6-K 1 r6k110210.txt 3RD QUARTERLY SECURITIES REPORT FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 REPORT OF FOREIGN PRIVATE ISSUER Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934 For the month of February 2011 Commission File Number 2 - 68279 RICOH COMPANY, LTD. ----------------------------------------------- (Translation of Registrant's name into English) 13-1, Ginza 8-Chome, Chuo-ku, Tokyo 104-8222, Japan --------------------------------------------------- (Address of Principal Executive Offices) (Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.) Form 20-F X Form 40-F __ (Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): __ ) (Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): __ ) (Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.) Yes __ No X (If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-__ ) -------------------------------------------------------------------------------- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Ricoh Company, Ltd. ------------------------------ (Registrant) By: /S/ Zenji Miura ------------------------------ Zenji Miura Director, Chief Financial Officer Corporate Executive Vice President February 10, 2011 -------------------------------------------------------------------------------- RICOH COMPANY, LTD. Consolidated Financial Statements For the nine months Ended December 31, 2010 This is an English translation of the Quarterly Securities Report (Shihanki Hokokusho) for the nine months ended December 31, 2010 pursuant to the Japanese Financial Instrument and Exchange Law. Ricoh Company, Ltd. and Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS December 31, 2010 and March 31, 2010
Millions of Yen ------------------------------------------------------------------------------------------------ ASSETS December 31, 2010 March 31, 2010 ------------------------------------------------------------------------------------------------ Current assets: Cash and cash equivalents 147,816 242,165 Time deposits 1,744 1,723 Trade receivables: Notes 46,873 45,277 Accounts 403,101 443,089 Less- Allowance for doubtful receivables (16,682) (16,896) Current maturities of long-term finance receivables, net 198,892 196,144 Inventories: Finished goods 95,443 95,436 Work in process and raw materials 87,828 73,815 Deferred income taxes and other 61,207 63,859 ------------------------------------------------------------------------------------------------ Total current assets 1,026,222 1,144,612 ------------------------------------------------------------------------------------------------ Property, plant and equipment, at cost: Land 44,371 44,998 Buildings 263,001 246,469 Machinery and equipment 712,605 656,962 Construction in progress 3,176 27,682 ------------------------------------------------------------------------------------------------ Total 1,023,153 976,111 Less- accumulated depreciation (767,461) (713,090) ------------------------------------------------------------------------------------------------ Net property, plant and equipment 255,692 263,021 ------------------------------------------------------------------------------------------------ Investments and other assets: Long-term finance receivables, net 445,294 445,896 Investment securities 47,040 49,049 Investments in and advances to affiliates 703 819 Goodwill 214,027 246,637 Other intangible assets 128,552 147,886 Lease deposits and other 73,476 86,023 ------------------------------------------------------------------------------------------------ Total investments and other assets 909,092 976,310 ------------------------------------------------------------------------------------------------ Total assets 2,191,006 2,383,943 ------------------------------------------------------------------------------------------------
1
Millions of Yen ------------------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY December 31, 2010 March 31, 2010 ------------------------------------------------------------------------------------------------ Current liabilities: Short-term borrowings 43,534 75,701 Current maturities of long-term indebtedness 80,980 94,026 Trade payables: Notes 18,029 12,211 Accounts 226,012 261,186 Accrued income taxes 8,409 15,263 Accrued expenses and other 175,218 202,017 ------------------------------------------------------------------------------------------------ Total current liabilities 552,182 660,404 ------------------------------------------------------------------------------------------------ Long-term liabilities: Long-term indebtedness 503,343 514,718 Accrued pension and severance costs 138,896 140,460 Deferred income taxes and other 36,378 44,487 ------------------------------------------------------------------------------------------------ Total long-term liabilities 678,617 699,665 ------------------------------------------------------------------------------------------------ Equity: Ricoh Company, Ltd. shareholders' equity: Common stock 135,364 135,364 Additional paid-in capital 186,083 186,083 Retained earnings 816,688 820,701 Accumulated other comprehensive loss (193,719) (132,051) Treasury stock at cost (36,824) (36,756) ------------------------------------------------------------------------------------------------ Total Ricoh Company, Ltd. shareholders' equity 907,592 973,341 ------------------------------------------------------------------------------------------------ Noncontrolling interests 52,615 50,533 ------------------------------------------------------------------------------------------------ Total equity 960,207 1,023,874 ------------------------------------------------------------------------------------------------ Total liabilities and equity 2,191,006 2,383,943 ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of consolidated financial statements. 2 Ricoh Company, Ltd. and Consolidated Subsidiaries CONSOLIDATED STATEMENT OF INCOME For the Nine Months Ended December 31, 2009 and 2010
Millions of Yen ------------------------------------------------------------------------------------------------------- Nine months ended Nine months ended December 31, 2009 December 31, 2010 ------------------------------------------------------------------------------------------------------- Net Sales: Products 686,038 685,860 Post sales and rentals 714,184 677,001 Other revenue 74,509 76,190 ------------------------------------------------------------------------------------------------------- Total 1,474,731 1,439,051 ------------------------------------------------------------------------------------------------------- Cost of sales: Products 481,952 455,759 Post sales and rentals 326,827 323,895 Other revenue 57,546 59,918 ------------------------------------------------------------------------------------------------------- Total 866,325 839,572 ------------------------------------------------------------------------------------------------------- Gross profit 608,406 599,479 Selling, general and administrative expenses 570,674 545,490 ------------------------------------------------------------------------------------------------------- Operating income 37,732 53,989 ------------------------------------------------------------------------------------------------------- Other (income) expenses: Interest and dividend income (2,216) (2,154) Interest expense 6,156 5,816 Foreign currency exchange (gain) loss, net 3,412 8,206 Other, net (443) 777 ------------------------------------------------------------------------------------------------------- Total 6,909 12,645 ------------------------------------------------------------------------------------------------------- Income before income taxes and equity in earnings of affiliates 30,823 41,344 Provision for income taxes: Current 21,664 15,216 Deferred (6,726) 2,934 ------------------------------------------------------------------------------------------------------- Total 14,938 18,150 ------------------------------------------------------------------------------------------------------- Equity in earnings of affiliates 6 (15) Consolidated net income 15,891 23,179 ------------------------------------------------------------------------------------------------------- Net income attributable to noncontrolling interests 1,475 2,839 ------------------------------------------------------------------------------------------------------- Net income attributable to Ricoh Company, Ltd. 14,416 20,340 ------------------------------------------------------------------------------------------------------- Yen Yen ------------------------------------------------------------------------------------------------------- Per share of common stock: Net income attributable to Ricoh Company, Ltd. ------------------------------------------------------------------------------------------------------- Basic 19.87 28.03 Diluted 19.32 27.30 ------------------------------------------------------------------------------------------------------- Cash dividends paid per share 31.50 33.00 ------------------------------------------------------------------------------------------------------- Per American Depositary Share, each representing 5 shares of common stock: Net income attributable to Ricoh Company, Ltd. ------------------------------------------------------------------------------------------------------- Basic 99.35 140.15 Diluted 96.60 136.50 ------------------------------------------------------------------------------------------------------- Cash dividends paid per share 157.50 165.00 -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 3 For the Three Months Ended December 31, 2009 and 2010
Millions of Yen --------------------------------------------------------------------------------------------------------- Three months ended Three months ended December 31, 2009 December 31, 2010 --------------------------------------------------------------------------------------------------------- Net Sales: Products 221,842 218,751 Post sales and rentals 239,381 224,545 Other revenue 24,717 24,899 --------------------------------------------------------------------------------------------------------- Total 485,940 468,195 --------------------------------------------------------------------------------------------------------- Cost of sales: Products 148,270 140,772 Post sales and rentals 108,546 111,228 Other revenue 18,920 19,634 --------------------------------------------------------------------------------------------------------- Total 275,736 271,634 --------------------------------------------------------------------------------------------------------- Gross profit 210,204 196,561 Selling, general and administrative expenses 186,467 180,584 --------------------------------------------------------------------------------------------------------- Operating income 23,737 15,977 --------------------------------------------------------------------------------------------------------- Other (income) expenses: Interest and dividend income (474) (779) Interest expense 2,085 1,905 Foreign currency exchange (gain) loss, net (1,451) 776 Other, net (480) 796 --------------------------------------------------------------------------------------------------------- Total (320) 2,698 --------------------------------------------------------------------------------------------------------- Income before income taxes and equity in earnings of affiliates 24,057 13,279 Provision for income taxes: Current 12,164 2,443 Deferred (1,100) 2,113 --------------------------------------------------------------------------------------------------------- Total 11,064 4,556 --------------------------------------------------------------------------------------------------------- Equity in earnings of affiliates (6) (8) Consolidated net income 12,987 8,715 --------------------------------------------------------------------------------------------------------- Net income attributable to noncontrolling interest 379 887 --------------------------------------------------------------------------------------------------------- Net income attributable to Ricoh Company, Ltd. 12,608 7,828 --------------------------------------------------------------------------------------------------------- Yen Yen --------------------------------------------------------------------------------------------------------- Per share of common stock: --------------------------------------------------------------------------------------------------------- Basic 17.38 10.79 Diluted 16.91 10.54 --------------------------------------------------------------------------------------------------------- Cash dividends paid per share 16.50 16.50 --------------------------------------------------------------------------------------------------------- Per American Depositary Share, each representing 5 shares of common stock: --------------------------------------------------------------------------------------------------------- Basic 86.90 53.95 Diluted 84.55 52.70 --------------------------------------------------------------------------------------------------------- Cash dividends paid per share 82.50 82.50 ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 4 Ricoh Company, Ltd. and Consolidated Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS For the Nine Months Ended December 31, 2009 and 2010
Millions of Yen --------------------------------------------------------------------------------------------------------- Nine months ended Nine months ended December 31, 2009 December 31, 2010 --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Consolidated net income 15,891 23,179 Adjustments to reconcile consolidated net income to net cash provided by operating activities Depreciation and amortization 73,402 69,518 Equity in earnings of affiliates, net of dividends received (6) 15 Deferred income taxes (6,726) 2,934 Losses on disposals and sales of property, plant and equipment 606 813 Pension and severance costs, less payment 2,890 889 Changes in assets and liabilities, net of effects from acquisition- Decrease in trade receivables 27,035 9,820 (Increase) Decrease in inventories 7,403 (29,139) Decrease in finance receivables 16,684 11,903 Decrease in trade payables (31,160) (20,183) Decrease in accrued income taxes and accrued expenses and other (15,453) (6,111) Other, net 18,377 10,718 --------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 108,943 74,356 --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of property, plant and equipment 909 732 Expenditures for property, plant and equipment, including interest capitalized (48,338) (48,674) Expenditures for intangible assets including interest capitalized (10,063) (12,153) Payments for purchases of available-for-sale securities (695) (230) Proceeds from sales of available-for-sale securities 938 17 (Increase) Decrease in time deposits, net 665 (192) Purchase of business, net of cash acquired (4,760) (477) Other, net (5,358) (3,187) --------------------------------------------------------------------------------------------------------- Net cash used in investing activities (66,702) (64,164) --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term indebtedness 35,055 43,691 Repayment of long-term indebtedness (60,825) (75,039) Decrease in short-term borrowings, net (57,767) (28,110) Proceeds from issuance of long-term debt securities 35,000 79,741 Repayment of long-term debt securities (10,000) (88,307) Dividends paid (22,858) (23,943) Payment for purchase of treasury stock (127) (138) Other, net (393) (551) --------------------------------------------------------------------------------------------------------- Net cash used in financing activities (81,915) (92,656) --------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (1,685) (11,885) --------------------------------------------------------------------------------------------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (41,359) (94,349) --------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 258,484 242,165 --------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD 217,125 147,816 ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 5 Ricoh Company, Ltd. and Consolidated Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING AND REPORTING POLICIES According to the article 93 of the "Regulations Regarding Terms, Forms and Preparation of Interim Consolidated Financial Statements" (Cabinet office Ordinance No.64, 2007), the accompanying consolidated financial statements of Ricoh (Ricoh Company, Ltd. and its consolidated subsidiaries) have been prepared in conformity with U.S. generally accepted accounting principles. Significant accounting and reporting policies are summarized below: The accompanying consolidated financial statements for the nine months ended December 31, 2010 are presented in Japanese yen, the functional currency of the Company and its domestic subsidiaries. The books of the Company and its domestic subsidiaries are maintained in conformity with Japanese accounting principles and practices, while foreign subsidiaries maintain their books in conformity with the standards of their country of domicile. The accompanying consolidated financial statements reflect necessary adjustments, not recorded in the books, to present them in conformity with U.S. generally accepted accounting principles. (A) PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. The accounts of variable interest entity are included in the consolidated financial statements, if applicable. Investments in entities in which Ricoh has the ability to exercise significant influence over the entities' operating and financial policies (generally 20% to 50% ownership) are accounted for on an equity basis. All significant inter-company balances and transactions have been eliminated in consolidation. The accounts of certain consolidated subsidiaries have been included on the basis of fiscal periods ended within three months prior to December 31. (B) REVENUE RECOGNITION Ricoh generates revenue principally through the sale of equipment, supplies and related services under separate contractual arrangements for each. Ricoh recognizes revenue when (1) it has a firm contract, (2) the product has been shipped to and accepted by the customer or the service has been provided, (3) the sales price is fixed or determinable and (4) amounts are reasonably assured of collection. Products sales are recognized at the time of delivery and installation at the customer location. Equipment revenues are based on established prices by product type and model and are net of discounts. A sales return is accepted only when the equipment is defective and does not meet Ricoh's product performance specifications. Other than installation, there are no customer acceptance clauses in the sales contract. Post sales and rentals result primarily from maintenance contracts that are normally entered into at the time the equipment is sold. Standard service fee prices are established depending on equipment classification and include a cost value for the estimated services to be performed based on historical experience plus a profit margin thereon. As a matter of policy, Ricoh does not discount such prices. On a monthly basis, maintenance service revenues are earned and recognized by Ricoh and billed to the customer in accordance 6 with the contract and include a fixed monthly fee plus a variable amount based on usage. The length of the contract ranges up to five-years, however, most contracts are cancelable at any time by the customer upon a short notice period. Leases not qualifying as sales-type leases or direct financing leases are accounted for as operating leases and related revenue is recognized over the lease term. Ricoh enters into arrangements with multiple elements, which may include any combination of products, equipment, installation and maintenance. Ricoh allocates revenue to each element based on its relative fair value if such element meets the criteria for treatment as a separate unit of accounting, the delivered item in a multiple element arrangement should be considered a separate unit of accounting if all of the following criteria are met: (1) a delivered item has value to customers on a stand-alone basis, (2) there is objective and reliable evidence of fair value of an undelivered item, and (3) the delivery of the undelivered item must be probable and controlled by Ricoh if the arrangement includes the right of return. The price charged when the element is sold separately generally determines fair value. Otherwise, revenue is deferred until the undelivered elements are fulfilled as a single unit of accounting. Revenue from the sale of equipment under sales-type leases is recognized as product sales at the inception of the lease. Other revenue consists primarily of interest income on sales-type leases and direct-financing leases, which are recognized as other revenue over the life of each respective lease using the interest method. (C) FOREIGN CURRENCY TRANSLATION For foreign operations with functional currencies other than the Japanese yen, assets and liabilities are translated at the exchange rates in effect at each 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 Ricoh Company, Ltd. shareholders' equity. All foreign currency transaction gains and losses are included in other income and expenses in the period incurred. (D) CASH EQUIVALENTS Cash and cash equivalents include highly liquid investments with maturities of three months or less at the date of purchase such as time deposits and short-term investment securities which are available-for-sale at any time, present insignificant risk of changes in value due to being readily convertible into cash and have an original maturity of three months or less, such as money management funds and free financial funds. (E) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES As discussed further in Note 8, 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. Ricoh recognizes all derivative instruments as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. When Ricoh enters into a derivative contract, it makes a determination as to whether or not for accounting purposes the derivative is part of a hedging relationship. In general, a derivative may be designated as either (1) a hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment ("fair value hedge"), (2) a hedge of the variability of the expected cash flows associated with an existing asset or liability or a forecasted transaction ("cash flow hedge"), or (3) a foreign currency fair value or cash flow hedge ("foreign currency hedge"). Ricoh 7 formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value, cash flow, or foreign currency hedges to specific assets and liabilities on the consolidated balance sheets or to specific firm commitments or forecasted transactions. For derivative contracts that are designated and qualify as fair value hedges including foreign currency fair value hedges, the derivative instrument is marked-to-market with gains and losses recognized in current period earnings to offset the respective losses and gains recognized on the change in fair value of the hedged item. For derivative contracts that are designated and qualify as cash flow hedges including foreign currency cash flow hedges, the effective portion of gains and losses on these contracts is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period the hedged item or transaction affects earnings. Any hedge ineffectiveness on cash flow hedges is immediately recognized in earnings. For all derivative instruments that are not designated as part of a hedging relationship and for designated derivative instruments that do not qualify for hedge accounting, the contracts are recorded at fair value with the gain or loss recognized in current period earnings. (F) ALLOWANCE FOR DOUBTFUL TRADE RECEIVABLES AND FINANCE RECEIVABLES Ricoh records allowances for doubtful receivables that are based upon historical experience and specific customer collection issues. The estimated amount of probable credit losses in its existing receivables is determined from write-off history adjusted to reflect current economic conditions and specific allowances for receivables including nonperforming leases, impaired loans or other accounts for which Ricoh has concluded it will be unable to collect all amounts due according to original terms of the lease or loan agreement. Account balances net of expected recovery from available collateral are charged-off against the allowances when collection is considered remote. (G) SECURITIES Ricoh's investments in debt and marketable equity securities are classified as available-for-sale securities. Available-for-sale securities are reported at fair value with unrealized gains and losses, net of related taxes, reported in accumulated other comprehensive income (loss). Individual securities classified as available-for-sale securities are reduced to fair market value by a charge to income for other than temporary declines in value. Factors considered in assessing whether an indication of other than temporary impairment exists with respect to available-for-sale securities include: financial condition and near term prospects of issuer and intent and ability of Ricoh to retain its investments for a period of time sufficient to allow for any anticipated recovery in market value. The cost of the securities sold is computed based on the average cost of each security held at the time of sale. Investments in affiliated companies over which Ricoh has the ability to exercise significant influence, but does not hold a controlling financial interest, are accounted for by the equity method. Non-marketable equity securities owned by Ricoh primarily relate to less than 20% owned companies and funds are stated at cost unless indication of impairment exist, which require the investment to be written down to its estimated fair value. 8 (H) INVENTORIES Inventories are mainly stated at the lower of average cost or net realizable values. Inventory costs include raw materials, labor and manufacturing overheads. (I) PROPERTY, PLANT AND EQUIPMENT For the Company and its domestic subsidiaries, depreciation of property, plant and equipment is computed principally by using the declining-balance method over the estimated useful lives. Most of the foreign subsidiaries have adopted the straight-line method for computing depreciation. The depreciation period generally ranges from 5 years to 50 years for buildings and 2 years to 12 years for machinery and equipment. Ordinary maintenance and repairs are charged to expense as incurred. Major replacements and improvements are capitalized. When properties are retired or otherwise disposed of, the property and related accumulated depreciation accounts are relieved of the applicable amounts, and any differences are included in earnings. (J) CAPITALIZED SOFTWARE COSTS Ricoh capitalizes certain internal and external costs incurred to acquire or create internal use software during the application development stage as well as upgrades and enhancements that result in additional functionality. The capitalized software is amortized on a straight line basis generally from 3 years to 5 years. (K) GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill is not amortized and is required to be tested at least annually for impairment. Acquired intangible assets with a definite useful life are amortized over their respective estimated useful lives and reviewed for impairment when an indication of impairment is identified. Other intangible assets with definite useful lives, consisting primarily of software, customer relationships and trademarks are amortized on a straight line basis over 1 year to 20 years. Any acquired intangible assets determined to have an indefinite useful life are not amortized, but instead are tested annually for impairment based on its fair value until its life would be determined to no longer be indefinite. In performing the test, Ricoh utilizes the two-step approach prescribed. The first step requires a comparison of the carrying amount of the reporting units to the fair value of these units. If the carrying amount of a reporting unit exceeds its fair value, Ricoh will perform the second step of the goodwill impairment test to measure the amount of impairment loss, if any. (L) PENSION AND RETIREMENT ALLOWANCES PLANS Ricoh recognizes the overfunded or underfunded status of the defined benefit plans as an asset or liability in the consolidated balance sheet, with a corresponding adjustment to accumulated other comprehensive income (loss), net of tax. The expected long-term rate of return on plan assets used for pension accounting is determined based on the historical long-term rate of return on plan assets. The discount rate is determined based on the rates of return of high-quality fixed-income investments currently available and expected to be available during the period to maturity of the pension benefits. 9 (M) INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. On April 1, 2007, Ricoh adopted the guidance on accounting for uncertainty in income taxes which requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. Ricoh recognizes interest and penalties related to unrecognized tax benefits in provision for income taxes in the consolidated statements of income. (N) RESEARCH AND DEVELOPMENT EXPENSES AND ADVERTISING COSTS Research and development expenses and advertising costs are expensed as incurred. (O) SHIPPING AND HANDLING COSTS Shipping and handling costs, which mainly include transportation to customers, are included in selling, general and administrative expenses in the consolidated statements of income. (P) IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS Long-lived assets and acquired intangible assets with a definite life are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is assessed by comparing the carrying amount of an asset or asset group to the expected future undiscounted net cash flows of the asset or asset group. If an asset or asset group is considered to be impaired, the impairment charge to be recognized is measured as the amount by which the carrying amount of the asset or asset group exceeds fair value. Long-lived assets meeting the criteria to be considered as held for sale are reported at the lower of their carrying amount or fair value less costs to sell. (Q) NET INCOME ATTRIBUTABLE TO RICOH COMPANY, LTD. PER SHARE Basic net income attributable to Ricoh Company, Ltd. per share of common stock is calculated by dividing net income attributable to Ricoh Company, Ltd. by the weighted-average number of shares of common stock outstanding during the period. The calculation of diluted net income attributable to Ricoh Company, Ltd. per share of common stock is similar to the calculation of basic net income attributable to Ricoh Company, Ltd. 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 INVESTING AND FINANCING TRANSACTIONS Non-cash investing and financing transactions are as follows: 10
Millions of Yen --------------------------------------------------------------------------------- Nine months ended --------------------------------------------------------------------------------- 2009 2010 December 31 December 31 --------------------------------------------------------------------------------- Debt assumed in connection with business acquisition Yen 3,941 -- Debt assumed with adoption of new accounting standards regarding consolidation of VIE -- Yen 20,229 ---------------------------------------------------------------------------------
(S) USE OF ESTIMATES Management of Ricoh has made a number of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosures of fair value of financial instruments and contingent assets and liabilities, to prepare these financial statements in conformity with U.S. generally accepted accounting principles. Actual results could differ from those estimates. Ricoh has identified seven areas where it believes assumptions and estimates are particularly critical to the consolidated financial statements. These are determination of the allowance for doubtful receivables, impairment of securities, impairment of long-lived assets including goodwill, uncertain tax positions, realizability of deferred tax assets, the valuation of assets and liabilities in business combinations and pension accounting. (T) RECENTLY ADOPTED NEW ACCOUNTING STANDARDS In December 2009, the FASB issued Accounting Standard Update ("ASU") 2009-16. This ASU eliminates the concept of a qualifying special-purpose entity, establishes conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies the financial-asset derecognition criteria, revises how interests retained by the transferor in a sale of financial assets initially are measured, removes the guaranteed mortgage securitization recharacterization provisions and requires additional disclosures. It is effective for fiscal years beginning after November 15, 2009 and for subsequent interim and annual reporting periods, and was adopted by Ricoh in the first quarter beginning April 1, 2010. In December 2009, the FASB issued ASU 2009-17. This ASU requires an enterprise to perform an analysis to identify the primary beneficiary of a variable interest entity and also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. It is effective for fiscal years beginning after November 15, 2009 and for subsequent interim and annual reporting periods and earlier application is prohibited. It was adopted by Ricoh in the first quarter beginning April 1, 2010. Regarding an effect on Ricoh's consolidated financial position or results of operations by adoption of ASU 2009-16 and ASU 2009-17, refer to Note 12-variable interest entity. In July 2010, the FASB issued ASU 2010-20. This ASU enhances disclosures about the credit quality of financing receivables and the allowance for credit losses, by requiring an entity to provide disaggregated and class information, credit quality indicators, past due information, and information about modifications of its financing receivables, and other information. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on and after December 15, 2010. This adoption of ASU 2010-20 did not have any effect on Ricoh's consolidated financial position and results of operations. The disclosure required by ASU2010-20 was omitted. (U) NEW ACCOUNTING STANDARDS NOT YET ADOPTED In October 2009, the FASB issued ASU 2009-13. This ASU eliminates the residual method of revenue recognition and allows the use of management's best estimate of selling price for individual elements of an arrangement when vendor specific objective evidence (VSOE) or third-party evidence (TPE) is unavailable. 11 This ASU is effective for fiscal years beginning on or after June 15, 2010 and early adoption is permitted. If Ricoh does not elect early adoption, this ASU will be adopted by Ricoh in the first quarter beginning April 1, 2011. Ricoh is currently evaluating the effect that adoption of this ASU will have on its consolidated results of operations and financial condition. In October 2009, the FASB issued ASU 2009-14. This ASU amends the scope of pre-existing software revenue guidance by removing from the guidance non-software components of tangible products and certain software components of tangible products. It is effective for fiscal years beginning on or after June 15, 2010 and early adoption is permitted. If Ricoh does not elect early adoption, this ASU will be adopted by Ricoh in the first quarter beginning April 1, 2011. Ricoh is currently evaluating the effect that adoption of this ASU will have on its consolidated results of operations and financial condition. 12 2. SECURITIES Investment securities as of December 31, 2010 and March 31, 2010 consist of the following:
Millions of Yen -------------------------------------------------------------------------------------------------- December 31, 2010 March 31, 2010 -------------------------------------------------------------------------------------------------- Investment securities: Available-for-sale securities 45,000 46,624 Non-marketable equity securities 2,040 2,425 -------------------------------------------------------------------------------------------------- 47,040 49,049 --------------------------------------------------------------------------------------------------
The 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 December 31, 2010 and March 31, 2010 are as follows:
Millions of Yen --------------------------------------------------------------------------------------------------------------------- December 31, 2010 March 31, 2010 --------------------------------------------------------------------------------------------------------------------- Gross Gross Gross Gross unrealized unrealized unrealized unrealized holding holding holding holding Cost gains losses Fair value Cost gains losses Fair value --------------------------------------------------------------------------------------------------------------------- Noncurrent: Equity securities 41,136 4,326 2,291 43,171 40,552 5,300 1,093 44,759 Corporate debt securities 1,772 57 -- 1,829 1,778 87 -- 1,865 --------------------------------------------------------------------------------------------------------------------- 42,908 4,383 2,291 45,000 42,330 5,387 1,093 46,624 ---------------------------------------------------------------------------------------------------------------------
Gross unrealized holding losses and the fair value of available-for-sale securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2010 and March 31, 2010 are as follows:
Millions of Yen ------------------------------------------------------------------------------------------------------ December 31, 2010 ------------------------------------------------------------------------------------------------------ Less than 12 months 12 months or longer Total ------------------------------------------------------------------------------------------------------ Gross Gross Gross unrealized unrealized unrealized holding holding holding Fair value losses Fair value losses Fair value losses ------------------------------------------------------------------------------------------------------ Noncurrent: Available-for-sale: Equity securities 26,987 1,960 1,084 331 28,071 2,291 ------------------------------------------------------------------------------------------------------
Millions of Yen ------------------------------------------------------------------------------------------------------ March 31, 2010 ------------------------------------------------------------------------------------------------------ Less than 12 months 12 months or longer Total ------------------------------------------------------------------------------------------------------ Gross Gross Gross unrealized unrealized unrealized holding holding holding Fair value losses Fair value losses Fair value losses ------------------------------------------------------------------------------------------------------ Noncurrent: Available-for-sale: Equity securities 26,871 836 985 257 27,856 1,093 ------------------------------------------------------------------------------------------------------
13 Gross unrealized holding losses of available-for-sale securities as of December 31, 2010 and March 31, 2010 consist of 44 and 37 kinds of securities. Ricoh judged the decline in fair value of investment securities at period end to be temporary, with considering such factors as financial and operating conditions of issuer, the industry in which the issuer operates and other relevant factors. The contractual maturities of debt securities classified as available-for-sale as of December 31, 2010 are as follows: Millions of Yen ------------------ Cost Fair value ---------------------------------------------------------- Due after one year through five years 482 485 Over five years 1,290 1,344 ---------------------------------------------------------- 1,772 1,829 ---------------------------------------------------------- Proceeds from the sales of available-for-sale securities were Yen 938 million and Yen 17 million for the nine months ended December 31, 2009 and 2010, respectively. There were no significant realized gains or losses on sales of available-for-sale securities for the nine months ended December 31, 2009 and 2010. There were no significant realized gains or losses on valuation of available-for-sale securities for the nine months ended December 31, 2009 and 2010. 3. INCOME TAXES The estimated annual effective tax rate for fiscal year ending March 31, 2011 was approximately 44 percent as of December 31, 2010. The estimated rate differed from the approximately 41 percent statutory tax rate due primarily to the net increase in valuation allowance for deferred tax assets. 4. PENSION AND RETIREMENT ALLOWANCE PLANS The net periodic benefit costs of the pension plans consist of the following components:
Millions of Yen --------------------------------------------------------------------------------- Nine months ended Three months ended December 31, 2010 December 31, 2010 --------------------------------------------------------------------------------- Service cost 9,563 3,220 Interest cost 11,031 3,635 Expected return on plan assets (6,446) (2,153) Net amortization 2,277 747 --------------------------------------------------------------------------------- Total net periodic pension cost 16,425 5,449 ---------------------------------------------------------------------------------
14 5. EQUITY The change in Ricoh shareholders' equity, noncontrolling interests and total equity for the nine months ended December 31, 2009 and 2010 is as follow: Ricoh adopted ASU 2009-17 on April 1, 2010. The adoption of this ASU resulted in adjustments to change in Ricoh shareholders' equity, noncontrolling interests and total equity as of April 1, 2010.
Millions of Yen -------------------------------------------------------------------------------------------------------------------------------- Nine months ended Nine months ended December 31, 2009 December 31, 2010 -------------------------------------------------------------------------------------------------------------------------------- Ricoh Ricoh Shareholders' Noncontrolling Shareholders' Noncontrolling Equity Interests Total Equity Equity Interests Total Equity -------------------------------------------------------------------------------------------------------------------------------- Equity, Beginning of Period 975,373 48,977 1,024,350 973,341 50,533 1,023,874 -------------------------------------------------------------------------------------------------------------------------------- Cumulative effect of a change in accounting principle - adoption of accounting guidance for a variable interest entity, net of tax -- -- -- (410) (392) (802) -------------------------------------------------------------------------------------------------------------------------------- Equity, Beginning of Period as adjusted 975,373 48,977 1,024,350 972,931 50,141 1,023,072 -------------------------------------------------------------------------------------------------------------------------------- Net income 14,416 1,475 15,891 20,340 2,839 23,179 Unrealized gains (losses) on securities 1,711 90 1,801 (1,271) (3) (1,274) Pension liability adjustments 1,003 8 1,011 1,540 1 1,541 Unrealized losses on derivatives (1,150) (16) (1,166) (85) (23) (108) Foreign currency translation adjustments (6,330) (36) (6,366) (61,852) 310 (61,542) -------------------------------------------------------------------------------------------------------------------------------- Comprehensive income(loss) 9,650 1,521 11,171 (41,328) 3,124 (38,204) -------------------------------------------------------------------------------------------------------------------------------- Cash dividends on Common stock (22,858) -- (22,858) (23,943) -- (23,943) Distributions to Noncontrolling interests -- (557) (557) -- (650) (650) Payment to acquire Treasury stock (33) -- (33) (68) -- (68) Other 132 (70) 62 -- -- -- -------------------------------------------------------------------------------------------------------------------------------- Equity, End of Period 962,264 49,871 1,012,135 907,592 52,615 960,207 --------------------------------------------------------------------------------------------------------------------------------
Comprehensive incomes were Yen 18,874 million (gains) and Yen 7,382 million (losses) for the three months ended December 31, 2009 and 2010, respectively. Comprehensive incomes attributable to Ricoh Company, Ltd. were Yen 18,446 million (gains), and Yen 8,261 million (losses), and comprehensive incomes attributable to noncontrolling interests were Yen 428 million (gains) and Yen 879 million (gains) for the three months ended December 31, 2009 and 2010, respectively. 6. DIVIDENDS Cash dividends paid during the nine months ended December 31, 2010 is as follows: Resolved at the General meetings of Shareholders on June 25, 2010 ---------------------------------------------------------------- Total amount of dividends (millions of yen) 11,972 Dividend per share of common stock (yen) 16.50 Record date March 31, 2010 Effective date June 28, 2010 Resource for dividend Retained earnings ---------------------------------------------------------------- 15 Resolved at the Board meeting on October 28, 2010 ---------------------------------------------------------------- Total amount of dividends (millions of yen) 11,971 Dividend per share of common stock (yen) 16.50 Record date September 30, 2010 Effective date December 1, 2010 Resource for dividend Retained earnings ---------------------------------------------------------------- 7. PER SHARE DATA Ricoh shareholders' equity per share was Yen 1,250.96 and Yen 1,341.45 as of December 31, 2010 and March 31, 2010, respectively. Dividends per share shown in the consolidated statement of income are computed based on dividends paid for the third quarter ended December 31, 2010 and the year ended March 31, 2010. A reconciliation of the numerator and the denominators of the basic and diluted per share computations for net income attributable to Ricoh Company, Ltd. are as follows:
Thousands of shares --------------------------------------------------------------------------------------------- Nine months ended Nine months ended December 31, 2009 December 31, 2010 --------------------------------------------------------------------------------------------- Weighted average number of shares of common stock 725,624 725,570 outstanding Effect of dilutive securities: Euro Yen Zero Coupon Convertible Bonds - Due December 2011 19,741 17,992 --------------------------------------------------------------------------------------------- Diluted shares of common stock outstanding 745,365 743,562 ---------------------------------------------------------------------------------------------
Millions of Yen --------------------------------------------------------------------------------------------- Nine months ended Nine months ended December 31, 2009 December 31, 2010 --------------------------------------------------------------------------------------------- Net income attributable to Ricoh Company, Ltd. 14,416 20,340 Effect of dilutive securities: Euro Yen Zero Coupon Convertible Bonds - Due December 2011 (19) (38) --------------------------------------------------------------------------------------------- Diluted net income attributable to Ricoh Company, Ltd. 14,397 20,302 ---------------------------------------------------------------------------------------------
Yen --------------------------------------------------------------------------------------------- Nine months ended Nine months ended December 31, 2009 December 31, 2010 --------------------------------------------------------------------------------------------- Net income attributable to Ricoh Company, Ltd. per share: Basic: Basic: Net income attributable to Ricoh Company, Ltd. 19.87 28.03 Diluted: Diluted: Net income attributable to Ricoh Company, Ltd. 19.32 27.30 ---------------------------------------------------------------------------------------------
16
Thousands of shares ----------------------------------------------------------------------------------------------- Three months ended Three months ended December 31, 2009 December 31, 2010 ----------------------------------------------------------------------------------------------- Weighted average number of shares of common stock 725,606 725,554 outstanding Effect of dilutive securities: Euro Yen Zero Coupon Convertible Bonds - Due December 2011 19,741 14,672 ----------------------------------------------------------------------------------------------- Diluted shares of common stock outstanding 745,347 740,226 -----------------------------------------------------------------------------------------------
Millions of Yen ----------------------------------------------------------------------------------------------- Three months ended Three months ended December 31, 2009 December 31, 2010 ----------------------------------------------------------------------------------------------- Net income attributable to Ricoh Company, Ltd. 12,608 7,828 Effect of dilutive securities: Euro Yen Zero Coupon Convertible Bonds - Due December 2011 (6) (25) ----------------------------------------------------------------------------------------------- Diluted net income attributable to Ricoh Company, Ltd. 12,602 7,803 -----------------------------------------------------------------------------------------------
Yen ----------------------------------------------------------------------------------------------- Three months ended Three months ended December 31, 2009 December 31, 2010 ----------------------------------------------------------------------------------------------- Net income attributable to Ricoh Company, Ltd. per share: Basic: Basic: Net income attributable to Ricoh Company, Ltd. 17.38 10.79 Diluted: Diluted: Net income attributable to Ricoh Company, Ltd. 16.91 10.54 -----------------------------------------------------------------------------------------------
17 8. DERIVATIVE FINANCIAL INSTRUMENTS Risk Management Policy Ricoh enters into various derivative financial instrument contracts in the normal course of business in connection with the management of its assets and liabilities. Ricoh uses derivative instruments to reduce risk and protect market value of assets and liabilities in conformity with the Ricoh's policy. Ricoh does not use derivative financial instruments for trading or speculative purposes, nor is it a party to leveraged derivatives. All derivative instruments are exposed to credit risk arising from the inability of counterparties to meet the terms of the derivative contracts. However, Ricoh does not expect any counterparties to fail to meet their obligations because these counterparties are financial institutions with satisfactory credit ratings. Ricoh utilizes a number of counterparties to minimize the concentration of credit risk. Foreign Exchange Risk Management Ricoh conducts business on a global basis and holds assets and liabilities denominated in foreign currencies. Ricoh enters into foreign exchange contracts and foreign currency options to hedge against the potentially adverse impacts of foreign currency fluctuations on these assets and liabilities denominated in foreign currencies. Interest Rate Risk Management Ricoh enters into interest rate swap agreements to hedge against the potential adverse impacts of changes in fair value or cash flow fluctuations on interest of its outstanding debt. Fair Value Hedges Changes in the fair value of derivative instruments and the related hedged items designated and qualifying as fair value hedges are included in other (income) expenses in the consolidated statements of income. There is no hedging ineffectiveness nor are net gains or losses excluded from the assessment of hedge effectiveness for the nine months ended December 31, 2010 mainly because the critical terms of the interest rate swap match the terms of the hedged debt obligations. Cash Flow Hedges Changes in the fair value of derivative instruments designated and qualifying as cash flow hedges are included in accumulated other comprehensive income (loss) on the consolidated balance sheets. These amounts are reclassified into earnings as interest on the hedged loans is paid. There is no hedging ineffectiveness nor are net gains or losses excluded from the assessment of hedge effectiveness for the nine months ended December 31, 2010 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 63 million of the balance of accumulated other comprehensive income as of December 31, 2010. Undesignated Derivative Instruments Derivative instruments not designated as hedging instruments are held mainly to reduce the risk relating to the variability in exchange rates on assets and liabilities denominated in foreign currencies. Changes in the fair value of these instruments are included in other (income) expenses in the consolidated statement of income. 18 Contract amounts of derivative instruments at March 31, 2010 and December 31, 2010 are shown in the following tables: Millions of Yen ------------------------------------------------------------------------ December 31, 2010 March 31, 2010 ------------------------------------------------------------------------ Interest rate swap agreements 282,597 297,501 Foreign currency contracts 202,270 138,283 Foreign currency options 25,016 29,143 ------------------------------------------------------------------------ The location and fair value amounts of derivatives in consolidated balance sheet are shown in the following tables: Derivatives designated as hedging instruments
------------------------------------------------------------------------------------------------------------------------------ Current Long-term ------------------------------------------------------------------------------------------------------------------------------ Fair value Fair value ------------------------------------------------------------------------------------------------------------------------------ Balance sheet Balance sheet Location Millions of Yen Location Millions of Yen ------------------------------------------------------------------------------------------------------------------------------ Asset Derivatives December 31, 2010 March 31, 2010 December 31, 2010 March 31, 2010 ------------------------------------------------------------------------------------------------------------------------------ Interest rate swap Deferred income Lease deposits agreements taxes and other Yen -- Yen 40 and other Yen -- Yen 12 ------------------------------------------------------------------------------------------------------------------------------ Liability Derivatives December 31, 2010 March 31, 2010 December 31, 2010 March 31, 2010 ------------------------------------------------------------------------------------------------------------------------------ Interest rate Accrued expenses Deferred income swap agreements and other Yen 51 Yen 10 taxes and other Yen 3,247 Yen 2,564 ------------------------------------------------------------------------------------------------------------------------------
Derivatives not designated as hedging instruments
------------------------------------------------------------------------------------------------------------------------------ Current Long-term ------------------------------------------------------------------------------------------------------------------------------ Fair value Fair value ------------------------------------------------------------------------------------------------------------------------------ Balance sheet Balance sheet Location Millions of Yen Location Millions of Yen ------------------------------------------------------------------------------------------------------------------------------ Asset Derivatives December 31, 2010 March 31, 2010 December 31, 2010 March 31, 2010 ------------------------------------------------------------------------------------------------------------------------------ Interest rate swap agreements Yen -- Yen -- Yen -- Yen -- Foreign currency Deferred income Lease deposits contracts taxes and other 2,838 356 and other 523 -- ------------------------------------------------------------------------------------------------------------------------------ Foreign currency options 535 128 -- -- ------------------------------------------------------------------------------------------------------------------------------ Total Yen 3,373 Yen 484 Yen 523 Yen -- ------------------------------------------------------------------------------------------------------------------------------ Liability Derivatives December 31, 2010 March 31, 2010 December 31, 2010 March 31, 2010 ------------------------------------------------------------------------------------------------------------------------------ Interest rate swap Accrued expenses Deferred income agreements and other Yen 77 Yen 46 taxes and other Yen 80 Yen 117 Foreign currency contracts 3,525 4,076 484 347 Foreign currency options 33 426 -- -- ------------------------------------------------------------------------------------------------------------------------------ Total Yen 3,635 Yen 4,548 Yen 564 Yen 464 ------------------------------------------------------------------------------------------------------------------------------
19 Total fair value amounts of derivatives Millions of Yen ---------------------------------------------------------------------- Fair value ---------------------------------------------------------------------- December 31, 2010 March 31, 2010 ---------------------------------------------------------------------- Total Asset Derivatives Yen 3,896 Yen 536 Total Liability Derivatives Yen 7,497 Yen 7,586 ---------------------------------------------------------------------- The location and amount of gains and losses related to derivatives reported in the consolidated statement of income for the nine months ended December 31, 2009 are shown in the following tables: Derivatives designated as hedging instruments
Millions of Yen ----------------------------------------------------------------------------------------------------------- Gain or (Loss) Gain or (Loss) Reclassified Recognized in OCI from Accumulated OCI Gain or (Loss) Recognized on Derivative Into Income in Income on Derivative (Effective Portion) (Effective Portion) (Ineffective Portion) ----------------------------------------------------------------------------------------------------------- Amount Location Amount Location Amount ----------------------------------------------------------------------------------------------------------- Cash flow hedge Interest rate swap agreements (1,216) Interest expense (64) -- -- -----------------------------------------------------------------------------------------------------------
Millions of Yen ---------------------------------------------------------------------------------------- Gain or (Loss) Recognized Gain or (Loss) on Hedged Item in Income on Derivative Recognized in Income ---------------------------------------------------------------------------------------- Location Amount Location Amount ---------------------------------------------------------------------------------------- Fair value hedge Interest and Interest rate swap agreements dividend income 145 Interest expense (235) ----------------------------------------------------------------------------------------
Derivatives not designated as hedging instruments Gain or (Loss) Recognized in Income on Derivative ---------------------------------------------------------------------- Location Millions of Yen ---------------------------------------------------------------------- December 31, 2009 ---------------------------------------------------------------------- Interest rate swap agreements Other, net Yen (14) Foreign currency exchange (gain) Foreign currency contracts loss, net 563 Foreign currency exchange (gain) Foreign currency options loss, net 1,451 ---------------------------------------------------------------------- Total Yen 2,000 ---------------------------------------------------------------------- 20 The location and amount of gains and losses related to derivatives reported in the consolidated statement of for the three months ended December 31, 2009 are shown in the following tables: Derivatives designated as hedging instruments
Millions of Yen ----------------------------------------------------------------------------------------------------------- Gain or (Loss) Gain or (Loss) Reclassified Recognized in OCI from Accumulated OCI Gain or (Loss) Recognized on Derivative Into Income in Income on Derivative (Effective Portion) (Effective Portion) (Ineffective Portion) ----------------------------------------------------------------------------------------------------------- Amount Location Amount Location Amount ----------------------------------------------------------------------------------------------------------- Cash flow hedge Interest rate swap agreements (766) Interest expense (27) -- -- -----------------------------------------------------------------------------------------------------------
Millions of Yen ---------------------------------------------------------------------------------------- Gain or (Loss) Recognized Gain or (Loss) on Hedged Item in Income on Derivative Recognized in Income ---------------------------------------------------------------------------------------- Location Amount Location Amount ---------------------------------------------------------------------------------------- Fair value hedge Interest and Interest rate swap agreements dividend income 34 Interest expense (51) ----------------------------------------------------------------------------------------
Derivatives not designated as hedging instruments Gain or (Loss) Recognized in Income on Derivative ---------------------------------------------------------------------- Location Millions of Yen ---------------------------------------------------------------------- December 31, 2009 ---------------------------------------------------------------------- Interest rate swap agreements Other, net Yen 79 Foreign currency exchange (gain) Foreign currency contracts loss, net (1,174) Foreign currency exchange (gain) Foreign currency options loss, net (214) ---------------------------------------------------------------------- Total Yen (1,309) ---------------------------------------------------------------------- The location and amount of gains and losses related to derivatives reported in the consolidated statement of income for the nine months ended December 31, 2010 are shown in the following tables: Derivatives designated as hedging instruments 21
Millions of Yen ----------------------------------------------------------------------------------------------------------- Gain or (Loss) Gain or (Loss) Reclassified Recognized in OCI from Accumulated OCI Gain or (Loss) Recognized on Derivative Into Income in Income on Derivative (Effective Portion) (Effective Portion) (Ineffective Portion) ----------------------------------------------------------------------------------------------------------- Amount Location Amount Location Amount ----------------------------------------------------------------------------------------------------------- Cash flow hedge Interest rate swap agreements (496) Interest expense (165) -- -- -----------------------------------------------------------------------------------------------------------
Millions of Yen ---------------------------------------------------------------------------------------- Gain or (Loss) Recognized Gain or (Loss) on Hedged Item in Income on Derivative Recognized in Income ---------------------------------------------------------------------------------------- Location Amount Location Amount ---------------------------------------------------------------------------------------- Fair value hedge Interest and Interest rate swap agreements dividend income 68 Interest expense (90) ----------------------------------------------------------------------------------------
Derivatives not designated as hedging instruments Gain or (Loss) Recognized in Income on Derivative ---------------------------------------------------------------------- Location Millions of Yen ---------------------------------------------------------------------- December 31, 2010 ---------------------------------------------------------------------- Interest rate swap agreements Other, net Yen (133) Foreign currency exchange (gain) Foreign currency contracts loss, net 3,810 Foreign currency exchange (gain) Foreign currency options loss, net 800 ---------------------------------------------------------------------- Total Yen 4,477 ---------------------------------------------------------------------- The location and amount of gains and losses related to derivatives reported in the consolidated statement of income for the three months ended December 31, 2010 are shown in the following tables: Derivatives designated as hedging instruments
Millions of Yen ----------------------------------------------------------------------------------------------------------- Gain or (Loss) Gain or (Loss) Reclassified Recognized in OCI from Accumulated OCI Gain or (Loss) Recognized on Derivative Into Income in Income on Derivative (Effective Portion) (Effective Portion) (Ineffective Portion) ----------------------------------------------------------------------------------------------------------- Amount Location Amount Location Amount ----------------------------------------------------------------------------------------------------------- Cash flow hedge Interest rate swap agreements 98 Interest expense (32) -- -- -----------------------------------------------------------------------------------------------------------
Millions of Yen ---------------------------------------------------------------------------------------- Gain or (Loss) Recognized Gain or (Loss) on Hedged Item in Income on Derivative Recognized in Income ---------------------------------------------------------------------------------------- Location Amount Location Amount ---------------------------------------------------------------------------------------- Fair value hedge Interest and Interest rate swap agreements dividend income 13 Interest expense (17) ----------------------------------------------------------------------------------------
22 Derivatives not designated as hedging instruments Gain or (Loss) Recognized in Income on Derivative ---------------------------------------------------------------------- Location Millions of Yen ---------------------------------------------------------------------- December 31, 2010 ---------------------------------------------------------------------- Interest rate swap agreements Other, net Yen (40) Foreign currency exchange (gain) Foreign currency contracts loss, net 1,544 Foreign currency exchange (gain) Foreign currency options loss, net 1,114 ---------------------------------------------------------------------- Total Yen 2,618 ---------------------------------------------------------------------- 9. COMMITMENTS AND CONTINGENT LIABILITIES Ricoh was contingently liable for certain guarantees including employees housing loans of Yen 77 million as of December 31, 2010. As of December 31, 2010 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. 10. 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) INVESTMENT SECURITIES The fair value of the investment securities is principally based on quoted market price. Ricoh have not estimated the fair value of non-marketable equity securities, as it is not practicable. Because there were no quoted market prices for non-marketable equity securities and each security had different nature and characteristics, reasonable estimates of fair values could not be made without incurring excessive costs. The acquisition cost of non-marketable equity securities was Yen 2,040 million and Yen 2,425 million as of December 31, 2010 and March 31, 2010, respectively. (C) INSTALLMENT LOANS The fair value of installment loans is based on the present value of future cash flows using the current interest rate for similar instruments of comparable maturity. 23 (D) LONG-TERM INDEBTEDNESS The fair value of each of the long-term indebtedness instruments is based on the present value of future cash flows associated with each instrument discounted using the current borrowing rate for similar instruments of comparable maturity. Ricoh newly recognized Yen 13,249 million as Long-term indebtedness conform with adoption of New Accounting Standards, refer to Note 12-variable interest entity. (E) INTEREST RATE SWAP AGREEMENTS, FOREIGN CURRENCY CONTRACTS AND FOREIGN CURRENCY OPTIONS The fair value of interest rate swap agreements, foreign currency contracts and foreign currency options is estimated by obtaining quotes from brokers or suitable valuation method based on available data. (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 December 31, 2010 and March 31, 2010 are summarized as follows:
Millions of Yen ------------------------------------------------------------------------------------- December 31, 2010 March 31, 2010 ------------------------------------------------------------------------------------- Carrying Estimated Carrying Estimated amount fair value amount fair value ------------------------------------------------------------------------------------- Investment securities 47,040 47,040 49,049 49,049 Installment loans 69,974 69,969 67,505 68,739 Long-term indebtedness (503,343) (497,913) (514,718) (501,311) Interest rate swap agreements, net (3,455) (3,455) (2,685) (2,685) Foreign currency contracts, net (648) (648) (4,067) (4,067) Foreign currency options, net 502 502 (298) (298) -------------------------------------------------------------------------------------
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. 11. FAIR VALUE MEASUREMENTS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels fair value hierarchy that prioritizes the inputs used to measure fair value is established. The three levels of inputs used to measure fair value are as follows: Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data. 24 Level 3 - Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable. The following tables present the fair-value hierarchy levels of Ricoh's assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2010 and March 31, 2010. Millions of Yen ---------------------------------------------------------------------------- December 31, 2010 ---------------------------------------------------------------------------- Level 1 Level 2 Level 3 Total ---------------------------------------------------------------------------- Assets: Available-for-sale securities: Domestic equity securities 36,383 -- -- 36,383 Foreign equity securities 6,788 -- -- 6,788 Foreign corporate bonds 1,829 -- -- 1,829 Derivative instruments Interest rate swap agreements -- -- -- -- Foreign currency contracts -- 3,361 -- 3,361 Foreign currency options -- 535 -- 535 ---------------------------------------------------------------------------- Total assets 45,000 3,896 -- 48,896 ---------------------------------------------------------------------------- Liabilities: Derivatives instruments Interest rate swap agreements -- 3,455 -- 3,455 Foreign currency contracts -- 4,009 -- 4,009 Foreign currency options -- 33 -- 33 ---------------------------------------------------------------------------- Total liabilities -- 7,497 -- 7,497 ---------------------------------------------------------------------------- Millions of Yen ---------------------------------------------------------------------------- March 31, 2010 ---------------------------------------------------------------------------- Level 1 Level 2 Level 3 Total ---------------------------------------------------------------------------- Assets: Available-for-sale securities: Domestic equity securities 36,946 -- -- 36,946 Foreign equity securities 7,813 -- -- 7,813 Foreign corporate bonds 1,865 -- -- 1,865 Derivative instruments Interest rate swap agreements -- 52 -- 52 Foreign currency contracts -- 356 -- 356 Foreign currency options -- 128 -- 128 Other investments -- -- 5,816 5,816 ---------------------------------------------------------------------------- Total assets 46,624 536 5,816 52,976 ---------------------------------------------------------------------------- Liabilities: Derivatives instruments Interest rate swap agreements -- 2,737 -- 2,737 Foreign currency contracts -- 4,423 -- 4,423 Foreign currency options -- 426 -- 426 ---------------------------------------------------------------------------- Total liabilities -- 7,586 -- 7,586 ---------------------------------------------------------------------------- Available-for-sale securities Available-for-sale securities classified Level 1 in the fair value hierarchy contains marketable securities and bonds. Marketable securities and bonds are valued using a market approach based on the quoted market prices of identical instruments in active markets. 25 Derivative instruments Ricoh uses foreign exchange contracts, foreign currency options and interest rate swap agreements to manage exposure to the variability of cash flow. These derivative instruments are classified as Level 2 in the fair value hierarchy, since they are valued using observable market data such as LIBOR-based yield curves. Other investments Other investments classified as Level 3 in the fair value hierarchy represent the retained interests in securitizations of finance lease receivables in which Ricoh valued using cash flows discounted by an estimated interest rate reflecting underlying risks till March 31, 2010. Ricoh adopted the FASB New Accounting Standards as of beginning of fiscal year ending March 31, 2011, Ricoh consolidated this retained interests by this adoption, and Ricoh offset and eliminated it. The detail of this New Accounting Standards is summarized as follow Note 12-variable interest entity. The following table presents the Other investments classified as Level 3 in the fair value hierarchy as of December 31, 2009. Millions of Yen ----------------------------------------------------------------------- Nine months ended December 31, 2009 ----------------------------------------------------------------------- Other investments ----------------------------------------------------------------------- Balance at beginning of period 4,293 Total gains or losses (realized and unrealized) Included in net income -- Included in other comprehensive income (loss) -- Sales, collections and repurchases, net (5) ----------------------------------------------------------------------- Balance at end of period 4,288 ----------------------------------------------------------------------- Millions of Yen ----------------------------------------------------------------------- Three months ended December 31, 2009 ----------------------------------------------------------------------- Other investments ----------------------------------------------------------------------- Balance at beginning of period 4,291 Total gains or losses (realized and unrealized) Included in net income -- Included in other comprehensive income (loss) -- Sales, collections and repurchases, net (3) ----------------------------------------------------------------------- Balance at end of period 4,288 ----------------------------------------------------------------------- 12. VARIABLE INTEREST ENTITY Ricoh sold certain finance lease receivables in prior years through revolving securitization transactions, which were structured as special purpose entities ("SPE"). The value assigned to undivided interests retained in these transactions was based on the fair value of retained interests as of a transfer of these receivables. Ricoh's retained interests were considered as variable interest, because Ricoh's retained interests were subordinate to the investors' interests and had the liability with received the potential losses. And, Ricoh was considered as primary beneficiary, because Ricoh was special servicer for the program. As a result, Ricoh consolidated the interests as VIE and recorded the assets and liabilities at their carrying 26 amount as of beginning of fiscal year ending March 31, 2011. Adoption of the new accounting standards did not have a material effect on Ricoh's results of operation. The main impact of adopting the new accounting standards on Ricoh's consolidated financial position is as follows: Millions of Yen ------------------------------------------------------------------ Third quarter ended December 31, 2010 ------------------------------------------------------------------ Current maturities of long-term finance receivables, net 8,377 Long-term finance receivables, net 15,905 Current maturities of long-term indebtedness 6,979 Long-term indebtedness 13,249 ------------------------------------------------------------------ Also, Ricoh decreased at their carrying amount as cumulative effect adjustment Yen 410 million to the opening balance of Retained earnings, and Yen 392 million to the opening balance of Noncontrolling interests as of April 1, 2010. 27 13. SEGMENT INFORMATION Ricoh's operating segments are comprised of Imaging & Solutions, including copiers and related supplies, communications and information systems, Industrial Products, including thermal media and semiconductors, and Other, including digital cameras. Segment Profit (loss) is determined by subtracting cost of sales and selling, general and administrative expenses from sales, and is used by Ricoh's management in deciding how to allocate resources and in assessing performance. Segment Profit (loss) excludes certain corporate expenses, such as costs related to human resources, legal relations, investor relations, public relations, corporate planning and environmental activities. The following tables present certain information regarding Ricoh's operating segments and by geographic areas for the nine and three months ended December 31, 2009 and 2010, respectively. (A) OPERATING SEGMENT INFORMATION
Millions of Yen -------------------------------------------------------------------------------------------- Nine months ended Nine months ended December 31, 2009 December 31, 2010 -------------------------------------------------------------------------------------------- Segment Sales: Imaging & Solutions 1,306,090 1,264,407 Industrial Products 79,510 86,283 Other 92,284 92,508 Intersegment transaction (3,153) (4,147) -------------------------------------------------------------------------------------------- Total Segment Sales 1,474,731 1,439,051 -------------------------------------------------------------------------------------------- Segment Profit (loss): Imaging & Solutions 92,985 108,104 Industrial Products (1,034) 775 Other (1,986) (1,533) -------------------------------------------------------------------------------------------- Total Segment Profit (loss) 89,965 107,346 -------------------------------------------------------------------------------------------- Reconciling Items: Corporate expenses and Elimination (52,233) (53,357) Interest and dividend income 2,216 2,154 Interest expense (6,156) (5,816) Foreign currency exchange loss, net (3,412) (8,206) Other, net 443 (777) -------------------------------------------------------------------------------------------- Income before Income Taxes and Equity in Earnings of Affiliates 30,823 41,344 --------------------------------------------------------------------------------------------
Millions of Yen ---------------------------------------------------------------------------------------------- Three months ended Three months ended December 31, 2009 December 31, 2010 ---------------------------------------------------------------------------------------------- Segment Sales: Imaging & Solutions 430,961 413,424 Industrial Products 26,268 27,949 Other 29,823 28,378 Intersegment transaction (1,112) (1,556) ---------------------------------------------------------------------------------------------- Total Segment Sales 485,940 468,195 ---------------------------------------------------------------------------------------------- Segment Profit (loss): Imaging & Solutions 41,432 35,103 Industrial Products (267) (271) Other (889) (1,069) ---------------------------------------------------------------------------------------------- Total Segment Profit (loss) 40,276 33,763 ---------------------------------------------------------------------------------------------- Reconciling Items: Corporate expenses and Elimination (16,539) (17,786) Interest and dividend income 474 779 Interest expense (2,085) (1,905) Foreign currency exchange loss, net 1,451 (776) Other, net 480 (796) ---------------------------------------------------------------------------------------------- Income before Income Taxes and Equity in Earnings of Affiliates 24,057 13,279 ----------------------------------------------------------------------------------------------
28 Intersegment sales represent sales of Industrial Products segment to Imaging & Solutions segment. (B) GEOGRAPHIC INFORMATION Sales which are attributed to countries based on location of customers are as follows:
Millions of Yen ---------------------------------------------------------------------------------------------- Nine months ended Nine months ended December 31, 2009 December 31, 2010 ---------------------------------------------------------------------------------------------- Sales- Japan 626,527 649,422 The Americas 416,397 389,424 Europe 341,467 303,531 Other 90,340 96,674 ---------------------------------------------------------------------------------------------- Consolidated 1,474,731 1,439,051 ----------------------------------------------------------------------------------------------
Millions of Yen ---------------------------------------------------------------------------------------------- Three months ended Three months ended December 31, 2009 December 31, 2010 ---------------------------------------------------------------------------------------------- Sales- Japan 204,838 210,357 The Americas 135,239 124,567 Europe 115,321 102,480 Other 30,542 30,791 ---------------------------------------------------------------------------------------------- Consolidated 485,940 468,195 ----------------------------------------------------------------------------------------------
29 14. SUPPLEMENTARY INFORMATION TO THE STATEMENT OF INCOME The following amounts were charged to selling, general and administrative expenses for the Nine months and three months ended December 31, 2009 and 2010:
Millions of Yen -------------------------------------------------------------------------------------------- Nine months ended Nine months ended December 31, 2009 December 31, 2010 -------------------------------------------------------------------------------------------- Research and development costs 81,887 81,349 Advertising costs 7,484 8,853 Shipping and handling costs 12,773 13,834 --------------------------------------------------------------------------------------------
Millions of Yen ---------------------------------------------------------------------------------------------- Three months ended Three months ended December 31, 2009 December 31, 2010 ---------------------------------------------------------------------------------------------- Research and development costs 25,897 27,352 Advertising costs 2,933 3,662 Shipping and handling costs 4,220 4,925 ----------------------------------------------------------------------------------------------
30