"Item 3. Key information
D.Risk factors" in FORM 20-F (as of June 30, 2009)
filed to U.S. Securities and Exchange Commision |
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:
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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; |
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No assurances can be made that Ricoh will be able to procure raw
materials and parts necessary for new products or technologies from
its suppliers at competitive prices; |
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No assurances can be made that Ricoh will be able to successfully
manage the distribution system for its new products to eliminate the
risk of loss resulting from a failure to take advantage of market
opportunities; |
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No assurances can be made that Ricoh will succeed in marketing any
newly developed product or technology; and |
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No assurances can be given that Ricoh will be able to respond
adequately to changes in the industry. |
Ricoh's failure to respond to any risks associated with this industry, including those described above, may reduce Ricoh's future growth and profitability and may adversely affect Ricoh's financial results and condition.
In addition to the above general risks, Ricoh is exposed to the following specific risks relating to the document imaging and management industry:
Digital Technology
Among the various technologies used in the
document imaging and management industry, Ricoh believes the successful
development of digital technology is one of the most essential factors
in attaining a competitive advantage. Ricoh currently is a leader
in digital technology and believes that the importance of digital
technology used in office equipment, including copiers, printers,
facsimiles and scanners, will continue to grow in the future. While
most of Ricoh's PPCs sold in Japan and overseas are already digital,
Ricoh believes that the digital technology used in connection with
digital copiers and other digital products will continue to develop
and that competition with respect to digital products will intensify.
There is no assurance that Ricoh will continue to be in the forefront
of digital technology despite its commitment to invest in research
and development activities in this area. Failure of Ricoh to adequately
develop digital technology may adversely affect Ricoh's financial
results and condition.
Multi-Functional Equipment
Ricoh believes that the document imaging and management industry is moving
towards a multi-functional office environment where various office equipment
(including copiers, facsimile machines, printers, scanners and personal
computers) become more interdependent on each other due to the increasing use
of digital technology and initiatives taken by many offices to eventually
become a "paperless office." As a result, certain existing office equipment may
either be consolidated into multi-functional equipment or may be linked
together electronically to perform various office functions. Although Ricoh
already manufactures certain multi-functional equipment, as a result of this
trend towards multi-functional equipment, some of Ricoh's products may become
obsolete while other products may require substantial product enhancements,
requiring technologies currently unavailable within Ricoh. No assurances can be
made that Ricoh will be able to successfully adjust to such changes.
RICOH MUST SUCCESSFULLY OPERATE IN HIGHLY COMPETITIVE MARKETS
The document imaging and management industry, including the copier industry,
is intensely competitive. Ricoh expects to face increased competition in the
various markets in which it operates. Currently, Ricoh's competitors include
other large manufacturers and distributors of office equipment. In addition, as digital and
other new technology develops and as new office equipment products using these
newly developed technologies gain increased market acceptance, Ricoh may find
itself competing with new competitors that develop such new technologies,
including computer software and hardware manufacturers and distributors.
Accordingly, it is possible that new competitors or alliances among existing
and new competitors may emerge and rapidly acquire significant market share.
While Ricoh believes it is a leading manufacturer and distributor in the
document imaging and management industry and it intends to maintain its
position, no assurances can be made that it will continue to compete
effectively in the future. Pricing pressures or loss of potential customers
resulting from Ricoh's failure to compete effectively may adversely affect
Ricoh's financial results and condition.
RICOH IS SUBJECT TO THE RISKS OF INTERNATIONAL OPERATIONS AND THE RISKS OF OVERSEAS EXPANSION
A substantial portion of Ricoh's manufacturing and marketing activity is conducted outside of Japan, including in the United States, Europe, and in developing and emerging markets such as China. There are a number of risks inherent in doing business in such overseas markets, including the following:
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unfavorable political or economical factors; |
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fluctuations in foreign currency exchange rates; |
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potentially adverse tax consequences. |
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unexpected legal or regulatory changes; |
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lack of sufficient protection for intellectual property rights; |
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difficulties in recruiting and retaining personnel, and managing
international operations; and |
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less developed infrastructure; |
Ricoh's inability to manage successfully the risks inherent in its international activities could adversely affect its business, financial condition and operating results. In addition, while Ricoh plans to continue to expand its business worldwide and increase overseas sales, because of the risks associated with conducting an international operation (including the risks listed above), there can be no assurances that Ricoh's overseas expansion will be successful or have a positive effect on Ricoh's financial results and condition.
ECONOMIC TRENDS IN RICOH'S MAJOR MARKETS MAY ADVERSELY AFFECT RICOH'S SALES
Demand for Ricoh's products are affected by
cyclical changes in the economies of Ricoh's major markets, including
Japan, the United States and Europe. Economic downturns and declines
in consumption in Ricoh's major markets may adversely affect Ricoh's
financial results and condition.
FOREIGN EXCHANGE FLUCTUATIONS AFFECT RICOH'S RESULTS
Local currency-denominated financial results in each of the Company's
subsidiaries around the world are translated into Japanese Yen by applying the
average market rate during each financial period and recorded on Ricoh's
consolidated statements of income. Local currency-denominated assets and
liabilities are translated into Japanese Yen by applying the market rate at the
end of each financial period and recorded on Ricoh's consolidated balance
sheets. Accordingly, the financial results, assets and liabilities are subject
to foreign exchange fluctuations.
In addition, operating profits and losses
are highly sensitive to the fluctuations in the value of the Japanese
Yen because the high volume of Ricoh's production and sales activities
in the Americas, Europe and Other, such as China, results in a large
proportion of revenues and costs denominated in local currencies.
Although Ricoh engages in hedging transactions such as forward contracts
with several financial institutions having credit ratings satisfactory
to Ricoh to minimize the negative effects of short-term fluctuations
in foreign exchange rates among major currencies such as the U.S.
Dollar, Euro and Japanese Yen, mid-to-long-term volatile changes in
the exchange rate levels make it difficult for Ricoh to execute planned
procurement, production, logistics, and sales activities and may adversely
affect Ricoh's financial results and condition.
CRUDE OIL PRICE FLUCTUATIONS AFFECT RICOH'S RESULTS
Many of the parts or materials used in manufacturing Ricoh's products are
made from oil. If the price of crude oil rises, the purchase price of such
product parts or materials may increase as well. Furthermore, a rise in the
price of crude oil may lead to an increase in shipping and handling costs due
in part to a rise in the cost of fuel and the cost of utilities. Ricoh may not
be able to pass these incremental costs onto the sales price of its products.
Such fluctuations in crude oil prices may therefore adversely affect Ricoh's
financial position and results of operations.
RICOH IS SUBJECT TO GOVERNMENT REGULATION THAT CAN LIMIT ITS ACTIVITIES OR INCREASE ITS COST OF OPERATIONS
Ricoh is subject to various governmental regulations and approval procedures
in the countries in which it operates. For example, Ricoh may be required to
obtain approvals for its business and investment plans, be subject to export
regulations and tariffs, as well as rules and regulations relating to commerce,
antitrust, patent, consumer and business taxation, exchange control, and
environmental and recycling laws. Ricoh has established a Corporate Social
Responsibility Office to heighten awareness of the importance of corporate
social responsibility. Through this office, Ricoh involves its employees in
various activities designed to ensure compliance with applicable regulations as
part of its overall risk management and compliance program. However, if Ricoh
is unable to comply with any of these regulations or fails to obtain the
requisite approvals, Ricoh's activities in such countries may be restricted. In
addition, even if Ricoh is able to comply with these regulations, compliance
can result in increased costs. In either event, Ricoh's financial results and
condition may be adversely affected.
RICOH IS SUBJECT TO INTERNAL CONTROL EVALUATIONS AND ATTESTATION OVER FINANCIAL REPORTING UNDER THE SARBANES-OXLEY ACT OF 2002 OF THE UNITED STATES AND THE FINANCIAL INSTRUMENTS AND EXCHANGE ACT OF JAPAN
The United States Securities and Exchange Commission (the "SEC"),
as required by Section 404 of the Sarbanes-Oxley Act of 2002 of the United States,
adopted rules requiring every company that files reports with the SEC to include
a management report on such company's internal control over financial reporting
in its annual report. In addition, the company's independent registered public
accounting firm must publicly attest to the effectiveness of the company's internal
control over financial reporting. Furthermore, the Financial Instruments and Exchange
Act of Japan requires Japanese companies whose shares are listed on the Japanese stock
exchanges to submit a report which evaluates internal control over financial reporting
to the commissioner of the financial bureau of Japan. Ongoing compliance with these
requirements is complex, costly and time-consuming. If Ricoh were to fail to maintain
effective internal control over financial reporting, Ricoh's management were to fail
to assess on a timely basis the adequacy of such internal control, or Ricoh's
independent registered public accounting firm were to fail to attest on a timely
basis to the effectiveness of such internal control or issue a qualified opinion,
Ricoh could be subject to regulatory sanctions or could face adverse reactions
in the financial markets due to loss of investor confidence.
RICOH'S BUSINESS DEPENDS ON PROTECTING ITS INTELLECTUAL PROPERTY RIGHTS
Ricoh owns or licenses a number of intellectual property rights in the field
of office equipment automation and, when Ricoh believes it is necessary or
desirable, obtains additional licenses for the use of other parties'
intellectual property rights. If Ricoh fails to protect, maintain or obtain
such rights, its performance and ability to compete may be adversely affected.
Ricoh has a program in place under which company employees are compensated for
any valuable intellectual property rights arising out of any inventions
developed by them during the course of their employment with Ricoh. While
unlikely, management believes that there could arise instances in the future
where Ricoh may become the subject of legal actions or proceedings where claims
alleging inadequate compensation are asserted by company employees.
RICOH IS DEPENDENT ON SECURING AND RETAINING SPECIALLY SKILLED PERSONNEL
Ricoh believes that it can continue to remain competitive by securing and
retaining additional personnel who are highly skilled in the fields of
management and information technology. However, the number of skilled personnel
is limited and the competition for attracting and retaining such personnel is
intense, particularly in the information technology industry. Securing and
retaining skilled personnel in the information technology industry is
especially important for Ricoh to compete effectively with its competitors as
expectations and market standards for office equipment become more
technologically advanced. Ricoh cannot assure that it will be able to
successfully secure and retain additional skilled personnel.
RICOH MAY BE ADVERSELY AFFECTED BY ITS EMPLOYEE BENEFIT OBLIGATIONS
With respect to its employee benefit obligations and plan assets, Ricoh
accrues the cost of such benefits based on applicable accounting policies and
funds such benefits in accordance with governmental regulations. Currently,
there is no immediate and significant funding requirement; however, if returns
from investment assets continue to decrease and/or turn to be negative due to market
conditions, such as the fluctuations in the stock or bond markets, additional funding
and accruals may be required. Such additional funding and accruals may adversely affect
Ricoh's financial position and results of operations.
RICOH'S OPERATIONS ARE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS
Ricoh's operations are subject to many environmental laws
and regulations governing, among other things, air emissions, wastewater discharges,
the use and handling of hazardous substances, waste disposal, product recycling,
and soil and ground-water contamination. Ricoh faces risks of environmental
liability in our current and historical manufacturing activities. Costs
associated with future additional environmental compliance or remediation
obligations could adversely affect Ricoh's business, operating results, and
financial condition.
RISKS ASSOCIATED WITH RICOH'S EQUIPMENT FINANCING BUSINESS MAY ADVERSELY AFFECT RICOH'S FINANCIAL CONDITION
Ricoh provides financing to some of its customers in connection with its equipment sales and leases. Ricoh evaluates the creditworthiness and the amount of credit extended to a customer prior to the financing arrangement and during the financing term on a regular basis. Depending on such evaluations, Ricoh makes adjustments to such extensions of credit as it deems necessary to minimize any potential risks of concentrating credit risk or non-payment of credit. Despite the application of these monitoring procedures, no assurances can be made that Ricoh will be able to fully collect on such extensions of credit due to unforeseeable defaults by its customers.
In addition, these financing arrangements that Ricoh enters into with its customers result in long-term receivables bearing a fixed rate of interest. However, Ricoh finances these financing arrangements primarily with short-term borrowings subject to a variable interest rate. Although Ricoh engages in hedging activities, Ricoh is not able to fully hedge this interest rate mismatch.
If Ricoh is unable to successfully manage these risks associated with its equipment financing business, Ricoh's financial results and condition may be adversely affected.
RICOH MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD SIGNIFICANTLY AFFECT ITS FINANCIAL CONDITION
Ricoh may be held responsible for any defects that occur with respect to its
products and services. Based on the defect, Ricoh may be liable for significant
damages, which may adversely affect its financial results and condition.
Furthermore, as Ricoh increasingly provides products and services utilizing
sophisticated and complex technologies, such defects may occur more frequently.
Such potential increase in defects, which could result in an increase in
Ricoh's liability, may adversely affect its financial results and condition.
In addition, negative publicity concerning these defects could make it more
difficult for Ricoh to attract and maintain customers to purchase Ricoh
products and services. As a result, Ricoh's financial results and condition may
be adversely affected.
RICOH'S PERFORMANCE CAN BE AFFECTED BY ALLIANCE WITH, AND STRATEGIC INVESTMENTS IN, OTHER ENTITIES
Ricoh engages in alliances with other entities to create various products and services
to fulfill customer demands. Ricoh believes that an alliance is an effective method for timely development of
new technology and products using management resources of both parties. However, if Ricoh's interest differs
from other parties' interests due to financial or other reasons, Ricoh may be unable to maintain the alliance.
Ricoh also makes strategic investments to acquire interests in companies that Ricoh believes would support
existing businesses and/or lead to new businesses. Such strategic investments may not necessarily lead to the
expected outcome or performance and may result in increased time and expenses being incurred due to the integration
of businesses, technologies, products and/or personnel necessitated by such investments. Accordingly, these types
of management decisions may have a significant impact on the future performance of Ricoh. Failure to maintain
an on-going alliance, establish a necessary alliance or make a strategic investment to acquire an interest in
a company may adversely affect Ricoh's future financial position and results of operations.
INADVERTENT OR ACCIDENTAL LEAKAGE OR DISCLOSURE OF CONFIDENTIAL OR SENSITIVE INFORMATION MAY ADVERSELY AFFECT RICOH'S OPERATIONS
Ricoh obtains confidential or sensitive information from various sources,
including its customers, in the ordinary course of its business. Ricoh also
holds trade secrets regarding its technologies and other confidential or
sensitive information relating to marketing. To prevent unauthorized access
and/or fraudulent leakage or disclosure of such confidential or sensitive
information, Ricoh has implemented an internal management system, which
includes measures to improve security and access to its internal database, as
well as employee training programs to educate its employees with respect to
compliance with applicable regulations relating to information security and
data access. Despite Ricoh's efforts, however, confidential or sensitive
information may be inadvertently or accidentally leaked or disclosed and any
such leakage or disclosure may result in Ricoh incurring damages, which may
adversely affect Ricoh's reputation. In addition, Ricoh may incur significant
expenses for defending any lawsuits that may arise from such claims.
Furthermore, the leakage or disclosure of Ricoh's confidential or sensitive
marketing and technological information to a third party may adversely affect
Ricoh's financial results and condition.
RICOH MAY SUFFER LOSS AS A RESULT OF CATASTROPHIC DISASTER, INFORMATION TECHNOLOGY PROBLEMS OR INFECTIOUS DISEASES
Several of Ricoh's manufacturing facilities in Japan could be
subject to a catastrophic loss caused by earthquakes as such facilities are located
in areas with above average seismic activity. If any of these facilities were to
experience a catastrophic loss, Ricoh could experience disruptions in its operations
and delays in its production and shipments. If such occurred, Ricoh would likely record
a decrease in revenue, and require large expenditures to repair or replace the damaged
facility, which is likely to affect Ricoh's financial position and results of operations.
As Ricoh becomes increasingly dependent on information technology,
software and hardware defects, computer viruses, as well as internal
database problems ( e.g., falsifications or disappearance of information
relating to our customers) pose a greater risk to its operations.
Although Ricoh has taken various precautionary measures, such as installing
firewalls and anti-virus software to detect and eliminate computer
viruses, Ricoh may not be able to completely prevent or mitigate the
effects of such problems, which may affect Ricoh's performance.
In addition, the Ricoh is continually expanding its worldwide operations
to set in place a global supply chain of its products and services so that
we can satisfy our local customer needs faster, more effectively and on a
regular basis. As Ricoh expands its operations worldwide, additional risks,
such as infectious diseases (e.g., a new strain of influenza) and epidemics,
may adversely affect Ricoh's operations and financial positions.
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