutaka Ebi Senior Vice President Apr. 1972 Joined the Company
(October 20, 1949) (General Manger of Imaging Apr. 2001 General Manger of Imaging
Technology Division) Technology Division (Current)
June 2002 Senior Vice President of the
Company (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Hiroo Matsuda Senior Vice President Apr. 1972 Joined the Company
(April 19, 1948) (General Manger of Major Apr. 2002 General Manger of Major Accounts
Accounts Marketing Division) Marketing Division (Current)
June 2002 Senior Vice President of the
Company (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Hiroshi Adachi Senior Vice President Apr. 1968 Joined the Company
(January 8, 1946) (President of Thermal Media Oct. 2000 President of Thermal Media Company
Company) (Current)
(Chairman of Ricoh Nov. 2001 Chairman of Ricoh Electronic
Electronic Technology Technology (Beijing) Co., Ltd.
(Beijing) Co., Ltd.) (Current)
June 2002 Senior Vice President of the
Company (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Kouji Sawa Senior Vice President Apr. 1971 Joined the Company
(June 5, 1948) (General Manager of Apr. 1998 General Manger of Imaging System
Production Strategic Center) Component Production Division
(General Manager of Optical Apr. 2000 General Manager of Production
Component Development Strategic Center (Current)
Division) July 2001 General Manager of Optical
Component Development Division
(Current)
June 2002 Senior Vice President of the
Company (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Itsuo Kawaji Group Senior Vice President Apr. 1961 Joined the Company
(September 12, 1938) (Chairman of Ricoh Logistics Apr. 1997 President of Ricoh Logistics System
System Co., Ltd.) Co., Ltd.
June 2000 Group Senior Vice President of the
Company (Current)
June 2003 Chairman of Ricoh Logistics System
Co., Ltd. (Current)
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Current Position
Name (Function/Business area) Date Business Experience
---------------------------- ------------------------------- ------------- --------------------------------------
Takashi Nakamura Group Senior Vice President Apr. 1972 Joined the Company
(September 2, 1946) (President of Ricoh Elemex June 1998 Director of the Company
Corporation) June 2000 Senior Vice President of the
Company
Apr. 2002 Group Senior Vice President of the
Company (Current)
June 2002 President of Ricoh Elemex
Corporation (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Yuji Inoue Group Senior Vice President Apr. 1971 Joined the Company
(April 4, 1948) (President of Ricoh Leasing Apr. 2000 President of Ricoh Leasing Co., Ltd.
Co., Ltd.) (Current)
June 2000 Group Senior Vice President of the
Company (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Peter E. Hart Group Senior Vice President Mar. 1997 President of Ricoh Silicon Valley,
(February 27, 1941) (Chairman and President of Inc. (now Ricoh Innovations, Inc.)
Ricoh Innovations, Inc.)
Feb. 2000 Chairman and President of Ricoh
Silicon Valley, Inc. (now Ricoh
Innovations, Inc.) (Current)
June 2000 Group Senior Vice President of the
Company (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Masami Yoneyama Group Senior Vice President Mar. 1961 Joined the Company
(March 25, 1942) (Vice Chairman and President June 2000 Senior Vice President of the
of Ricoh China Co., Ltd.) Company
(Chairman of Ricoh Electronic Oct. 2000 Group Senior Vice President
Technology Ltd. (China)) (Current)
Oct. 2000 Chairman of Ricoh Hong Kong Ltd.
Oct. 2000 Chairman of Ricoh Electronic
Technology Ltd. (China) (Current)
Jan. 2003 Vice Chairman and President of
Ricoh China Co., Ltd. (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Bernard Decugis Group Senior Vice President Aug. 1993 President of Ricoh France S.A.
(October 23, 1942) (President of Ricoh France (Current)
S.A.) Apr. 2001 Group Senior Vice President of the
Company (Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Yoichi Shirahata Group Senior Vice President Mar. 1962 Joined the Company
(December 20, 1943) (President of Tohoku Ricoh June 2002 Group Senior Vice President of the
Co., Ltd.) Company (Current)
June 2002 President of Tohoku Ricoh Co., Ltd.
(Current)
---------------------------- ------------------------------- ------------- --------------------------------------
Norihisa Goto Group Senior Vice President Apr. 1972 Joined the Company
(March 8, 1949) (President of Lanier Oct. 1997 President of Ricoh Deutschland GmbH
Worldwide, Inc. ) Mar. 2001 Chairman of Lanier Worldwide, Inc.
Jan. 2003 President of Lanier Worldwide, Inc.
(Current)
June 2003 Group Senior Vice President of
the Company (Current)
There are no family relationships between any Director, Corporate
Auditor or Executive Officer and any other Director, Corporate Auditor or
Executive Officer of the Company. There are no arrangements or understandings
with major shareholders, customers, suppliers or others pursuant to which any
person named above was selected as a Director, Corporate Auditor, or an
Executive Officer.
-66-
B. Compensation
The aggregate remuneration, including bonuses but excluding retirement
allowances, paid by the Company for the fiscal year ended March 31, 2003 to all
Directors, Corporate Auditors and Executive Officers of the Company who served
during the fiscal year ended March 31, 2003 was Yen 1,041 million.
In accordance with customary Japanese business practice, annual bonuses
are paid to the Directors and Corporate Auditors of the Company out of the
profit of the Company available for dividends, as such profit is determined in
accordance with the Japanese Commercial Code. Such bonuses are approved at the
annual shareholders meeting customarily held in June of each year. Bonuses so
paid are not deductible by the Company for tax purposes. Included in the figure
for aggregate remuneration set forth above is a total of Yen 170 million in
bonuses paid to Directors and Corporate Auditors as a group in their capacity as
such (excluding bonuses for their services as employees) in respect of the
fiscal year 2003, as approved by the Company's shareholders at the General
Meeting of Shareholders held on June 27, 2002. Moreover the amount of retirement
allowances to Directors and Corporate Auditors, which were approved at the same
meeting and paid during the fiscal year 2003, totals Yen 37 million.
In accordance with customary Japanese business practice, when a
Director or Corporate Auditor retires, a proposal to pay a lump-sum retirement
allowance is submitted to the shareholders for their approval. After
shareholders' approval is obtained, the amount of the retirement allowance for a
Director or Corporate Auditor is fixed by the Board of Directors or Board of
Corporate Auditors and generally reflects his remuneration and position at the
time of retirement, the length of his service as a Director or Corporate Auditor
and his contribution to the Company's performance.
C. Board practices
Under the Japanese Commercial Code, all Directors and Corporate
Auditors shall be elected at the General Meeting of Shareholders. In general,
under the Articles of Incorporation of the Company, the terms of office of
Directors shall expire at the conclusion of the Ordinary General Meeting of
Shareholders held with respect to the last closing of accounts within two years
after their assumption of office, and the terms of office of Corporate Auditors
shall expire at the conclusion of the Ordinary General Meeting of Shareholders
held with respect to the last closing of accounts within four years after their
assumption of office. However, both the Directors and Corporate Auditors may
serve any number of consecutive terms.
From among the Directors, the Board of Directors shall elect one or
more Representative Directors. Each of the Representative Directors has the
statutory authority to represent the Company in the conduct of its affairs.
The Corporate Auditors of the Company are not required to be and are
not certified public accountants. However, at least one of the Corporate
Auditors must be a person who has not been a Director, general manager, or
employee of the Company or
-67-
any of its subsidiaries during the five-year period immediately prior to his
assumption of office as a Corporate Auditor. The Corporate Auditors may not at
the same time be Directors, managers, or employees of the Company or any of its
subsidiaries. Each Corporate Auditor has the statutory duty to examine the
financial statements and business reports to be submitted by the Board of
Directors at the General Meeting of Shareholders and also to supervise the
administration by the Directors of the Company's affairs. Corporate Auditors are
entitled and obligated to participate in meetings of the Board of Directors but
are not entitled to vote. Under the "Law concerning Special Measures to the
Commercial Code with respect to Audit," the Board of Corporate Auditors has a
statutory duty to prepare and submit its audit report to the Board of Directors
each year. A Corporate Auditor may note his opinion in the audit report if it is
different from the opinion of the Board of Corporate Auditors that is expressed
in the audit report. The Board of Corporate Auditors is empowered to establish
audit principles, the method of examination by the Corporate Auditors of the
Company's affairs and financial position, and other matters concerning the
performance of the Corporate Auditors' duties. The Company does not have an
audit committee.
There are no Director's service contracts with Ricoh providing for
benefits upon termination of service.
D. Employees
The table below provides information about employees.
-----------------------------------------------------------------------------------------------
As of March 31,
2001 2002 2003
---------------- --------------- -----------------
Categorized by Operating Segment
Office Equipment 65,591 65,359 66,422
Other 7,367 7,582 6,899
Headquarters 1,276 1,268 1,286
Total 74,234 74,209 74,607
Categorized by Geographic Location
Domestic 40,475 39,988 39,482
Overseas 33,759 34,221 35,125
Total 74,234 74,209 74,607
-----------------------------------------------------------------------------------------------
Ricoh believes it is one of the few companies with a base in Japan with
a large labor force which is not unionized. There has been no significant labor
dispute in the fiscal year 2003 and Ricoh knows of no efforts to organize a
union. Ricoh generally believes its employee relations to be good.
-68-
E. Share ownership
The following table lists the number of Common Stock owned by each
Director, Corporate Auditors and Executive Officers of the Company as of June
26, 2003. 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 0.0% of the total Company Common Stock issued.
Name Position Number of Shares
-------------------------------- -------------------------------------------- -----------------------
Hiroshi Hamada Chairman and Chief Executive Officer 33,000
Masamitsu Sakurai President and Chief Operating Officer 7,000
Haruo Kamimoto Deputy President 24,000
Tatsuo Hirakawa Deputy President 16,379
Naoto Shibata Executive Managing Director 10,000
Koichi Endo Executive Managing Director 11,747
Masami Takeiri Executive Managing Director 12,000
Masayuki Matsumoto Executive Managing Director 4,000
Makoto Hashimoto Managing Director 10,000
Katsumi Yoshida Managing Director 5,100
Kiyoshi Sakai Managing Director 4,000
Shiroh Kondoh Managing Director 3,000
Kazuo Togashi Managing Director 2,000
Kazunori Azuma Managing Director 3,000
Hisaaki Koga Corporate Auditor 5,253
Hideyuki Takamatsu Corporate Auditor 3,000
Kenji Matsuishi Corporate Auditor 2,000
Terumoto Nonaka Executive Vice President 7,050
Tadatoshi Sakamaki Executive Vice President 6,211
Etsuo Kobayashi Executive Vice President 7,000
Hiroshi Tategami Executive Vice President 5,000
Zenji Miura Executive Vice President 2,000
Kenji Hatanaka Senior Vice President 3,000
Hideko Kunii Senior Vice President 5,000
Hiroshi Kobayashi Senior Vice President 1,000
Hiroshi Tsuruga Senior Vice President 2,000
Kiyoto Nagasawa Senior Vice President 3,000
Yutaka Ebi Senior Vice President 2,000
Kouji Sawa Senior Vice President 3,000
Itsuo Kawaji Group Senior Vice President 6,273
Takashi Nakamura Group Senior Vice President 4,693
Yuji Inoue Group Senior Vice President 10,000
Masami Yoneyama Group Senior Vice President 11,000
Yoichi Shirahata Group Senior Vice President 7,150
-----------------------
Total 240,856
=======================
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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 26, 2003.
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, 2003 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. 73,075 9.84%
Common Stock The Master Trust Bank of Japan, Ltd. 65,178 8.78%
The Mitsubishi Trust and Banking Corporation, the second largest
shareholder of Ricoh as of March 31, 2002, transferred its shares in Ricoh to
The Master Trust Bank of Japan, Ltd. during the fiscal year 2003. As a result,
The Master Trust Bank of Japan, Ltd. is Ricoh's second largest shareholder as of
March 31, 2003.
The Master Trust Bank of Japan, Ltd. is a joint venture managed by the
Mitsubishi Trust and Banking Corporation, Nippon Life Insurance Company, UFJ
Trust Bank Limited, Meiji Life Insurance Company and Deutsche Bank. As of March
31, 2003, the 8.78% of outstanding shares owned by The Master Trust Bank of
Japan, Ltd. represented the number of shares that Mitsubishi Trust Banking
Corporation transferred to The Master Trust Bank of Japan, Ltd. in fiscal year
2003.
The number of Ricoh shares held by The Master Trust Bank of Japan, Ltd.
may increase in the future. As of March 31, 2003, Nippon Life Insurance Company
and UFJ Trust Bank Limited have not transferred shares in Ricoh to The Master
Trust Bank of Japan, Ltd., and it is possible that these two entities will
transfer their shares in Ricoh to The Master Trust Bank of Japan, Ltd. in the
future. In addition, Meiji Life Insurance Company and Deutsche Bank may transfer
their shares in Ricoh to the Master Trust Bank of Japan, Ltd. in the future.
With respect to significant changes in percentage ownership, the
percentage of ownership held by Japan Trustee Services Bank, Ltd. increased from
8.75% to 9.84% during fiscal year 2003. In addition, during the fiscal year
2002, the percentage ownership held by The Mitsubishi Trust and Banking
Corporation increased from 3.65% to 6.20% and the percentage ownership held by
Nippon Life Insurance Company decreased from 5.52% to 4.47%.
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As far as is known to the Company, there has not been any significant
change in the percentage ownership held by any major shareholders during the
past three years except as described above.
The major shareholders do not have different voting rights.
American Depositary Receipts ("ADRs") representing American Depositary
Shares are issued by The Bank of New York. The normal trading unit is 5 American
Depositary Shares. As of March 31, 2003, 228,043 Shares of ADRs were held of
record by 3 institutional registered holders in the United States of America.
As far as is known to the Company as of this date, it is not directly
or indirectly owned or controlled by any other corporation or by the Japanese or
any foreign government. As far as is known to the Company as of this date, there
is no arrangement, the operation of which may at a subsequent date result in a
change in control of the Company.
B. Related party transactions
Ricoh sells or purchases products, materials, supplies and services to
or from affiliated companies on normal commercial terms and conditions. See Note
7 to the Consolidated Financial Statements.
Ricoh loaned Yen 15 million to its affiliates as working capital at
floating rate linked to market indexes as of March 31, 2003. Ricoh does not
consider this amount to be material to its business.
No Directors, Corporate Auditors or Executive Officers were indebted to
the Company or its subsidiaries at any time during the latest three fiscal
years. Neither the Company nor its subsidiaries expect to make any loans to
Directors, Corporate Auditors or Executive Officers in the future.
C. Interest of experts and counsel
Not applicable.
Item 8. Financial Information
A. Consolidated statements and other information
See Item 18. Financial Statements and pages F-1 through F-42.
Legal or arbitration proceedings
There are no material pending legal or arbitration proceedings to which
Ricoh is a party.
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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(b) "Dividends" for
important information on the Company's dividend payment procedure and
restrictions.
B. Significant changes
As noted in Item 4.A., on December 17, 2002, the Company entered into a
definitive share exchange agreement with Tohoku Ricoh Co., Ltd. ("Tohoku
Ricoh"), a domestic subsidiary of the Company in order to convert Tohoku Ricoh
into a wholly-owned subsidiary. Under the terms of the agreement, 0.345 of one
share of the Company's common stock was granted in exchange for each share of
Tohoku Ricoh's common stock. The Company completed the share exchange on April
1, 2003, using 2,239,533 shares of treasury stock it held as of March 31, 2003,
with a cost value of Yen 4.2 billion.
Except for the above, no significant changes have occurred since the date
of the Consolidated Financial Statements included in this report.
Item 9. The Offer and Listing
A. Offer and listing details
The primary market for the Company's Common Stock is the Tokyo Stock
Exchange (the "TSE") in the form of original Common Stock.
The Company's Common Stock has been listed on the TSE since 1949, and in
Japan it is also listed on the Osaka Stock Exchange, the Nagoya Stock Exchange,
the Fukuoka Stock Exchange and the Sapporo Stock Exchange. In addition, the
Company's Common Stock is listed outside of Japan on the following stock
exchanges: Amsterdam, Frankfurt and Paris.
In the United States, the Company's American Depositary Shares are traded
on the Over-the-Counter Market in the form of ADRs and are issued and exchanged
by The Bank of New York, as depositary. The following table sets forth for the
periods indicated the reported high and low sales prices of the Company's Common
Stock on the TSE and the reported high and low sales prices per share of the
Company's ADRs at Over-the-Counter Market.
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Over-the-Counter Market Price
Tokyo Stock Exchange Price Per Per American Depositary Share
Share of Common Stock (5 shares of Common Stock)
(Japanese Yen) (U.S. Dollars)
--------------------------------- ---------------------------------
High Low High Low
---------- ----------- ---------- ----------
Annual highs and lows
---------------------
Fiscal Year 1999 1,634 969 57.29 38.72
Fiscal Year 2000 2,525 1,078 111.79 44.28
Fiscal Year 2001 2,495 1,627 113.46 75.85
Fiscal Year 2002 2,735 1,563 108.00 77.50
Fiscal Year 2003 2,470 1,637 95.75 62.50
Quarterly highs and lows
------------------------
Fiscal Year 2002
1st quarter 2,735 2,145 108.00 89.00
2nd quarter 2,650 1,563 106.41 77.50
3rd quarter 2,495 1,758 98.50 79.00
4th quarter 2,540 2,100 97.00 80.50
Fiscal Year 2003
1st quarter 2,470 1,961 95.75 84.00
2nd quarter 2,265 1,904 91.67 81.50
3rd quarter 2,205 1,867 88.00 80.30
4th quarter 1,998 1,637 82.00 62.50
Monthly highs and lows
----------------------
December 2002 2,180 1,867 85.00 80.30
January 2003 1,998 1,746 82.00 62.50
February 2003 1,885 1,758 77.50 75.00
March 2003 1,910 1,637 78.50 70.50
April 2003 1,850 1,607 76.75 68.55
May 2003 1,820 1,641 77.80 70.97
Notes: (1) Price per share of Common Stock are as reported by the TSE.
(2) Price per ADSs are based upon one ADS representing 5 shares of
Common Stock and are as reported by Over-the-Counter Market Bulletin
Board(R).
B. Plan of distribution
Not applicable.
C. Markets
See Item 9.A. for a list of the stock exchanges on which the securities
are listed.
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See Item 10.B. for certain information relating to the Common Stock of the
Company.
D. Selling shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and articles of association
ORGANIZATION
Ricoh Company, Ltd. was incorporated in Japan under the Commercial Code of
Japan. It is registered in the Commercial Register (shogyo tokibo) maintained by
the Tokyo Legal Affairs Bureau of the Ministry of Justice.
OBJECTIVES AND PURPOSES
Article 3 of the Articles of Incorporation of the Company provides that its
purpose is to engage in the following business activities:
1. Manufacture, sale and installation work and electrical communication
work of optical, office, audio, electric and measuring equipment,
other general machinery and equipment and accessories and supplies
therefor.
2. Manufacture and sale of photographic sensitive materials and
duplicating papers.
3. Manufacture and sale of various raw materials for photographic
sensitive materials, and various chemical materials for chemical
industries.
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4. Manufacture, processing and sale of papers, pulps textiles, general
merchandise and by-products thereof.
5. Investment in, or sale of the products of, other companies.
6. Import and Export of the goods described in any of the foregoing items
and other goods of every kind and description.
7. Brokerage business for casualty insurance and other insurance under
the Automobile Liability Security Law.
8. Direct marketing through the Internet, facsimile, telephone, etc.
9. Any and all business incidental or relating to any of the foregoing
items.
Directors
Under the Commercial Code, the Board of Directors has executive powers and
duties to manage the affairs of the Company and each Representative Director,
who is elected from among the Directors by the Board of Directors, has the
statutory authority to represent the Company in all respects. Under the
Commercial Code, the Directors must refrain from engaging in any business
competing with the Company unless approved by the Board of Directors and any
Director who has a material interest in the subject matter of a resolution to be
taken by the Board of Directors cannot vote in such resolution. The total amount
of remuneration to Directors and to Corporate Auditors is subject to approval at
the General Meeting of Shareholders. Within such authorized amounts the Board of
Directors and the Board of Corporate Auditors respectively determine the
compensation to each Director and Corporate Auditor.
Except as stated below, neither the Commercial Code nor the Company's
Articles of Incorporation make a special provision as to the Director's or
Corporate Auditor's power to vote in connection with their compensation,
borrowing powers exercisable by a Representative Director (or a Director who is
given power by a Representative Director to exercise such powers), their
retirement age or requirement to hold any shares of capital stock of the
Company. The Commercial Code specifically requires the resolution of the Board
of Directors for a corporation to acquire or dispose of material assets; to
borrow substantial amount of money; to employ or discharge from employment
important employees, such as executive officers; and to establish, change or
abolish a material corporate organization such as a branch office. The
Regulations of the Board of Directors of the Company require a resolution of the
Board of Directors for the Company's borrowing or lending of a significant
amount of money or giving of a guarantee in a large amount.
Set forth below is certain information relating to the Common Stock of the
Company, including brief summaries of certain provisions of the Company's
Articles of Incorporation and Share Handling Regulations, as currently in
effect, and of the Commercial Code of Japan relating to a joint stock company
(kabushiki kaisha) and certain related legislation.
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GENERAL
The presently authorized capital stock of the Company is 993,000,000
shares. Under the Commercial Code shares are transferable by delivery of share
certificates, but in order to assert shareholders' rights against the Company,
the transferee must generally have his name registered in the Company's register
of shareholders. Shareholders are required to file their names, addresses and
seals with The Chuo Mitsui Trust & Banking Co., Ltd., the transfer agent for the
Company's Common Stock, and shareholders not resident in Japan are required to
file a mailing address in Japan or appoint a resident proxy in Japan. These
requirements do not apply to the holders of ADRs.
The central clearing system of share certificates under the Law Concerning
Central Clearing of Share Certificates and Other Securities of Japan applies to
the shares of Common Stock of the Company. Pursuant to this system a holder of
shares of Common Stock is able to choose, at his discretion, to participate in
this system and all certificates of shares of Common Stock elected to be put
into this system are deposited with the central clearing system and all such
shares are registered in the name of the clearing house in the Company's
register of shareholders. Each participating shareholder is in turn registered
in the register of beneficial shareholders and treated the same way as
shareholders registered in the Company's register of shareholders.
Dividends
The Articles of Incorporation of the Company provide that the accounts
shall be closed on March 31 of each year and that dividends, if any, shall be
paid to the shareholders of record as of the end of such fiscal period. After
the close of the fiscal period, the Board of Directors prepares, among other
things, a proposed allocation of profits for dividends and other purposes; this
proposal is submitted to the Corporate Auditors of the Company and to
independent certified public accountants and then submitted for approval to the
ordinary general meeting of shareholders, which is normally held in June of each
year. In addition to provisions for dividends, if any, and for the legal reserve
and other reserves, the allocation of profits customarily includes bonuses to
Directors and Corporate Auditors. In addition to a distribution of annual
dividends, the Board of Directors of the Company may by its resolution declare a
cash distribution pursuant to Article 293-5 of the Commercial Code (an "interim
dividend") to shareholders who are registered in the Company's register of
shareholders at the end of each September 30, subject to the limitations
described below.
The Commercial Code provides that, until the aggregate amount of the
Company's legal reserve and additional paid-in capital is at least one-quarter
of the Company's stated capital, the Company may not make any distribution of
profits by way of dividends in cash unless it has set aside in its legal reserve
an amount equal to at least one-tenth of any amount paid out as an appropriation
of retained earnings (including any payment by way of annual dividend and
bonuses to Directors and Corporate Auditors) or equal to one-tenth of any
interim dividend. The Commercial Code permits the Company to distribute profits
by way of dividends out of the excess of its net assets, on a non-consolidated
basis, over the aggregate of (i) its stated capital, (ii) its additional paid-in
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capital, (iii) its accumulated legal reserve, (iv) the legal reserve to be set
aside in respect of the dividends concerned and any other proposed payment by
way of appropriation of retained earnings, (v) the excess, if any, of
unamortized expenses incurred in preparation for commencement of business and in
connection with research and development over the aggregate of the amounts
referred to in (ii), (iii) and (iv) above, and (vi) the increased amount of net
assets in its balance sheet due to the assignment of market value to certain
assets when the aggregate market value so assigned exceeds the aggregate
acquisition value of such assets. In the case of interim dividends, the net
assets are calculated by reference to the balance sheet as at the last closing
of the Company's accounts, and adjustments are made to reflect any subsequent
payment by way of appropriation of retained earnings and the related transfer to
legal reserve, any subsequent transfer of retained earnings to stated capital
and the aggregate purchase price of shares determined by a resolution of the
ordinary general meeting of shareholders authorizing it to acquire its shares.
Interim dividends may not be paid where there is a risk that at the end of the
fiscal year net assets might be less than the aggregate of the amounts referred
to in (i), (ii), (iii), (iv), (v) and (vi) above.
The Commercial Code, currently in effect, does not provide for "stock
dividends." However, under the Commercial Code, the shareholders may by
resolution transfer any amount which is distributable as dividends to stated
capital and the Board of Directors may by resolution issue additional shares by
way of a stock split, thus the same effect as a stock dividend can be achieved.
In Japan, the "ex-dividend" date and the record date for dividends precede
the date of determination of the amount of the dividend to be paid.
TRANSFER OF CAPITAL SURPLUS AND LEGAL RESERVE TO STATED CAPITAL AND STOCK SPLITS
(FREE SHARE DISTRIBUTIONS)
When the Company issues new shares of Common Stock, the entire amount of
the issue price of such new shares is required to be accounted for as stated
capital, although the Company may account for an amount not exceeding one-half
of such issue price as capital surplus. The Board of Directors may transfer the
whole or any part of capital surplus and legal reserve to stated capital and
grant to shareholders additional shares of Common Stock free of charge by way of
a stock split with reference to the whole or any part of the amount of capital
surplus and legal reserve so transferred to stated capital.
GENERAL MEETING OF SHAREHOLDERS
The ordinary general meeting of shareholders to settle accounts of the
Company for each fiscal period is normally held in June each year in Ota-ku,
Tokyo, Japan. In addition, the Company may hold an extraordinary general meeting
of shareholders whenever necessary by giving at least two weeks' advance notice
to shareholders.
Notice of a shareholders' meeting setting forth the place, time and purpose
thereof, must be mailed to each shareholder having voting rights (or, in the
case of a non-resident shareholder, to his resident proxy or mailing address in
Japan) at least two weeks prior to
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the date set for the meeting. Such notice may also be furnished to shareholders
by electronic means with such shareholders' consent.
Any shareholder holding at least 300 voting shares or 1% of the total
number of outstanding voting shares for six months or more may propose a matter
to be considered at a general meeting of shareholders by submitting a written
request to a Representative Director at least eight weeks prior to the date set
for such meeting. Such request may be submitted by electronic means with the
Company's consent.
VOTING RIGHTS
A shareholder is entitled to one vote per share subject to the
limitations on voting rights set forth in the following paragraph below and in
the sections entitled "`Unit' share system" through "Voting rights of a holder
of shares representing less than one unit" below. Except as otherwise provided
by law or by the Company's Articles of Incorporation, a resolution can be
adopted at a general meeting of shareholders by a majority of the shares having
voting rights represented at the meeting. Special resolutions provided for in
Article 343 of the Commercial Code shall be adopted by the vote of the
shareholders not less than two-thirds (2/3) of those present at a meeting
whereby one-third (1/3) of voting rights of all of the shareholders shall
constitute a quorum. The Commercial Code and the Company's Articles of
Incorporation provide, however, that the quorum for the election of Directors
and Corporate Auditors shall not be less than one-third of the total number of
outstanding shares having voting rights. The Company's shareholders are not
entitled to cumulative voting in the election of Directors. A corporate
shareholder, more than one-quarter of whose outstanding voting shares are
directly or indirectly owned by the Company, may not exercise its voting rights
in respect of the shares of the Company. The Company has no voting rights with
respect to its own Common Stock. Shareholders may exercise their voting rights
through proxies provided that the proxies are also shareholders holding voting
rights. The Company's shareholders also may cast their votes in writing.
The Commercial Code provides that in order to amend the Articles of
Incorporation and in certain other instances, including an increase in the total
number of shares authorized to be issued, a reduction of the stated capital, the
removal of a Director or Corporate Auditor, dissolution, merger (with an
exception of a merger with a company of significantly small business) or
consolidation of a corporation, the transfer of the whole or an important part
of the business, the taking over of the whole of the business of any other
corporation (with an exception of a merger with a company of significantly small
business), any offering of new shares at a "specially favorable" price (or any
offering of convertible bonds or debentures with "specially favorable"
conversion conditions or of bonds or debentures with warrants or rights to
subscribe for new shares with "specially favorable" conditions) to persons other
than shareholders, the quorum shall be one-third of the total number of shares
having voting rights outstanding and the approval of the holders of at least
two-thirds of the shares having voting rights represented at the meeting is
required (the "special shareholders resolution").
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SUBSCRIPTION RIGHTS
Holders of the Company's Common Stock have no preemptive rights under its
Articles of Incorporation. Authorized but unissued shares may be issued at such
times and upon such terms as the Board of Directors determines, subject to the
limitations as to the offering of new shares at a "specially favorable" price
mentioned above. The Board of Directors may, however, determine that
shareholders shall be given subscription rights regarding a particular issue of
new shares, in which case such rights must be given on uniform terms to all
shareholders as at a record date of which not less than two weeks' public notice
must be given. Each of the shareholders to whom such rights are given must also
be given notice of the expiry thereof at least two weeks prior to the date on
which such rights expire.
Rights to subscribe for new shares may be made generally transferable by
the Board of Directors. Whether the Company will make subscription rights
generally transferable in future rights offerings will depend upon the
circumstances at the time of such offerings. If subscription rights are not made
generally transferable, transfers by a non-resident of Japan or a corporation
organized under the laws of a foreign country or whose principal office is
located in a foreign country will be enforceable against the Company and third
parties if the Company's consent to each such transfer is obtained. When such
consent is necessary in the future for the transfer of subscription rights, the
Company intends to consent, on request, to all such transfers by such a
non-resident or foreign corporation.
DILUTION
In the future it is possible that market conditions and other factors
might make a rights, offering to shareholders substantially below the market
price of shares of Common Stock desirable. If the number of shares offered in a
rights offering is substantial in relation to the number of shares outstanding
and the market price exceeds the subscription price at the time of the offering,
a shareholder who does not exercise and is unable otherwise to realize the full
value of his subscription rights would suffer economic dilution of his equity
interest in the Company.
LIQUIDATION RIGHTS
In the event of a liquidation of the Company, the assets remaining after
payment of all debts and liquidation expenses and taxes will be distributed
among the shareholders in proportion to the respective numbers of shares held.
LIABILITY TO FURTHER CALLS OR ASSESSMENTS
All the Company's presently outstanding shares of Common Stock including
shares represented by the American Depository Shares are fully paid and
non-assessable.
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TRANSFER AGENT
The Chuo Mitsui Trust and Banking Co., Ltd. is the transfer agent for the
Company's Common Stock; as such transfer agent, it keeps the Company's register
of shareholders and register of the lost share certificates in its office at
7-1,Kyobashi 1-chome, Chuo-ku, Tokyo, Japan, and makes transfer of record
ownership upon presentation of the certificates representing the transferred
shares.
RECORD DATE
March 31 is the record date for the Company's year-end dividends. The
shareholders who are registered as the holders of 1,000 shares or more in the
Company's register of shareholders at the end of each March 31 are also entitled
to exercise shareholders' rights at the ordinary general meeting of shareholders
with respect to the fiscal period ending on such March 31. September 30 is the
record date for interim dividends. In addition, the Company may set a record
date for determining the shareholders entitled to other rights and for other
purposes by giving at least two weeks' public notice.
The price of the shares generally goes ex-dividend or ex-rights on
Japanese stock exchanges on the third business day prior to a record date (or if
the record date is not a business day, the fourth business day prior thereto),
for the purpose of dividends or rights offerings.
REPURCHASE BY THE COMPANY OF ITS COMMON STOCK
The Company may repurchase shares (i) through the Tokyo Stock Exchange or
other stock exchange on which the shares are listed, if authorized by an
ordinary resolution of an ordinary general meeting of shareholders, (ii) by way
of tender offer, if authorized by an ordinary resolution of an ordinary general
meeting of shareholders, (iii) from a specific party, if authorized by special
resolution of an ordinary general meeting of shareholders, or (iv) from the
Company's own subsidiary, if authorized by a resolution of the Board of
Directors.
When such repurchase is made by the Company from a specific party other
than the Company's own subsidiary, 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.
Any repurchase of shares must satisfy certain requirements, including that the
total amount of the repurchase price may not exceed the amount of the retained
earnings available for annual dividend payments after taking into account any
reduction, if any, of the stated capital, additional paid-in capital or legal
reserve (if such reduction of the stated capital, additional paid-in capital or
legal reserve has been authorized pursuant to a resolution of the relevant
ordinary general meeting of shareholders), minus the amount to be paid by way of
appropriation of retained earnings for the relevant fiscal year and the amount
to be transferred to stated capital. If it is anticipated that the net assets on
the balance sheet as at the end of the relevant fiscal year will be less than
the aggregate amount of the stated capital, additional
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paid-in capital and other items as described in (i) through (vi) in "Dividends"
above, the Company may not repurchase shares. The Company may hold its own
shares so repurchased without restriction. The Company may cancel its own shares
that it holds by a resolution of the Board of Directors. The Company may
otherwise dispose of its own shares by a resolution of the Board of Directors.
"UNIT" SHARE SYSTEM (TANGENKABU SEIDO)
Pursuant to the Commercial Code the Company has adopted 1,000 shares as
one unit of shares.
TRANSFERABILITY OF SHARES REPRESENTING LESS THAN ONE UNIT
As adopted in the Company's Articles of Incorporation, the Company will
not issue certificates for shares representing less than one unit. Since the
transfer of shares normally requires delivery of the certificates therefor,
fractions of a unit for which no share certificates are issued are not
transferable. Shares representing less than one unit for which share
certificates have been issued continue to be transferable.
RIGHT OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT TO REQUIRE THE
COMPANY TO PURCHASE SUCH SHARES
A holder of shares representing less than one unit may at any time
require the Company to purchase such shares at their last reported sale price on
the Tokyo Stock Exchange on the day when such request is made less applicable
brokerage commission. The usual securities transfer tax is applicable to such
transactions.
RIGHT OF THE HOLDER OF SHARES TO DEMAND THE PURCHASE OF SHARES REPRESENTING LESS
THAN ONE UNIT
As adopted in the Company's Articles of Incorporation and set forth in
the Share Handling Regulations, a holder of shares of less-than-one-unit may
request the Company to sell additional shares so that their less-than-one-unit
can share constitute one unit of shares.
OTHER RIGHTS OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT
A holder of shares representing less than one unit has certain rights in
respect of such shares, including the following: (i) the right to receive
dividends (including interim dividends), (ii) the right to receive shares and/or
cash by way of a stock split or upon consolidation or subdivision of shares or
upon a capital decrease or merger of the Company, (iii) the right to be allotted
subscription rights with respect to new shares, convertible bonds and bonds with
warrants to subscribe for shares when such rights are granted to shareholders,
(iv) the right to participate in the distribution of surplus assets in the event
of the liquidation of the Company, (v) the right to request to inspect certain
corporate documents, including minutes of the Board of Directors meeting, (vi)
the right to file a derivative action on behalf of the Company and (vii) the
right to file an action seeking to invalidate certain events, including issuance
of new shares and corporate
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merger. Other rights, including voting rights, cannot be exercised with respect
to shares representing less than one unit.
VOTING RIGHTS OF A HOLDER OF SHARES REPRESENTING LESS THAN ONE UNIT
A holder of shares representing less than one unit cannot exercise any
voting rights with respect to such shares. A holder of shares representing one
or more whole units will have one vote for each such unit, except as stated in
"Voting rights" above.
C. Material contracts
All contracts entered into by Ricoh or any member of the Ricoh Group
during the two years preceding this report were entered into in the ordinary
course of business.
D. Exchange controls
The Foreign Exchange and Foreign Trade Law of Japan, as amended, and the
cabinet orders and ministerial ordinances thereunder (the "Exchange Law") govern
certain matters relating to the issuance of equity-related securities by the
Company and the acquisition and holding of shares of Common Stock or ADSs
representing such shares by "exchange non-residents" and by "foreign investors"
as hereinafter defined. The Exchange Law currently in effect does not affect the
right of an exchange non-resident to purchase or sell an ADS outside Japan.
"Exchange non-residents" are defined under the Exchange Law as
individuals who are not resident in Japan and corporations whose principal
offices are located outside Japan. Generally branches and other offices of
Japanese corporations located outside Japan are regarded as exchange
non-residents, but branches and other offices located within Japan of
non-resident corporations are regarded as residents of Japan. "Foreign
investors" are defined to be (i) individuals not resident in Japan, (ii)
corporations which are organized under the laws of foreign countries or whose
principal offices are located outside Japan, and (iii) corporations of which (a)
50% or more of the shares are held by (i) and/or (ii) above, (b) a majority of
officers consists of non-resident individuals or (c) a majority of the officers
having the power of representation consists of non-resident individuals.
Dividends and Proceeds of Sales
Under the Exchange Law, dividends paid on, and the proceeds of sales in
Japan of, shares of Common Stock held by exchange non-residents in general may
be converted into any foreign currency and repatriated abroad. The acquisition
of shares of Common Stock by exchange non-resident shareholders by way of stock
splits is not subject to any requirements under the Exchange Law.
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
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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.
Stock splits in themselves (whether for the purpose of making a free
distribution or dividend in shares), subject as set out below, are not subject
to Japanese income tax. However, a transfer of retained earnings or legal
reserve (but not capital surplus) to stated capital is treated as a dividend
payment to shareholders for Japanese tax purposes and is, in general, subject to
Japanese income tax. Under the Income Tax Convention between the U.S. and Japan
(the "Convention"), 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 15%.
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.
In the absence of an applicable tax treaty, convention or agreement
reducing the maximum rate of withholding tax, the rate of Japanese withholding
tax on dividends paid by Japanese corporation to non-residents of Japan or
non-Japanese corporation is 20%.
Gains derived by a non-resident of Japan or a non-Japanese corporation
from the sale of Common Stock or ADRs outside Japan, or from the sale of Common
Stock within Japan by a non-resident of Japan or by a non-Japanese corporation
not having a permanent establishment in Japan, are in general not subject to
Japanese income or
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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.
U.S. TAXATION
This summary describes the material U.S. federal income tax
consequences for a U.S. holder (as defined below) of owning and disposing of
shares of Common Stock or American Depositary Shares evidenced by the ADRs. This
summary applies to you only if you hold shares of Common Stock or American
Depositary Shares as capital assets for U.S. federal income tax purposes. This
summary does not apply to you if you are a member of a class of holders subject
to special rules, such as:
. a dealer in securities or currencies;
. a trader in securities that elects to use a mark-to-market method of
accounting for securities holdings;
. a bank;
. a life insurance company;
. a tax-exempt organization;
. a person that holds shares of Common Stock or American Depositary Shares
that are a hedge or that are hedged against interest rate or currency
risks;
. a person that is subject to the alternative minimum tax;
. a person that holds shares of Common Stock or American Depositary Shares
as part of a straddle or conversion transaction for tax purposes;
. a person whose functional currency for U.S. federal income tax purposes
is not the U.S. dollar; or
. a person that actually or constructively owns or is deemed to own 10% or
more of any class of our stock.
This summary is based on laws, treaties, and regulatory interpretations
in effect on the date hereof, all of which are subject to change, possibly on a
retroactive basis. Moreover, this summary assumes that the Company will not be
treated as a passive foreign investment company (a "PFIC") for U.S. federal
income tax purposes. See the summary below under the heading "PFIC Rules."
Please consult your own tax advisers concerning the U.S. federal,
state, local, and other tax consequences of purchasing, owning, and disposing of
shares of Common Stock or American Depositary Shares in your particular
circumstances.
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
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for U.S. federal income tax purposes) created or organized in or under the laws
of the United States, any state thereof or the District of Columbia (unless, in
the case of a partnership, Treasury regulations are adopted that provide
otherwise), (iii) an estate whose income is subject to U.S. federal income tax
regardless of its source, or (iv) a trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust. Certain trusts not described in clause (iv) above in
existence on August 20, 1996 that elect to be treated as a United States person
will also be a U.S. holder for purposes of this discussion.
In general, if you hold ADRs evidencing American Depositary Shares, you
will be treated as the owner of the shares of Common Stock represented by those
American Depositary Shares for U.S. federal income tax purposes, and no gain or
loss will be recognized if you exchange an American Depositary Share for the
shares of Common Stock represented by that American Depositary Share.
Dividends
The gross amount of cash dividends paid out of the Company's current or
accumulated earnings and profits, as determined for U.S. federal income tax
purposes, that a U.S. holder receives (prior to deduction of Japanese taxes)
generally will be subject to U.S. federal income taxation as foreign source
ordinary dividend income. However, in certain circumstances, all or a portion of
the cash dividends paid by the Company may be treated as U.S. source dividend
income. You should consult your tax advisers regarding the U.S. federal income
tax consequences of all or a portion of the cash dividends paid by the Company
being treated as U.S. source dividend income.
Dividends paid in Japanese Yen will be included in your income in a U.S.
dollar amount calculated by reference to the exchange rate in effect on the date
of your (or, in the case of American Depositary Shares, the depositary's)
receipt of the dividend, regardless of whether the payment is in fact converted
into U.S. dollars. If such a dividend is converted into U.S. dollars on the date
of receipt, you generally should not be required to recognize foreign currency
gain or loss in respect of the dividend income. You should consult your own tax
adviser regarding the treatment of any foreign currency gain or loss realized
with respect to any Japanese Yen received by you (or, in the case of American
Depositary Shares, the depositary) that are converted into U.S. dollars on a
date subsequent to receipt. Dividends paid by the Company generally will not be
eligible for the dividends-received deduction allowed to corporations that are
U.S. holders.
Notwithstanding the foregoing, pursuant to recently enacted legislation,
certain dividends received by individual U.S. holders that constitute "qualified
dividend income" will be subject to a reduced maximum marginal U.S. federal
income tax rate. Qualified dividend income generally includes, among other
dividends, dividends received during 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
-85-
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
120-day period beginning on the date which is 60 days before the date on which
such share becomes ex-dividend with respect to such dividends (as measured under
section 246(c) of the Code) or (ii) dividends to the extent that the taxpayer is
under an obligation (whether pursuant to a short sale or otherwise) to make
related payments with respects to positions in substantially similar or related
property. Moreover, special rules apply in determining a taxpayer's foreign tax
credit limitation under section 904 of the Code in the case of qualified
dividend income. Individual U.S. holders should consult their own tax advisors
to determine whether or not amounts received as dividends from the Company will
constitute qualified dividend income subject to a reduced maximum marginal U.S.
federal income tax rate and, in such case, the effect, if any, on the individual
U.S. holder's foreign tax credit.
In addition to the foregoing, you should consult your own tax advisers to
determine whether any rules limit your ability to make effective use of foreign
tax credits, including the possible adverse impact of failing to take advantage
of benefits under the income tax treaty between the United States and Japan. If
no such rules apply, you generally may claim a credit against your U.S. federal
income tax liability for Japanese taxes withheld from dividends on shares of
Common Stock or American Depositary Shares, so long as you have owned the shares
of Common Stock or American Depositary Shares (and not entered into specified
kinds of hedging transactions) for at least a 16-day period that includes the
ex-dividend date. Instead of claiming a credit, you may, at your election,
deduct such Japanese taxes in computing your taxable income, subject to
generally applicable limitations under U.S. federal income tax law. The
calculation of foreign tax credits and, in the case of a U.S. holder that elects
to deduct foreign taxes, the availability of deductions involve the application
of complex rules that depend, in part, on a U.S. holder's particular
circumstances. You should consult your own tax advisers regarding the
creditability or deductibility of such taxes.
Sales and Other Dispositions
A U.S. holder will recognize gain or loss on the sale or other disposition
of shares of Common Stock or American Depositary Shares evidenced by ADRs in an
amount equal to the difference between the U.S. Holder's adjusted tax basis in
such shares of Common Stock or American Depositary Shares (in U.S. dollars) and
the amount realized on the disposition (in U.S. dollars, generally determined at
the spot rate on the date of disposition if the amount realized is denominated
in a foreign currency). For U.S. federal
-86-
income tax purposes, gain or loss realized by a U.S. holder on a sale or other
disposition of shares of Common Stock or American Depositary Shares will be
capital gain or loss, and will be long-term capital gain or loss if the shares
of Common Stock or American Depositary Shares were held for more than one year.
Such gain or loss generally will be treated as U.S. source gain or loss for U.S.
foreign tax credit purposes. Your ability to offset capital losses against
ordinary income is limited. Long-term capital gain recognized by an individual
U.S. holder generally is subject to taxation at a reduced maximum marginal U.S.
federal income tax rate.
PFIC Rules
The Company believes that it will not be treated as a PFIC for U.S. federal
income tax purposes. However, that is a factual determination made annually and
therefore may be subject to change. If the Company was treated as a PFIC, a U.S.
holder of shares of Common Stock or American Depositary Shares evidenced by ADRs
would be subject to certain adverse U.S. federal income tax consequences.
U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING RULES
Payments in respect of the shares of Common Stock or American Depositary
Shares that are made within the United States or through certain U.S.-related
financial intermediaries are subject to information reporting and may be subject
to backup withholding unless the holder (i) is a corporation or other exempt
recipient or (ii) provides a taxpayer identification number and certifies that
no loss of exemption from backup withholding has occurred (and certain other
conditions are met).
F. Dividends and paying agents
Not applicable.
G. Statement by experts
Not applicable.
H. Documents on display
The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended. In accordance with these requirements, the
Company files reports and other information with the U.S. Securities and
Exchange Commission (the "SEC"). These materials, including this annual report
and exhibits thereto, may be inspected and copied at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the materials
may be obtained from the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The public may obtain information on
the operation of the Public Reference Room by calling the SEC in the U.S. at
1-800-SEC-0330. The documents filed via the Electronic Data Gathering, Analysis,
and Retrieval system is also available for inspection on the SEC's website
(http://www.sec.gov).
-87-
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 2003, and
there are no material quantitative changes in market risk exposure at March 31,
2003 when compared to March 31, 2002. In the normal course of business, Ricoh
also faces risks that are either non-financial or nonquantifiable. Such risks
principally include credit risk and legal risk, and are not represented in the
following tables.
FOREIGN CURRENCY RISK
In the ordinary course of business, Ricoh uses foreign exchange forward
contracts to manage the effects of foreign currency exchange risk on monetary
assets and liabilities denominated in foreign currencies. The contracts with
respect to the operating activities generally have maturities of less than six
months, while the contracts with respect to the financing activities have the
same maturities as the underlying assets and liabilities.
The table below provides information about Ricoh's material derivative
financial instruments that are sensitive to foreign currency exchange rates. The
below table relating to foreign exchange forward contracts presents the notional
amounts, weighted average exchange rates and estimated fair value. These
notional amounts generally are used to calculate the contractual payments to be
exchanged under the contracts.
Foreign Exchange Forward Contracts (Year ended March 31, 2003)
---------------------------------------------------------------------------------------------------------
Year Ended March 31, 2003
---------------------------------------------------------------------------------------
Average contractual rates Contract amounts Estimated fair value
(Millions of yen) (Millions of yen)
---------------------------------------------------------------------------------------------------------
US$/Yen 120.41 Yen 1,204 Yen 3
EUR/Yen 125.67 14,238 (418)
---------------------------------------------------------------------------------------------------------
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INTEREST RATE RISK
In the ordinary course of business, Ricoh enters into interest rate swap
agreements to reduce interest rate risk and to modify the interest rate
characteristics of its outstanding debt. These agreements primarily involve the
exchange of fixed and floating rate interest payments over the life of the
agreement without the exchange of the underlying principal amounts.
The below table provides information about Ricoh's major derivative and
other financial instruments that are sensitive to changes in interest rates,
including interest rate swaps and debt obligations. For debt obligations, the
table presents principal cash flows by expected maturity date, related weighted
average interest rates and estimated fair value. For interest rate swaps, the
table presents notional amounts by expected maturity date, weighted average
interest rates. Notional amounts are generally used to calculate the contractual
payments to be exchanged under the contract.
-----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INDEBTEDNESS Year ended march 31, 2003
-----------------------------------------------------------------------------------------------------------------------------------
Millions of yen
(Excluding --------------------------------------------------------------------------------------------------
Capital Lease Expected maturity date
Obligations and ------------------------------------------------------------------------------------
SFAS No. 133 fair Average Fair
value adjustment) pay rate Total 2004 2005 2006 2007 2008 Thereafter Value
-----------------------------------------------------------------------------------------------------------------------------------
Convertible Bonds - % Yen - Yen - Yen - Yen - Yen - Yen - Yen - Yen -
Bonds 1.35 154,910 14,910 10,000 40,000 45,000 10,000 35,000 160,124
Medium-Term Notes 0.21 24,000 9,000 12,000 3,000 - - - 24,028
Loans 1.61 212,595 29,096 62,860 82,286 10,809 17,110 10,434 212,757
-----------------------------------------------------------------------------------------------------------------------------------
Total Yen 391,505 Yen 53,006 Yen 84,860 Yen 125,286 Yen 55,809 Yen 27,110 Yen 45,434 Yen 396,909
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS Year ended march 31, 2003
-----------------------------------------------------------------------------------------------------------------------------------
Millions of yen
------------------------------------------------------------------------------------
Expected maturity date
------------------------------------------------------------------------
Notional Average Average
amounts receive pay Fair
(Millions) Type of swap rate rate Total 2004 2005 2006 2007 2008 Thereafter Value
-----------------------------------------------------------------------------------------------------------------------------------
Receive floating
Yen 59,179 /Pay fixed 0.08% 0.36% Yen 59,179 Yen 229 Yen 4,950 Yen 52,000 Yen 2,000 Yen - Yen - Yen 3,961
Receive fixed
79,000 /Pay floating 1.98 0.11 79,000 18,000 17,000 19,000 1,000 6,000 18,000 (206)
Receive floating
US$ 20 /Pay floating 7.36% 1.96% Yen 2,404 - Yen 2,404 - - - - Yen 230
-----------------------------------------------------------------------------------------------------------------------------------
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
-89-
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.
EQUITY PRICE RISK
Ricoh has a relatively small portion of marketable securities which are
subject to equity price risk arising from changes in their market prices.
Marketable securities consist of a diversified pool of Japanese equity
securities. Ricoh's overall investment policy is to invest in highly-liquid, low
risk investments.
The table below provides information about contractual maturities for
available-for-sale securities and the fair values for market risk sensitive
securities as of March 31, 2002 and 2003.
Millions of Japanese Yen
For the Year ended March 31, 2003
--------------------------------------
Cost Fair Value
----------------- ------------------
Debt Securities
Due within one year Yen 107 Yen 107
Due after one year through five years 45,020 44,830
Equity Securities 6,328 10,957
Investment Trusts* 9,459 8,815
----------------- ------------------
Total Yen 60,914 Yen 64,709
----------------- ------------------
*Investment trusts consist of investments in marketable debt and equity
securities.
Item 12. Description of Securities Other Than Equity Securities
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
None.
Item 15. Controls and Procedures
Within the 90-day period prior to the filing of this report, Ricoh
performed an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures under the supervision and with the
participation of Ricoh's management, including the Chief Executive Officer and
the Deputy President (Corporate Planning, Investors Relations, Accounting and
Personnel) (i.e., the principal financial officer of the
-90-
Company). Based on that evaluation, Ricoh's management, including the Chief
Executive Officer and Deputy President (Corporate Planning, Investors Relations,
Accounting and Personnel), concluded that its disclosure controls and procedures
were effective as of the date of such evaluation.
No significant changes in Ricoh's internal controls or in other factors
have occurred that could significantly affect these controls subsequent to the
date the Chief Executive Officer and Deputy President (Corporate Planning,
Investors Relations, Accounting and Personnel) completed their evaluation.
Item 16. [RESERVED]
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)
12.(a)(1) Certification Pursuant to Section 1350 of Chapter 63 of Title
18 of the United States Code
12.(a)(2) Certification Pursuant to Section 1350 of Chapter 63 of Title
18 of the United States Code
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Company hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
RICOH COMPANY, LTD.
--------------------------
(Registrant)
By: /s/ Zenji Miura
----------------------
Zenji Miura
Executive Vice President
and General Manager of the
Finance and Accounting
Division
Date: June 30, 2003
CERTIFICATION OF THE PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHIEF OPERATING OFFICER
I, Masamitsu Sakurai, President, Chief Executive Officer and Chief Operating
Officer of Ricoh Company, Ltd., certify that:
1. I have reviewed this annual report on Form 20-F of Ricoh Company, Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 30, 2003
By: /s/ Masamitsu Sakurai
-------------------------------
Masamitsu Sakurai
President, Chief Executive Officer
and Chief Operating Officer
CERTIFICATION OF THE EXECUTIVE VICE PRESIDENT AND
DEPUTY PRESIDENT (ACCOUNTING AND PERSONNEL)
I, Tatsuo Hirakawa, Executive Vice President and Deputy President (Accounting
and Personnel) of Ricoh Company, Ltd., certify that:
1. I have reviewed this annual report on Form 20-F of Ricoh Company, Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 30, 2003
By: /s/ Tatsuo Hirakawa
--------------------------------
Tatsuo Hirakawa
Executive Vice President and
Deputy President (Accounting and
Personnel)
RICOH COMPANY, LTD.
Consolidated Financial Statements and Schedule
For the years ended March 31, 2001, 2002 and 2003
Together with Independent Auditors' Report
Ricoh Company, Ltd. and Consolidated Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
---------------------------------------------------------------------------------------------
Independent Auditors' Report ................................................... F-2
Consolidated Balance Sheets as of
March 31, 2002 and 2003 ..................................................... F-3 to F-4
Consolidated Statements of Income
for the years ended March 31, 2001, 2002 and 2003 ........................... F-5
Consolidated Statements of Shareholders' Investment
for the years ended March 31, 2001, 2002 and 2003 ........................... F-6
Consolidated Statements of Cash Flows
for the years ended March 31, 2001, 2002 and 2003 ........................... F-7
Notes to Consolidated Financial Statements ..................................... F-8 to F-41
Schedule:
II. Valuation and Qualifying Accounts and Reserves .......................... F-42
All schedules not listed have been omitted because they are not applicable, or
the required information has been otherwise supplied in the consolidated
financial statements or the notes thereto.
F-1
INDEPENDENT AUDITORS' REPORT
To the Shareholders and the Board of Directors
of Ricoh Company, Ltd.:
We have audited the consolidated financial statements of Ricoh Company, Ltd. (a
Japanese corporation) and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ricoh Company, Ltd.
and subsidiaries as of March 31, 2002 and 2003, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 2003, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company
and its subsidiaries changed their policy concerning which short-term
investments are treated as cash equivalents.
Also, as discussed in Note 2 to the consolidated financial statements, the
Company and its subsidiaries adopted the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," effective
April 1, 2002 and the provisions of Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
effective April 1, 2001.
The accompanying consolidated financial statements as of and for the year ended
March 31, 2003 have been translated into United States dollars solely for the
convenience of the reader. We have recomputed the translation and, in our
opinion, the consolidated financial statements, expressed in yen, have been
translated into dollars on the basis set forth in Note 2 to the consolidated
financial statements.
/s/ KPMG
Tokyo, Japan
April 30, 2003
F-2
Ricoh Company, Ltd. and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31, 2002 and 2003
Thousands of
Millions of Yen U.S. Dollars
----------------------- --------------
A S S E T S 2002 2003 2003
------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents Yen 170,172 Yen 189,243 $ 1,603,754
Time deposits 12,478 11,087 93,958
Marketable securities 22,935 107 907
Trade receivables-
Notes 85,269 76,022 644,254
Accounts 376,073 359,769 3,048,890
Less- Allowance for doubtful receivables (18,943) (17,849) (151,263)
Inventories-
Finished goods 116,435 102,164 865,796
Work in process and raw materials 45,741 43,887 371,924
Deferred income taxes and other 53,508 58,083 492,229
----------------------------------------------------------------------------------------------------------------
Total current assets 863,668 822,513 6,970,449
----------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at cost:
Land 44,542 42,990 364,322
Buildings 202,581 204,606 1,733,949
Machinery and equipment 663,723 660,458 5,597,102
Construction in progress 2,969 6,540 55,424
----------------------------------------------------------------------------------------------------------------
913,815 914,594 7,750,797
Less- Accumulated depreciation (654,435) (665,842) (5,642,729)
----------------------------------------------------------------------------------------------------------------
259,380 248,752 2,108,068
----------------------------------------------------------------------------------------------------------------
Investments and Other Assets:
Finance receivables 447,829 476,293 4,036,381
Investment securities 28,886 71,973 609,941
Investments in and advances to affiliates 47,434 45,791 388,059
Goodwill 29,687 28,109 238,212
Other intangible assets 37,598 40,020 339,153
Lease deposits and other 118,446 151,471 1,283,652
----------------------------------------------------------------------------------------------------------------
709,880 813,657 6,895,398
----------------------------------------------------------------------------------------------------------------
Yen 1,832,928 Yen 1,884,922 $ 15,973,915
----------------------------------------------------------------------------------------------------------------
F-3
Thousands of
Millions of Yen U.S. Dollars
---------------------------- ---------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT 2002 2003 2003
------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Short-term borrowings Yen 161,094 Yen 84,478 $ 715,915
Current maturities of long-term indebtedness 67,314 54,235 459,619
Trade payables-
Notes 35,481 32,943 279,178
Accounts 242,272 247,855 2,100,466
Accrued income taxes 33,356 42,393 359,263
Accrued expenses and other 126,184 126,679 1,073,550
----------------------------------------------------------------------------------------------------------------
Total current liabilities 665,701 588,583 4,987,991
----------------------------------------------------------------------------------------------------------------
Long-term Liabilities:
Long-term indebtedness 332,995 345,902 2,931,373
Accrued pension and severance costs 119,572 209,011 1,771,280
Deferred income taxes 30,592 30,653 259,771
----------------------------------------------------------------------------------------------------------------
483,159 585,566 4,962,424
----------------------------------------------------------------------------------------------------------------
Minority Interests 51,048 53,259 451,347
----------------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Note 16)
Shareholders' Investment:
Common stock;
Authorized - 1,000,000,000 shares in 2002 and 993,000,000
shares in 2003
Issued and outstanding - 727,278,256 shares and 727,086,738
shares in 2002 and 744,912,078 shares and 742,608,635
shares in 2003 120,461 135,364 1,147,153
Additional paid-in capital 171,628 186,521 1,580,686
Retained earnings 385,741 434,748 3,684,305
Accumulated other comprehensive income (loss) (44,376) (94,733) (802,822)
Treasury stock at cost; 191,518 shares in 2002 and 2,303,443
shares in 2003 (434) (4,386) (37,169)
----------------------------------------------------------------------------------------------------------------
Total shareholders' investment 633,020 657,514 5,572,153
----------------------------------------------------------------------------------------------------------------
Yen 1,832,928 Yen 1,884,922 $ 15,973,915
----------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-4
Ricoh Company, Ltd. and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended March 31, 2001, 2002 and 2003
Thousands of
Millions of Yen U.S. Dollars
--------------------------------------- ---------------
2001 2002 2003 2003
-------------------------------------------------------------------------------------------------------------------
Net Sales Yen 1,538,262 Yen 1,672,340 Yen 1,738,358 $14,731,847
Cost of Sales 924,893 972,394 993,009 8,415,330
------------------------------------------------------------------------------------------------------------------
Gross profit 613,369 699,946 745,349 6,316,517
Selling, General and Administrative Expenses 508,264 570,251 611,695 5,183,856
------------------------------------------------------------------------------------------------------------------
Operating income 105,105 129,695 133,654 1,132,661
------------------------------------------------------------------------------------------------------------------
Other (Income) Expenses:
Interest and dividend income (8,045) (4,753) (3,772) (31,966)
Interest expense 7,787 8,233 6,853 58,076
Foreign currency exchange (gain) loss, net (3,490) 5,732 566 4,797
Other, net 11,088 6,533 6,537 55,398
------------------------------------------------------------------------------------------------------------------
Total 7,340 15,745 10,184 86,305
------------------------------------------------------------------------------------------------------------------
Income before Income Taxes, Minority Interests and
Equity in Earnings of Affiliates 97,765 113,950 123,470 1,046,356
Provision for Income Taxes:
Current 53,506 52,365 63,183 535,449
Deferred (9,994) (1,218) (11,199) (94,907)
------------------------------------------------------------------------------------------------------------------
Total 43,512 51,147 51,984 440,542
------------------------------------------------------------------------------------------------------------------
Income before Minority Interests and Equity in
Earnings of Affiliates 54,253 62,803 71,486 605,814
Minority Interests 3,123 3,080 1,376 11,661
Equity in Earnings of Affiliates 2,098 1,891 2,403 20,364
------------------------------------------------------------------------------------------------------------------
Net Income Yen 53,228 Yen 61,614 Yen 72,513 $ 614,517
------------------------------------------------------------------------------------------------------------------
Yen U.S. Dollars
----------------------------------------- --------------
Per Share of Common Stock:
------------------------------------------------------------------------------------------------------------------
Net income:
Basic Yen 76.85 Yen 88.27 Yen 99.79 $0.85
Diluted 71.02 82.46 96.81 0.82
----------------------------------------------------------------------------------------------------------------
Cash dividends paid Yen 11.50 Yen 12.00 Yen 14.00 $0.12
----------------------------------------------------------------------------------------------------------------
Per American Depositary Share, each representing
5 shares of common stock:
----------------------------------------------------------------------------------------------------------------
Net income:
Basic Yen 384.25 Yen 441.35 Yen 498.95 $4.23
Diluted 355.10 412.30 484.05 4.10
----------------------------------------------------------------------------------------------------------------
Cash dividends paid Yen 57.50 Yen 60.00 Yen 70.00 $0.59
----------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
Ricoh Company, Ltd. and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the Years Ended March 31, 2001, 2002 and 2003
Thousands of
Millions of Yen U.S. Dollars
------------------------------------- --------------
2001 2002 2003 2003
------------------------------------------------------------------------------------------------------------------
Common Stock:
Beginning balance Yen 103,112 Yen 103,434 Yen 120,461 $1,020,856
Conversion of convertible bonds; 672,625 shares
in 2001, 34,522,672 shares in 2002 and
24,633,822 shares in 2003 322 17,027 14,903 126,297
-----------------------------------------------------------------------------------------------------------------
Ending balance Yen 103,434 Yen 120,461 Yen 135,364 $1,147,153
-----------------------------------------------------------------------------------------------------------------
Additional Paid-in Capital:
Beginning balance Yen 154,314 Yen 154,635 Yen 171,628 $1,454,474
Conversion of convertible bonds 321 16,993 14,893 126,212
-----------------------------------------------------------------------------------------------------------------
Ending balance Yen 154,635 Yen 171,628 Yen 186,521 $1,580,686
-----------------------------------------------------------------------------------------------------------------
Retained Earnings:
Beginning balance Yen 287,182 Yen 332,447 Yen 385,741 $3,268,991
Net income for the year 53,228 61,614 72,513 614,517
Dividends declared and approved (7,963) (8,320) (10,178) (86,254)
Retirement of treasury stock; 7,000,000 shares in
2003 - - (13,328) (112,949)
-----------------------------------------------------------------------------------------------------------------
Ending balance Yen 332,447 Yen 385,741 Yen 434,748 $3,684,305
-----------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (loss):
Beginning balance Yen (3,102) Yen (33,788) Yen (44,376) $(376,068)
Foreign currency translation adjustments (1,740) 6,516 1,007 8,534
Unrealized gains (losses) on securities, net of
reclassification adjustment (6,967) (766) (1,984) (16,814)
Unrealized gains (losses) on derivatives, net of
reclassification adjustment - (207) 29 246
Minimum pension liability adjustments (21,979) (16,131) (49,409) (418,720)
-----------------------------------------------------------------------------------------------------------------
Ending balance Yen (33,788) Yen (44,376) Yen (94,733) $ (802,822)
-----------------------------------------------------------------------------------------------------------------
Treasury stock:
Beginning balance - - Yen (434) $ (3,678)
Purchase of treasury stock; 446,928 shares in
2002 and 9,111,925 shares in 2003 - Yen (1,083) (17,280) (146,440)
Sales of treasury stock; 269,000 shares in 2002 - 649 - -
Retirement of treasury stock; 7,000,000 shares in
2003 - - 13,328 112,949
-----------------------------------------------------------------------------------------------------------------
Ending balance - Yen (434) Yen (4,386) $ (37,169)
-----------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for the year Yen 53,228 Yen 61,614 Yen 72,513 $ 614,517
Other comprehensive income (loss) for the year,
net of tax (30,686) (10,588) (50,357) (426,754)
-----------------------------------------------------------------------------------------------------------------
Total comprehensive income for the year Yen 22,542 Yen 51,026 Yen 22,156 $ 187,763
-----------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
Ricoh Company, Ltd. and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended March 31, 2001, 2002 and 2003
Thousands of
Millions of Yen U.S. Dollars
-------------------------------------- ---------------
2001 2002 2003 2003
--------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income Yen 53,228 Yen 61,614 Yen 72,513 $ 614,517
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 62,142 73,782 76,551 648,737
Equity in earnings of affiliates, net of dividends received (1,056) (1,260) (1,167) (9,890)
Deferred income taxes (9,994) (1,218) (9,289) (78,720)
Losses on disposals and sales of property, plant and
equipment 2,223 1,665 1,975 16,737
Changes in assets and liabilities, net of effects from
acquisition-
(Increase) decrease in trade receivables (32,476) (20,006) 22,176 187,932
(Increase) decrease in inventories (7,167) 21,194 14,983 126,975
Increase in finance receivables (15,127) (13,620) (33,109) (280,585)
(Decrease) increase in trade payables 16,235 (19,535) 5,632 47,729
(Decrease) increase in accrued income taxes and
accrued expenses and other 27,310 (13,592) 11,173 94,686
Increase in accrued pension and severance costs 1,667 8,374 7,806 66,153
Other, net 5,743 7,740 16,498 139,814
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 102,728 105,138 185,742 1,574,085
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment 1,120 756 245 2,076
Expenditures for property, plant and equipment (73,040) (75,231) (71,984) (610,034)
Payments for purchases of available-for-sale securities (23,395) (10,025) (52,219) (442,534)
Proceeds from sales of available-for-sale securities 66,778 24,568 24,513 207,737
(Increase) decrease in time deposits 6,797 (477) 944 8,000
Payments for acquisition of Lanier Worldwide, Inc.,
net of cash acquired (28,103) - - -
Other, net (10,354) (21,012) 302 2,560
-----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (60,197) (81,421) (98,199) (832,195)
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term loans 33,183 71,075 58,194 493,169
Repayment of long-term loans (114,701) (79,640) (23,133) (196,042)
(Decrease) increase in short-term borrowings, net 5,565 (39,414) (73,393) (621,975)
Proceeds from issuance of long-term debt securities - 103,500 11,000 93,220
Repayment of long-term debt securities (2,990) (10,000) (11,723) (99,347)
Dividend payments (7,964) (8,322) (10,176) (86,237)
Payment for purchase of treasury stock - (1,054) (17,281) (146,449)
Other, net (1,475) 90 (631) (5,347)
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (88,382) 36,235 (67,143) (569,008)
-----------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 975 2,474 (1,329) (11,263)
-----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (44,876) 62,426 19,071 161,619
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 152,622 107,746 170,172 1,442,135
-----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR Yen 107,746 Yen 170,172 Yen 189,243 $1,603,754
-----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR-
Interest Yen 13,749 Yen 9,418 Yen 7,300 $ 61,864
Income taxes 57,192 53,129 52,154 441,983
-----------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
Ricoh Company, Ltd. and Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Ricoh Company, Ltd. (the "Company") was established in 1936 and is headquartered
in Tokyo, Japan. The Company and its consolidated subsidiaries ("Ricoh" as a
consolidated group) is a world-wide supplier of office automation equipment,
including copiers, facsimile machines, data processing systems, printers and
related supplies. Ricoh is also well known for its state-of-the-art electronic
devices, digital photographic equipment and other products.
Ricoh distributes its products primarily through domestic (Japanese) and foreign
sales subsidiaries. Overseas, Ricoh owns and distributes not only Ricoh brand
products but also other brands, such as Gestetner, Lanier and Savin.
Ricoh manufactures its products primarily in 15 plants in Japan and 7 plants
overseas, which are located in the United States, United Kingdom, France and
China.
2. SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The accompanying consolidated financial statements of Ricoh have been prepared
in conformity with accounting principles generally accepted in the United States
of America. Significant accounting and reporting policies are summarized below:
(A) BASIS OF PRESENTATION
The accompanying consolidated financial statements for the three years ended
March 31, 2003 are presented in Japanese yen, the functional currency of the
Company and its domestic subsidiaries. The translation of Japanese yen into U.S.
Dollar equivalents for the year ended March 31, 2003 is included solely for the
convenience of readers outside Japan and has been made using the exchange rate
of Yen 118 to US$1, the approximate rate of exchange prevailing at the Federal
Reserve Bank of New York on March 31, 2003.
The books of the Company and its domestic subsidiaries are maintained in
conformity with Japanese accounting principles and practices, while foreign
subsidiaries maintain their books in conformity with the standards of their
country of domicile.
The accompanying consolidated financial statements reflect necessary
adjustments, not recorded in the books, to present them in conformity with
accounting principles generally accepted in the United States of America.
(B) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Ricoh. Investments in entities in which Ricoh has the ability to exercise
significant influence over the entities' operating and financial policies
(generally 20 to 50 percent ownership) are accounted for on an equity basis. All
significant intercompany balances and transactions have been eliminated in
consolidation.
F-8
The accounts of certain consolidated subsidiaries have been included on the
basis of fiscal periods ended within three months prior to March 31.
(C) REVENUE RECOGNITION
Ricoh generates revenue principally through the sale of equipment, supplies and
related services under separate contractual arrangements for each. Generally,
Ricoh recognizes revenue when (1) it has a firm contract, (2) the product has
been shipped to and accepted by the customer or the service has been provided,
(3) the sales price is fixed or determinable and (4) amounts are reasonably
assured of collection.
Most equipment sales require that Ricoh install the product. As such, revenue is
recognized at the time of delivery and installation at the customer location.
Equipment revenues are based on established prices by product type and model and
are net of discounts and trade-in allowances. A sales return is accepted only
when the equipment is defective and does not meet Ricoh's product performance
specifications. Other than installation, there are no customer acceptance
clauses in the sales contract.
Service revenues result primarily from maintenance contracts that are normally
entered into at the time the equipment is sold. Standard service fee prices are
established depending on equipment classification and include a cost value for
the estimated services to be performed based on historical experience plus a
profit margin thereon. As a matter of policy, Ricoh does not discount such
prices. On a monthly basis, maintenance service revenues are earned and
recognized by Ricoh and billed to the customer in accordance with the contract
and include a fixed monthly fee plus a variable amount based on usage. The
length of the contract ranges up to five-years, however, most contracts are
cancelable at any time by the customer upon a short notice period.
(D) FOREIGN CURRENCY TRANSLATION
For foreign operations with functional currencies other than the Japanese yen,
assets and liabilities are translated at the exchange rates in effect at each
fiscal year-end, and income and expenses are translated at the average rates of
exchange prevailing during each fiscal year. The resulting translation
adjustments are included as a part of accumulated other comprehensive income
(loss) in shareholders' investment.
All foreign currency transaction gains and losses are included in other income
and expense in the period incurred.
(E) CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with maturities of
three months or less at the date of purchase.
Beginning April 1, 2002, Ricoh changed its policy concerning which short-term
investments are treated as cash equivalents in its consolidated balance sheets
and statements of cash flows. Cash equivalents formerly included certificates of
deposit and time deposits with maturities of three months or less at the date of
purchase. In addition to the above, Ricoh decided to include in cash equivalents
other 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. Ricoh believes this change is
preferable, since it expects to utilize such short-term investment securities
more significantly in its operating cash management activities. In relation to
this change, Ricoh has restated its consolidated balance sheet and consolidated
statements of cash flows for prior years. The effect of this change on
previously reported
F-9
amounts was to increase cash and cash equivalents by Yen 40,784 million,
Yen 43,289 million and Yen 27,664 million with corresponding decreases to
marketable securities as of March 31, 2000, 2001 and 2002, respectively, and to
decrease net cash used in investing activities by Yen 2,531 million and to
increase by Yen 15,629 million, respectively, for the years ended March 31, 2001
and 2002.
(F) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
As discussed further in Note 15, Ricoh manages its exposure to certain market
risks, primarily foreign currency and interest rate risks, through the use of
derivative instruments. As a matter of policy, Ricoh does not enter into
derivative contracts for trading or speculative purposes. On April 1, 2001 Ricoh
adopted SFAS No.133 "Accounting for Derivative Instruments and Hedging
Activities", and SFAS No.138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" which require that all derivative instruments be
recorded on the balance sheet at their respective fair values. In accordance
with the transition provisions of SFAS 133, Ricoh recorded a cumulative effect
adjustment, net of tax, resulting in a decrease in net income of Yen 66 million
and a decrease in other comprehensive income (loss) of Yen 1,864 million at
April 1, 2001.
In accordance with SFAS 133, Ricoh, when it enters into a derivative contract,
makes a determination as to whether or not for accounting purposes the
derivative is part of a hedging relationship. In general, a derivative may be
designated as either (1) a hedge of the fair value of a recognized asset or
liability or an unrecognized firm commitment ("fair value hedge"), (2) a hedge
of the variability of the expected cash flows associated with an existing asset
or liability or a forecasted transaction ("cash flow hedge"), or (3) a foreign
currency fair value or cash flow hedge ("foreign currency hedge"). Ricoh
formally documents all relationships between hedging instruments and hedged
items, as well as its risk-management objective and strategy for undertaking
various hedge transactions. This process includes linking all derivatives that
are designated as fair values, cash flow, or foreign currency hedges to specific
assets and liabilities on the consolidated balance sheet or to specific firm
commitments or forecasted transactions.
For derivative contracts that are designated and qualify as fair value hedges
including foreign currency fair value hedges, the derivative instrument is
marked-to-market with gains and losses recognized in current period earnings to
offset the respective losses and gains recognized on the underlying exposure.
For derivative contracts that are designated and qualify as cash flow hedges
including foreign currency cash flow hedges, the effective portion of gains and
losses on these contracts is reported as a component of accumulated other
comprehensive income (loss) and reclassified into earnings in the same period
the hedged item or transaction affects earnings. Any hedge ineffectiveness on
cash flow hedges is immediately recognized in earnings. For all derivative
instruments that are not designated as part of a hedging relationship and for
designated derivative instruments that do not qualify for hedge accounting, the
contracts are recorded at fair value with the gain or loss recognized in current
period earnings.
Prior to April 1, 2001, gains and losses on qualifying hedges of existing assets
or liabilities were included in the carrying amounts of those assets or
liabilities and were ultimately recognized in income as part of those carrying
amounts. Gains and losses related to qualifying hedges of firm commitments and
anticipated transactions were deferred and recognized in income, or as
adjustments of carrying amounts, when the hedged transaction occurred.
F-10
(G) ALLOWANCE FOR DOUBTFUL TRADE RECEIVABLES AND FINANCE RECEIVABLES
Ricoh records allowances for doubtful receivables that are based upon historical
experience and specific customer collection issues. The estimated amount of
probable credit losses in its existing receivables is determined from write-off
history adjusted to reflect current economic conditions and specific allowances
for receivables including nonperforming leases, impaired loans or other accounts
of which Ricoh has concluded it will be unable to collect all amounts due
according to original terms of the lease or loan agreement. Account balances are
charged-off against the allowances when collection is considered remote.
(H) SECURITIES
Ricoh conforms with SFAS No.115, "Accounting for Certain Investments in Debt and
Equity Securities" which requires all investments in debt and marketable equity
securities to be classified as either held-to-maturity, trading, or
available-for-sale securities. As of March 31, 2002 and 2003, all of Ricoh's
investments in debt and marketable equity securities are classified as
available-for-sale securities. Those available-for-sale securities are reported
at fair value with unrealized gains and losses, net of related taxes, excluded
from earnings and reported in accumulated other comprehensive income (loss).
Available-for-sale securities, which mature or are expected to be sold in one
year, are classified as current assets.
Individual securities classified as available-for-sale securities are reduced to
their then fair value for any declines in market value determined to be other
than temporary. These impairment losses are charged against earnings at the time
that a decline has been determined to be other than temporary based primarily on
the financial condition of the issuer and the extent and length of time of the
decline. Investments whose market values have declined below cost that extends
for nine months are automatically written-down to their then fair value in all
cases.
The cost of the securities sold is computed based on the average cost of each
security held at the time of sale.
Non-marketable equity securities owned by Ricoh primarily relate to less than
20% owned companies and are stated at cost.
(I) INVENTORIES
Inventories are mainly stated at the lower of average cost or net realizable
values. Inventory costs include raw materials, labor and manufacturing
overheads.
(J) PROPERTY, PLANT AND EQUIPMENT
For the Company and its domestic subsidiaries, depreciation of property, plant
and equipment is computed principally by using the declining-balance method over
the estimated useful lives. Most of the foreign subsidiaries have adopted the
straight-line method for computing depreciation, which currently accounts for
approximately 41% of the consolidated depreciation expense. The depreciation
period generally ranges from 5 years to 50 years for buildings and 2 years to 12
years for machinery and equipment.
F-11
Effective rates of depreciation for the years ended March 31, 2001, 2002 and
2003 are summarized below:
2001 2002 2003
--------------------------------------------------------------------------------
Buildings 8.0% 8.3% 8.1%
Machinery and equipment 36.6 40.6 41.0
--------------------------------------------------------------------------------
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, 2002 and 2003 were as follows:
Thousands of
Millions of Yen U.S. Dollars
-------------------------- ---------------
2002 2003 2003
--------------------------------------------------------------------------------
Aggregate cost Yen 6,578 Yen 7,339 $62,195
Accumulated depreciation 3,965 4,036 34,203
--------------------------------------------------------------------------------
The related future minimum lease payments and the present value of the net
minimum lease payments as of March 31, 2003 were Yen 4,676 million ($39,627
thousand) and Yen 4,237 million ($35,907 thousand), respectively.
Ordinary maintenance and repairs are charged to expense as incurred. Major
replacements and improvements are capitalized. When properties are retired or
otherwise disposed of, the property and related accumulated depreciation
accounts are relieved of the applicable amounts, and any differences are
included in earnings.
(K) GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No.141, "Business Combinations", and SFAS No.142, "Goodwill and Other Intangible
Assets". SFAS 141 requires the use of only the purchase method of accounting for
business combinations and refines the definition of intangible assets acquired
in a purchase business combination. SFAS 142 eliminates the amortization of
goodwill and instead requires annual impairment testing thereof. SFAS 142 also
requires acquired intangible assets with a definite useful life to be amortized
over their respective estimated useful lives and reviewed for impairment in
accordance with SFAS 144. Any acquired intangible asset determined to have an
indefinite useful life is not amortized, but instead is tested for impairment
based on its fair value until its life would be determined to no longer be
indefinite.
Ricoh fully adopted the provisions of SFAS 141 and SFAS 142 as of April 1, 2002.
Goodwill acquired in business combinations completed before July 1, 2001, was
amortized until March 31, 2002. In connection with the transitional impairment
evaluation, SFAS 142 required Ricoh to perform an assessment of whether there
was an indication that goodwill was impaired as of April 1, 2002. To accomplish
this, Ricoh (1) identified its reporting units, (2) determined the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units, and (3)
determined the fair value of each reporting unit. Ricoh completed the
transitional assessment by September 30, 2002, and determined there was no
indication that goodwill had been impaired as of April 1, 2002. Ricoh also
completed the annual assessment for the year ended March 31, 2003 and determined
that no goodwill impairment charge was necessary.
F-12
Prior to the adoption of SFAS 142, Ricoh classified the cost in excess of fair
value of the net assets of companies acquired in purchase transactions as
goodwill, and the goodwill was being amortized on a straight-line method over
the estimated periods benefited, not to exceed 20 years.
(L) PENSION AND RETIREMENT ALLOWANCES PLANS
The measurement of pension costs and liabilities is determined in accordance
with SFAS No.87, "Employers' Accounting for Pensions." Under SFAS 87, changes in
the amount of either the projected benefit obligation or plan assets resulting
from actual results different from that assumed and from changes in assumptions
can result in gains and losses not yet recognized in the consolidated financial
statements. Amortization of an unrecognized net gain or loss is included as a
component of the net periodic benefit plan cost for a year if, as of the
beginning of the year, that unrecognized net gain or loss exceeds 10 percent of
the greater of (1) the projected benefit obligation or (2) the fair value of
that plan's assets. In such case, the amount of amortization recognized is the
resulting excess divided by the average remaining service period of active
employees expected to receive benefits under the plan. The expected long-term
rate of return on plan assets used for pension accounting is determined based on
the historical long-term rate of return on plan assets. The discount rate is
determined based on the rates of return of high-quality fixed-income investments
currently available and expected to be available during the period to maturity
of the pension benefits.
(M) INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences and carryforwards are expected to be
realized or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(N) Research and Development Expenses and Advertising Costs
Research and development expenses and advertising costs are expensed as
incurred.
(O) SHIPPING AND HANDLING COSTS
Shipping and handling costs, which mainly include transportation to customers,
are included in selling, general and administrative expenses on the consolidated
statements of income.
(P) IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
In August 2001, the FASB issued SFAS No.144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS 144 develops a single accounting model,
based on the framework established in SFAS No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" for
long-lived assets to be disposed of by sale, and broadens the scope of what
constitutes a business to be disposed of that should be reported as a
discontinued operation. The new standard was adopted on April 1, 2002, and did
not have a material effect on Ricoh's consolidated financial position or results
of operations.
F-13
SFAS 144 requires that long-lived assets and acquired intangible assets with a
definite life are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset or group of assets
may not be recoverable. Recoverability of assets to be held and used is assessed
by comparing the carrying amount of an asset or asset group to the expected
future undiscounted net cash flows of the asset or group of assets. If an asset
or group of assets is considered to be impaired, the impairment charge to be
recognized is measured as the amount by which the carrying amount of the asset
or group of assets exceeds fair value. Long-lived assets meeting the criteria to
be considered as held for sale are reported at the lower of their carrying
amount or fair value less costs to sell.
Prior to the adoption of SFAS 144, Ricoh accounted for long-lived assets in
accordance with SFAS 121.
(Q) EARNINGS PER SHARE
Basic net income per common share is calculated by dividing net income by the
weighted-average number of shares outstanding during the period. The calculation
of diluted net income per common share is similar to the calculation of basic
net income per share, except that the weighted-average number of shares
outstanding includes the additional dilution from potential common stock
equivalents such as convertible bonds.
(R) NON-CASH TRANSACTIONS
The following non-cash transactions have been excluded from the consolidated
statements of cash flows:
Thousands of
Millions of Yen U.S. Dollars
----------------------------------------- -----------------
2001 2002 2003 2003
------------------------------------------------------------------------------------------------------------------
Conversion of convertible bonds Yen 1,088 Yen 35,620 Yen 32,905 $278,856
Capital lease obligations incurred 289 445 1,697 14,381
Assets and liabilities of Lanier Worldwide, Inc.:
Fair value of assets acquired and goodwill 134,586 - - -
Fair value of liabilities assumed 104,623 - - -
Retirement of treasury stock - - 13,328 112,949
------------------------------------------------------------------------------------------------------------------
(S) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses,
including impairment losses of long-lived assets and the disclosures of fair
value of financial instruments and contingent assets and liabilities, to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
The Company has identified five areas where it believes assumptions and
estimates are particularly critical to the consolidated financial statements.
These are revenue recognition, determination of the allowance for doubtful
receivables, impairment on long-lived assets and goodwill, realizability of
deferred tax assets and pension accounting.
F-14
(T) NEW ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No.143, "Accounting for Asset Retirement
Obligations". This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The new standard will be adopted on April 1,
2003, and is not expected to have a material effect on Ricoh's consolidated
financial position or results of operations.
In April 2002, the FASB issued SFAS No.145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement 13 and Technical Corrections." SFAS
145 requires gains and losses on extinguishments of debt to be classified as
gains or losses from continuing operations rather than as extraordinary items as
previously required under SFAS 4, unless the gains and losses meet the criteria
to be classified as extraordinary pursuant to APB 30. SFAS 145 also amends SFAS
13, "Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-lease back transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-lease back transactions. The rescission of SFAS 4 is effective for
transactions occurring after May 15, 2002. The provisions of SFAS 145 related to
SFAS 13 are effective for transactions occurring after May 15, 2002. The
adoption of these provisions had no impact on Ricoh's consolidated financial
position or results of operations.
In July 2002, the FASB issued SFAS No.146, "Accounting for Costs Associated with
Exit or Disposal Activities." The Statement requires that a liability for costs
associated with exit or disposal activities be recognized in the period in which
the costs are incurred if a reasonable estimate of fair value can be made. Under
current accounting guidance, a liability can be recognized when management has
committed to an exit plan. The requirements under SFAS 146 are effective
prospectively for exit or disposal activities initiated after December 31, 2002.
Restatement of previously issued financial statements is not permitted. The
adoption of this Statement did not have a material effect on Ricoh's
consolidated financial position or results of operations.
In November 2002, the Emerging Issue Task Force ("EITF") reached a final
consensus on EITF 00-21, "Revenue Arrangements with Multiple Deliverables." EITF
00-21 addresses certain aspects of the accounting for revenue arrangements with
multiple deliverables by a vendor. The Issue outlines an approach to determine
when a revenue arrangement for multiple deliverables should be divided into
separate units of accounting and, if separation is appropriate, how the
arrangement consideration should be allocated to the identified accounting
units. The consensus reached in the Issue will be effective for Ricoh in its
financial statements beginning July 1, 2003. Ricoh will adopt EITF00-21 in the
quarter beginning July 1, 2003. Ricoh is currently determining the impact, if
any, of the adoption of EITF 00-21 on Ricoh's consolidated financial position
and results of operations.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34." This
Interpretation elaborates on the disclosures to be made by a guarantor in its
financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002. The Interpretation has not had a material effect on Ricoh's
consolidated financial position or results of operations.
F-15
In January 2003, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation
of Variable Interest Entities ("VIEs")," which addresses consolidation by
business enterprises of variable interest entities that either: (1) do not have
sufficient equity investment at risk to permit the entity to finance its
activities without additional subordinated financial support, or (2) the equity
investors lack an essential characteristic of a controlling financial interest.
Ricoh does not anticipate the adoption of this Interpretation will have any
impact on its financial position or results of operations as it presently does
not have investments in VIEs.
(U) RECLASSIFICATION
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform the presentation used for the year ended March
31, 2003.
3. ACQUISITION
In January 2001, Ricoh completed a take-over bid for Lanier Worldwide, Inc.
("Lanier") for cash of Yen 29,963 million. As a result of this acquisition,
Lanier became a wholly owned subsidiary that distributes Lanier brand name
office equipment products in the global marketplace. The acquisition was
accounted for using the purchase method of accounting. The cash purchase price
has been allocated on Ricoh's balance sheet to the tangible and intangible net
assets and resulted in goodwill of Yen 25,496 million. The results of operation
for Lanier for the post-acquisition period for the two months ended March 31,
2001, and years thereafter are included in the accompanying consolidated
statements of income. The following unaudited pro forma information presents the
consolidated results of operations for the year ended March 31, 2001, as if the
acquisition had occurred as of the beginning of that year:
Millions of Yen
-------------------
2001
--------------------------------------------------------------------------------
Net sales Yen 1,624,036
Net income 49,474
Yen
-------------------
Net income per share of common stock-
Basic Yen 71.43
Diluted 66.03
--------------------------------------------------------------------------------
The pro forma results of operations are not necessarily indicative of the actual
results of operations that would have occurred had the acquisition been made at
the beginning of the year or the results that may occur in the future.
In December 2002, Ricoh acquired the remaining outstanding shares of Shanghai
Ricoh Facsimile Co., Ltd. ("Shanghai Ricoh") for Yen 1,745 million ($14,788
thousand). The acquisition of the remaining 45% interest in Shanghai Ricoh was
accounting for using the purchase method of accounting and resulted in goodwill
of Yen 778 million ($6,593 thousand).
F-16
4. FINANCE RECEIVABLES
Finance receivables as of March 31, 2002 and 2003 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 qualify
and are accounted for as sales-type leases in conformity with SFAS 13. Sales
revenue from sales-type leases is recognized at the inception of the leases.
Information pertaining to Ricoh's lease receivables as of March 31, 2002 and
2003 is as follows:
Thousands of
Millions of Yen U.S. Dollars
----------------------------- ----------------
2002 2003 2003
------------------------------------------------------------------------------------------------------------------
Minimum lease payments receivable Yen 460,380 Yen 486,165 $4,120,042
Estimated non-guaranteed residual value 1,976 2,209 18,720
Unearned income (50,576) (49,039) (415,584)
Allowance for doubtful receivables (12,926) (13,573) (115,025)
------------------------------------------------------------------------------------------------------------------
Net lease receivables Yen 398,854 Yen 425,762 $3,608,153
------------------------------------------------------------------------------------------------------------------
As of March 31, 2003, 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
--------------------------------------------------------------------------------
2004 Yen 157,672 $1,336,203
2005 132,590 1,123,644
2006 98,457 834,381
2007 64,847 549,551
2008 26,907 228,026
2009 and thereafter 5,692 48,237
--------------------------------------------------------------------------------
Total Yen 486,165 $4,120,042
--------------------------------------------------------------------------------
Ricoh Leasing Company, Ltd. has also extended certain other types of loans as
part of its business activity, which are primarily residential housing loans to
individuals in Japan secured by the underlying real estate properties. Loan
terms range from 15 years to 30 years with monthly repayments. The total balance
of these loans, net of allowance for doubtful receivables, as of March 31, 2002
and 2003 was Yen 48,975 million and Yen 50,531 million ($428,229 thousand),
respectively. Loan activity for the years ended March 31, 2001, 2002 and 2003 is
as follow:
Thousands of
Millions of Yen U.S. Dollars
------------------------------------------- ----------------
2001 2002 2003 2003
-----------------------------------------------------------------------------------------------------------------
Extension of new loans Yen 10,916 Yen 8,638 Yen 11,559 $97,958
Repayment of outstanding loans 6,393 7,554 9,993 84,686
-----------------------------------------------------------------------------------------------------------------
F-17
Ricoh sold finance lease receivables with a pretax gain of Yen 175 million and
Yen 225 million for the years ended March 31, 2001 and 2002, respectively,
through securitization transactions. Servicing assets or liabilities related to
securitization transactions initiated were not recorded, because the servicing
fees adequately compensate Ricoh. Ricoh's retained interests are subordinate to
the investor's interests. Their value is subject to credit and interest rate
risk on the sold financial assets. The investors and Special Purpose Entities
have no recourse to Ricoh's other assets for failure of debtors to pay.
Key economic assumptions used in measuring the fair value of retained interests
related to securitization transactions completed during the years ended March
31, 2002 and 2003 were as follows:
2002 2003
--------------------------------------------------------------------------------
Expected credit losses 0.75% - 1.35% 0.75% - 1.35%
Discount rate 0.89% - 3.00% 0.89% - 3.00%
--------------------------------------------------------------------------------
The impacts of 10% and 20% adverse changes to the key economic assumptions on
the fair value of retained interests as of March 31, 2003 are presented below.
Thousands of
Millions of Yen U.S. Dollars
------------------- ----------------
2003 2003
------------------------------------------------------------------------------------------------------------
Carrying value of retained interests (included in lease
deposits and other in the consolidated balance sheet) Yen 10,596 $89,797
Expected credit losses:
+10% 119 1,008
+20% 237 2,008
Discount rate:
+10% 47 398
+20% 86 729
------------------------------------------------------------------------------------------------------------
The hypothetical scenario does not reflect expected market conditions and should
not be used as a prediction of future performance. As the figures indicate,
changes in fair value may not be linear. Also, in the above table, the effect of
a variation in a particular assumption on the fair value of the retained
interest is calculated without changing any other assumption; in reality,
changes in one factor may result in changes in another, which might magnify or
counteract the sensitivities.
The following table summarizes certain cash flows received from and paid to the
Special Purpose Entities for all securitization activity for the years ended
March 31, 2001, 2002 and 2003:
Thousands of
Millions of Yen U.S. Dollars
------------------------------------------- ----------------
2001 2002 2003 2003
-----------------------------------------------------------------------------------------------------------------
Proceeds from new securitization Yen 29,869 Yen 25,000 Yen - $ -
Servicing fees received 32 39 37 314
Repurchases of delinquent or ineligible assets 3,277 5,138 5,750 48,729
-----------------------------------------------------------------------------------------------------------------
F-18
Amounts of delinquencies, net credit losses, and components of all receivables
managed and securitized as of March 31, 2002 and 2003, and for the years then
ended, are as follows:
Millions of Yen
----------------------------------------------------------------------------------------------
2002 2003
--------------------------------------------- ----------------------------------------------
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 491,791 Yen 977 Yen 3,937 Yen 504,252 Yen 1,175 Yen 3,893
Less: receivables securitized (80,011) (64,917)
------------- -------------
Receivables held in portfolio Yen 411,780 Yen 439,335
------------------------------------------------------------------------------------------------------------------------------------
Thousands of U.S. dollars
----------------------------------------------
2003
----------------------------------------------
Principal
amount of
Total principal receivables
amount of 4 months or Net credit
receivables more past due losses
------------------------------------------------------------------------------------------------------------------------------------
Principal amount outstanding $4,273,322 $9,958 $32,992
Less: receivables securitized (550,144)
-------------
Receivables held in portfolio $3,723,178
------------------------------------------------------------------------------------------------------------------------------------
5. SECURITIES
Marketable securities and investment securities as of March 31, 2002 and 2003
consist of the following:
Thousands of
Millions of Yen U.S. Dollars
----------------------------- ----------------
2002 2003 2003
-----------------------------------------------------------------------------------------------------------------
Marketable securities:
Available-for-sale securities Yen 22,935 Yen 107 $ 907
-----------------------------------------------------------------------------------------------------------------
Investment securities:
Available-for-sale securities Yen 23,337 Yen 64,602 $547,475
Non-marketable equity securities 5,549 7,371 62,466
-----------------------------------------------------------------------------------------------------------------
Yen 28,886 Yen 71,973 $609,941
-----------------------------------------------------------------------------------------------------------------
F-19
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, 2002 and 2003 are as follows:
Millions of Yen
----------------------------------------------------------------------------------------------------------
2002 2003
--------------------------------------------------- ---------------------------------------------------
Gross Gross Gross Gross
unrealized unrealized unrealized unrealized
holding holding Fair holding holding Fair
Cost gains losses value Cost gains losses value
-----------------------------------------------------------------------------------------------------------------------------------
Current:
Corporate debt
securities Yen 21,338 Yen 1,205 Yen 12 Yen 22,531 Yen 107 - - Yen 107
Other 404 - - 404 - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Yen 21,742 Yen 1,205 Yen 12 Yen 22,935 Yen 107 - - Yen 107
-----------------------------------------------------------------------------------------------------------------------------------
Non-current:
Equity
securities Yen 7,457 Yen 6,025 Yen 469 Yen 13,013 Yen 6,328 Yen 5,148 Yen 519 Yen 10,957
Corporate debt
securities 20 6 - 26 45,020 5 195 44,830
Other 10,612 205 519 10,298 9,459 10 654 8,815
-----------------------------------------------------------------------------------------------------------------------------------
Yen 18,089 Yen 6,236 Yen 988 Yen 23,337 Yen 60,807 Yen 5,163 Yen 1,368 Yen 64,602
-----------------------------------------------------------------------------------------------------------------------------------
Thousands of U.S. Dollars
---------------------------------------------------
2003
---------------------------------------------------
Gross Gross
unrealized unrealized
holding holding Fair
Cost gains losses value
-----------------------------------------------------------------------------------------------------------------------------------
Current:
Corporate debt
securities $ 907 - - $ 907
Other - - - -
-----------------------------------------------------------------------------------------------------------------------------------
$ 907 - - $ 907
-----------------------------------------------------------------------------------------------------------------------------------
Non-current:
Equity
securities $ 53,628 $ 43,627 $ 4,399 $ 92,856
Corporate debt
securities 381,525 42 1,652 379,915
Other 80,161 85 5,542 74,704
-----------------------------------------------------------------------------------------------------------------------------------
$ 515,314 $ 43,754 $ 11,593 $ 547,475
-----------------------------------------------------------------------------------------------------------------------------------
The table presented in the preceding paragraph and other information in this
note were restated to reflect the change in policy for short-term investments
treated as cash equivalents (see Note 2 (e)).
Other non-current securities mainly include investment trusts consisting of
investment in marketable debt and equity securities.
The contractual maturities of debt securities classified as available-for-sale
as of March 31, 2003, regardless of their balance sheet classification, are as
follows:
Millions of Yen Thousands of U.S. Dollars
--------------------------- -----------------------------
Cost Fair value Cost Fair value
----------------------------------------------------------------------------------------------------------------
Due within one year Yen 107 Yen 107 $ 907 $ 907
Due after one year through five years 45,020 44,830 381,525 379,915
----------------------------------------------------------------------------------------------------------------
Yen 45,127 Yen 44,937 $ 382,432 $ 380,822
----------------------------------------------------------------------------------------------------------------
Proceeds from the sales of available-for-sale securities were Yen 66,778
million, Yen 24,568 million and Yen 24,513 million ($207,737 thousand) for the
years ended March 31, 2001, 2002 and 2003, respectively.
The gross realized gains on sales of available-for-sale securities were Yen
2,898 million for the year ended March 31, 2001, and there were no significant
realized gains on sales of available-for-sale securities for the years ended
March 31, 2002 and 2003. There were no significant realized losses on sales of
available-for-sale securities for the three years ended March 31, 2003. The loss
on securities of Yen 2,739 million and Yen 2,260 million ($19,153 thousand) for
the years ended March 31, 2002 and 2003, respectively, were charged to other
expense for declines in market value of available-for-sale securities where the
decline was determined to be other than temporary.
In March 2000, the Company contributed certain marketable equity securities, not
including those of its subsidiaries and affiliated companies, to an employee
retirement benefit trust fully administered and controlled by an independent
bank trustee, with no cash proceeds thereon. The transfer of the
available-for-sale securities was accounted for as a sale in accordance with
SFAS No.125, "Accounting for Transfer and Servicing of Financial Assets and
Extinguishments of Liabilities" and accordingly the recorded pension liability
was reduced by the fair market value amount of the transferred securities. The
F-20
fair value of these securities at the time of contribution was Yen 20,760
million. The net unrealized gains on these available-for-sale securities
amounting to Yen 13,095 million continues to be included in "Accumulated other
comprehensive income (loss)" on the consolidated balance sheets and will only be
reflected in realized gains in the statements of income upon the future sale of
the transferred securities by the trustee.
6. INVESTMENTS IN AND ADVANCES TO AFFILIATES
The investments in and advances to affiliates primarily relate to 20% to 50%
owned companies. Included in these companies is COCA-COLA WEST JAPAN COMPANY,
LIMITED, a 21.1% owned affiliate. The common stock of this company is publicly
traded. The carrying value of the investment in this company was equal to its
underlying book value and amounted to Yen 37,529 million ($318,042 thousand) as
of March 31, 2003. The quoted market value of this company was Yen 33,577
million ($284,551 thousand) as of March 31, 2003.
Ricoh's equity in the underlying net book values of the other 20% to 50% owned
companies is approximately equal to their individual carrying values.
Summarized financial information for all affiliates as of March 31, 2002 and
2003 and for the years ended March 31, 2001, 2002 and 2003 is as follows:
Thousands of
Millions of Yen U.S. Dollars
----------------------------- ----------------
FINANCIAL POSITION 2002 2003 2003
------------------------------------------------------------------------------------------------------------------
Assets-
Current assets Yen 122,974 Yen 124,156 $ 1,052,169
Other assets 141,148 139,357 1,180,992
------------------------------------------------------------------------------------------------------------------
Yen 264,122 Yen 263,513 $ 2,233,161
------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' investment-
Current liabilities Yen 41,852 Yen 40,954 $ 347,068
Other liabilities 13,972 13,176 111,661
Shareholders' investment 208,298 209,383 1,774,432
------------------------------------------------------------------------------------------------------------------
Yen 264,122 Yen 263,513 $ 2,233,161
------------------------------------------------------------------------------------------------------------------
Thousands of
Millions of Yen U.S. Dollars
------------------------------------------ ----------------
OPERATIONS 2001 2002 2003 2003
------------------------------------------------------------------------------------------------------------------
Sales Yen 263,804 Yen 288,992 Yen 338,035 $ 2,864,703
Costs and expenses 254,137 277,950 327,139 2,772,364
------------------------------------------------------------------------------------------------------------------
Net income Yen 9,667 Yen 11,042 Yen 10,896 $ 92,339
------------------------------------------------------------------------------------------------------------------
The significant transactions of Ricoh with these affiliates for the years ended
March 31, 2001, 2002 and 2003, and the related account balances at March 31,
2002 and 2003 are summarized as follows:
Thousands of
Millions of Yen U.S. Dollars
------------------------------------------ ----------------
2001 2002 2003 2003
------------------------------------------------------------------------------------------------------------------
Transactions-
Sales Yen 20,952 Yen 25,413 Yen 26,510 $ 224,661
Purchases 13,673 15,584 19,808 167,864
Dividend income 1,008 1,133 1,236 10,475
------------------------------------------------------------------------------------------------------------------
F-21
Unrealized profits regarding the above transactions were eliminated in the
consolidated financial statements.
Thousands of
Millions of Yen U.S. Dollars
-------------------- --------------
2002 2003 2003
-----------------------------------------------------------------------------------------------------------
Account balances-
Receivables Yen 8,513 Yen 6,434 $ 54,525
Payables 2,858 1,604 13,593
-----------------------------------------------------------------------------------------------------------
As of March 31, 2003, consolidated retained earnings included undistributed
earnings of 20% to 50% owned companies accounted for by the equity method in the
amount of Yen 38,913 million ($329,771 thousand).
7. GOODWILL AND OTHER INTANGIBLE ASSETS
The information for intangible assets subject to amortization and for intangible
assets not subject to amortization is as follow:
Millions of Yen
--------------------------------------------------------------------------------
2002 2003
--------------------------------------------------------------------------------
Gross Net Gross Net
carrying Accumulated carrying carrying Accumulated carrying
amount amortization amount amount amortization amount
---------------------------------------------------------------------------------------------------------------
Other intangible assets
subject to amortization:
Software Yen 20,956 Yen (7,315) Yen 13,641 Yen 31,764 Yen (12,763) Yen 19,001
Trade name and
customer base 14,427 (1,897) 12,530 13,463 (3,217) 10,246
Other 12,843 (3,217) 9,626 13,633 (4,192) 9,441
--------------------------------------- ---------------------------------------
Total 48,226 (12,429) 35,797 58,860 (20,172) 38,688
Other intangible assets
not subject to
amortization 1,801 1,332
--------------- ------------
Total other intangible
assets Yen 37,598 Yen 40,020
----------------------------------------------------------------------------------------------------------------
Thousands of U.S. Dollars
---------------------------------------
2003
---------------------------------------
Gross Net
carrying Accumulated carrying
amount amortization amount
----------------------------------------------------------------------------------------------------------------
Other intangible assets
subject to amortization:
Software $ 269,186 $ (108,161) $ 161,025
Trade name and
customer base 114,094 (27,263) 86,831
Other 115,534 (35,525) 80,009
---------------------------------------
Total 498,814 (170,949) 327,865
Other intangible assets
not subject to
amortization 11,288
----------
Total other intangible
assets $ 339,153
----------------------------------------------------------------------------------------------------------------
F-22
The aggregate amortization expense of other intangible assets subject to
amortization for the year ended March 31, 2003 was Yen 6,993 million ($59,263
thousand). The future amortization expense for each of the five years relating
to intangible assets currently recorded in the consolidated balance sheets is
estimated to be the following at March 31, 2003:
Thousands of
Years ending March 31 Millions of Yen U.S. Dollars
--------------------------------------------------------------------------------
2004 Yen 8,140 $68,983
2005 6,985 59,195
2006 5,451 46,195
2007 3,243 27,483
2008 1,993 16,890
--------------------------------------------------------------------------------
The changes in the carrying amounts of goodwill for the year ended March 31,
2003, were as follows:
Thousands of
Millions of Yen U.S. Dollars
------------------- --------------
2003 2003
--------------------------------------------------------------------------------
Balance at beginning of year Yen 29,687 $251,585
Goodwill acquired during the year 1,176 9,966
Foreign exchange impact (2,754) (23,339)
--------------------------------------------------------------------------------
Balance at end of year Yen 28,109 $238,212
--------------------------------------------------------------------------------
As of March 31, 2003, all carrying value of goodwill was allocated to office
equipment segment.
The following table reconciles previously reported net income and net income per
share for the years ended March 31, 2001 and 2002, as if the provisions of SFAS
142 had been in effect.
Millions of Yen
--------------------------
2001 2002
--------------------------------------------------------------------------------
Net income:
Reported net income Yen 53,228 Yen 61,614
Goodwill amortization 736 2,514
--------------------------------------------------------------------------------
Adjusted net income 53,964 64,128
--------------------------------------------------------------------------------
Yen
--------------------------
Net income per share:
Reported net income per share - basic Yen 76.85 Yen 88.27
Goodwill amortization 1.06 3.60
--------------------------------------------------------------------------------
Adjusted net income per share - basic 77.91 91.87
--------------------------------------------------------------------------------
Reported net income per share - diluted 71.02 82.46
Goodwill amortization 0.98 3.34
--------------------------------------------------------------------------------
Adjusted net income per share - diluted 72.00 85.80
--------------------------------------------------------------------------------
F-23
8. INCOME TAXES
Income before income taxes, minority interests and equity in earnings of
affiliates and provision for income taxes for the years ended March 31, 2001,
2002 and 2003 are as follows:
Thousands of
Millions of Yen U.S. Dollars
-------------------------------------- ----------------
2001 2002 2003 2003
---------------------------------------------------------------------------------------------------------------
Income before income taxes, minority interests
and equity in earnings of affiliates-
Domestic Yen 77,820 Yen 95,723 Yen 84,946 $ 719,881
Foreign 19,945 18,227 38,524 326,475
---------------------------------------------------------------------------------------------------------------
Yen 97,765 Yen 113,950 Yen 123,470 $ 1,046,356
---------------------------------------------------------------------------------------------------------------
Provision for income taxes-
Current:
Domestic Yen 45,684 Yen 43,564 Yen 50,103 $ 424,602
Foreign 7,822 8,801 13,080 110,847
---------------------------------------------------------------------------------------------------------------
53,506 52,365 63,183 535,449
---------------------------------------------------------------------------------------------------------------
Deferred:
Domestic (10,380) (3,524) (9,043) (76,636)
Foreign 386 2,306 (2,156) (18,271)
---------------------------------------------------------------------------------------------------------------
(9,994) (1,218) (11,199) (94,907)
---------------------------------------------------------------------------------------------------------------
Consolidated provision for income taxes Yen 43,512 Yen 51,147 Yen 51,984 $ 440,542
---------------------------------------------------------------------------------------------------------------
Total income taxes are allocated as follows:
Thousands of
Millions of Yen U.S. Dollars
-------------------------------------- ----------------
2001 2002 2003 2003
---------------------------------------------------------------------------------------------------------------
Provision for income taxes Yen 43,512 Yen 51,147 Yen 51,984 $ 440,542
Shareholders' investment:
Foreign currency translation adjustments (1,252) 2,062 (826) (7,000)
Unrealized gains (losses) on securities 629 (582) (1,130) (9,576)
Unrealized losses on derivatives - (146) (9) (76)
Minimum pension liability adjustment (15,818) (11,760) (30,811) (261,110)
---------------------------------------------------------------------------------------------------------------
Yen 27,071 Yen 40,721 Yen 19,208 $ 162,780
---------------------------------------------------------------------------------------------------------------
F-24
The Company and its domestic subsidiaries are subject to a National Corporate
tax of 30%, an inhabitant tax of approximately 6% and a deductible Enterprise
tax approximately 10%, which in the aggregate resulted in the normal statutory
tax rate of approximately 42%. The normal statutory tax rate differs from the
effective tax rate for the years ended March 31, 2001, 2002 and 2003 as a result
of the following:
2001 2002 2003
===============================================================================================
Normal tax rate 42% 42% 42%
Nondeductible expenses 2 1 1
Tax benefits not recognized on operating losses of certain consolidated
subsidiaries 0 3 3
Utilization of net operating loss carryforward not previously recognized (2) (0) (4)
Tax credit for increased research and development expense (0) (0) (1)
Effect of change in enacted tax rate -- -- 2
Other, net 3 (1) (1)
-----------------------------------------------------------------------------------------------
Effective tax rate 45% 45% 42%
===============================================================================================
Nondeductible expenses include directors' bonuses and entertainment expenses.
Based on an enacted change in the Japanese tax laws in March, 2003, the normal
statutory tax rate will be reduced to approximately 40% effective April 1, 2004,
and such rate has been used in calculating the future expected tax effects of
temporary differences and carryforwards that will be realized or settled after
March 31, 2004.
The tax effects of temporary differences and carryforwards giving rise to the
consolidated deferred income tax assets and liabilities as of March 31, 2002 and
2003 are as follows:
Thousands of
Millions of Yen U.S. Dollars
------------------------ --------------
2002 2003 2003
================================================================================================================
Assets:
Accrued expenses Yen 17,866 Yen 26,184 $ 221,898
Depreciation 4,640 4,014 34,017
Accrued pension and severance costs 41,523 84,230 713,814
Net operating loss carryforwards 19,080 13,839 117,280
Other 28,222 31,460 266,610
----------------------------------------------------------------------------------------------------------------
111,331 159,727 1,353,619
Less- Valuation allowance (11,300) (9,193) (77,907)
----------------------------------------------------------------------------------------------------------------
Yen 100,031 Yen 150,534 $1,275,712
================================================================================================================
Liabilities:
Sales-type leases Yen (4,964) Yen (7,112) $ (60,271)
Undistributed earnings of foreign subsidiaries and
affiliates (12,291) (12,801) (108,483)
Net unrealized holding gains on available-for-sale
securities (8,932) (8,957) (75,907)
Other (9,757) (11,361) (96,280)
----------------------------------------------------------------------------------------------------------------
Yen (35,944) Yen (40,231) $(340,941)
================================================================================================================
Net deferred tax assets Yen 64,087 Yen 110,303 $ 934,771
================================================================================================================
F-25
Net deferred tax assets as of March 31, 2002 and 2003 are included in the
consolidated balance sheets as follows:
Thousands of
Millions of Yen U.S. Dollars
----------------------- --------------
2002 2003 2003
=============================================================================================================
Deferred income taxes and other (Current Assets) Yen 35,508 Yen 41,993 $ 355,873
Lease deposits and other (Non-current Assets) 59,732 99,204 840,712
Accrued expenses and other (Current Liabilities) (561) (241) (2,043)
Deferred income taxes (Long-Term Liabilities) (30,592) (30,653) (259,771)
--------------------------------------------------------------------------------------------------------------
Yen 64,087 Yen 110,303 $ 934,771
==============================================================================================================
The net changes in the total valuation allowance for the years ended March 31,
2001, 2002 and 2003 were increases of Yen 246 million, Yen 2,897 million and
decrease of Yen 2,107 million ($17,856 thousand), respectively.
In assessing the realizability of deferred tax assets, Ricoh considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Ricoh considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, Ricoh believes it is
more likely than not that the benefits of these deductible differences, net of
the existing valuation allowance will be realized. The amount of the deferred
tax asset considered realizable, however, would be reduced if estimates of
future taxable income during the carryforward period are reduced.
As of March 31, 2003, certain subsidiaries had net operating losses carried
forward for income tax purposes of approximately Yen 36,434 million ($308,763
thousand) which were available to reduce future income taxes, if any.
Approximately Yen 26,225 million ($222,246 thousand) of the operating losses
expire within a five-year period while the remainder principally have an
indefinite carryforward period.
9. SHORT-TERM BORROWINGS
Short-term borrowings as of March 31, 2002 and 2003 consist of the following:
Weighted average Thousands of
interest rate Millions of Yen U.S. Dollars
-------------------- ----------------------- --------------
2002 2003 2002 2003 2003
===========================================================================================================
-----------------------------------------------------------------------------------------------------------
Borrowings, principally from banks 1.3% 1.8% Yen 103,784 Yen 28,258 $239,474
Commercial paper 1.5 0.9 57,310 56,220 476,441
-----------------------------------------------------------------------------------------------------------
Yen 161,094 Yen 84,478 $715,915
===========================================================================================================
The Company and certain of its subsidiaries enter into the contracts with
financial institutions regarding lines of credit and overdrawing, and hold the
issuing programs of commercial paper and medium-term notes. The unused lines of
credit amounted to Yen 580,785 million and Yen 613,884 million ($5,202,407
thousand) as of March 31, 2002 and 2003, respectively, of which Yen 194,658
million and Yen 234,704 million ($1,989,017 thousand) related to commercial
paper and Yen 147,388 million and Yen 144,280 million ($1,222,712 thousand)
related to medium-term notes programs at prevailing interest rates.
F-26
10. LONG-TERM INDEBTEDNESS
Long-term indebtedness as of March 31, 2002 and 2003 consists of the followings:
Conversion Thousands of
price Millions of Yen U.S. Dollars
-------------- ----------------------- --------------
(Per share) 2002 2003 2003
========================================================================================================================
Convertible bonds-
0.35%, payable in yen, due March 2003 Yen 1,210.00 Yen 29,886 Yen - $ -
0.4%, payable in yen, due September 2002 issued
by a consolidated subsidiary 1,594.40 4,163 - -
------------------------------------------------------------------------------------------------------------------------
Total convertible bonds 34,049 - -
------------------------------------------------------------------------------------------------------------------------
Bonds-
2.075%, straight bonds, payable in yen,
due April 2005 40,000 40,000 338,983
0.87%, straight bonds, payable in yen,
due March 2007 35,000 35,000 296,610
1.34%, straight bonds, payable in yen,
due March 2009 25,000 25,000 211,864
0.9%, straight bonds, payable in yen, due June
2003 issued by a consolidated subsidiary 5,000 5,000 42,373
1.1%, straight bonds, payable in yen,
due February 2004 issued by a consolidated
subsidiary 10,000 9,910 83,983
1.17%, straight bonds, payable in yen, due June
2004 issued by a consolidated subsidiary 10,000 10,000 84,746
0.73%, straight bonds, payable in yen, due June
2006 issued by a consolidated subsidiary 10,000 10,000 84,746
0.7%, straight bonds, payable in yen, due June
2007 issued by a consolidated subsidiary - 10,000 84,746
2.1%, straight bonds, payable in yen,
due October 2009 issued by a consolidated
subsidiary 10,000 10,000 84,746
Medium-term notes, 0.21% weighted average, due
through 2005 issued by a consolidated
subsidiary 39,162 24,000 203,389
------------------------------------------------------------------------------------------------------------------------
Total bonds 184,162 178,910 1,516,186
------------------------------------------------------------------------------------------------------------------------
Unsecured loans-
Banks and insurance companies,
1.62% weighted average, due through 2011 170,537 210,042 1,780,017
------------------------------------------------------------------------------------------------------------------------
Secured loans-
Banks, insurance companies and other financial
institution,
1.45% weighted average, due through 2020 4,799 2,553 21,636
------------------------------------------------------------------------------------------------------------------------
Capital lease obligations (see Note 2(j)) 3,113 4,237 35,907
------------------------------------------------------------------------------------------------------------------------
Total 396,660 395,742 3,353,746
SFAS 133 fair value adjustment 3,649 4,395 37,246
Less- Current maturities included in
current liabilities (67,314) (54,235) (459,619)
------------------------------------------------------------------------------------------------------------------------
Yen 332,995 Yen 345,902 $2,931,373
------------------------------------------------------------------------------------------------------------------------
F-27
Secured loans are collateralized by land, buildings and lease receivables with a
book value of Yen 8,432 million ($71,458 thousand) as of March 31, 2003.
All bonds outstanding as of March 31, 2003 are redeemable at the option of Ricoh
at 100% of the principal amounts under certain conditions as provided in the
applicable agreements.
Bonds are subject to certain covenants such as restrictions on certain
additional secured indebtedness, as defined in the agreements. Ricoh presently
is in compliance with such covenants as of March 31, 2003.
Certain loan agreements provide, among other things, that the lender may request
the Company to submit proposals for appropriations of earnings (including
payment of dividends) to the lender for its review and approval prior to
presentation to the shareholders. The Company has never been requested to submit
such proposals for approval. In addition, as is customary in Japan,
substantially all of the bank borrowings are subject to general agreements with
each bank which provide, among other things, that the banks may request
additional security for these loans if there is reasonable and probable cause
and may treat any security furnished to the banks as well as cash deposited as
security for all present and future indebtedness. The Company has never been
requested to submit such additional security.
The aggregate annual maturities of long-term indebtedness subsequent to March
31, 2003 are as follows:
Thousands of
Years ending March 31 Millions of Yen U.S. Dollars
===============================================================================
2004 Yen 54,482 $ 461,712
2005 85,966 728,525
2006 125,776 1,065,898
2007 56,027 474,805
2008 27,236 230,814
2009 and thereafter 46,255 391,992
-------------------------------------------------------------------------------
Total Yen 395,742 $3,353,746
===============================================================================
11. PENSION AND RETIREMENT ALLOWANCES PLANS
The Company and certain of its subsidiaries have various trusted contributory
and noncontributory employees pension fund plans covering substantially all of
their employees. Under the plans, employees are entitled to lump-sum payments at
the time of termination or retirement, or to pension payments. Under the terms
of the domestic employer pension fund ("EPF") plan, the government mandated
welfare pension insurance benefit is included and commingled with the primary
corporate benefit provided by Ricoh. The amounts of lump-sum or pension payments
under the plans are generally determined on the basis of length of service and
remuneration at the time of termination. These contributory and non contributory
plans are funded in conformity with governmental regulations which basically
require an employer to contribute the unfunded benefit over 20 years. The plan
assets consist principally of interest-bearing bonds and listed equity
securities.
F-28
The changes in the benefit obligation and plan assets of the defined benefit
plans for the years ended March 31, 2002 and 2003 are as follows:
Thousands of
Millions of Yen U.S. Dollars
------------------------ --------------
2002 2003 2003
===============================================================================================================
Change in benefit obligation:
Benefit obligation at beginning of year Yen 424,176 Yen 452,562 $ 3,835,271
Service cost 15,636 16,943 143,585
Interest cost 13,693 14,292 121,119
Plan participants' contributions 1,585 1,105 9,364
Amendments - (10,924) (92,576)
Actuarial loss 8,309 64,852 549,593
Settlement (3,005) (2,009) (17,026)
Benefits paid (12,558) (13,197) (111,839)
Foreign exchange impact 4,726 (1,349) (11,432)
---------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year Yen 452,562 Yen 522,275 $ 4,426,059
===============================================================================================================
Change in plan assets:
Fair value of plan assets at beginning of year Yen 274,323 Yen 268,377 $ 2,274,381
Actual return on plan assets (11,715) (36,838) (312,186)
Employer contribution 12,680 14,281 121,026
Plan participants' contributions 1,585 1,105 9,364
Settlement (2,858) (1,636) (13,864)
Benefits paid (9,767) (9,246) (78,356)
Foreign exchange impact 4,129 (697) (5,907)
---------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year Yen 268,377 Yen 235,346 $ 1,994,458
===============================================================================================================
Funded status Yen(184,185) Yen(286,929) $(2,431,601)
Unrecognized net actuarial loss 143,448 245,632 2,081,627
Unrecognized prior service cost - (10,081) (85,432)
Unrecognized net asset at transition, net of amortization (2,953) (2,414) (20,458)
---------------------------------------------------------------------------------------------------------------
Net amount recognized Yen (43,690) Yen (53,792) $ (455,864)
===============================================================================================================
Amounts recognized in the balance sheets consist of:
Prepaid benefit cost Yen 1,262 Yen 61 $ 517
Accrued benefit liability (113,685) (207,948) (1,762,271)
Intangible assets - 199 1,687
Accumulated other comprehensive income, gross of tax 68,733 153,896 1,304,203
---------------------------------------------------------------------------------------------------------------
Net amount recognized Yen (43,690) Yen (53,792) $ (455,864)
===============================================================================================================
2002 2003
---------------------------------------------------------------------------------------------------------------
Weighted-average assumptions:
Discount rate 3.3% 2.6%
Rate of increase in compensation levels 3.4% 3.4%
Expected long-term rate of return on plan assets 4.8% 3.6%
===============================================================================================================
F-29
The Japanese domestic plans represents approximately 88% of the above total
projected benefit obligation as of March 31, 2003. The weighted-average discount
rate, rate of increase in compensation and expected long-term rate of return on
plan assets of the domestic pension plans were 3.0%, 3.3% and 4.4%,
respectively, for the year ended March 31, 2002 and 2.2%, 3.4% and 2.9%,
respectively, for the year ended March 31, 2003.
The net periodic benefit costs of the defined benefit plans for the three years
ended March 31, 2003 consisted of the following components:
Thousands of
Millions of Yen U.S. Dollars
--------------------------------------- --------------
2001 2002 2003 2003
==================================================================================================
Service costs Yen 15,449 Yen 15,636 Yen 16,943 $143,585
Interest costs 11,706 13,693 14,292 121,119
Expected return on plan assets (13,410) (13,031) (9,763) (82,737)
Net amortization 1,123 4,707 5,081 43,059
Settlement loss - 183 (35) (297)
--------------------------------------------------------------------------------------------------
Net periodic benefit cost Yen 14,868 Yen 21,188 Yen 26,518 $224,729
==================================================================================================
In accordance with the provisions of SFAS 87, Ricoh has recorded an adjustment
for minimum pension liability at March 31, 2002 and 2003. This liability
represents the excess of the accumulated benefit obligations over the fair value
of plan assets and severance costs already recognized before recording the
minimum pension liability. This excess is primarily attributable to a
substantial reduction in the discount rate used in pension calculation and loss
on plan assets. A corresponding amount was recognized as an intangible asset to
the extent of the unrecognized prior service cost, and the balance was recorded
as a component of accumulated other comprehensive income (loss), net of tax.
The projected benefit obligations, accumulated benefit obligations, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were Yen 335,517 million, Yen 280,930 million and
Yen 208,712 million, respectively, as of March 31, 2002 and Yen 453,956 million
($3,847,085 thousand), Yen 387,481 million ($3,283,737 thousand) and
Yen 218,058 million ($1,847,949 thousand), respectively, as of March 31, 2003.
Employees of certain domestic subsidiaries not covered by the EPF plan and
directors of the Company are primarily covered by unfunded retirement allowances
plans. The payments to directors are subject to shareholders' approval.
As noted above, the domestic EPF plan is composed of (1) a corporate defined
benefit portion established by Ricoh and (2) a substitutional portion based on
benefits prescribed by the government (similar to social security benefits in
the United States). Ricoh has been exempted from contributing to the Japanese
Pension Insurance ("JPI") program that would otherwise have been required if it
had not elected to fund the government substitutional portion of the benefit
through an EPF arrangement. The plan assets of the EPF are invested and managed
as a single portfolio for the entire EPF and are not separately attributed to
the substitutional and corporate portions. The substitutional portion represents
approximately 39% of the total projected benefit obligation of the EPF as of
March 31, 2003. In June 2001, the Japanese pension law was amended to permit an
employer to elect to transfer the entire substitutional portion benefit
obligation from the EPF to the government together with a specified amount of
plan assets pursuant to a government formula. After such transfer, the employer
would be required to make periodic contributions to JPI, and the
F-30
Japanese government would be responsible for all benefit payments. The corporate
portion of the EPF would continue to exist exclusively as a corporate defined
benefit pension plan. In this regard, Ricoh has elected to transfer the
substitutional portion of its EPF to the government. The process of separating
the substitutional portion from the corporate portion includes several phases.
In January 2003, Ricoh received government approval of exemption from the
obligation for benefits related to future employee service with respect to the
substitutional portion of its EPF and is proceeding with the remaining steps to
effectuate the transfer which is presently expected to be completed by the end
of calendar year 2003. Ricoh will account for the transfer in accordance with
EITF 03-2 "Accounting for the Transfer to the Japanese Government of the
Substitutional Portion of Employee Pension Fund Liabilities". As specified in
EITF 03-2, the entire separation process is to be accounted for at the time of
completion of the transfer to the government of the benefit obligation and
related plan assets as a settlement in accordance with SFAS No.88 "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits". Accordingly, there has been no effect on Ricoh's
consolidated financial statements for the fiscal year ended March 31, 2003. The
aggregate effect of this separation will be determined based on the Company's
total pension benefits obligation as of the date the transfer is completed and
the amount of plan assets required to be transferred. Based on the Company's
current estimates as to the total amount of such pension benefits obligation and
the amount of plan assets required to be transferred, Ricoh's management does
not presently expect that this separation will have a significant effect on
Ricoh's financial condition or results of operation. However, the final amount
of the impact could be significantly different depending on any change in the
amounts of the pension benefit obligation or plan assets to be transferred.
12. SHAREHOLDERS' INVESTMENT
The Japanese Commercial Code provides that an amount equal to at least 10% of
cash dividends and other distributions from retained earnings paid by the
Company and its domestic subsidiaries be appropriated as a legal reserve. No
further appropriation is required when the total amount of the legal reserve and
additional paid-in capital equals 25% of common stock. Legal reserves included
in retained earnings as of March 31, 2002 and 2003 was Yen 16,815 million and
Yen 16,903 million ($143,246 thousand), respectively, and are restricted from
being used as dividends.
Semiannual cash dividends are approved by the shareholders after the end of each
fiscal period or are declared by the Board of Directors after the end of each
interim six-month period. Such dividends are payable to shareholders of record
at the end of each such fiscal or interim six-month period. At the general
meeting to be held on June 26, 2003, the shareholders will be asked to approve
the declaration of a cash dividend (Yen 7 per share) on the common stock
totaling Yen 5,198 million ($44,051 thousand), which will be paid to
shareholders of record as of March 31, 2003. The declaration of this dividend
has not been reflected in the consolidated financial statements as of March 31,
2003.
The Japanese Commercial Code provides that at least one-half of the proceeds
from shares issued is included in common stock. In conformity therewith, the
Company has divided the principal amount of bonds converted into common stock
between common stock and additional paid-in capital.
The amount of retained earnings legally available for dividend distribution is
that recorded in the Company's non-consolidated books and amounted to
Yen 268,687 million ($2,277,008 thousand) as of March 31, 2003.
The Japanese Commercial Code allows the Company to purchase treasury stock for
any reason at any time by the resolution of the Board of Directors up to the
limitation approved by the shareholders. On June 27, 2002, the shareholders of
the Company approved to purchase treasury stock up to 8 million shares for a
maximum total cost of Yen 20,000 million during the period up to the resolution
of next Ordinary General
F-31
Shareholders' Meeting which would be held on June 26, 2003. In accordance with
this approval, the Company repurchased 8 million shares and retired 7 million
shares during the year ended March 31, 2003. The retirement of common stock
reduced retained earnings during the year ended March 31, 2003 by Yen 13,328
million ($112,949 thousand).
13. OTHER COMPREHENSIVE INCOME (LOSS)
Tax effects allocated to each component of other comprehensive income (loss) are
as follows:
Millions of Yen
------------------------------------------
Before-tax Tax Net-of-tax
amount expense amount
==================================================================================================================
2001:
Foreign currency translation adjustments Yen (2,992) Yen 1,252 Yen (1,740)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the year (3,440) (1,842) (5,282)
Less- Reclassification adjustment for (gains) losses
realized in net income (2,898) 1,213 (1,685)
Net unrealized gains (losses) (6,338) (629) (6,967)
Minimum pension liability adjustment (37,797) 15,818 (21,979)
------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) Yen (47,127) Yen 16,441 Yen (30,686)
==================================================================================================================
2002:
Foreign currency translation adjustments Yen 8,578 Yen (2,062) Yen 6,516
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the year (4,212) 1,781 (2,431)
Less- Reclassification adjustment for (gains) losses
realized in net income 2,864 (1,199) 1,665
Net unrealized gains (losses) (1,348) 582 (766)
Unrealized losses on derivatives:
Cumulative effect of accounting change (3,206) 1,342 (1,864)
Unrealized holding gains (losses) arising during the year 2,061 (871) 1,190
Less- Reclassification adjustment for (gains) losses
realized in net income 792 (325) 467
Net unrealized gains (losses) (353) 146 (207)
Minimum pension liability adjustment (27,891) 11,760 (16,131)
------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) Yen (21,014) Yen 10,426 Yen (10,588)
==================================================================================================================
2003:
Foreign currency translation adjustments Yen 181 Yen 826 Yen 1,007
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the year (5,348) 2,065 (3,283)
Less- Reclassification adjustment for (gains) losses
realized in net income 2,234 (935) 1,299
Net unrealized gains (losses) (3,114) 1,130 (1,984)
Unrealized losses on derivatives:
Unrealized holding gains (losses) arising during the year (634) 277 (357)
Less- Reclassification adjustment for (gains) losses
realized in net income 654 (268) 386
Net unrealized gains (losses) 20 9 29
Minimum pension liability adjustment (80,220) 30,811 (49,409)
F-32
Millions of Yen
--------------------------------------------
Before-tax Tax Net-of-tax
amount expense amount
==================================================================================================================
Other comprehensive income (loss) Yen (83,133) Yen 32,776 Yen (50,357)
==================================================================================================================
Thousands of U.S. Dollars
--------------------------------------------
Before-tax Tax Net-of-tax
amount expense amount
------------------------------------------------------------------------------------------------------------------
2003:
Foreign currency translation adjustments $ 1,534 $ 7,000 $ 8,534
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the year (45,322) 17,500 (27,822)
Less- Reclassification adjustment for (gains) losses
realized in net income 18,932 (7,924) 11,008
Net unrealized gains (losses) (26,390) 9,576 (16,814)
Unrealized losses on derivatives:
Unrealized holding gains (losses) arising during the year (5,373) 2,348 (3,025)
Less- Reclassification adjustment for (gains) losses
realized in net income 5,542 (2,271) 3,271
Net unrealized gains (losses) 169 77 246
Minimum pension liability adjustment (679,830) 261,110 (418,720)
------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) $ (704,517) $ 277,763 $ (426,754)
==================================================================================================================
Changes in accumulated other comprehensive income (loss) are as follows:
Millions of Yen
-----------------------------------------------------------------------------------
Total
Foreign Minimum Accumulated
currency Unrealized Unrealized pension other
translation gains on losses on liability comprehensive
adjustments securities derivatives adjustment income (loss)
==================================================================================================================
2001:
Beginning balance Yen (19,801) Yen 18,299 - Yen (1,600) Yen (3,102)
Change during the year (1,740) (6,967) - (21,979) (30,686)
------------------------------------------------------------------------------------------------------------------
Ending balance Yen (21,541) Yen 11,332 - Yen (23,579) Yen (33,788)
==================================================================================================================
2002:
Beginning balance Yen (21,541) Yen 11,332 Yen - Yen (23,579) Yen (33,788)
Cumulative effect of
accounting change - - (1,864) - (1,864)
Change during the year 6,516 (766) 1,657 (16,131) (8,724)
------------------------------------------------------------------------------------------------------------------
Ending balance Yen (15,025) Yen 10,566 Yen (207) Yen (39,710) Yen (44,376)
==================================================================================================================
2003:
Beginning balance Yen (15,025) Yen 10,566 Yen (207) Yen (39,710) Yen (44,376)
Change during the year 1,007 (1,984) 29 (49,409) (50,357)
------------------------------------------------------------------------------------------------------------------
Ending balance Yen (14,018) Yen 8,582 Yen (178) Yen (89,119) Yen (94,733)
==================================================================================================================
Thousands of U.S. Dollars
-----------------------------------------------------------------------------------
2003:
Beginning balance $(127,331) $89,543 $(1,754) $(336,526) $(376,068)
F-33
Change during the year 8,534 (16,814) 246 (418,720) (426,754)
------------------------------------------------------------------------------------------------------------------
Ending balance $(118,797) $72,729 $(1,508) $(755,246) $(802,822)
==================================================================================================================
14. PER SHARE DATA
Dividends per share shown in the consolidated statements of income are computed
based on dividends paid for the year.
The following table sets forth the computation of basic and diluted earnings per
share showing the reconciliation of the numerators and denominators used for the
computation.
Thousands of shares
-------------------------------------------
2001 2002 2003
------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 692,617 698,025 726,660
Effect of dilutive securities:
Convertible bonds-
1.8%, payable in yen, due March 2002 1,636 997 -
1.5%, payable in yen, due March 2002 33,070 28,195 -
0.35%, payable in yen, due March 2003 24,703 24,699 23,250
------------------------------------------------------------------------------------------------
Diluted common shares outstanding 752,026 751,916 749,910
================================================================================================
Thousands of
Millions of Yen U.S. Dollars
------------------------------------------- --------------
2001 2002 2003 2003
---------------------------------------------------------------------------------------------------------------
Net income applicable to common shareholders Yen 53,228 Yen 61,614 Yen 72,513 $614,517
Effect of dilutive securities:
Convertible bonds-
1.8%, payable in yen, due March 2002 14 10 - -
1.5%, payable in yen, due March 2002 295 258 - -
0.35%, payable in yen, due March 2003 119 119 86 729
Other (249) - - -
---------------------------------------------------------------------------------------------------------------
Diluted net income Yen 53,407 Yen 62,001 Yen 72,599 $615,246
---------------------------------------------------------------------------------------------------------------
Yen U.S. Dollars
------------------------------------------- --------------
Earnings per share:
Basic Yen 76.85 Yen 88.27 Yen 99.79 $0.85
Diluted 71.02 82.46 96.81 0.82
===============================================================================================================
F-34
15. DERIVATIVE FINANCIAL INSTRUMENTS
Risk Management Policy
Ricoh enters into various derivative financial instrument contracts in the
normal course of business in connection with the management of its assets and
liabilities.
Ricoh uses derivative instruments to reduce risk and protect market value of
assets and liabilities in conformity with the Ricoh's policy. Ricoh does not use
derivative financial instruments for trading or speculative purposes, nor is it
a party to leveraged derivatives.
All derivative instruments are exposed to credit risk arising from the inability
of counterparties to meet the terms of the derivative contracts. However, Ricoh
does not expect any counterparties to fail to meet their obligations because
these counterparties are financial institutions with satisfactory credit
ratings. Ricoh utilizes a number of counterparties to minimize the concentration
of credit risk.
Foreign Exchange Risk Management
Ricoh conducts business on a global basis and holds assets and liabilities
denominated in foreign currencies. Ricoh enters into foreign exchange contracts
and foreign currency options to hedge against the potentially adverse impacts of
foreign currency fluctuations on these assets and liabilities denominated in
foreign currencies.
Interest Rate Risk Management
Ricoh enters into interest rate swap agreements to hedge against the potential
adverse impacts of changes in fair value or cash flow fluctuations on interest
of its outstanding debt.
Fair Value Hedges
Changes in the fair value of derivative instruments and the related hedged items
designated and qualifying as fair value hedges are included in other (income)
expenses on the consolidated statements of income. There is no hedging
ineffectiveness nor are net gains or losses excluded from the assessment of
hedge effectiveness for the years ended March 31, 2002 and 2003 as the critical
terms of the interest rate swap match the terms of the hedged debt obligations.
Cash Flow Hedges
Changes in the fair value of derivative instruments designated and qualifying as
cash flow hedges are included in accumulated other comprehensive income (loss)
on the consolidated balance sheets. These amounts are reclassified into earnings
as interest on the hedged loans is paid. There is no hedging ineffectiveness nor
are net gains or losses excluded from the assessment of hedge effectiveness for
the years ended March 31, 2002 and 2003 as the critical terms of the interest
rate swap match the terms of the hedged debt obligations. Ricoh expects that it
will reclassify into earnings through other (income) expenses during the next 12
months approximately Yen 149 million ($1,263 thousand) of the balance of
accumulated other comprehensive loss as of March 31, 2003.
F-35
Undesignated Derivative Instruments
Derivative instruments not designated as hedging instruments are held to reduce
the risk relating to the variability in exchange rates on assets and liabilities
denominated in foreign currencies. Changes in the fair value of these
instruments are included in other (income) expenses on the consolidated
statement of income.
16. COMMITMENTS AND CONTINGENT LIABILITIES
As of March 31, 2003, Ricoh had outstanding contractual commitments for
acquisition or construction of plant, equipment and other assets aggregating
Yen 2,234 million ($18,932 thousand).
As of March 31, 2003, Ricoh was also contingently liable as guarantor for
employees' housing loans of Yen 461 million ($3,907 thousand).
Ricoh made rental payments totaling Yen 39,956 million, Yen 46,426 million and
Yen 50,218 million ($425,576 thousand) for the years ended March 31, 2001, 2002
and 2003, respectively, under operating lease agreements for office space and
machinery and equipment, which are primarily cancelable and renewable.
As of March 31, 2003, the Company and certain of its subsidiaries were parties
to litigation involving routine matters, such as patent rights. In the opinion
of management, the ultimate liability, if any, resulting from such litigation
will not materially affect the consolidated financial position or the results of
operations of Ricoh.
17. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
(A) CASH AND CASH EQUIVALENTS, TIME DEPOSITS, TRADE RECEIVABLES, SHORT-TERM
BORROWINGS, CURRENT MATURITIES OF LONG-TERM INDEBTEDNESS, TRADE PAYABLES AND
ACCRUED EXPENSES
The carrying amounts approximate fair values because of the short maturities of
these instruments.
(B) MARKETABLE SECURITIES AND INVESTMENT SECURITIES
The fair value of the marketable securities and investment securities is
principally based on quoted market price.
(C) INSTALLMENT LOANS
The fair value of installment loans is based on the present value of future cash
flows using the current rate for similar instruments of comparable maturity.
(D) LONG-TERM INDEBTEDNESS
The fair value of each of the long-term indebtedness instruments is based on the
quoted price in the most active market or the present value of future cash flows
associated with each instrument discounted using the current borrowing rate for
similar instruments of comparable maturity.
F-36
(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, 2002 and
2003 is summarized as follows:
Millions of Yen Thousands of U.S. Dollars
----------------------------------------------------- ----------------------------
2002 2003 2003
-------------------------- -------------------------- ----------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value Amount Fair Value
--------------------------------------------------------------------------------------------------------------------
Marketable securities and Yen 51,821 Yen 51,821 Yen 72,080 Yen 72,080 $ 610,847 $ 610,847
Investment securities
Installment loans 48,975 49,319 50,531 50,783 428,229 430,364
Long-term indebtedness (332,995) (337,670) (345,902) (351,305) (2,931,373) (2,977,161)
Interest rate swap agreements, net 4,081 4,081 3,985 3,985 33,771 33,771
Foreign currency contracts, net (8,304) (8,304) (594) (594) (5,034) (5,034)
Foreign currency options, net (314) (314) (466) (466) (3,949) (3,949)
--------------------------------------------------------------------------------------------------------------------
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
18. SEGMENT INFORMATION
The operating segments presented below are the segments of Ricoh for which
separate financial information is available and for which a measure of profit or
loss is evaluated regularly by Ricoh's management in deciding how to allocate
resources and in assessing performance. The accounting policies of the segments
are substantially the same as those described in the summary of significant
accounting policies, as discussed in Note 2.
Ricoh's operating segments are comprised of office equipment, including copiers
and related supplies, communications and information systems, and others,
including optical equipment and electronic devices.
The following tables present certain information regarding Ricoh's operating
segments and operations by geographic areas for the three years in the period
ended March 31, 2003.
F-37
(A) OPERATING SEGMENT INFORMATION
Thousands of
Millions of Yen U.S. Dollars
----------------------------------------------- --------------
2001 2002 2003 2003
============================================================================================================
Sales-
Office equipment Yen 1,338,374 Yen 1,485,389 Yen 1,520,574 $12,886,220
Other 205,095 190,815 220,539 1,868,975
Intersegment transaction (5,207) (3,864) (2,755) (23,348)
------------------------------------------------------------------------------------------------------------
Consolidated Yen 1,538,262 Yen 1,672,340 Yen 1,738,358 $14,731,847
============================================================================================================
Operating Expenses-
Office equipment Yen 1,195,834 Yen 1,304,079 Yen 1,329,776 $11,269,288
Other 191,909 187,424 222,772 1,887,898
Intersegment transaction (5,218) (3,893) (2,726) (23,102)
Unallocated expense 50,632 55,035 54,882 465,102
------------------------------------------------------------------------------------------------------------
Consolidated Yen 1,433,157 Yen 1,542,645 Yen 1,604,704 $13,599,186
============================================================================================================
Operating Income-
Office equipment Yen 142,540 Yen 181,310 Yen 190,798 $1,616,932
Other 13,186 3,391 (2,233) (18,924)
Elimination (50,621) (55,006) (54,911) (465,347)
------------------------------------------------------------------------------------------------------------
Consolidated Yen 105,105 Yen 129,695 Yen 133,654 $1,132,661
============================================================================================================
Other Expenses Yen (7,340) Yen (15,745) Yen (10,184) $(86,305)
------------------------------------------------------------------------------------------------------------
Income before Income Taxes, Minority
Interests and Equity in Earnings of
Affiliates Yen 97,765 Yen 113,950 Yen 123,470 $1,046,356
============================================================================================================
CAPTION>
Thousands of
Millions of Yen U.S. Dollars
----------------------------------------------- --------------
2001 2002 2003 2003
============================================================================================================
Total Assets-
Office equipment Yen 1,179,499 Yen 1,219,723 Yen 1,198,706 $10,158,525
Other 180,164 185,158 176,296 1,494,034
Elimination (9,116) (6,991) (6,908) (58,542)
Corporate assets 354,244 435,038 516,828 4,379,898
------------------------------------------------------------------------------------------------------------
Consolidated Yen 1,704,791 Yen 1,832,928 Yen 1,884,922 $15,973,915
============================================================================================================
Expenditure for segment assets-
Office equipment Yen 61,836 Yen 68,513 Yen 65,720 $556,949
Other 10,235 5,633 7,213 61,127
Corporate assets 1,258 1,530 1,023 8,670
------------------------------------------------------------------------------------------------------------
Consolidated Yen 73,329 Yen 75,676 Yen 73,956 $626,746
============================================================================================================
Depreciation-
Office equipment Yen 52,908 Yen 64,426 Yen 60,687 $514,297
Other 7,598 7,448 6,917 58,619
Corporate assets 1,636 1,908 1,954 16,559
------------------------------------------------------------------------------------------------------------
Consolidated Yen 62,142 Yen 73,782 Yen 69,558 $589,475
============================================================================================================
Unallocated expense represents expenses for corporate headquarters.
F-38
Intersegment sales are not separated by operating segment because they are
immaterial.
Corporate assets consist primarily of cash and cash equivalents and marketable
securities maintained for general corporate purposes.
(B) GEOGRAPHIC INFORMATION
Sales which are attributed to countries based on location of customers and
long-lived assets for the years ended March 31, 2001, 2002 and 2003 are as
follows:
Thousands of
Millions of Yen U.S. Dollars
----------------------------------------------- --------------
2001 2002 2003 2003
============================================================================================================
Sales-
Japan Yen 930,433 Yen 902,655 Yen 896,022 $ 7,593,407
The Americas 252,698 341,747 343,940 2,914,746
Europe 247,449 311,312 354,477 3,004,042
Other 107,682 116,626 143,919 1,219,652
------------------------------------------------------------------------------------------------------------
Consolidated Yen 1,538,262 Yen 1,672,340 Yen 1,738,358 $14,731,847
============================================================================================================
Long-Lived Assets-
Japan Yen 244,506 Yen 257,752 Yen 251,214 $ 2,128,932
The Americas 70,809 77,269 71,850 608,898
Europe 37,557 38,320 34,062 288,661
Other 12,694 12,897 11,742 99,509
------------------------------------------------------------------------------------------------------------
Consolidated Yen 365,566 Yen 386,238 Yen 368,868 $ 3,126,000
============================================================================================================
Ricoh's long-lived assets consist property, plant and equipment, goodwill, other
intangible assets and lease deposits and other.
(C) ADDITIONAL INFORMATION
The following information shows net sales and operating income recognized by
geographic origin for the years ended March 31, 2001, 2002 and 2003. In addition
to the disclosure requirements under SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information", Ricoh discloses this information as
supplemental information in light of the disclosure requirements of the Japanese
Securities and Exchange Law, which a Japanese public company is subject to.
F-39
Thousands of
Millions of Yen U.S. Dollars
---------------------------------------------- ------------------
2001 2002 2003 2003
------------------------------------------------------------------------------------------------------------------
Sales-
Japan
External customers Yen 954,125 Yen 938,946 Yen 954,310 $ 8,087,373
Intersegment 279,802 309,745 320,596 2,716,915
------------------------------------------------------------------------------------------------------------------
Total 1,233,927 1,248,691 1,274,906 10,804,288
------------------------------------------------------------------------------------------------------------------
The Americas
External customers 252,029 338,016 333,935 2,829,958
Intersegment 4,470 8,937 5,620 47,627
------------------------------------------------------------------------------------------------------------------
Total 256,499 346,953 339,555 2,877,585
------------------------------------------------------------------------------------------------------------------
Europe
External customers 254,548 309,086 352,943 2,991,042
Intersegment 3,246 4,265 3,019 25,585
------------------------------------------------------------------------------------------------------------------
Total 257,794 313,351 355,962 3,016,627
------------------------------------------------------------------------------------------------------------------
Other
External customers 77,560 86,292 97,170 823,474
Intersegment 39,571 60,655 72,664 615,797
------------------------------------------------------------------------------------------------------------------
Total 117,131 146,947 169,834 1,439,271
------------------------------------------------------------------------------------------------------------------
Elimination of intersegment sales (327,089) (383,602) (401,899) (3,405,924)
------------------------------------------------------------------------------------------------------------------
Consolidated Yen 1,538,262 Yen 1,672,340 Yen 1,738,358 $14,731,847
==================================================================================================================
Operating Expenses-
Japan Yen 1,150,353 Yen 1,142,522 Yen 1,188,760 $10,074,237
The Americas 247,521 335,521 325,228 2,756,169
Europe 246,498 301,152 337,693 2,861,805
Other 110,937 139,874 159,864 1,354,780
------------------------------------------------------------------------------------------------------------------
Elimination of intersegment sales (322,152) (376,424) (406,841) (3,447,805)
------------------------------------------------------------------------------------------------------------------
Consolidated Yen 1,433,157 Yen 1,542,645 Yen 1,604,704 $13,599,186
==================================================================================================================
Operating Income-
Japan Yen 83,574 Yen 106,169 Yen 86,146 $ 730,051
The Americas 8,978 11,432 14,327 121,415
Europe 11,296 12,199 18,269 154,822
Other 6,194 7,073 9,970 84,492
------------------------------------------------------------------------------------------------------------------
Elimination of intersegment profit (4,937) (7,178) 4,942 41,881
------------------------------------------------------------------------------------------------------------------
Consolidated Yen 105,105 Yen 129,695 Yen 133,654 $1,132,661
==================================================================================================================
Other Expenses Yen (7,340) Yen (15,745) Yen (10,184) $(86,305)
==================================================================================================================
Income before Income Taxes, Minority
Interests and Equity in Earnings of
Affiliates Yen 97,765 Yen 113,950 Yen 123,470 $1,046,356
==================================================================================================================
Total Assets-
Japan Yen 1,042,557 Yen 1,084,387 Yen 1,064,857 $ 9,024,212
The Americas 209,638 228,743 201,359 1,706,432
Europe 163,542 172,408 174,541 1,479,161
Other 63,438 61,549 70,458 597,102
Elimination (128,628) (149,197) (143,121) (1,212,890)
Corporate assets 354,244 435,038 516,828 4,379,898
------------------------------------------------------------------------------------------------------------------
Consolidated Yen 1,704,791 Yen 1,832,928 Yen 1,884,922 $15,973,915
------------------------------------------------------------------------------------------------------------------
F-40
Intersegment sales between geographic areas are made at cost plus profit.
Operating income by geographic area is sales less expense related to the area's
operating revenue.
No single customer accounted for 10% or more of the total revenues for the
periods ended as of March 31, 2001, 2002 and 2003.
19. SUPPLEMENTARY INFORMATION TO THE STATEMENT OF INCOME
The following amounts were charged to selling, general and administrative
expenses for the years ended March 31, 2001, 2002 and 2003:
Thousands of
Millions of Yen U.S. Dollars
------------------------------------------- -----------------
2001 2002 2003 2003
------------------------------------------------------------------------------------------------------------------
Research and development costs Yen 78,239 Yen 80,799 Yen 83,551 $708,059
Advertising costs 18,592 16,868 16,958 143,712
Shipping and handling costs 11,123 13,332 12,582 106,627
------------------------------------------------------------------------------------------------------------------
20. SUBSEQUENT EVENTS
On December 17, 2002, the Company entered into a definitive share exchange
agreement with Tohoku Ricoh Co., Ltd (Tohoku Ricoh), a domestic subsidiary of
the Company, in order to convert Tohoku Ricoh into a wholly owned subsidiary.
Under the terms of the agreement, 0.345 of one share of the Company's common
stock was granted in exchange for each share of Tohoku Ricoh's common stock. The
Company completed the share exchange on April 1, 2003, using 2,239,533 shares of
treasury stock it held as of March 31, 2003, with a cost value of Yen 4,264
million ($36,136 thousand).
F-41
Ricoh Company, Ltd. and Consolidated Subsidiaries
SCHEDULE II. - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Three Years Ended March 31, 2003
(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, 2001:
Allowance for doubtful
receivables/(1)/-
Trade receivables 11,717 5,259 2,381 3,411 1,097 17,043
Finance receivables 12,518 3,969 (912) 3,039 68 12,604
Deferred tax asset valuation
allowance 8,157 533 2,139 3,071 645 8,403
For the year ended March 31, 2002:
Allowance for doubtful
receivables/(1)/-
Trade receivables 17,043 2,706 28 1,793 959 18,943
Finance receivables 12,604 4,223 - 3,325 69 13,571
Deferred tax asset valuation
allowance 8,403 2,369 1,154 1,444 818 11,300
For the year ended March 31, 2003:
Allowance for doubtful
receivables/(1)/-
Trade receivables 18,943 1,000 - 1,674 (420) 17,849
Finance receivables 13,571 4,147 - 3,412 (78) 14,228
Deferred tax asset valuation
allowance 11,300 3,312 - 4,920 (499) 9,193
-----------------------------------------------------------------------------------------------------------------------
Notes:
(1) See Note 2(g) to Consolidated Financial Statements.
(2) Receivables - Write-offs.
(3) Deferred tax - Realization of tax benefits
F-42