12345 QUARTERLY REPORT 1st Quarter ended June 30, 2004 (Results for the Period from April 1, 2004 to June 30, 2004) Performance Outline (Consolidated) Three months ended Three months ended June 30, 2004 June 30, 2003 Change Results Results (Billions of yen) Year ending March 31, 2005 Change Forecast Domestic sales Overseas sales Net sales Gross profit Operating income Income before income taxes Net income 233.3 203.2 436.5 189.1 39.3 41.3 24.8 224.3 213.1 437.4 192.7 38.4 37.3 22.3 4.0% -4.6% -0.2% -1.9% 2.3% 10.7% 11.4% 935.0 875.0 1,810.0 785.0 175.0 165.0 95.0 2.3% 1.0% 1.7% 2.5% 16.7% 15.3% 3.5% Exchange rate (Yen/US$) Exchange rate (Yen/EURO) 109.65 132.17 118.52 134.67 -8.87 -2.50 106.16 130.54 -6.93 -2.11 Net income per share (yen) 33.69 30.04 3.65 128.58 4.95 Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at end of period 42.2 -10.8 -21.2 215.4 39.8 -7.9 -6.4 215.9 2.3 -2.9 -14.8 -0.5 - - 18.6 15.9 24.3 18.6 17.0 19.3 -0.0 -1.0 4.9 74.5 69.0 100.0 -1.0 1.3 7.4 Capital expenditures Depreciation for tangible fixed assets R&D expenditures June 30, 2004 Total assets Shareholders' equity Interest-bearing debt Change 1,855.7 812.9 423.7 1,852.7 795.1 432.7 2.9 17.7 -8.9 43.8 42.9 0.9 1,100.24 1,076.11 24.13 Equity ratio (%) Shareholder's equity per share (yen) March 31, 2004 Ricoh Company, Ltd. * The Company bases the forecast estimates for March 31, 2005 above upon information currently available to management, which involves risks and uncertainties that could cause actual results to differ materially from those projected. 1 Performance *Overview Consolidated net sales for the first quarter of fiscal 2005 (the three months period from April 1 to June 30, 2004) decreased by 0.2% as compared to the previous corresponding period, to ¥436.5 billion. During this quarter, the average yen exchange rates were at ¥109.65 against the U.S. dollar (an appreciation of approximately 7.5% as compared to the previous corresponding period) and ¥132.17 against the Euro (an appreciation of approximately 1.9% as compared to the previous corresponding period). Net sales would rise 1.3% excluding impacts of such foreign currency exchange fluctuations. In Japan, sales of printing systems such as MFPs (multifunctional printers) and laser printers, especially color model, increased reflecting the market needs of the shift from standalone, analog products to networking and color model. In addition, solutions business such as support and service continued to be favorable. On the other hand, sales of optical disc and semiconductor business decreased owing to sluggish period of demand cycle. Overall domestic sales consequently increased by 4.0% as compared to the previous corresponding period. As for overseas, sales of product categories such as color PPCs (plain paper copiers), MFPs and laser printers increased in each region. Although sales in the Americas decreased by 1.4% as compared to the previous corresponding period due to yen’s appreciation against the U.S. dollar (6.4% increase excluding currency exchange impact), sales in Europe increased by 1.7% with steady growth of sales volume. And sales in other region such as China, Asian and Oceania countries decreased by 30.0%, owing to decline of optical disks demand and the sale of certain consolidated subsidiaries in optical related business. As a result, overall overseas sales decreased by 4.6%, though it would have decreased by 1.6% excluding impacts of the currency exchange fluctuations. Gross profit decreased by 1.9% to ¥189.1 billion due to yen’s appreciation, in spite of increased sales for high-margin, highvalue-added products and ongoing cost-cutting activities such as continuous production improvement and so on. Although strategic spending on research and development increased ¥4.9 billion as compared to the previous corresponding period, to ¥24.3 billion, pension cost was, especially, reduced by the remodel of pension system in Japan in the previous fiscal year. As a result, selling, general and administrative expenses decreased by 2.9% to ¥149.7 billion. Consequently, operating income increased by 2.3% as compared to the previous corresponding period, to ¥39.3 billion. Other (income) expense improved ¥3.0 billion, especially due to the interest expense decrease resulted from reduced interest-bearing debt and foreign currency exchange gains on the contrary to the exchange loss in the previous corresponding period. As a result, income before income taxes increased by 10.7% as compared to the previous corresponding period, to ¥41.3 billion. The expanded amount of tax exemption on the research and development expenses and spending on Information Technology caused tax expense reduced. As a result, net income increased by 11.4% as compared to the previous corresponding period, to ¥24.8 billion. 2 *Conditions by Product Line Office Equipment (Sales up 0.1% to ¥383.9 billion) Customer demand has shift more and more from standalone analog products to digital, networking, color and high-speed models in Japan and overseas market place. Ricoh has enforced solution proposal to customers for the optimization of their total printing cost, in order to support their efficient management of TDV (Total Document Volume). As a result, sales volume of color PPCs and Printing Systems category such as MFPs and laser printers continued to grow, though sales of Imaging Solutions category decreased. Sales of Network System Solutions category such as support and service increased, however the sales volume of optical disc business decreased due to sluggish period of demand cycle and the in-between period of model change. In addition, yen’s appreciation impacted. The total sales of Office Equipment increased by 0.1% as compared to the previous corresponding periods, to ¥383.9 billion. Imaging Solutions (Sales down 14.6% to ¥181.6 billion) Digital Imaging Systems - Shift from standalone products to MFPs all over the world caused the sales decline. - The sales of color PPCs increased, with new offering to meet growing customer demand. - As a result, sales in this category decreased by 12.3% as compared to the previous corresponding period. Other Imaging Systems - Sales were down by 21.4% due to the shift from analog products to MFPs and/or color products. Network Input/Output Systems (Sales up 23.4% to ¥157.3 billion) Printing Systems - Constant offering new products to cope with the demand shift to networked and color models in Japan and overseas brought about continuous sales increase. MFPs: Imagio Neo 352 and Imagio Neo 602 in Japan Aficio 2035e/2045e series and Aficio 2105/2090 series overseas Color MFPs: Imagio Neo C245 and Imagio Neo C325 in Japan Aficio 2232C/2238C series overseas - Sales of laser printers continued to increase. - The sales volume of office use color printer with Ricoh’s original ‘GEL JET’ technology and strategic low price, launched in February 2004, steadily increased. - As a result, sales of this category increased by 30.9%. Other Input/Output Systems Sales decreased by 52.9% mainly due to model change influence in the optical discs business in Japan and overseas. Network System Solutions (Sales up 3.6% to ¥44.9 billion) - Solution business such as support and service continued to increase, due primarily to customer acceptance of our solution proposal for the optimization of their total printing cost. Consequently, overall sales of Office Equipment segment increased by 0.1% as compared to the previous corresponding period. Operating income increased by 3.9% to ¥50.1 billion. It can be resulted from the sales increase of Printing Systems category, the continuous offering of new products and ongoing cost-cutting activities by production improvement and so on. Other Businesses (Sales down 2.1% to ¥52.5 billion) Sales in this segment decreased by 2.1% as compared to the previous corresponding period, to ¥52.5 billion, due primarily to the sale of certain consolidated subsidiaries in optical related business, and sluggish demand cycle for semiconductor. As a result, overall operating income for Other Businesses segment decreased to ¥1.0 billion. *Cash Flows (Three months from April 1, 2004 to June 30, 2004) Net cash provided by operating activities increased ¥2.3 billion as compared to the previous corresponding period, to ¥42.2 billion. It was due to the fact that net income increased as compared to the previous corresponding period and the decrease of trade receivable due to sales growth in the fourth quarter of fiscal 2004. Net cash used in investing activities increased ¥2.9 billion as compared to the previous corresponding period, to ¥10.8 billion, due primarily to capital expenditures spending for new production lines and production development. As a result, free cash flow generated by operating and investing activities totaled ¥31.3 billion, no significant change as compared to the previous corresponding period. Net cash used in financing activities amounted to ¥21.2 billion due primarily to decrease of interest-bearing debt and payment of dividends. As a result, cash and cash equivalents at the end of this first quarter were ¥12.4 billion higher than the end of the preceding fiscal year, standing at ¥215.4 billion. 3 *Forecast for the entire fiscal year As for the forecast of business results for the fiscal year ended March 31, 2005, we maintain our exchange rates assumption of ¥105.00 against the U.S. dollar and of ¥130.00 against the Euro in and after the second quarter as announced in April 2004. And we maintain our forecast of sales as announced in April 2004. We intend to implement business strategies such as continuous and effective offering of new products and so on in order to continue to grow in spite of fluctuations of market demand and exchange rate. As for income, we maintain our forecast of operation income, income before income tax and net income as announced in April 2004, although the results of first quarter was more than our forecast at the beginning of this fiscal year and we intend to improve profitability still more. Our performance forecasts for fiscal 2005 are as follows: Exchange Rate Assumptions for the full year ending March 31, 2005 US$ 1 = ¥106.16 (¥113.09 in previous fiscal year) EURO 1 = ¥130.54 (¥132.65 in previous fiscal year) (Billions of yen) Year ending March 31, 2005 Forecast 935.0 875.0 1,810.0 785.0 175.0 165.0 95.0 Year ended March 31, 2004 Results 914.0 866.1 1,780.2 765.6 150.0 143.0 91.7 Change Domestic sales 2.3% Overseas sales 1.0% Net sales 1.7% (*1) Gross profit 2.5% Operating income 16.7% Income before income taxes 15.3% Net income 3.5% (*2) Notes: *1…Net sales would be eleventh consecutive year of growth. *2…Net income would be thirteenth consecutive year of growth and eleventh consecutive year of record high. * Ricoh bases the forecast estimates for March 31, 2005 above upon information currently available to management, which involves risks and uncertainties that could cause actual results to differ materially from those projected. 4 Ricoh Company, Ltd. and Consolidated Subsidiaries Financial Highlights for the 1st Quarter ended June 30, 2004 (U.S. GAAP Financial Information) 1. Items relating to 1st quarter financial statements (1) No change in accounting method has been made (2) Change relating to the scale of consolidation and the application of the equity method: Consolidated subsidiaries: No addition; 20 removals Companies accounted for by the equity method: 1 addition; 1 removal 2. Results for the period from April 1, 2004 to June 30, 2004 (1) Operating Results Net sales (% change from the previous corresponding period) Operating income (% change from the previous corresponding period) Income before income taxes (% change from the previous corresponding period) Net income (% change from the previous corresponding period) Net income per share-basic (yen) Net income per share-diluted (yen) Three months ended June 30, 2004 436,550 -0.2 39,387 2.3 41,319 10.7 24,894 11.4 33.69 - Three months ended June 30, 2003 437,453 2.1 38,484 7.1 37,317 15.6 22,355 14.5 30.04 - (Millions of yen) Year ended March 31, 2004 1,780,245 2.4 150,006 12.2 143,063 15.9 91,766 26.6 123.63 - June 30, 2004 1,855,745 812,915 43.8 1,100.24 June 30, 2003 1,924,631 685,730 35.6 920.97 (Millions of yen) March 31, 2004 1,852,793 795,131 42.9 1,076.11 Three months ended June 30, 2004 42,268 -10,899 -21,294 215,467 Three months ended June 30, 2003 39,877 -7,973 -6,404 215,982 (Millions of yen) Year ended March 31, 2004 154,911 -63,383 -74,835 203,039 (2) Financial Position Total assets Shareholders' equity Equity ratio (%) Equity per share (yen) Cash Flow Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at end of period 3. Forecast of operating results from April 1, 2004 to March 31, 2005 Though we maintain our forecast of each period as announced in April 2004, we revised the forecast of net income per share (Consolidated) for the reason that average number of share outstanding has changed with purchase of treasury stocks. (Millions of yen) Half year ending Year ending March 31, 2005 September 30, 2004 Net sales 895,000 1,810,000 Operating income 78,000 175,000 Income before income taxes 74,500 165,000 Net income 43,800 95,000 Note: Net income per share (Consolidated) 128.58 yen In accordance with Japanese regulations, Ricoh has issued forecast for its financial results for the fiscal year ending March 2005. These forecast are forward-looking statements based on a number of assumptions and beliefs in light of the information currently available to management and subject to significant risks and uncertainties. 5 Consolidated Performance 1. Consolidated Statements of Income (Millions of yen) Three months ended June 30, 2004 Net sales Cost of sales Percentage of net sales (%) Gross Profit Percentage of net sales (%) Selling, general and administrative expenses Percentage of net sales (%) Operating income Percentage of net sales (%) Other (income) expense Interest and dividend income Percentage of net sales (%) Interest expense Percentage of net sales (%) Other, net Percentage of net sales (%) Income before income taxes, equity income and minority interests Percentage of net sales (%) Provision for income taxes Percentage of net sales (%) Minority interests in earnings of subsidiaries Percentage of net sales (%) Equity in earnings of affiliates Percentage of net sales (%) Net income Percentage of net sales (%) Three months ended June 30, 2003 436,550 247,379 56.7 189,171 43.3 149,784 34.3 39,387 9.0 437,453 244,701 55.9 192,752 44.1 154,268 35.3 38,484 8.8 603 0.1 1,230 0.3 -2,559 -0.7 696 0.1 1,524 0.3 339 0.1 41,319 9.5 15,919 3.6 1,118 0.3 612 0.1 24,894 5.7 37,317 8.5 14,062 3.2 1,352 0.3 452 0.1 22,355 5.1 Change -0.2 1.1 -3,581 -1.9 -4,484 -2.9 903 2.3 -93 -13.4 -294 -19.3 -2,898 - 4,002 10.7 1,857 13.2 -234 -17.3 160 35.4 2,539 11.4 2-1. Consolidated Sales by Product Category (Millions of yen) Three months ended June 30, 2004 <Office Equipment> Imaging Solutions: Digital Imaging Systems Percentage of net sales (%) Other Imaging Systems Percentage of net sales (%) Total Imaging Solutions Percentage of net sales (%) Network Input/Output Systems: Printing Systems Percentage of net sales (%) Other Input/Output Systems Percentage of net sales (%) Total Network Input/Output Systems Percentage of net sales (%) Network System Solutions Percentage of net sales (%) Office Equipment Total Percentage of net sales (%) < Other Businesses > Other Businesses Percentage of net sales (%) Grand Total Percentage of net sales (%) Three months ended June 30, 2003 139,383 31.9 42,246 9.7 181,629 41.6 158,997 36.3 53,771 12.3 212,768 48.6 151,970 34.8 5,385 1.2 157,355 36.0 44,989 10.4 383,973 88.0 116,106 26.5 11,421 2.7 127,527 29.2 43,437 9.9 383,732 87.7 52,577 12.0 436,550 100.0 53,721 12.3 437,453 100.0 Change % -19,614 -12.3 -11,525 -21.4 -31,139 -14.6 35,864 30.9 -6,036 -52.9 29,828 23.4 1,552 3.6 241 0.1 -1,144 -2.1 -903 -0.2 2-2. Consolidated Sales by Geographic Area (Millions of yen) Three months ended June 30, 2004 <Domestic> Percentage of net sales (%) <Overseas> Percentage of net sales (%) The Americas Percentage of net sales (%) Europe Percentage of net sales (%) Other Percentage of net sales (%) Grand Total Percentage of net sales (%) Reference : Exchange rate US$ 1 EURO 1 % -903 2,678 Three months ended June 30, 2003 233,312 53.4 203,238 46.6 78,401 18.0 100,323 23.0 24,514 5.6 436,550 100.0 224,335 51.3 213,118 48.7 79,491 18.2 98,619 22.5 35,008 8.0 437,453 100.0 ¥109.65 ¥132.17 ¥118.52 ¥134.67 6 Change % 8,977 4.0 -9,880 -4.6 -1,090 -1.4 1,704 1.7 -10,494 -30.0 -903 -0.2 3. Segment Information (Millions of yen) (1) Industry Segment Information Three months ended June 30, 2004 Office Equipment: Net sales: Unaffiliated customers Intersegment Total Operating expenses Operating income Operating income on office equipment sales(%) Other Businesses: Net sales: Unaffiliated customers Intersegment Total Operating expenses Operating income Operating income on sales in other businesses (%) Corporate and Eliminations: Net sales: Intersegment Total Operating expenses: Intersegment Corporate Total Operating income Consolidated: Net sales: Unaffiliated customers Intersegment Total Operating expenses Operating income Operating income on consolidated net sales(%) Three months ended June 30, 2003 % 383,973 383,973 333,863 50,110 13.1 383,732 383,732 335,487 48,245 12.6 241 241 -1,624 1,865 0.1 0.1 -0.5 3.9 52,577 668 53,245 52,158 1,087 2.0 53,721 627 54,348 51,936 2,412 4.4 -1,144 41 -1,103 222 -1,325 -2.1 6.5 -2.0 0.4 -54.9 -668 -668 -627 -627 -41 -41 - -678 11,820 11,142 -11,810 -647 12,193 11,546 -12,173 -31 -373 -404 363 - 436,550 436,550 397,163 39,387 9.0 437,453 437,453 398,969 38,484 8.8 -903 -903 -1,806 903 -0.2 -0.2 -0.5 2.3 (Millions of yen) (2) Geographic Segment Information Three months ended June 30, 2004 Japan: Net sales: External customers Intersegment Total Operating expenses Operating income Operating income on sales in Japan(%) The Americas: Net sales: External customers Intersegment Total Operating expenses Operating income Operating income on sales in the Americas(%) Europe: Net sales: External customers Intersegment Total Operating expenses Operating income Operating income on sales in Europe(%) Other: Net sales: External customers Intersegment Total Operating expenses Operating income Operating income on sales in other(%) Corporate and Eliminations: Net sales: Intersegment Total Operating expenses: Operating income Consolidated: Net sales: External customers Intersegment Total Operating expenses Operating income Operating income on consolidated net sales(%) Change Three months ended June 30, 2003 Change % 239,663 96,410 336,073 304,421 31,652 9.4 238,338 97,074 335,412 301,568 33,844 10.1 1,325 -664 661 2,853 -2,192 0.6 -0.7 0.2 0.9 -6.5 76,632 1,295 77,927 76,053 1,874 2.4 77,534 1,582 79,116 76,823 2,293 2.9 -902 -287 -1,189 -770 -419 -1.2 -18.1 -1.5 -1.0 -18.3 100,626 941 101,567 95,414 6,153 6.1 98,763 1,056 99,819 94,329 5,490 5.5 1,863 -115 1,748 1,085 663 1.9 -10.9 1.8 1.2 12.1 19,629 21,010 40,639 38,239 2,400 5.9 22,818 25,115 47,933 45,580 2,353 4.9 -3,189 -4,105 -7,294 -7,341 47 -14.0 -16.3 -15.2 -16.1 2.0 -119,656 -119,656 -116,964 -2,692 -124,827 -124,827 -119,331 -5,496 5,171 5,171 2,367 2,804 - 436,550 436,550 397,163 39,387 9.0 437,453 437,453 398,969 38,484 8.8 -903 -903 -1,806 903 -0.2 -0.2 -0.5 2.3 7 4. Consolidated Balance Sheets Assets June 30, 2004 Current Assets Cash and time deposits Trade receivables Marketable securities Inventories Other current assets Total Current Assets Fixed Assets Tangible fixed assets Finance receivable Other Investments Total Fixed Assets Total Assets Note: Contents of cash and time deposits: Cash and cash equivalents Time deposits March 31, 2004 217,598 395,163 45,122 150,577 54,656 863,116 204,001 422,244 45,124 145,369 55,079 871,817 13,597 -27,081 -2 5,208 -423 -8,701 237,454 527,982 227,193 992,629 1,855,745 238,712 514,047 228,217 980,976 1,852,793 -1,258 13,935 -1,024 11,653 2,952 215,467 2,131 203,039 962 Liabilities and Shareholders’ Investment June 30, 2004 Current Liabilities Trade payables Short-term borrowings Other current liabilities Total Current Liabilities Fixed Liabilities Long-term indebtedness Retirement benefit obligation Other fixed liabilities Total Fixed Liabilities Total Liabilities Minority Interest Shareholders’ Investment Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock Total Shareholders’ Investment Total Liabilities and Shareholders’ Investment Note: Other comprehensive income; Net unrealized holding gains on available-for-sale securities Pension liability adjustments Net unrealized gains (losses) on derivative instruments Cumulative translation adjustments Reference: Exchange rate US$ 1 EURO 1 8 (Millions of yen) Change March 31, 2004 (Millions of yen) Change 283,044 183,217 163,113 629,374 297,672 151,162 158,594 607,428 -14,628 32,055 4,519 21,946 240,564 85,690 37,429 363,683 993,057 49,773 281,570 83,492 36,295 401,357 1,008,785 48,877 -41,006 2,198 1,134 -37,674 -15,728 896 135,364 186,599 533,654 -30,673 -12,029 812,915 1,855,745 135,364 186,599 515,372 -30,272 -11,932 795,131 1,852,793 0 18,282 -401 -97 17,784 2,952 4,210 -17,595 -17 -17,271 4,026 -14,863 -24 -19,411 184 -2,732 7 2,140 June 30, 2004 ¥108.43 ¥131.06 March 31, 2004 ¥105.69 ¥128.88 5. Consolidated Statements of Cash Flow (Millions of yen) Three months ended Three months ended June 30, 2004 June 30, 2003 I. Cash Flows from Operating Activities: 1. Net income 2. Adjustments to reconcile net income to net cash provided by operating activities— Depreciation and amortization Equity in earnings of affiliates, net of dividends received Deferred income taxes Loss on disposal and sales of tangible fixed assets Changes in assets and liabilities— Decrease in trade receivables Increase in inventories Increase in finance receivables (Decrease) Increase in trade payables Increase in accrued income taxes and accrued expenses and other Retirement benefit obligation, net Other, net Net cash provided by operating activities II. Cash Flows from Investing Activities: 1. Proceeds from sales of plant and equipment 2. Expenditures for tangible fixed assets 3. Payments for purchases of available-for-sale securities 4. Proceeds from sales of available-for-sale securities 5. (Increase) Decrease in time deposits 6. Other, net Net cash used in investing activities III. Cash Flows from Financing Activities: 1. Proceeds from long-term indebtedness 2. Repayment of long-term indebtedness 3. (Decrease) Increase in short-term borrowings, net 4. Proceeds from issuance of long-term debt securities 5. Repayment of long-term debt securities 6. Cash dividends paid 7. Purchase of treasury stocks 8. Other, net Net cash used in financing activities IV. Effect of Exchange Rate Changes on Cash and Cash Equivalents V. Net Increase in Cash and Cash Equivalents VI. Cash and Cash Equivalents at Beginning of Year VII. Adjustment for Change of Fiscal Period on Consolidated Subsidiaries VIII. Cash and Cash Equivalents at End of Period 9 24,894 22,355 18,790 -158 2,771 17 19,673 2 -3,382 22 23,735 -7,841 -13,546 -11,390 8,801 -14,126 -8,102 6,019 3,074 -429 2,351 42,268 3,792 6,835 -2,012 39,877 535 -18,647 -137 5 -1,182 8,527 -10,899 7 -18,657 -25,043 30,063 7,176 -1,519 -7,973 14,734 -18,929 -342 1,000 -10,000 -7,405 -98 -254 -21,294 -122 9,953 203,039 2,475 215,467 759 -8,596 11,907 -5,000 -5,195 -85 -194 -6,404 1,239 26,739 189,243 215,982 6. Significant Accounting Policies (Consolidated) 1. Change relating to the scale of consolidation and the application of the equity method from April 1, 2004 to June 30, 2004. Consolidated subsidiaries: No addition 20 removals including HANIMEX AUSTRALASIA PTY LTD. Companies accounted for by the equity method: Addition:TRIANGLE SPIRIT CORPORATION. Removal: FOTO ISLAND (NSW) PTY. LTD. 2. Consolidated Accounting Policies (Summary) (1) Principles of Consolidation The consolidated financial statements include the accounts of Ricoh and its consolidated subsidiaries. Investments in 20% to 50% owned companies when the company has the ability to exercise significant influence are accounted for on the equity basis. All significant inter-company balances and transactions have been eliminated in consolidation. Certain overseas subsidiaries of the company changed the fiscal year end from December 31 to March 31, at the beginning of fiscal 2005. As a result, retained earnings increased by ¥777 million and other comprehensive income (loss) decreased by ¥ 1,665 million. (2) Securities In conformity with SFAS No.115, securities are mainly classified as available-for-sale securities. Available-for-sale securities are reported at fair value with unrealized gains and losses, net of related taxes, excluded from earnings and reported in accumulated other comprehensive income (loss). The cost of the securities sold is computed based on the average cost of each security held at the time of sale. (3) Inventories Inventories are mainly stated at the lower of average cost or market. Inventory costs include raw materials, labor and manufacturing overheads. (4) Plant and Equipment Depreciation of 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. Certain leased buildings, machinery and equipment are accounted for as capital leases in conformity with SFAS No. 13, "Accounting for Leases." (5) Goodwill and Other Intangible Assets In conformity with SFAS No.142, Goodwill and intangible asset determined to have an indefinite useful life are not amortized. SFAS No. 142 requires annual impairment testing thereof. (6) Use of Estimates Management of the Company has made a number of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, including impairment losses of long-lived assets and the disclosures of fair value of financial instruments and contingent assets and liabilities, to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 10 -APPENDIX1. Consolidated Sales by Product Category (Millions of yen) <Office Equipment> Imaging Solutions: Digital Imaging Systems Percentage of net sales (%) Domestic Overseas Other Imaging Systems Percentage of net sales (%) Domestic Overseas Total Imaging Solutions Percentage of net sales (%) Domestic Overseas Network Input/Output Systems: Printing Systems Percentage of net sales (%) Domestic Overseas Other Input/Output Systems Percentage of net sales (%) Domestic Overseas Total Network Input/Output Systems Percentage of net sales (%) Domestic Overseas Network System Solutions Percentage of net sales (%) Domestic Overseas Office Equipment Total Percentage of net sales (%) Domestic Overseas The Americas Europe Other < Other Businesses > Other Businesses Percentage of net sales (%) Domestic Overseas The Americas Europe Other Grand Total Percentage of net sales (%) Domestic Percentage of net sales (%) Overseas Percentage of net sales (%) The Americas Percentage of net sales (%) Europe Percentage of net sales (%) Other Percentage of net sales (%) Each category includes the following product line: Digital Imaging Systems Other Imaging Systems Printing Systems Other Input/Output Systems Network System Solutions Other Businesses Reference: Exchange rate US$ 1 EURO 1 Three months ended June 30, 2004 Three months ended June 30, 2003 139,383 31.9 59,106 80,277 42,246 9.7 15,995 26,251 181,629 41.6 75,101 106,528 158,997 36.3 65,894 93,103 53,771 12.3 19,282 34,489 212,768 48.6 85,176 127,592 151,970 34.8 66,715 85,255 5,385 1.2 939 4,446 157,355 36.0 67,654 89,701 44,989 10.4 43,577 1,412 383,973 88.0 186,332 197,641 78,225 99,511 19,905 116,106 26.5 52,458 63,648 11,421 2.7 1,642 9,779 127,527 29.2 54,100 73,427 43,437 9.9 42,667 770 383,732 87.7 181,943 201,789 78,908 97,613 25,268 52,577 12.0 46,980 5,597 176 812 4,609 436,550 100.0 233,312 53.4 203,238 46.6 78,401 18.0 100,323 23.0 24,514 5.6 53,721 12.3 42,392 11,329 583 1,006 9,740 437,453 100.0 224,335 51.3 213,118 48.7 79,491 18.2 98,619 22.5 35,008 8.0 Change excluding exchange impact Change % -19,614 -12.3 -16,323 -10.3 -6,788 -12,826 -11,525 -10.3 -13.8 -21.4 -6,788 -9,535 -10,775 -10.3 -10.2 -20.0 -3,287 -8,238 -31,139 -17.0 -23.9 -14.6 -3,287 -7,488 -27,098 -17.0 -21.7 -12.7 -10,075 -21,064 -11.8 -16.5 -10,075 -17,023 -11.8 -13.3 35,864 30.9 38,072 32.8 14,257 21,607 -6,036 27.2 33.9 -52.9 14,257 23,815 -5,996 27.2 37.4 -52.5 -703 -5,333 29,828 -42.8 -54.5 23.4 -703 -5,293 32,076 -42.8 -54.1 25.2 13,554 16,274 1,552 25.1 22.2 3.6 13,554 18,522 1,581 25.1 25.2 3.6 910 642 241 2.1 83.4 0.1 910 671 6,559 2.1 87.1 1.7 4,389 -4,148 -683 1,898 -5,363 2.4 -2.1 -0.9 1.9 -21.2 4,389 2,170 5,503 1,417 -4,750 2.4 1.1 7.0 1.5 -18.8 -1,144 -2.1 -951 -1.8 4,588 -5,732 -407 -194 -5,131 -903 10.8 -50.6 -69.8 -19.3 -52.7 -0.2 4,588 -5,539 -393 -181 -4,965 5,608 10.8 -48.9 -67.4 -18.0 -51.0 1.3 8,977 4.0 8,977 4.0 -9,880 -4.6 -3,369 -1.6 -1,090 -1.4 5,110 6.4 1,704 1.7 1,236 1.3 -10,494 -30.0 -9,715 -27.8 Digital PPCs, color PPCs, digital duplicators and facsimile machines Analog PPCs, diazo copiers, and thermal paper MFPs(multifunctional printers), laser printers and software Optical discs and system scanners Personal computers, PC servers, network systems and network related software Optical equipments, measuring equipments and semiconductors Three months ended June 30, 2004 ¥109.65 ¥132.17 Three months ended June 30, 2003 ¥118.52 ¥134.67 A1 Change ¥-8.87 ¥-2.50 % 2. Forecast of Consolidated Performance (Billions of yen) Three months ended Net sales Gross profit Operating income Income before income taxes Net income Net income per share (yen) Capital expenditure Depreciation for tangible fixed assets R&D expenditure Exchange rate (Yen/US$) Exchange rate (Yen/EURO) Three months ending Half year ending Year ending June 30, 2004 Change Sept. 30, 2004 Change Sept. 30, 2004 Change March 31, 2005 Change Results % Forecast % Forecast % Forecast % 436.5 189.1 39.3 41.3 24.8 33.69 18.6 15.9 24.3 109.65 132.17 -0.2 -1.9 2.3 10.7 11.4 - 458.4 197.6 38.6 33.1 18.9 25.59 18.3 18.0 25.6 105.00 130.00 1.7 1.2 -0.4 -2.7 -5.0 - 895.0 386.8 78.0 74.5 43.8 59.28 37.0 34.0 50.0 107.33 131.09 0.8 -0.3 1.0 4.3 3.6 - 1,810.0 785.0 175.0 165.0 95.0 128.58 74.5 69.0 100.0 106.16 130.54 1.7 2.5 16.7 15.3 3.5 - 3. Forecast of Consolidated Sales by Product Category (Billions of yen) Half year ending September 30, 2004 Change Change Forecast Forecast(*) % % <Office Equipment> Imaging Solutions: Digital Imaging Systems Domestic Overseas Other Imaging Systems Domestic Overseas Total Imaging Solutions Domestic Overseas Network Input/Output Systems: Printing Systems Domestic Overseas Other Input/Output Systems Domestic Overseas Total Network Input/Output Systems Domestic Overseas Network System Solutions Domestic Overseas Office Equipment Total Domestic Overseas The Americas Europe Other < Other Businesses > Other Businesses Domestic Overseas The Americas Europe Other Grand Total Domestic Overseas The Americas Europe Other * Excluding foreign exchange impact Year ending March 31, 2005 Change Forecast Forecast(*) % Change % 275.3 114.2 161.1 83.7 30.2 53.5 359.1 144.4 214.7 -10.9 -8.5 -12.6 -20.9 -17.3 -22.9 -13.5 -10.5 -15.4 282.7 114.2 168.5 86.2 30.2 56.0 368.9 144.4 224.5 -8.6 -8.5 -8.6 -18.6 -17.3 -19.4 -11.1 -10.5 -11.6 537.0 225.0 312.0 157.3 59.5 97.8 694.4 284.5 409.9 -11.4 -11.4 -11.5 -20.2 -15.9 -22.7 -13.6 -12.4 -14.4 547.0 225.0 322.0 160.5 59.5 101.0 707.5 284.5 423.0 -9.8 -11.4 -8.6 -18.7 -15.9 -20.2 -12.0 -12.4 -11.7 307.6 130.1 177.5 18.4 1.5 16.9 326.0 131.6 194.4 98.9 95.5 3.4 784.1 371.5 412.6 164.7 199.7 48.1 31.8 29.6 33.4 -37.9 -45.3 -37.1 23.9 27.7 21.5 1.8 0.3 74.6 1.1 3.3 -0.8 -1.2 2.6 -11.4 315.6 130.1 185.5 19.1 1.5 17.6 334.7 131.6 203.1 99.1 95.5 3.6 802.7 371.5 431.2 181.3 200.9 49.0 35.2 29.6 39.4 -35.7 -45.3 -34.8 27.2 27.7 26.9 1.9 0.3 82.6 3.5 3.3 3.7 8.7 3.2 -9.9 654.7 277.3 377.4 45.1 2.7 42.4 699.9 280.0 419.9 198.1 190.5 7.6 1,592.4 755.0 837.4 324.5 412.0 100.8 28.6 27.1 29.7 -7.8 -45.8 -3.5 25.4 25.5 25.3 1.2 -0.4 69.4 2.2 2.2 2.3 -0.2 3.5 5.7 666.8 277.3 389.5 46.7 2.7 44.0 713.5 280.0 433.5 198.4 190.5 7.9 1,619.4 755.0 864.4 345.9 416.3 102.2 30.9 27.1 33.8 -4.7 -45.8 -0.0 27.8 25.5 29.4 1.3 -0.4 74.8 4.0 2.2 5.6 6.4 4.6 7.2 110.9 94.5 16.4 0.4 2.8 13.1 895.0 466.0 429.0 165.1 202.5 61.3 -1.5 6.2 -30.3 -47.6 26.7 -35.8 0.8 3.9 -2.4 -1.5 2.9 -18.1 111.2 94.5 16.7 0.5 2.9 13.3 913.9 466.0 447.9 181.8 203.8 62.3 -1.2 6.2 -29.1 -42.1 28.8 -35.0 2.9 3.9 1.9 8.4 3.5 -16.8 217.4 180.0 37.4 1.2 5.9 30.3 1,810.0 935.0 875.0 325.8 417.9 131.1 -2.3 2.8 -21.3 -3.5 38.0 -27.8 1.7 2.3 1.0 -0.2 3.9 -4.6 217.9 180.0 37.9 1.3 6.0 30.6 1,837.3 935.0 902.3 347.2 422.3 132.8 -2.1 2.8 -20.4 2.0 40.1 -27.2 3.2 2.3 4.2 6.4 4.9 -3.3 A2