fujifilm corporate philosophy · 2021. 3. 18. · 164,400 120,513 48,579 159,119 127,319 173,986...

Fujifilm Corporate PhilosophyWe will use leading-edge, proprietary technologies to provide top-quality products andservices that contribute to the advancement of culture, science, technology and industry,as well as improved health and environmental protection in society.Our overarching aim is to help enhance the quality of life of people worldwide.

In the fiscal year ended March 2007, as we developed priority businesses, we also completed sweeping structural reforms focused mainly on the imaging field, and established a new group management system with FUJIFILM Holdings Corporation at its center. The year was a successful first step toward a “Second Foundation.”

As we face the largest turning point since our foundation, we are gathering the strengths of the entire Group to achieve our aim of making a telling contribution to the realization of a more prosperous society.

MASAAKI AIHARA

Near Birdsville, Queensland, Australia

CONTENTS

Financial Highlights ............................................................................... 02

A Message From the CEO .............................................................. 04

　 Growth Strategies ................................................................ 08

　 Structural Reforms ............................................................... 12

　 Enhancing Consolidated Management .......... 13

Operating Segment Information .............................................. 16

Review of Operations

　 Imaging Solutions .............................................................................. 18

　 Information Solutions .................................................................... 20

　 Document Solutions ....................................................................... 24

R&D ........................................................................................................................ 26

Corporate Governance ...................................................................... 28

Corporate Social Responsibility (CSR) .................................. 32

Board of Directors, Corporate Auditors, and Executive Officers .................................................................................... 34

Financial Section ........................................................................................ 35

Corporate Information ........................................................................ 81

Consolidated Subsidiaries ................................................................ 82

Forward-looking statements such as those relating to earnings forecasts and other projections contained in this annual report are management’s current assumptions and beliefs based on information available at the time. Such forward-looking statements are subject to a number of risks, uncertainties and other factors. Accordingly, actual results may differ materially from those projected due to various factors. This annual report is not provided for the purpose of soliciting investment. Investment decisions are made at the discretion of, and are the responsibility of, the user of the information contained herein................................................................................................... 14

A Successful First Step Toward a Second Foundation

Review of VISION75 (2006)Medium-term Management Plan

Strategies in the VISION75 (2007)Medium-term Management Plan

............................................................................................... 06

「VISION75」Medium-term Management Plan

01

FUJIFILM

Annual Report 2007

¥ 2,782,526

113,062

103,264

34,446

177,004

165,159

215,429

146,325

3,319,102

1,976,508

¥ 67.46

65.04

25.00

1.7

$ 23,580,729

958,153

875,119

291,915

1,500,034

1,399,653

1,825,669

1,240,042

28,127,983

16,750,068

$ 0.57

0.55

0.21

¥ 2,667,495

70,436

79,615

37,016

182,154

179,808

225,434

156,928

3,027,491

1,963,497

¥ 72.65

72.65

25.00

1.9

¥ 2,527,374

164,442

162,346

84,500

168,017

157,420

182,286

130,360

2,983,457

1,849,102

¥ 164.78

164.78

25.00

4.7

¥ 2,566,725

184,900

164,948

82,317

173,323

160,740

172,622

124,634

3,023,509

1,749,882

¥ 160.38

160.38

25.00

4.8

¥ 2,511,921

164,400

120,513

48,579

159,119

127,319

173,986

126,695

2,958,317

1,680,611

¥ 94.51

94.51

25.00

2.9

(Millions of yen) (Thousands of U.S. dollars) (Note 1)

Revenue

Operating income (Note 2)

Income before income taxes

Net income

Research and developmentexpenses

Capital expenditures (Note 3)

Depreciation and amortization (Note 3)

(Depreciation)

Total assets at year-end

Total shareholders, equity at year-end

Net income: Basic (Note 4)

Diluted (Note 5)

Cash dividends

ROE (%)

Notes : 1. U.S. dollar amounts presented are translated from yen, for convenience only, at the rate of ¥118=US$1, the exchange rate prevailing on March 31, 2007.

2. Operating income for the fiscal years ended March 31, 2006 and 2007 is affected by structural reform expenses of ¥86,043 million and ¥94,081 million, respectively.

3. Figures do not include amounts for rental equipment handled by the Document Solutions segment.

4. The amounts of basic net income per share are based on the weighted average number of share of common stock outstanding during the year.

5. Diluted net income per share reflects the potential dilution and has been computed on the basis that all conversion rights of the Euroyen convertible bonds were exercised and outstanding.

2007 2006 2005 2004 2003 2007

・Revenue / Ratio of Operating Income to Revenue (Billions of yen / %)

・Net Income / ROE (Billions of yen / %)

・Net Income per Share of Common Stock / Payout Ratio (Yen / %)

Per share of common stock (Yen / U.S.dollars)

02

FUJIFILM

Annual Report 2007

Financial HighlightsFUJIFILM Holdings Corporation and Subsidiaries

Year ended March 31

,03

,04

,05

,06

,07

,03

,04

,05

,06

,07

48.5

94.51

72.65

67.46

160.38

164.78

82.3

84.5

37.0

34.4

,03

,04

,05

,06

,07

2,511.9

2,566.7

2,527.3

2,667.4

2,782.5

6.5 6.5

2.62.9

4.8 4.7

26.5

34.437.1

15.6 15.21.9

1.7

4.1

7.2

: Revenue : Net income : Net income per share of common stock: Payout ratio

: ROE: Ratio of operating income to revenue

46.9%

20.6%

15.2%

17.3%

(Millions of yen)

(Millions of yen)

(Thousands of U.S. dollars) (Note 1)


$ 5,130,364

8,695,636

9,754,729

$ 23,580,729

¥ 689,458

877,366

1,100,671

¥ 2,667,495

¥ 742,993

768,680

1,015,701

¥ 2,527,374

¥ 815,527

755,159

996,039

¥ 2,566,725

¥ 830,990

724,299

956,632

¥ 2,511,921

Imaging Solutions

Information Solutions

Document Solutions

Consolidated total

2007 2006 2005 2004 2003 2007

¥ 605,383

1,026,085

1,151,058

¥ 2,782,526

$ 11,047,856

4,854,212

3,584,449

4,094,212

$ 23,580,729

¥ 1,329,284

558,702

375,516

403,993

¥ 2,667,495

¥ 1,311,893

515,169

349,903

350,409

¥ 2,527,374

¥ 1,336,015

541,982

376,006

312,722

¥ 2,566,725

¥ 1,330,119

562,827

333,699

285,276

¥ 2,511,921

Japan

The Americas

Europe

Asia and others

Consolidated total

2007 2006 2005 2004 2003 2007

¥ 1,303,647

572,797

422,965

483,117

¥ 2,782,526

・Operating Segments Revenue

・Revenue by Region(Destination Base)

・Proportion of Revenue from Operating Segments,07

・Proportion of Revenue by Region (Destination Base),07

21.7%

36.9%

41.4%Europe

The Americas

Asia and others

03

FUJIFILM

Annual Report 2007

Imaging Solutions

Document Solutions


Japan

Consolidated revenue in the fiscal year ended March

2007 rose by 4.3% year on year to ¥2,782.5 billion

($23,580 million), despite lower revenues in the

Imaging Solutions segment, mainly in color films and

digital minilabs. Revenues rose significantly in the

Information Solutions segment, buoyed in particular by

medical products and services, CTP (computer-to-plate)

plates and flat panel display (FPD) materials. Revenues

also rose in the Document Solutions segment, where

healthy sales were recorded for digital multifunction

devices, mainly overseas. A weaker yen against the

U.S. dollar and euro also boosted revenue.

We achieved operating income of ¥113.0 billion ($958

million), a large increase of 60.5% year on year, the

result mainly of higher sales volume and a reduction in

fixed costs yielded by progress with structural reforms.

These factors offset increased costs caused by soaring

prices for such principal raw materials as silver and

aluminum, and ¥94.1 billion in expenses associated

with the concentrated implementation of structural

reforms centered on the Imaging Solutions segment

and the Group-wide “Slim & Strong Drive” cost-

reform program initiated in the second half of the

fiscal year ended March 2007. Income before income

taxes also increased by 29.7% to ¥103.2 billion ($875

million), despite the negative impact of the decline in

value of investment securities as part of structural

reforms. Due to an increase in income taxes, net

income decreased by 6.9% to ¥34.4 billion ($291

million).

During the last two fiscal years, we implemented

fundamental structural reforms targeting mainly the

Imaging Solutions segment. Specifically, in the

photosensitive materials field, which includes color

films, we conducted a reorganization of our tripolar

global manufacturing system made up of facilities in

Japan, Europe and the U.S., as well as streamlining

the workforce and rigorously cutting expenses in sales

and distribution. Other actions in this business

included slashing R&D investment and consolidating

photofinishing labs. These structural reforms

progressed largely as planned and were completed by

the end of March 2007. We are confident that they

have yielded a business structure capable of generating

A Message From the CEO

Toward a “Second Foundation”

Review of Business Results for Fiscal Year Ended March 2007

Structural Reform – Initiatives and Results

Shigetaka Komori,President and Chief Executive Officer

04

FUJIFILM

Annual Report 2007

stable earnings into the future by optimizing business

systems so they can adapt to changes in market size.

Fujifilm has positioned medical systems and life sciences,

graphic arts, documents, optical devices, and highly

functional materials (FPD materials, electronic materials,

and inkjet materials) as priority business fields. We are

pursuing growth strategies in these areas through

proactive M&A initiatives, capital investments and R&D

investments. In addition, we are carrying out research

and development towards accelerating the creation of

new businesses and products that will play a leading

role in the future. At the core of this research are the

FUJIFILM Advanced Research Laboratories, established

in April 2006.

The Fujifilm Group moved to a holding company

structure on October 1, 2006. Since then, we have

been operating with a new Group management

structure centered on FUJIFILM Holdings Corporation,

under which there are two major operating companies:

FUJIFILM Corporation and Fuji Xerox Co., Ltd. FUJIFILM

Holdings Corporation is responsible for the overall

management of the Group. At the same time, we also

revamped the corporate governance system for Group

management—the Board of Directors of FUJIFILM

Holdings Corporation comprises directors selected

from both FUJIFILM Corporation and Fuji Xerox Co.,

Ltd. This marks our first appointment of an outside

director, a move which will further enhance manage-

ment transparency.

In February 2007, in order to boost strategic collabo-

ration and create concrete synergies among these

three companies, we concentrated their head office

functions at Tokyo Midtown in Roppongi, Tokyo.

Moreover, seizing the opportunity of the move to a new

management structure, we launched a “Slim & Strong

Drive” aiming to create a more brawny, more robust

company. The main thrust of this drive is to achieve the

utmost efficiency of and better prioritize the use of

manufacturing costs, selling, general and administrative

(SG&A) expenses, and R&D expenses. This ongoing

drive targets all organizations in the Group.

In this letter I have discussed our progress with our

medium-term management plan, VISION75 (2006). We

have made satisfactory progress so far, and I believe

that we have built a corporate structure which will

facilitate growth in the future.

But to realize our “Second Foundation” by making full

use of this structure to drive forward the strategies

contained in VISION75 (2006) and ensure future

growth, we have relaunched our plan as VISION75

(2007). The new plan targets the key issues of

promoting growth strategies and creating a robust

corporate constitution. While boosting investment in

priority businesses, we will also implement, through

the “Slim & Strong Drive,” speedy and decisive

measures to reduce manufacturing costs and SG&A

expenses, and to streamline and strengthen the

functions of administrative departments through the

greater use of shared services. Through these efforts,

we aim to bring about a sharp performance

improvement in operating income in the fiscal year

ending March 2008 and achieve a record result of

¥200 billion. The goal for the fiscal year ending March

2010, the final year of the medium-term management

plan, is operating income of ¥250 billion or more.

We also aim to use the timing of this sharp perfor-

mance improvement to return the higher earnings to

our shareholders. Having reviewed such returns, we

have set the target of a 25% return (the total of cash

dividends and share buybacks divided by consolidated

net income) to shareholders applicable to the fiscal

year ending March 2008 and thereafter. We therefore

plan to increase the annual dividend applicable to the

year ending March 2008 by ¥10 to ¥35 per share.

However, the amount will ultimately be determined

based on our performance up until that time.

In conclusion, I would like to express my sincere

appreciation to our stakeholders for their support and

guidance. Please continue to support us as we strive to

achieve our goals.

Promoting Growth Strategies

Increasing Corporate Value

Strengthening Consolidated Management

Shigetaka KomoriPresident and Chief Executive Officer

July 2007

05

FUJIFILM

Annual Report 2007

06

FUJIFILM

Annual Report 2007

Fujifilm formulated the VISION75 medium-term management plan in 2004. Under the plan, we have undertaken various measures pivoting on three fundamental strategies—“building new growth strategies,” “implementing comprehensive structural reforms at all management levels,” and “enhancing consolidated management.” In January 2006, as the market environment in which we operate had changed more rapidly than expected, we reformulated the plan as VISION75 (2006). We implemented radical structural reforms in the imaging field and expanded existing growth businesses and new businesses by concentrating our management resources. In the fiscal year ending March 31, 2008, we will carry out our strategies even more intensively based on VISION75 (2007), a further updated version of the plan. This will enable us to target our “Second Foundation” having secured firm prospects for future growth.

A Successful First Step Toward a Second Foundation

Year ended March 31, 2007(Actual results)

「VISION75」 Medium-term Management Plan

~Review of VISION75 (2006) and Strategies in VISION75 (2007)~

Revenue

¥2,782.5 billion

Operating Income

¥113.0 billion

Steady progress achieved, exceeding the initial targets formulated in VISION75 (2006)

● Complete fundamental structural reforms centered on the imaging field and achieve sharp performance improvement in the fiscal year ending March 31, 2008.● Promote strategic growth focused on medical systems / life sciences, graphic arts, documents, optical devices, and highly functional materials.● Create new businesses and products that will play a leading role in the future by tightening the focus of R&D investment, centered on the FUJIFILM Advanced Research Laboratories.● Use the shift to a holding company structure to maximize the value of the Fujifilm Group by further strengthening consolidated management and pursuing overall optimization.

By taking action to address the priority issues outlined on the left, we completed structural reforms centered on the imaging field and expanded business through aggressive M&As in growth business fields. In addition, we managed to establish a base for further reinforcing consolidated management by shifting to a holding company structure and concentrating head office functions. As a result, we expect to achieve a sharp performance improvement in the fiscal year ending March 31, 2008.

Priority Issues for VISION75 (2006)

07

FUJIFILM

Annual Report 2007

VISION75

Year ending March 31, 2008 Year ending March 31, 2010(Forecast) (Planned)

Revenue

¥2,850.0 billion

Operating Income

¥200.0 billion

Drive VISION75 (2007) implementation forward Establish a new growth track toward our “Second Foundation”

Operating Income

¥250.0Operating margin

8% or higher

Revenue

¥3,150.0 billion

billion or higher

Where VISION75 (2007) is concerned, we will step up investment in priority business fields, based on the themes of “further promoting growth strategies” and “realizing a robust corporate constitution.” In addition, we will swiftly and resolutely promote reductions in manufacturing costs and selling, general and administrative (SG&A) expenses through the “Slim & Strong Drive” as well as measures to share resources, improve efficiency, and reinforce functions in non-operating divisions by bringing about shared services.

The fiscal year ending March 31, 2010, the final year of the medium-term management plan, is a landmark year that will witness the Company’s 75th anniversary. However, we also regard it as a major milestone in our efforts to ensure sustained growth going forward. As we work toward our “Second Foundation,” we will establish a new growth track to achieve our targets of ¥3,150 billion in revenue and more than ¥250 billion in operating income.

■ Medical Systems

Fujifilm Group's Medical Systems Business

The priority business fields we have identified are medical systems / life sciences, graphic arts, documents, optical devices, and highly functional materials—such as flat panel display (FPD) materials, electronic materials, and inkjet materials. By concentrating investment of resources in these fields, we are promoting the sustained development of growth businesses and the cultivation of new businesses.

Medical Systems / Life Sciences

Radiopharmaceuticals

Cardiology PACSs

Endoscopic Examination

Electronicendoscopes

X-ray Examination Nuclear Medicine Examination

Functional Diagnostic ImagingMorphological Diagnostic Imaging

Image provided by Given Imaging Ltd.

“FAZONE M”, a sonographydiagnostic imaging system

Capsule endoscope

“NEXUS”,an endoscope,sonography,

and pathology system

Sonography Examination

Fujifilm is expanding sales of systems including imagers,

centered on FCR (Fuji Computed Radiography) digital X-ray

imaging and diagnostic systems, amid the ongoing digitization

of the market. Furthermore, amid the trend toward networks

at medical facilities, we are expanding our network service

business, centered on SYNAPSE, a medical-use picture archiving

and communications system (PACS) for which demand is

growing steadily.

In October 2006, Fujifilm acquired all of the issued shares

of Daiichi Radioisotope Laboratories, Ltd. (currently FUJIFILM RI

Pharma Co., Ltd.), a leading manufacturer of radio-

pharmaceuticals. Nuclear medicine examination, which utilizes

radiopharmaceuticals, is a safe examination method that

enables functional and other variations caused by disease in

internal organs to be detected before changes in morphology

occur. It plays a major role in the diagnosis of various brain

diseases, heart diseases, and tumors. Having made Daiichi

Radioisotope Laboratories a subsidiary, we are expanding our

business fields into nuclear medicine diagnostic imaging

pharmaceuticals and therapeutic radiopharmaceuticals.

In December 2006, Fujifilm acquired Problem Solving

Concepts, Inc., a provider of cardiology PACSs, through its U.S.

sales subsidiary FUJIFILM Medical Systems U.S.A., Inc. The

market for cardiology PACSs, which are mainly used in the

diagnosis and treatment of heart disease, is expanding rapidly

owing to increasing use of IT at hospitals, and it is a market

where further growth is expected. Going forward, we will

expand sales of SYNAPSE worldwide to medical institutions

that are seeking to introduce cardiology PACSs and share

imaging information between radiology and cardiology

Growth Strategies

“FCR”, a digital X-ray diagnostic imaging system

“SYNAPSE”, a PACS for medical use

08

FUJIFILM

Annual Report 2007

Review of VISION75 (2006) Medium-term Management Plan

As the digitization of the printing industry advances,

computer-to-plate (CTP) systems—digital printing systems—are

likely to achieve further diffusion and sales growth around the

world. To capture such demand, Fujifilm is strengthening its

quadripolar manufacturing system, comprising facilities in the

U.S., the Netherlands, China and Japan, and promoting a sales

organization that is closely linked to markets. In the Chinese

market, where demand is expanding rapidly, a new factory

operated by FUJIFILM Printing Plate (Suzhou) Co., Ltd., which

became our second pre-sensitized (PS) plate and CTP plate

manufacturing plant in China, entered full-scale operation in

March 2007. In addition to fulfilling demand within China, we

will also make effective use of this plant as a base for exports

to other parts of Asia and elsewhere.

We will continue to reinforce our manufacturing and sales

organization on a global basis. By utilizing the advantages of

our CTP plates, namely, their high sensitivity, high definition,

and suitability for printing, we aim to further expand sales and

gain a 40% share of the global CTP plate market.

Graphic Arts

FUJIFILM Printing Plate (Suzhou) Co., Ltd. entered operation as Fujifilm’s second PS plate and CTP plate manufacturing base in China. In the graphic arts business, we are endeavoring to bolster our worldwide sales capabilities and cost competitiveness by building a quadripolar operating network.

Total Global Printing Plate Demand and CTP Ratio

0

100

200

300

400

500

600

10

20

30

40

50

60

(millions m2) (%)

,03 ,04 ,05 ,06 ,07

： CTP 　： PS (Conventional system)

： CTP ratio

Year ended March 31

departments.

In the field of endoscopy, we are further strengthening the

infrastructure for domestic and overseas sales and services, and

are leveraging such differentiated products as Transnasal

Endoscopes to increase our market share. In March 2007,

FUJINON Corporation signed a strategic agreement with Given

Imaging Ltd. of Israel, the global leader in capsule endoscopy.

The agreement covers the sale of capsule endoscopes, the

supply of components, and research and development relating

to next-generation endoscope systems. Based on this alliance,

we are further reinforcing our competitiveness in the field of

gastrointestinal endoscopy and further cementing our leading

position in technology aimed at the next generation.

In September 2006, Fujifilm entered the healthcare field by

launching functional cosmetics and internal care products.

We possess a broad spectrum of core technologies

accumulated over many years of research and development of

photosensitive materials. These technologies play a vital part in

people’s lives, and we have effectively applied them and

commercialized them in the healthcare field.

Fujifilm has developed “Rapid SNPs Diagnostics System”

that examines single nucleotide polymorphisms (SNPs), which

determine personal physical differences. By 2008, we aim to

commercialize a compact, fully automatic rapid processing

system that can be used for Point of Care Tests (POCTs), which

will be required at medical facilities in the future.

Furthermore, since March 2007 we have been jointly

developing a revolutionary drug delivery system that controls

the sustained release of anti-cancer drugs with Cangen

Biotechnologies, Inc., a U.S. biotechnology venture.

■ Life Sciences

09

FUJIFILM

Annual Report 2007

■ Flat Panel Display (FPD) Materials

Full-color On-demand Printing System

Xerox iGen3 110

Fuji Xerox

Highly Functional Materials

FUJIFILM

Color Management Services


Documents

Optical Devices

Growth Strategies

In the camera phone lens segment, sales of megapixel lens

units are growing steadily in tandem with the diffusion of

camera phones and the development of higher-performance

products. In response, we are strengthening our market

position by expanding production capacity mainly at our

Shenzen and Tianjin factories. Moreover, as increasingly high

resolution cameras are developed, aspherical lenses are

required. Being very difficult to manufacture, such lenses have

offered an opportunity for our technological capabilities to

gain further distinction in the market. We intend to achieve

greater differentiation through such value-added functions as

autofocus and zoom and thereby boost our market share.

In addition, we will start full-scale supply of security

camera lenses, for which demand is projected to grow,

leveraging our ability to provide high-specification, high-

performance products at low prices. Our aim is to establish a

new position in this market.

Amid legislative trends such as the forthcoming Japanese

version of the Sarbanes-Oxley Act, companies are taking

vigorous steps to develop and operate internal control systems.

This is leading to increasing demands for the conversion of

paper documents into an electronic form and for integrated

management of information. Viewing these as growth

opportunities, we develop software and services to meet such

needs and have established dedicated sales teams to provide

full-fledged support. By these means, we have accelerated the

expansion of our office services business.

In Asia-Pacific region including China, where market

growth is expected, we will make maximum use of the sales

infrastructure we have established and enhanced so far as we

endeavor to further increase our share of the color multi-

function device market.

Print-on-demand is a field that we expect to develop

substantially based on cooperation between FUJIFILM Corpo-

ration and Fuji Xerox Co., Ltd. Fuji Xerox has secured the top

position in the on-demand output field. By adding FUJIFILM’s

expertise regarding color printing and digital image processing

technologies, we will further solidify this leading position.

R

Synergies Between FUJIFILM Corporation and Fuji Xerox Co., Ltd. in Print-on-demand Field

Underpinned by burgeoning demand for liquid-crystal displays

(LCDs), including LCD televisions, FUJITAC, which is

indispensable in LCDs, and WV Film, which enables wider

viewing angles, have achieved steady sales growth. The Group

is actively boosting production capacity in anticipation of

further growth in demand.

In October 2006, we launched operations at FUJIFILM

Kyushu Co., Ltd.’s first FUJITAC plant. We plan to follow up

this move by bringing a second plant online in August 2007

and a third plant in April 2008.

Knowledge regarding images and color cultivated in graphic arts industryGraphic arts system sales capabilities

Knowledge of on-demand printing

FUJINON’s Shenzen plant in China is a major manufacturing base for lens units used in camera-equipped mobile phones. It is expanding production capacity to meet demand growth.

10

FUJIFILM

Annual Report 2007

■ Electronic Materials

FUJITAC Production Capacity(millions m2/year)

Apr. ,08: Wide-FUJITAC production

equipment starts operation

0Oct.

,06 Feb.

,07 Aug.

,07 Dec.

,07 Apr.

,08

330

380

430

480

580

630

Aug. ,08

No.3 plant onlineNo.1 plant online No.2 plant onlineFUJIFILMKyushu Co., Ltd.

Recently, Fujifilm’s highly functional materials technology has

increasingly come into its own in semiconductor manufacturing

processes, where finer design rules and multilayering are key

trends. Accordingly, we are strengthening our global manu-

facturing and sales network to further expand this business.

In 2006, we newly developed the FAiRS-9000 series of

photoresists for ArF immersion lithography processes

compatible with the 45-nanometer generation. This series of

photoresists has earned market accolades and is distinctive in

facilitating immersion exposure processes requiring no top coat.

Going forward, we will strengthen contacts with leading-edge

semiconductor manufacturers, and we aim to acquire top

market share in photoresists used in state-of-the-art

semiconductor devices, centered on the recently developed 45-

nanometer generation. We will also establish a market position

in the field of new semiconductor materials, such as CMP slurry

and ultra Low-k, where strong growth is projected. In color

resists for image sensors, a market in which we have already

established the leading share, we will continue to maintain our

lead by being first to launch products that cater to the finer

design rules for semiconductor devices.

■ Inkjet Materials

In the consumer and industrial inkjet business, demand is

continuing to expand. Fujifilm is growing its operations by

aggressively engaging in M&As involving marking technology

in the key printer head and ink-related fields. We acquired

U.S.-based Dimatix, Inc. in the fiscal year ended March 2007.

Cutting-edge Process Road Map for Semiconductors

Major Inkjet Materials-related M&As

In addition, we have decided to build a new plant

(scheduled to commence operations in April 2008) that will

conduct R&D relating to FPD materials at the Ashigara site of

the Kanagawa Factory. The new plant will develop and

produce ultra-wide FUJITAC that will enable it to respond to

the trend toward larger LCD panels by efficiently

manufacturing materials for LCD televisions with 40-inch and

larger screens.

In addition to those mentioned above, we will step up

marketing of products with features that utilize our unique

technologies. These products include CV Film, which is highly

effective in preventing reflection from the surface of panels. In

addition, we are increasing sales of such color filter materials

as Color Mosaic and Transer Film.

Feb. ,05

Acquired U.K.-based Sericol Group Limited (currently FUJIFILM Sericol UK Limited), which held top share of the global market for UV inks for industrial inkjet printers.

Acquired inkjet business of U.K.-based Avecia Group (currently FUJIFILM Imaging Colorants Limited), which held top share of the global market for ink dyes and pigments for consumer-use inkjet printers.

Acquired U.S.-based Dimatix, Inc. (currently FUJIFILM Dimatix, Inc.), the leading manufacturer of industrial inkjet printer heads.

Date M&As Implemented

Feb. ,06

Jul. ,06

FUJIFILM Corporation’s plant for development and manufacture of ultra-wide FUJITAC scheduled to be built on Ashigara site of Kanagawa Factory＊Scheduled to come online in April 2008 (artist’s image of completed plant)

11

FUJIFILM

Annual Report 2007

90

16

ArF

193

65

64

ArF immersion

134

45

128

EUV

13.5

32

256

,04

,05

,06

,07

,08

,09

,10

,11

,12

,13(Year)

Node (nanometers)

DRAM capacity (GB)

Exposure light source

Exposure wavelength (nm)

● Reorganization of Tripolar Global Manufacturing System

Fujifilm previously emphasized local production in its

manufacturing system for photosensitive materials such as

color films. Based on this emphasis, we maintained a tripolar

global system, with facilities in Japan, the U.S., and Europe.

However, as demand for photographic color films declined

rapidly, fixed costs for large-scale manufacturing facilities put

pressure on profits. Therefore, we attempted to optimize

production capacity on a worldwide level, which included the

termination of some coating lines, and we also reduced the

number of employees in various manufacturing divisions.

● Optimization of Selling Expenses and R&D Investment

In sales divisions, we streamlined the workforce and rigorously

cut selling expenses. We also minimized R&D investment in

areas other than digital camera printing-related and thereby

substantially reduced investment. Furthermore, in the

photofinishing field, we consolidated photo-processing

laboratories on a global level, and through our alliance with

Noritsu Koki Co., Ltd., we have been efficiently developing

high-performance digital minilabs and promoting the creation

of an improved, efficient maintenance support system.

In the electronic imaging business field, which includes digital

cameras, we reinforced our feature-rich product lineup, centered

on highly sensitive digital cameras, as well as downsized

domestic production and established a mass-production system

in China. In addition, we thoroughly cut costs and reduced total

inventories by strengthening supply chain management.

Although features such as the ability to detect faces and

high sensitivity received market acclaim, the business environ-

ment remained challenging. In this context, we will channel

resources into developing high-quality digital cameras with

features that enable users to take better photos, and reform our

business promotion systems in manufacturing, sales, and

research.

Structural Reform Expenses (including expenses related to the “Slim & Strong Drive”)

PersonnelStreamlining

Mar. ’06

¥86.0 billion

Mar. ’07 Total

More than5,000 personnel(as of the end of March 2007)

Cost-cutting Effects

¥40 billion

Mar. ’07

＊This includes ¥22.4 billion that was posted under non-operating expenses as decline in value of investment securities.

¥202.5 billion＊＊

¥116.5 billion

These structural reforms entailed expenses related to fixed

assets, including accelerated depreciation of manufacturing

facilities, and expenses associated with streamlining the work

force, such as special retirement benefits. During the two years

from April 1, 2005 to March 31, 2007, expenses including

those associated with the “Slim & Strong Drive” (refer to next

page) amounted to ¥202.5 billion in total. We shed just over

5,000 personnel by the end of March 2007.

On the other hand, the effects of cost cutting through

structural reforms appeared earlier than we had initially

projected. We believe that the effects amounted to just over

¥40 billion in the fiscal year ended March 31, 2007. In the

fiscal year ending March 31, 2008, the extent of the effects

will increase. We estimate they will reach just over ¥55 billion,

including the effects from the “Slim & Strong Drive.”

¥55 billion

Mar. ’08


(estimated)

12

FUJIFILM

Annual Report 2007

Fujifilm carried out fundamental structural reforms centered on the imaging field from the fiscal year ended March 31, 2006 and completed them by the fiscal year ended March 31, 2007. Through these reforms, we have been building a business structure that is able to ensure stable earnings into the future by optimizing business systems in this segment so that they can adapt to changes in market size.

Structural Reform Measures

Results of Structural Reforms

■ Photosensitive Materials Business

■ Electronic Imaging Business

Structural Reforms

Fujifilm Group’s Head Office Functions Concentrated in Tokyo Midtown

On October 1, 2006, the Fujifilm Group moved to a holding

company structure and became a new consolidated group

organization centered on FUJIFILM Corporation and Fuji Xerox

Co., Ltd. under FUJIFILM Holdings Corporation, which plays a

supervisory role in the management of the entire Group. As

FUJIFILM Holdings Corporation will oversee strategic planning

for the entire Group, it will allocate resources by emphasizing

overall optimization. At the same time, the new structure will

promote an increase in areas of synergy among Group

companies, personnel exchange within the Group, and

improved efficiency by consolidating common operations.

In February 2007, we concentrated the head office

functions of these three companies in Tokyo Midtown, located

in Roppongi, Tokyo. Through this move, we aim to promote

further strategic collaboration and realize concrete synergies

among the three companies.

Sharing the knowledge and human resources cultivated by the three companies so

far will enable us to further enhance the quality and speed of management and

produce more advanced synergies. Those are the major aims of concentrating head

office functions. When establishing offices, the Fujifilm Group makes maximum use

of the solutions skills and IT technologies associated with office creation that it has

built up. We are promoting strategic Group management by facilitating

communication among the three companies and improving operating efficiency by

integrating office services common to all three.

Furthermore, as a new information distribution base relating to “photo culture,” we

opened FUJIFILM SQUARE, our first showroom complex on the first and second floors of

the Tokyo Midtown Head Office. This showroom presents the beauty and value of

photos in a number of ways and contributes to maintaining and developing photo

culture. For example, it includes photo exhibitions in two photo galleries with different

individual characteristics, an exhibition of Fujifilm’s treasured collections, such as antique

cameras and photos that have historical value, and a photo shop that demonstrates the

pleasures of decorating one’s home with photos.

FUJIFILM Holdings Corporation

FUJIFILM Corporation Fuji Xerox Co., Ltd.

Holding Company

Operating Companies 75％25％

100％

U.K.-based Xerox Limited

FUJIFILM SQUARE

Fujifilm Group’s head office building

Taking advantage of the move to a new structure, we initiated

the “Slim & Strong Drive” targeting all organizations in the

Fujifilm Group. The activities promote thorough improvements

in efficiency and the prioritized use of manufacturing costs,

selling, general and administrative expenses, and R&D expenses,

and aim to realize a more muscular and robust corporate

constitution.

Subsidiaries Subsidiaries

13

FUJIFILM

Annual Report 2007

The Fujifilm Group moved to a holding company structure in October 2006 and concentrated the head office functions of FUJIFILM Holdings Corporation, FUJIFILM Corporation and Fuji Xerox Co., Ltd. in February 2007. As a result, we laid the foundations to further reinforce consolidated management of the Group.

■ Move to Holding Company Structure and Concentration of Head-office Functions

■ Promotion of the “Slim & Strong Drive”

Enhancing Consolidated Management

Fundamental Strategies

Key points of current and future business strategies in major priority business fields

In April 2007, Fujifilm formulated a revised medium-term management plan called VISION75 (2007). It is aimed at promoting the strategies in the VISION75 (2006) medium-term management plan more intensively, securing firm prospects for future growth, and establishing our “Second Foundation.” VISION75 (2007) is based on the themes of “further promoting growth strategies” and “realizing a robust corporate constitution.” As we implement this plan, we will boost investment in the priority business fields identified under VISION75 (2006) and swiftly and resolutely promote the “Slim & Strong Drive,” cost reduction reforms that target the entire Group. Through these measures we will ensure that we achieve our targets of ¥3,150 billion in revenue and ¥250 billion or higher in operating income in the fiscal year ending March 31, 2010.

Further Promoting Growth Strategies

In line with the growth strategies of VISION75

(2006), we will further step up capital investment,

M&A, and R&D investment in priority business fields

based on the following fundamental strategies:

●Attain superior competitiveness by catching users’ needs and shifting to high-value- added products●Seize additional business opportunities by broadening the scope of business domains●Strengthen and expand businesses by creating Group synergies

Priority Business Field

Medical Systems

Key Points of Current and Future Business Strategies

Expand business domains and change portfolio (film oriented → equipment and network oriented)

● Expand business as integrated diagnostic imaging solutions provider・Step up marketing of diagnostic modality solutions・Expand network business through reinforcement of SYNAPSE medical-use picture archiving and communications system・Incorporate business of integrated systems for management of reception, examination, data referencing, and reporting functions in endoscopy and sonography examination operations

● Expand in new fields・Radiopharmaceuticals, sonography diagnostic imaging systems, capsule endoscopes, etc.

Graphic Arts

Documents Improve profitability● Accelerate growth of solutions business・Strengthen solutions business catering to increasing sophistication of customer needs・Reinforce collaboration in commercial printing field

● Accelerate growth in Asia-Pacific region including China・Further bolster share of color multifunction devices market in Asia-Pacific region including China

Optical Devices● Expand production capacity mainly at Shenzen and Tianjin plants in China to meet growing demand for lenses, 　 including those for camera phones● Secure position in each market by launching differentiated, high-value-added products● Produce synergies between FUJIFILM Corporation and FUJINON Corporation, and promote reinforcement of 　 product development capabilities and cost reductions

FPD Materials Continue to expand businesses● Guarantee stable growth of FUJITAC and WV Films・Expand incorporation of WV Films in medium-sized (26-inch and 32-inch) TN mode televisions・Increase FUJITAC production capacity through capital investment in FUJIFILM Kyushu Co., Ltd.・Contribute to panel cost reductions through production of ultra-wide FUJITAC

● Expand the business of materials for TV polarizing plates・Expand supply of VA and IPS mode-related high-value-added materials

Expand businesses

● Reinforce global sales capabilities and cost competitiveness by establishing worldwide quadripolar business promotion organization● Expand production capacity in response to increased demand for CTP plates● Expand industrial inkjet printer-use ink business● Produce synergies between FUJIFILM Corporation and Fuji Xerox Co., Ltd. in print-on-demand field

Expand businesses

Year ending March 31, 2009¥300 billion in revenue(including life sciences)

Target

Year ending March 31, 2009¥300 billion in revenue

Target

Year ending March 31, 2010¥300 billion in revenue

Target

Year ending March 31, 201010% ratio of operating income to revenue

Target

14

FUJIFILM

Annual Report 2007

Strategies in the VISION75 (2007) Medium-term Management Plan

Realizing a Robust Corporate Constitutionthrough the “Slim & Strong Drive”

Fujifilm plans to spend ¥200 billion for capital expenditures in the fiscal year ending March 31, 2008 and ¥550 billion during the three-

year period until March 31, 2010. We also plan to spend ¥200 billion on R&D in the fiscal year ending March 31, 2008 and a total of

¥600 billion to ¥700 billion over the same three-year period. In addition, we will continue to carry out M&A aggressively and further

expand growth.

Realizing a Robust Corporate Constitution

As we explained in the review of VISION75 (2006) (page13),

we are currently implementing the “Slim & Strong Drive”

targeting all organizations in the Fujifilm Group. These

activities promote thorough improvements in efficiency and the

prioritized use of manufacturing costs, selling, general and

administrative expenses, and R&D expenses, and aim to realize

a stronger and more robust corporate constitution.

Through these activities, we will reform our corporate

culture itself by strengthening the individuals and organizations

that support the enterprise and build the foundation of a

robust company. At the same time, by promoting greater

efficiency and strength in all kinds of business processes, we

aim to realize a robust corporate constitution.

One target of these activities is to improve the ratio of

selling, general and administrative expenses to sales to around

20% to 25% in the fiscal year ending March 31, 2010, the

final year of the VISION75 medium-term management plan. In

addition, we will intensify efforts to reduce manufacturing

costs and improve the efficiency of R&D at factories and

research centers.

In a specific measure to this end, we established a Group

shared services company in July 2007. In addition, we are

realizing economies of scale by pursuing Groupwide

optimization of distribution and purchasing activities, and we

are promoting cost reductions and the more efficient use of

expenditure.

Concentration of Common Administrative and HR Service-related Operations Common in Fujifilm Group

Establishment of Shared Services Company

In July 2007, we established FUJIFILM Business Expert Corporation as a shared services company that integrates the

administrative, human resource (including welfare and benefits), insurance agency, and travel agency functions of Group

companies under the control of FUJIFILM Holdings Corporation.

FUJIFILM Business Expert Corporation will provide shared services in the areas of administration and human resources for

Group companies under the governance of FUJIFILM Holdings. It will rigorously pursue efficiency through the creation of a

leaner company resulting from consolidation of shared operations, the standardization and integration of operational

processes, and the utilization of outsourcing. At the same time, it will strive to enhance service quality and flexibility.

In addition, after the proper steps have been taken, FUJIFILM Business Expert Corporation will expand its operational scope

to include more Group companies that will receive services and to include indirect material purchasing as a shared service.

Reform corporate culture by establishing

stronger individuals and stronger organizations

Reduction inmanufacturing

costs

Decreasein ratio of

SG&Aexpenses to sales

Efficient useof R&D

expenses

Realize robust corporateconstitution that is

lean and strong

Capital Expenditures, Depreciation and Amortization,and R&D Expenses Targets

＊ Excluding rental equipment in the Document Solutions segment

Mar. ‘08

Capital expenditures＊ 200

Depreciation and amortization＊ (Depreciation)

220

150 500

R&D expenses 200

(Billions of yen)

700

550

600～700

Total during Mar. ’08 – Mar. ‘10

15

FUJIFILM

Annual Report 2007

Operating Segment Information

FUJIFILM

Annual Report 2007

16

Color Films and Others17%

Electronic Imaging28%

Color Paper and Chemicals21%

Photofinishing Equipment8%

Labs and FDi Services21%

Financial Data Breakdown of Revenue

● Revenue…………………………… ¥1,026.1 billion

● Share of revenue …………………………… 36.9%

● Operating income✽ ………………… ¥95.2 billion

● Total assets ……………………… ¥1,242.8 billion

● Research and development………… ¥77.0 billion

● Capital expenditures✽✽……………… ¥96.0 billion


● Revenue…………………………… ¥1,151.0 billion

● Share of revenue …………………………… 41.4%

● Operating income✽ ………………… ¥61.2 billion

● Total assets ……………………… ¥1,056.4 billion

● Research and development ………… ¥78.5 billion


Document Solutions

● Revenue …………………………… ¥605.4 billion

● Share of revenue …………………………… 21.7%

● Operating loss✽ …………………… ¥(42.6) billion

● Total assets ………………………… ¥542.4 billion

● Research and development ………… ¥21.5 billion


Imaging Solutions

Office Products55%

Office Printers17%

Production Services11%

Office Services6%

Medical Systems / Life Sciences26%

Graphic Arts28%

Flat Panel Display Materials17%

Recording Media10%

Office and Industry18%

✽ Including the effect of structural reform charges✽✽ Figures do not include amounts for rental equipment handled by the Document Solutions segment.

FUJIFILM

Annual Report 2007

17

■ Color Films and Others

■ Electronic Imaging

■ Color Paper and Chemicals

■ Photofinishing Equipment

■ Labs and FDi Services

Color/Monochrome Digital Multifunction Devices

Document Handling Software (DocuWorks)

Color/Monochrome Laser Printers

On-demand Publishing Systems

Computer Printing Systems

Document Outsourcing Services

Document Management Services

Business Process Reengineering (BPR) and

Business Process Outsourcing (BPO)

Line of Business / Main Products and Services

■ Medical Systems/Life Sciences

■ Graphic Arts

■ Flat Panel Display Materials

■ Recording Media

■ Office and Industry

Color Negative Films

QuickSnap

Color Reversal Films

Digital Camera ”FinePix”

Digital Camera Accessories

Photographic Paper for Color Prints

Photofinishing Chemicals

Film Processors/Printing Equipment•Frontier Digital Minilab Series•Thermal Photo Printers

Film Processing Services

Photo Printing Services

FCR Digital X-ray Imaging and Diagnostic Systems

SYNAPSE Medical-use Picture Archiving and Communications systems

Dry Imaging Films/Dry Imagers

Conventional X-ray Films

Radiopharmaceuticals

Digital Endoscopes

Nucleic Acid Isolation Systems

Healthcare Products

Materials and Equipment for Graphic Arts•CTP (Computer-to-Plate) Plate•CTP Plate SetterInks for Industrial Inkjet Printers

FUJITAC Protective Films for Polarizers

WV Films for Expanding Viewing Angles

Transer Films for Manufacturing Color Filters

LTO Ultrium Data Cartridges

Data Cartridges for IBM 3592

Camera Phone Lens Units

TV Lens/CINE Lens

Electronic Materials

Inks for Consumer-use Inkjet Printers

Industrial Inkjet Printer Heads

■ Office Products

■ Office Printers

■ Production Services

■ Office Services

FinePix F40fdFinePix S5 Pro

QuickSnap 1000Frontier 500

FCR PROFECT CS

Transnasal Endoscope

Luxel PLATESETTER T-9800

LTO Ultrium 4 Data Cartridge Camera Phone Lens Units

FUJITAC

DocuPrint C3050

ApeosPort-Ⅱ C7500

Xerox iGen3®110

18

FUJIFILM

Annual Report 2007

Review of Operations

Reasons for YoY Changes

○Higher color paper sales on market share growth in　principal countries

○Lower sales of color films in a shrinking market

○Lower sales of digital cameras due to price 　　competition, mainly in entry-level models

○Decreased sales of digital minilabs as large-scale 　retail outlets ended a cycle of new installations

Reasons for YoY Changes ○Benefits of higher sales volume for color paper

○Substantial benefits of reduction in fixed costs 　yielded by structural reforms

○Decrease in structural reform charges (down 　¥17.3 billion)

○Rising prices of silver and other main raw materials

Breakdown of Revenue Operating Loss

Year ended March 31

Consolidated revenue in this segment declined 12.2% year on year to ¥605.4 billion, despite higher sales of color paper on the back of increased market share and other factors. The overall decrease was primarily attributable to lower sales of color films and digital minilabs as well as of development services at photo-processing laboratories. The segment posted an operating loss of ¥42.6 billion, mainly due to structural reform charges of ¥60.1 billion. Excluding these charges, pro forma operating income grew considerably to ¥17.5 billion, a large increase of ¥15.8 billion year on year.

Results for Fiscal Year Ended March 31, 2007

-100

-50

0

’07’06

75.7

(Billions of yen)

0

1,000(Billions of yen)

’07’06

605.4689.4

17%（　 20%）

21%（　 6%）8%（　 23%）

21%（　 14%）

28%（　 14%）

18%Color Films and Others

28%Electronic Imaging

18%Color Paper and Chemicals

21%Labs and FDi Services

9%Photofinishing Equipment

42.6

Percentages in parentheses represent year-on-year changes in revenue of each category

The Imaging Solutions segment includes color films, digital cameras, photofinishing equipment and color paper, chemicals and services for photofinishing.

Imaging Solutions

Fujifilm's exhibit at PMA 2007, one of the largest trade shows for the photo-related industry in the U.S., carried the slogan,“Fujifilm. Expand the World of Imaging.”

19

FUJIFILM

Annual Report 2007

　

Demand for printing photos from film is falling as demand

declines for film. However, the uptake of digital cameras is

driving steadily rising business volume for the printing of

digital camera photos.

Responding to this trend, Fujifilm has rolled out various

initiatives to expand “Print at Retail,” a key strategy for the

company. In combination with this, Fujifilm has expanded

the infrastructure supporting the “Print at Retail” strategy,

with the active launch of digital minilabs. Thanks to these

actions, both sales and earnings from color paper and

chemicals were up year on year. Moreover, Fujifilm estimates

that it now commands a global share of around 50% in the

color paper market. In photofinishing equipment, however,

sales were down as large-scale retail outlets ended a cycle

of new installations of digital minilabs.

The global digital camera market continued to grow,

recording total shipments of 81 million units, 21% higher

year on year, according to statistics released by Camera &

Imaging Products Association (CIPA) for the year ended

March 31, 2007. On the other hand, price competition

intensified as differences in basic specifications among

camera manufacturers became blurred.

In this market, the FinePix F31fd, a compact digital

camera boasting a maximum sensitivity of ISO 3200, and

the stylishly slim FinePix Z5fd sold strongly. In addition to

the high sensitivity and high image quality for which Fujifilm

is well known, these digital cameras feature the world's fastest＊1 Face Detection technology＊2. Despite a rise in

shipments to 6.6 million units, however, sales in electronic

imaging declined overall, the result of persistently stiff price

competition centered on entry-level models.

■Color Paper, Chemicals, 　and Photofinishing Equipment

■Color Films and Others

■Outlook

FinePix F31fd FinePix Z5fd

Performance Overview and Outlook

■Electronic Imaging

In the fiscal year under review, sales of color films declined

in a contracting market. On a more positive note, however,

Fujifilm increased its market share thanks to the success of a

sales strategy that seeks to take advantage of the exit from

the market of competing companies. Moreover, Fujifilm

continued to generate earnings by reducing fixed costs,

raising prices and taking other actions to combat falling

sales volume and soaring prices of silver and other main raw

materials.

In the Imaging field, Fujifilm continues to put in place a

framework capable of consistently generating earnings,

having completed structural reforms initiated in the previous

fiscal year. As it does so, the competitive landscape is

undergoing major change with the withdrawal of

competing companies from the market.

Amid this backdrop, Fujifilm aims to increase the uptake

of “Print at Retail” services, which are defined by the “easy,

beautiful, long lasting” characteristics of the photos

produced. This is part of Fujifilm's ongoing response to

customer demands for making digital camera prints that

don't compromise on picture quality.

Using its alliance with Noritsu Koki Co., Ltd. in product

development and after-sales services, Fujifilm is also

developing a new series of digital minilabs and taking other

actions as it steps up its response to diversifying demand for

photographic prints, with the aim of improving profitability.

Fujifilm expects the digital camera market to grow at a

slightly slower rate in the year ahead, while competition

remains as fierce as ever. In this market environment,

Fujifilm aims to grow sales by bolstering its lineup of

distinctive products and, at the same time, make greater

strides in transitioning to a cost structure that can withstand

intense competition. ＊1 : Fujifilm research as of February 2007＊2 : Advanced Image Intelligence™ technology for automatically detecting faces in a scene is integrated in a unique IC chip. This technology can automatically detect up to 10 faces simultaneously and take a photo within as little as 0.05 seconds. Just point and shoot.

20

FUJIFILM

Annual Report 2007

0

50

100

0

1,000

’07’06

1,026.1

877.379.1

15%

16%

30%

26%

12%10%（　 2%）

17%（　 29%）

28%（　 9%）

26%（　 17%）

18%（　 37%）

’07’06

95.2

Information SolutionsThe Information Solutions segment includes equipment and materials for medical systems and life sciences, equipment and materials for graphic arts, flat panel display (FPD) materials, recording media, optical devices, electronic materials and inkjet materials.

Consolidated revenue in this segment climbed 17.0% over the previous fiscal year to ¥1,026.1 billion. One reason was healthy growth in sales in certain business fields, including medical systems as well as graphic arts, and FPD materials. The addition of sales from newly consolidated subsidiaries also bolstered the top line. The segment recorded a 20.4% rise in operating income to ¥95.2 billion despite booking structural reform charges of ¥17.3 billion. Excluding these charges, pro forma operating income jumped 28.2%, or ¥24.7 billion, to ¥112.5 billion.



○Healthy sales growth in main business fields

○Contribution to sales from newly consolidated subsidiaries

Main New Consolidated SubsidiariesFUJIFILM Imaging Colorants Limited (Inks for consumer-use inkjet printers)FUJIFILM Dimatix, Inc. (Inkjet printer heads)FUJIFILM RI Pharma Co., Ltd. (Radiopharmaceuticals)

Reasons for YoY Changes ○Benefits of higher sales volume for key products

○Lower fixed costs stemming from streamlining production facilities shared with Imaging Solutions

○Increase in structural reform charges (Up ¥8.7 billion)

○Rising prices of silver, aluminum and other main raw materials

Breakdown of Revenue Operating Income

Year ended March 31

(Billions of yen)(Billions of yen)

Medical Systems /Life Sciences

Graphic Arts

FPD Materials

Recording Media

Office and Industry


●Current CTP Workflow

Plate Setter

Plate Setter

Printing Press

Printing Press

Automatic Developer(Chemicals and Waste Fluids)

●Processless CTP Workflow

No need for an automatic developer and chemicals, so no waste fluids

Approx. 40% reduction in CO2 emissions substantially lightens the environmental impact

21

FUJIFILM

Annual Report 2007

In the medical systems business we are conducting

operations on a global scale in the field of medical image

diagnostics. Flagship products are our FCR (Fuji Computed

Radiography) digital X-ray imaging and diagnostic systems,

which led the world when they were developed in 1981, and

SYNAPSE, a medical-use picture archiving and communications

system (PACS) for managing images from various modalities

in radiology departments over a network. In this market, the

development of medical networks, particularly in Japan, the

U.S. and Europe, is driving increasing digitization of testing

and diagnostic information.

In the year ended March 31, 2007, we recorded

continued robust growth in sales of FCR, dry films and other

equipment and materials. A highlight of the fiscal year under

review came in July 2006 when our FCR mammography

system, which is effective in the early detection of breast

cancer, became the first CR system in the world to receive

premarket approval (PMA) from the U.S. Food and Drug

Administration. The start of sales in the U.S. following this

approval contributed to the higher FCR sales. SYNAPSE also

saw higher sales, mainly in Japan, the U.S. and Europe.

In digital endoscopes, we leveraged distinctive products

such as the Transnasal Endoscope, which substantially

alleviates pain through insertion via the nose, to boost our

market share. This translated into a marked increase in sales

of digital endoscopes.

In October 2006, Daiichi Radioisotope Laboratories, Ltd.

became a consolidated subsidiary. The inclusion of sales

from this company, which was renamed FUJIFILM RI Pharma

Co., Ltd. in April 2007, helped boost sales substantially in

the business as a whole in the fiscal year ended March 31,

2007.

Demand is rising rapidly for computer-to-plate (CTP) systems

for the creation of printing plates as digitization of printing

work advances. These systems allow digital text and image

data to be transferred directly to printing plates, eliminating

the film processing stage. CTPs are now used for around

65% in Japan and for more than 70% of printing in North

America and Europe. Competition is intensifying in this field.

In the fiscal year ended March 31, 2007, we stepped up

efforts to increase production capacity at our four bases in

the U.S., the Netherlands, China and Japan and to

strengthen the marketing of CTP plates. In addition, we

launched the processless thermal plates worldwide. A

response to strong requests from the market, this next-

generation CTP system does not require a developer and

developing chemicals, meaning that it has a small

environmental footprint. Consequently, overall revenue in

the graphic arts business increased due to a sharp rise in

sales of CTP plates in Europe, Oceania and India, though the

growing use of CTP systems brought down demand for

graphic arts films.


■Medical Systems / Life Sciences ■Graphic Arts

The FCR PROFECT CS is ideal for mammography. SYNAPSE, a PACS for medical use

Printing Work Flow of Processless Thermal Plates

＊LTO and Ultrium are trademarks of Hewlett-Packard, IBM and Quantum in the U.S., other countries, or both.

22

FUJIFILM

Annual Report 2007

Expansion in the LCD market continues unabated,

underpinned by firm growth in LCD TVs, LCD monitors and

notebook PCs, for which demand is increasing worldwide. In

addition, panels are increasing in size. For example, the main

size of monitor screens is shifting from 17 inches to 19

inches, with 21-inch screens also increasing in prevalence.

Moreover, an increasing share of LCD TVs is of the 30- to 40-

inch class.

Along with these trends, we are seeing steady

expansion in our business supplying polarizer materials,

which are essential for LCDs. We boast global market shares

of just over 80% for FUJITAC and 100% in WV Film. These

high market shares, coupled with growth in sales of other

value-added films, lifted sales sharply

by 29% year on year. FUJITAC capped

off the year by becoming the first LCD

material in Japan to win Biomass Mark

certification from The Ministry of

Agriculture, Forestry and Fisheries;

FUJITAC is made predominantly from

plant-derived cellulose.

Higher capacity and transfer rates of data storage tapes,

which are used to back up and archive data, are increasingly

in demand as the volume of data handled by companies and

government departments increases rapidly in line with the

uptake of broadband.

Despite continuing fierce price competition in mid-range

data storage tapes, sales increased during the year ended

March 31, 2007, centered on mainstay LTO Ultrium 3 data

cartridges. In the high-end enterprise-use field, there was a

steady increase in sales of data cartridge products used for

the IBM TotalStorage® Enterprise Tape Drive 3592. Further

sales growth is being driven by the start of shipments of the

world’s first 700GB IBM System Storage 3592 Extended Data

High-capacity Tape Cartridge for enterprise-grade systems

and the FUJIFILM DLTtape® S4 Cartridge for the mid-range

field.

In the optical devices field, amid increasing picture quality

and sophistication of camera-equipped mobile phones, sales

of lens units for camera phones grew as we leveraged the

advantage of being able to supply high-specification units

for two-megapixel cameras and above. Furthermore,

FUJIFILM Imaging Colorants Limited, a newly consolidated

subsidiary that supplies inkjet materials for inkjet printers,

contributed to sales.

Made from cellulose triacetate (TAC) material, this film boasts outstanding transparency and surface flatness and smoothness. It is used as a protective film for polarizers in LCDs.

A proprietary product with WV, meaning wide view. WV film uses a discotic liquid crystalline compound to dramatically widen the viewing angle of TFT-LCD panels.

An antireflective film for LCD panel surfaces. It employs light dispersion and antireflection technologies to reduce difficulty in seeing images due to outside light, thereby achieving high picture contrast.

A film used to produce color filters for LCDs. A color LCD panel is created by transferring red, green, blue and black color layers from the film to a glass substrate using a world-first technique. It is ideal for manufacturing large LCD panels.

■Flat Panel Display Materials ■Recording Media

■Office and Industry

Biomass Mark

Fujifilm FPD Materials

“FUJITAC”Protective Film for Polarizers

“WV Film”Film for Expanding Viewing Angle

“CV Film”Antireflective Film

“Transer”

LTO Ultrium 3

Camera Phone Lens UnitsDrawing on plastic and glass lens formation technologies, we have led the market in developing lens units for mobile phones with megapixel cameras.

FUJIFILM DLTtape® S4 Cartridge

Details of the growth strategies in our medium-term management plan can be foundon pages 8 to 11 of this report.

23

FUJIFILM

Annual Report 2007

In the Information Solutions segment, guided by our

VISION75 (2007) medium-term management plan, we will

roll out initiatives in every business field so as to better

ensure growth over the medium and long term. This will

include increasing investments in plant and equipment,

conducting more M&As and investing more in R&D. These

investments will be centered on high-growth business fields

such as the FPD materials business.

In the medical systems business, we plan to ensure our

competitiveness by expanding sales of total systems

including imagers, centering on FCR, which has a top market

share. At the same time, we will expand business for medical-

use picture archiving and communications systems, as we

work to engineer a portfolio shift from one led by film to

one in which equipment and systems are the earnings drivers.

FUJINON Corporation, which supplies digital endoscopes, is

also endeavoring to expand sales through an alliance with

Given Imaging Ltd. This alliance will enable FUJINON to add

Given Imaging’s capsule endoscope to its product lineup as

well as generate synergies with FUJINON’s unique Double-

balloon Endoscope System.

In the graphic arts business, we aim to be the No. 1 CTP

plates supplier with a worldwide market share of 40% by

continuing to expand sales, especially of CTP-related

products.

Meanwhile, we plan to make the FPD materials business

a fulcrum of the company. We will do this by leveraging the

strength inherent in possessing production technology for

core material FUJITAC as well as organic synthesis and

precision coating technologies. We will also make substantial

capital investments in this business, constantly improve the

performance of materials, and develop and commercialize

value-added materials to the same end.

In the recording media business, we will use our

proprietary NANOCUBIC technology to develop tape

cartridges that achieve even higher storage capacity. In April

2007, for example, we launched the fourth-generation LTO-

standard products of LTO Ultrium 4 data cartridges. These

new data cartridges have double the storage capacity of the

previous generation. We will continue to provide products

meeting customers need at a high level.

Since September 2006, Fujifilm has

been bringing a number of new

products to the healthcare market,

namely functional cosmetics and

functional foods (supplements). The

foundation for R&D into these

products is provided by proprietary

FTD (Formulation, Targeting and Delivery) technology. Based

on the FTD technology concept of formulating ingredients at

the nanolevel and delivering them to targeted locations in

the body in a stable state, Fujifilm is providing added value in

products that achieve dramatic gains in the absorption of

beneficial ingredients within the human body.

Through many years of R&D in photographic film,

Fujifilm has accumulated a host of outstanding technologies

and sophisticated knowledge. These include nanotechnologies

for breaking down materials into extremely minute sizes and

stabilizing them; technology for controlling free radicals that

allows photographic prints to be preserved for a long time;

and research results relating to collagen, a main constituent

of film. Fujifilm’s know-how concerning emulsification,

including how to use emulsifiers and the formulation of

antioxidants, is also used extensively in establishing FTD

technology.

Fujifilm’s entry into the healthcare field is a high-profile

illustration of moves to increase its presence in growth fields

and to develop new fields through the launch of unique and

competitive products that apply and build on these sorts of

existing core technologies.

■Outlook

Applying and Developing Core Technologies in a New Business Domain—Healthcare

INFILTRATE SERUM WRINKLE ESSENCE, an antioxidant beauty lotion containing astaxanthine

FTD Technology Dramatically Enhances Absorption Rates

The FTD process delivers lipid-soluble materials and solid ingredients that are insoluble in water to targeted locations

Beneficial ingredient

DissolutionMicro-level emulsification and diffusion

PreservationFormation of a protective film for polymers

DeliveryNano-level emulsification and diffusion(Nano-level particlization)

Non-particlized astaxanthine Astaxanthine that has been particlized and stabilized with proprietary nanotechnology (FTD technology).

Availability: Japan

24

FUJIFILM

Annual Report 2007

0

50

100

0’07’06

1,151.01,100.7

61.267.0

10%

17%

54%

6%11%（　 3%）

17%（　 1%）

55%（　 8%）

6%（　 1%）

’07’06

1,000

The “Future Center” designed by Fuji Xerox’s KDI (Knowledge Dynamic Initiative), which provides services in a new style aiming at realizing creative work styles and work places to improve corporate-related knowledge.

Consolidated revenue in this segment rose 4.6% year on year to ¥1,151.0 billion, driven by strong growth in exports of digital color multifunction devices for offices to Europe and North America as well as in sales in the Asia-Pacific region including China. Operating income, however, dropped 8.7% to ¥61.2 billion, due to ¥16.7 billion in charges recorded as part of the Group's “Slim & Strong Drive.” Excluding these charges, pro forma operating income was ¥77.9 billion, a ¥10.9 billion, or 16.2%, year-on-year increase.

The Document Solutions segment, operated by Fuji Xerox Co., Ltd., encompasses office copy machines / multifunction devices, printers, production systems and services, paper, consumables, and office services.

Document Solutions


Breakdown of Revenue Operating Income

(Billions of yen) (Billions of yen)

Office Products

Office Printers

Office ServicesProduction Services



○Higher sales of digital color multifunction devices in the Asia-　　Pacific region including China, as well as export growth to 　Europe and North America

Reasons for YoY Changes ○Benefits of higher sales in office products business

○Improvements in cost of sales due to rightsizing of production 　operations, process reforms as well as sharing and standardization 　of parts / materials

○Recognition of charges related to “Slim & Strong Drive” 　(+¥16.7 billion)

○Higher SG&A expenses accompanying business expansion in　 the growing Asia-Pacific market, including China

Year ended March 31

25

FUJIFILM

Annual Report 2007

　

The world multifunction device market continues to expand,

driven by growth in color devices. In Japan, amid a maturing

market, new needs are emerging for multifunction devices

to enhance document security and integrate document

management following enforcement of the e-Document Law

and other developments.

To cater to these needs, Fuji Xerox Co., Ltd. bolstered its

lineup of color multifunction devices extending from low-

speed to medium- and high-speed models in Japan, centered

on the ApeosPort-II series, which features enhanced network

“gateway” functions. Through these and other actions, Fuji

Xerox estimates that it maintained a top share in terms of

units sold in the domestic color multifunction device market.

Furthermore, exports to Europe and North America of

medium- and high-speed color digital multifunction devices

and high-speed monochrome devices remained strong,

lifting sales volume far in excess of the previous fiscal year.

Sales volume of color products in the Asia-Pacific region

including China was also up sharply.

In Japan, shipments declined as OEM customers cut

inventories, but sales volume of own-brand printers rose,

spurred by the launch of DocuPrint C3050, a color laser

printer. Export sales volume to OEM customers in Europe and

North America grew steadily on the back of a strong market

response to medium-speed monochrome devices in terms of

their performance and price. Furthermore, sales volume of

both color and monochrome devices rose sharply in the Asia-

Pacific region including China.

During the fiscal year under review, sales volume of color on-

demand publishing systems for the growing digital printing

market rose substantially in Japan as well as in the Asia-

Pacific region including China. The production services

business also augmented its product lineup for this market

with the launch of DocuColor 5000 Digital Press, a color

entry-level model, and DocuCentre f1100 GA, a medium-

scale monochrome system boasting high speed and high

definition.

The document outsourcing business recorded another year

of growth, despite lower sales of administration systems for

household registry documents compared with the previous

fiscal year when special demand was seen. Furthermore, as

companies in Japan move into full swing with initiatives to

reinforce internal control, Fuji Xerox Co., Ltd. strengthened

solutions-providing capabilities through implementation of

measures such as launching new Apeos PEMaster software

that supports internal control projects and expanding its

services.

Past management reforms have strengthened the Document

Solutions segment in terms of cost competitiveness, deve-

lopment capabilities and sales force. Looking ahead, the aim

is to take a comprehensive approach to build on these

improvements and achieve even higher profitability. Above

all, to achieve stable growth and generate earnings in core

domestic operations, the segment will bolster solution

businesses in the office and commercial printing fields, while

actively implementing measures under the “Slim & Strong

Drive” to improve the cost structure.

DocuPrint C3050 DocuColor 5000 Digital PressApeosPort-Ⅱ C7500


■Office Products ■Production Services

■Office Services

■Outlook

■Office Printers

26

FUJIFILM

Annual Report 2007

Fujifilm’s Fundamental Technologies and Development

0

50

100

150

200

,05 ,06 ,07

Optics Image /Software

71.7

54.4

41.9

81.5

67.9

32.7

78.5

77.0

21.5

Development

Research

Fujifilm has a wide range of fundamental tech-

nologies such as thin-film formation and processing,

organic materials, inorganic materials, optics, image

and software technologies, which were cultivated in

fields such as photosensitive materials and xero-

graphy, as well as core technologies that support

these. By developing these technologies more

deeply, we have accumulated diverse technologies

that include fine chemicals, electronics, mecha-

tronics, optics, and software.

Today, we are promoting research and develop-

ment in priority business fields --- highly functional

materials and devices, optical devices and systems,

and information systems and solutions --- using

product design technologies that combine these

fundamental and core technologies. We are also

pursuing the creation of new businesses that will

play a leading role in the future.

In April 2006, we established the FUJIFILM Advan-

ced Research Laboratories to play a central role in

combining leading-edge research on a Company-

wide basis and fundamental technology develop-

ment.

In terms of our R&D organizational structure, we

have three corporate laboratories: the Frontier Core-

Technology Laboratories, the Synthetic Organic

Chemistry Laboratories, and the Advanced Marking

Research Laboratories. These laboratories are en-

gaged in long-term research into cutting-edge

technologies that will produce further growth for

Fujifilm. In addition, we have divisional laboratories

--- which develop products and technologies that are

directly linked to respective business divisions based

on short- and medium-term objectives --- and Funda-

mental Technology Research Centers, which have

accumulated technology platforms common to the

whole Company.

The unique, cutting-edge technologies that the

Fujifilm is actively engaged in research and development aimed at promoting growth in priority business fields and creating new businesses.

R&D

Fujifilm’s R&D Organization

R&D Expenses by Operating Segment

Fujifilm Group’s Fundamental and Core Technologies and Development

Fujifilm Group’s R&D Organization

(Billions of yen)

Year ended March 31

Imaging Solutions


Document Solutions

Highly Functional Materials /DevicesFlat panel display materials, electronic materials, recording media,

inkjet inks, fine chemicals, and life science businesses

Optical Devices/Optical SystemsMedical systems / Life science business

IT Systems/IT-Based SolutionsPrinting and digital imaging businesses,

including documents and POD

Development of fundamental technologies/Creation of new core technologies



Analysis /Evaluation /Simulation

Organic materials

Inorganic materialsThin-film formation/

Processing

Fundamental Technologies of Fujifilm Group

FUJIFILM Advanced Research Laboratories

Intellectual Property Division

Fundamental Technology

Research Centers

Corporate Laboratories

Divisional Laboratories

Advanced Marking Research Laboratories

Frontier Core-Technology Laboratories

Synthetic Organic Chemistry Laboratories

Feasibility TeamsProduction Engineering &

Development Center

Analysis Technology Center

Software Research & Development Center

Life Science Research Laboratories

Flat Panel Display Materials

Research Laboratories

Graphic Materials Research Laboratories

Medical Systems Development Center

Electronic Materials Research Laboratories

Optical Devices Research Laboratories

Project Teams

27

FUJIFILM

Annual Report 2007

Fuji Xerox Co., Ltd. has developed technology that physically detects even a single sheet of

paper being taken out of the office, which would ensure the security of paper documents.

This is achieved by embedding extremely thin amorphous magnetic wires, which are finer

than a human hair, in plain paper that can be used in multifunction devices. The wires are

coated with glass, preventing static electricity when used in a copy machine. The

amorphous magnetic wires emit an electric pulse due to application of an oscillating

magnetic field from an excitation coil installed in a separate location. By installing

equipment that detects this pulse at doorways of buildings and offices, it is possible to

keep a record of confidential documents taken outside business premises and also prevent

them from being taken out without authorization by closing security gates. Another

possible application of this technology is to embed the wire in labels affixed to

merchandise to control it being taken out of stores.This technology, could be installed at a

lower cost than IC tags.

Methods of analyzing single nucleotide polymorphisms (SNPs) currently in use consist

of extracting DNA from blood or other samples, adding reaction reagents, and analyzing in

instruments. These operations require specialist knowledge and a time frame of several

hours to several days. Fujifilm’s “Rapid SNPs Diagnostics System” uses the most advanced

isothermal amplification of target genes, called SMart Amplification Process (SMAP)＊1. This

is the first system that can obtain analyzing results from blood samples using fully

automatic processes at a world-record speed＊2 (30 minutes for all processes).

It is constructed from several unique technologies: micro-mechanical technology for

building up micro-channels on plastic substrate, microfluidics technology for controlling

chemical reactions of fluids in fluid channels, and high-sensitivity detection and analytical

technology accumulated in the development of image sensors and other products.

three corporate laboratories possess are being fused with each other at the FUJIFILM Advanced

Research Laboratories. The goal is to promote the establishment of highly distinctive

technologies, especially in the areas of highly functional materials, devices, and systems.

In a recent development, Fuji Xerox Co., Ltd. announced plans to open a new integrated

R&D facility in the Minato Mirai 21 district in Yokohama, Kanagawa Prefecture. This new

facility will consolidate existing R&D sites currently dispersed across several locations, with the

aim of reinforcing collaboration in R&D functions that transcends the boundaries of

technology fields and strengthening customer contact.

Main R&D Achievements in the Fiscal Year Ended March 2007

Fastest in the world, fully automatic gene analysis system Fujifilm’s “Rapid SNPs Diagnostics System”

Illustration of Fuji Xerox’s new integrated R&D base

Life Sciences

Fuji Xerox’s “Security Paper Technology”that uses a sensor to detects paper being taken out

Documents

＊1: The SMart Amplification Process (SMAP) was jointly developed by the RIKEN Institute and K.K. DNAFORM. It is a unique isothermal amplification method that amplifies target genes and detects differences in SNPs. As amplification takes place at constant temperatures in a short period of time, this outstanding system is able to accurately detect differences in SNPs.

＊2: As of January 31, 2007, Fujifilm survey

Rapid SNPs Diagnostics System (above) and disposable-type microchip incorporating all processes of DNA extraction, amplification, and detection (below)

Wire-embedded “security paper” and enlarged amorphous mag-netic wire

28

FUJIFILM

Annual Report 2007

Recognizing that a corporation’s main mission is to increase corporate value, the Company has given top priority to measures aimed at increasing its own corporate value by strengthening and broadening its corporate governance systems. The Company has positioned the board of directors as the body for determining basic Group management policies and strategies, and important matters related to business execution as well as for supervising the execution of business affairs. Meanwhile, the Company established the post of executive officer in 1998 in a bid to achieve greater efficiency and speed in the execution of business affairs as well as to clarify accountability and authority. Under this basic framework and following the change to a holding company structure on October 1, 2006, the Company will further strengthen governance on a consolidated basis, including with respect to Fuji Xerox Co., Ltd., to increase the corporate value of the Fujifilm Group. The Company will also work to further improve the transparency and soundness of Group management.

The Company’s Articles of Incorporation stipulate that the

Company can appoint up to 12 directors. Currently, it has eight

directors, including one outside director. Regular meetings of the

board of directors are held, in principle, once a month, with

extraordinary meetings held as the need arises. Certain matters

are decided as required by directors with special authority. To

make clearer their mission and responsibilities, directors have

been assigned one-year terms in office.

The Company adopted an executive officer system in June 1998.

Under this system, the board of directors is positioned as “the

body for determining basic management policies and strategies,

and important matters related to business execution as well as

for supervising the execution of business affairs,” while executive

officers are responsible for the execution of business affairs in

accordance with the basic policies and strategies adopted by the

board of directors. The Company currently has nine executive

officers, including five executive officers who also serve as

directors, and terms of office are one year, as with directors.

The management council decides whether matters that are to be

exclusively decided by the board of directors should be submitted

to the board of directors or not. It also considers the methods

used by executive officers to implement particularly important

items, in accordance with basic policy, plans and strategies

determined by the board of directors. The management council

is composed of full-time members who are executive officers

ranked senior vice president and above. Meetings of the

management council are flexibly convened, with the attendance

of relevant executive officers requested depending on the

matters concerned. 　

The Company has adopted a corporate auditor system with a

board of corporate auditors, which currently consists of four

members, two of whom are outside corporate auditors. As an

independent body with key roles and responsibilities in the

Company’s corporate governance system, the auditors audit the

entire range of the directors’ performance of their duties

following audit policies and an audit plan in conformity with

corporate auditors’ audit standards determined by the board of

corporate auditors. At meetings of the board of corporate

auditors, which are held in principle once a month, information is

shared on the details of matters subject to auditing. In addition,

all corporate auditors attend meetings of the board of directors,

while the standing statutory auditors also attend every

management council meeting, regularly exchange opinions with

the representative directors, and audit the entire range of

business execution. The Company has currently assigned two

staff members, who also perform internal audits, to the

corporate auditors, to strengthen the audit functions of the

corporate auditors.

The Company has an Auditor’s Office, which currently comprises

nine personnel, as an internal auditing unit that is independent

from divisions responsible for the execution of business affairs.

This office examines each division’s operational processes and

other items and evaluates and verifies that they are appropriate.

In addition, staff in a specialized unit audit operations in the

environmental and export control fields. The Auditor’s Office also

carries out regular audits of major Group companies in

cooperation with corporate auditors, and it verifies the status of

the establishment and operation of internal control systems. To

enhance internal auditing functions, the Company aims to

increase the number of internal auditing staff and reinforce their

roles.

The Company engages Ernst & Young ShinNihon as its

independent auditor. Ernst & Young ShinNihon expresses an

opinion on the Company’s financial statements from an

independent standpoint as an auditor.

Corporate Governance

Corporate Organizations and Others●Directors and Board of Directors

Executive Officer System

Management Council

Independent Auditor

Internal Auditing

Corporate Auditors and Board of Corporate Auditors

29

FUJIFILM

Annual Report 2007

●Major Activities

On October 1, 2006, Teisuke Kitayama assumed office as an

outside director of the Company. He attended 4 of the 6

meetings of the board of directors held in the fiscal year under

review from assumption of office. Mr. Kitayama requested

explanations when necessary and offered advice where

appropriate at the board of directors meetings he attended to

ensure the adequacy and appropriateness of the decisions made

by the board of directors.

Outside corporate auditor Kiichiro Furusawa attended 11 of

the 13 board of directors meetings and 12 of the 13 board of

corporate auditors meetings held during the fiscal year under

review from April 1, 2006. Outside corporate auditor Daisuke

Ogawa was appointed on June 29, 2006. He attended 5 of the 9

board of directors meetings and 6 of the 10 board of corporate

auditors meetings held in the fiscal year under review from the

date of his appointment. Both outside corporate auditors

requested explanations when necessary and commented where

appropriate at the board of directors meetings they attended to

ensure the adequacy and appropriateness of the decisions made

by the board of directors. They also asked questions and

expressed their opinions as appropriate at the board of corporate

auditors meetings they attended.

● Support System for the Outside Director and

Outside Corporate Auditors

The Legal Department, the secretariat for the board of directors,

prepares materials and provides information to the outside

director and outside corporate auditors for proposals submitted

to regularly held meetings of the board of directors. It also

provides supplementary explanations where requested.

The secretariat for the board of corporate auditors (the

Internal Auditing Unit) provides support such as materials and

information concerning details of audits that are used for sharing

information between standing statutory auditors and outside

corporate auditors at regularly held meetings of the board of

corporate auditors.

The Company engages Ernst & Young ShinNihon to perform

accounting audits. Because the Company recognizes that mutual

cooperation between internal auditing, corporate auditors and

the independent auditor in their respective audits leads to

improved corporate governance, the Company works to foster

such cooperation between the three groups. When audits are

planned, performed and reviewed every year, the three groups

hold discussions and exchange information and opinions. In

addition, discussions are held as needed when interim and year-

end audits are carried out. Audits of Group companies are carried

out at the same time by corporate auditors, the Internal Auditing

Unit and the independent auditor and information is exchanged.

Effective and efficient audits are also promoted by maintaining

cooperation such as in attending stocktaking.

Matters Concerning the Outside Directorand Outside Corporate Auditors

Cooperation Between Internal Auditing, Corporate Auditors and Independent Auditor

The Company’s Corporate Governance Structure

Shareholders’ Meeting

Management Council

FUJIFILM Corporation Fuji Xerox Co., Ltd.

Public Relations / IR

Corporate Planning Personnel General

Administration Legal / CSR Corporate R&D

Executive Officers Internal Auditing Unit

〈 Business Execution 〉Compliance &

Risk Management

President: Representative Director

(Chief Executive Officer)

Board of Corporate Auditors Independent Auditor

CSR Committee

Fujifilm Group Charter for Good Corporate Behavior

Fujifilm Group Code of Conduct

Various Guidelines

Consultation Offices

CSR Division (secretariat)

Board of DirectorsDetermination of Group management policy and strategy

Decisions on important matters relating to business executionSupervision of business execution

30

FUJIFILM

Annual Report 2007

　

The Company has formulated the Fujifilm Group Charter for

Good Corporate Behavior as the fundamental principles

regarding compliance in the conduct of the Fujifilm Group’s

business activities. Based on this charter, the Company has

drafted a code of conduct for the Fujifilm Group and is

endeavoring to ensure that their activities and behavior comply

with laws and regulations as well as social ethics. And with the

aim of ensuring the observance of laws and regulations, as

well as to maintain and enhance ethical behavior in all

corporate activities of the Fujifilm Group, the Company has

established a CSR Committee chaired by the Company’s

president. The Company has also established a division that is

responsible exclusively for promoting compliance. Primarily

through this division, the Company is endeavoring to instill and

promote a compliance mindset in the Fujifilm Group as a

whole. The Company has also established offices both inside

and outside the Fujifilm Group to provide advice and receive

communications and reports of infringements related to the

code of conduct and compliance as part of efforts to detect

any illegal or improper behavior quickly and take appropriate

action in response.

Moreover, the Company has formulated rules on reaching

decisions through the use of circular letters, document manage-

ment regulations, rules regarding timely disclosure, regulations

regarding the management of personal information, and other

necessary internal rules. Besides requiring business execution in

accordance with these rules, the Company has formulated

various manuals and guidelines to ensure thorough observance

of laws and regulations relating to business activities and is

endeavoring to ensure thorough awareness of compliance

through regular educational activities.

Regarding risk management, every company in the Fujifilm

Group establishes an adequate risk management system. At

the same time, the CSR Committee, headed by the president,

formulates basic policies and examines and develops

appropriate responses to important risks from the perspective

of the whole Fujifilm Group. Moreover, the Company

formulates rules and guidelines and prepares manuals

regarding various risks related to information management,

safety and hygiene, the environment, and disaster prevention.

As regards information relating to important risks, reports are

made to the secretariat of the CSR Committee in accordance

with prescribed procedures. Internal audits are the responsibility

of the Auditor’s Office, an internal auditing unit that is

independent from divisions responsible for the execution of

business affairs. Ongoing efforts will be made to strengthen

internal auditing.

As a holding company, the Company oversees the

execution of business activities by subsidiaries from the

standpoint of a shareholder as well as efficiently and properly

conducts operations common to the Fujifilm Group in a unified

manner. At the same time, the Company provides direction,

assistance, and supervision relating to the establishment of

systems and implementation of business activities by each

subsidiary and has established a system of reporting by each

subsidiary. In such ways, the Company aims to ensure that

appropriate business operations are conducted in the Group as

a whole.

The Company believes that the ultimate decision on whether or

not to accept a takeover proposal for the Company should be

made by the shareholders of the Company at the time the

takeover proposal is made. In this case, we believe that it is

necessary to adopt fair rules so that shareholders of the

Company can make a duly informed judgment. Based on this

thinking, the Company’s board of directors on March 30, 2007

decided to adopt “Fair Rules for the Acquisition of Substantial

Shareholdings (“Shareholders’ Will Confirmation Type”

Takeover Defense Measure, hereinafter “the Plan”), ”which

sets forth clear and specific procedures that a bidder can follow

to commence a takeover proposal.

The Plan is designed to enable the shareholders at the time

of the takeover proposal is made to make a duly informed

judgment as to whether to accept the bidder’s takeover

proposal based on sufficient information and with reasonable

time period for the Board to consider the takeover proposal

and pursue alternatives, and also to arrive at such informed

judgment based upon a fair and highly transparent procedure.

When a bidder who tries to acquire 15% or more of the

The Company is endeavoring to ensure compliance and to establish risk management systems in order to fulfill its corporate social responsibility, which is the basis of its corporate philosophy.

Basic Stance and Status of Establishment Regarding Internal Control Systems

●

Compliance

Risk Management Systems

Adoption of Fair Rules for the Acquisition of Substantial Shareholdings (“Shareholders’ Will Confirmation Type” Takeover Defense Measure)

●

(1) Reason for Adopting Plan

(2) Overview of the Plan

31

FUJIFILM

Annual Report 2007

Company’s voting shares complies with the conditions specified

in the Plan (submits the necessary information and waits the

review period), the Company will carry out procedures to

ascertain shareholders’ will to request they make the ultimate

decision at that time whether to issue stock acquisition rights

(the “Rights”) by way of a gratis allotment as a defensive

measure.

If the Company’s board of directors determines the takeover

proposal is in the Company’s and its shareholders’ best interests,

there will be no need to ascertain shareholders’ will. An issuance

of Rights by way of gratis allotment as a countermeasure will

only be made if the result of ascertaining shareholders’ will is

that shareholders approve such an issuance or the bidder has

not followed the procedures required by the Plan.

The Plan is effective for three years from March 30, 2007 and

may be renewed by a resolution of the board of directors,

taking into consideration the views of the outside directors and

the outside corporate auditors of the Company.

＊1 : If the Board, based on the required information submitted by the bidder, determines that the bidder’s proposal is in the best interests of Fujifilm and its shareholders, the shareholder vote will not be held, and no Rights will be issued by the way of a gratis allotment.

＊2 : The review period will be extended for eight weeks if the Board receives an opinion from an investment bank which states that the offer price is inadequate from a financial perspective. In addition, if the bidder has neither submitted the securities registration statement(s), the securities reports, the semi-annual securities reports and extraordinary reports (including any amendment of each of such statement(s) and reports), each prepared in Japanese, required to submit under the Securities and Exchange Law of Japan (including any law succeeding it) covering the past five years, nor published any documents corresponding thereto in Japanese (excluding any summary in Japanese of such documents which were available only in a foreign language; provided, however, that there is an exception for the foreign securities reports and the foreign semi-annual securities reports under the Securities and Exchange Law) covering the past five years, the review period will be extended for another four weeks.

＊3 : The shareholder voting record date will be publicly announced at least two weeks prior to the record date.

(3) Effective Period for the Plan

(Reference)Applicable Procedures from Emergence of a Bidder to Decision to Issue the Rights by the Way of a Gratis Allotment(This chart is intended only to assist with understanding the Plan. Please refer to http://www.fujifilmholdings.com/ for more details.)

(for a proposal for all shares / all cash TOB offer which does not

involve a coercive two-tiered structure)

Emergence of a bidder (who proposes to acquire 15% or more of the Company’s voting shares)

The Rights may not be issued by the way of a gratis allotment

The Rights may be issued by the way of a gratis allotment by the Board

Required information submitted by a bidder

Review period : 12 weeks＊2

(other than the case stated in the left box)

Review period: 18 weeks＊2

The shareholder voting record date＊3

Ascertain shareholders’ will regarding the issuance of the Rights by the way of a gratis allotment

(A written ballot or a shareholders’ will confirmation meeting)

Failure to comply with the review period of shareholders’ will confirmation process

Yes＊1 No

as soon as possible

as soon as possible

not approved approved

immediately immediately

32

FUJIFILM

Annual Report 2007

Environmental Initiatives

Actions to Cut Greenhouse Gas Emissions

●

0

500

1,000

,91 ,03 ,04 ,05 ,06 ,07 ,08 ,09 ,10

The Fujifilm Group is cutting CO2 emissions, one of the so-called

greenhouse gases, by aggressively promoting the use of natural

gas and energy-conservation programs at its plants worldwide.

Combined CO2 emissions of the Group’s six＊1 principal

chemical-related factories in Japan account for 60% of the

Group’s CO2 emissions. Furthermore, total CO2 emissions have

increased in line with higher production volume such as in the

growing flat panel display (FPD) materials business. In response,

the Fujifilm Group is stressing measures to cut CO2 emissions,

including converting to natural gas as the fuel source for power

generation units.

The conversion to natural gas began in 2003 and in April

2007 a natural gas co-generation system＊2, the fifth at a Fujifilm

Group plant, was installed at FUJIFILM Corporation’s Yoshida-

Minami Factory. In another development, in October 2006,

operations commenced at FUJIFILM Kyushu Co., Ltd.’s No.1

Plant, which uses only natural gas as a fuel source for power

generation units. The introduction of natural gas yielded an

approximate 72,000 ton reduction in CO2 in the year ended

March 31, 2007.

The Fujifilm Group expects emissions to rise in the future as

two Group companies manufacturing FPD materials increase

production volume. That said, the Group plans to cut total CO2

emissions after a projected peak in the year

ending March 31, 2009, by promoting even

greater use of natural gas. In the fiscal year

ending March 31, 2010, the Group aims to

reduce CO2 emissions by 210,000 tons

through the use of natural gas at the above-

mentioned six factories.

Total emissions of two Group companies

Total emissions of four FUJIFILM Corporation factories

The Fujifilm Group is promoting various measures on a Group-wide basis, including environmental initiatives and social contribution activities, with the aim of achieving further “sustainable development.” These efforts are based on the “Fujifilm Group Approach to CSR.”

Corporate Social Responsibility (CSR)

Fujifilm Group Approach to CSR The Fujifilm Group Approach to CSR is to contribute to the sustainable development of society by putting into practice the Fujifilm Group’s corporate philosophy, and realizing its vision through sincere and fair business activities.

We will:

1. fulfill our economic and legal responsibilities, and respond to society’s demands by contributing as a corporate citizen to the development of culture and technology in society and environmental preservation.

2. constantly reassess whether our CSR activities are responding adequately to the demands and expectations of society and whether those activities are conducted properly through dialogue with our stakeholders, including customers, shareholders, investors, employees, local communities, and business partners.

3. enhance corporate transparency by actively disclosing information to fulfill our accountability for our business activities.

Based on the “Fujifilm Group Green Policy,” the Fujifilm Group aims to balance the dual goals of caring for the environment

and expanding growing businesses by reducing greenhouse gas emissions, managing chemical substances in compliance with

European laws and regulations, and implementing other environmental initiatives.

CO2 Emissions at the Fujifilm Group’s six Principal Chemical-related Factories in Japan

(Thousands of tons)

Group CO2 emissions are projected to peak in the year ending March 31, 2009, declining overall thereafter. Volume reduction from

conversion to natural gas

Total CO2 emissions of the Group’s six＊1 principal chemical-related factories in Japan

Figures through March 2007 fiscal year are actual Figures from March 2008 fiscal year are estimates

＊1 : Six principal chemical-related factories in Japan : FUJIFILM Corporation’s four plants (Kanagawa Factory Ashigara

Site, Kanagawa Factory Odawara Site, Fujinomiya Factory and Yoshida-Minami Factory) and plants of two Group companies (FUJIFILM Opto Materials Co., Ltd. and FUJIFILM Kyushu Co., Ltd.)＊2 : Natural gas co-generation uses natural gas as the fuel source for generating power using high-efficiency gas engines and gas turbines. Exhaust heat generated during this process is collected and used effectively for heating air and water, etc.

Year ended / ending March 31

33

FUJIFILM

Annual Report 2007

Aiming to Co-exist With Regional CommunitiesFUJIFILM Kyushu’s Environmental and Cultural Activities

Social Contribution Activities

Outside Evaluations of the Fujifilm Group’s CSR Activities

●

●

Fuji Xerox Co., Ltd. inaugurated use of extremely durable and returnable containers

that can be used more than 100 times to transport repair parts to 500 service locations

nationwide. The company developed the containers jointly with Starway Co., Ltd.

By using these returnable containers, Fuji Xerox expects to reduce the total amount

of new packaging materials by 1,294 tons by 2010. Also, CO2 and nitrogen oxide

emitted when manufacturing and recycling the materials can be reduced by 658 tons

and 0.82 tons, respectively, by 2010.

Returnable Containers to Transport Repair PartsReduce Environmental Impact

Supporting Education in the Western Region of China

FUJIFILM Kyushu aims to plant 13,000 trees in the future.

More detailed information on the Fujifilm Group’s CSR activities can be found at : http://www.fujifilmholdings.com/en/sustainability/

Students proudly show off the books they received.

In December 2006, FUJIFILM Kyushu Co., Ltd. signed a

partnership agreement with Minamiaso Ehon no Kuni, an

association active in promoting regional cultural advancement

and exchange based on the keyword “ehon” (picture book in

Japanese). Its activities are conducted through tie-ups with

government agencies and corporations, especially those with an

interest in the region. FUJIFILM Kyushu Co., Ltd. supports the

activities of this association, such as the creation of picture books

using photos in Minamiaso, in Kumamoto Prefecture instead of

illustrations.

Furthermore, in February

2007 FUJIFILM Kyushu Co.,

Ltd. inked a tree-planting

agreement for water-shed

protection with Minamiaso

village. Following a decision

to promote tree-planting

activities in the forested area

of the Shirakawa riverhead, an important groundwater recharge

area, company employees planted 300 Japanese wild cherry

blossom trees in March. This was the first tree-planting contract

after the formation of the new village of Minamiaso. Through

this tree-planting, FUJIFILM Kyushu is helping to preserve the

local environment.

FUJIFILM (China) Investment Co., Ltd. is taking part in a

national development project in China in the field of

education. By October 2006, the company had supplied top

students from economically challenged homes at 20 junior

high schools with books, cameras and other educational

materials. Furthermore, to help nurture individual skills, the

company is emphasizing

interaction with teachers

and students.

The Fujifilm Group’s proactive implementation of CSR programs designed to promote sustainable development has been

highly evaluated by outside parties.

● Inclusion in the FTSE4Good Global Index

● Inclusion in Dow Jones Sustainability Indexes 2007

● FUJIFILM Holdings was selected as one of the best 50 companies in terms of the quality of non-financial reporting by Global Reporters in a 2006 survey.

● Fuji Xerox’s A3-capable color laser printer won the “Energy Conservation Prize.” The company’s products have received the prize for eight consecutive years.

34

FUJIFILM

Annual Report 2007

( As of July 27, 2007 )

Board of Directors, Corporate Auditors, and Executive OfficersFUJIFILM Holdings Corporation

Board of Directors

Corporate Auditors

Executive Officers

Shigetaka KomoriPresident and Chief Executive Officer, Representative Director

Tadashi SasakiDirector

Shinpei IkenoueDirector

Tadahito Yamamoto Director

President and Chief Executive Officer

Shigetaka Komori Senior Vice President

Shinpei IkenoueCorporate Vice Presidents

Noboru Sasaki

Nobuoki Okamura

Yasutomo Maeda

Yoshikazu Aoki

Kouichi Tamai

Toshimitsu KawamuraExecutive Vice President

Toshio Takahashi

Nobuoki Okamura Director

Teisuke Kitayama Outside Director

Noboru Sasaki Director

Keiichi Inuzuka Masahiro Miki Kiichiro Furusawa Outside Corporate Auditor

Daisuke OgawaOutside Corporate Auditor

Toshio TakahashiChief Financial Officer, Representative Director

FinancialSection

35

FUJIFILM

Annual Report 2007

Financial Review .................................................................................................................................. 36

Ten-year Summary ............................................................................................................................ 42

Consolidated Balance Sheets ................................................................................................. 44

Consolidated Statements of Income .............................................................................. 46

Consolidated Statements of Changes in Shareholders’ Equity ............ 47

Consolidated Statements of Cash Flows ................................................................... 48

Notes to Consolidated Financial Statements .......................................................... 49

Report of Independent Auditors ........................................................................................ 80

FUJIFILM Holdings Corporation and Subsidiaries

Financial Review

FUJIFILM

Annual Report 2007

36

RevenueDuring the fiscal year ended March 31, 2007, a decrease in revenue in the Imaging Solutions

segment was outweighed by such positive factors as higher sales volume in the Information

Solutions and Document Solutions segments as well as the beneficial effects of exchange rate

movements. As a result, consolidated revenue increased 4.3%, or ¥115.1 billion, to ¥2,782.5

billion, from ¥2,667.4 billion in the previous fiscal year. Domestic revenue declined 1.9%, to

¥1,303.6 billion, and overseas revenue grew 10.5%, to ¥1,478.9 billion. The effective curren-

cy exchange rates were ¥117=US$1, a ¥4 depreciation of the yen compared with the previ-

ous fiscal year, and ¥149=1 euro, an ¥11 depreciation of the yen.

Operating IncomeSG&A expenses increased 3.4%, or ¥25.0 billion, to ¥760.0 billion, reflecting an increase at

newly consolidated subsidiaries and higher sales in the Asia-Pacific region including China in

the Document Solutions segment. The SG&A expense ratio was 27.3%. R&D expenses

decreased 2.8%, or ¥5.1 billion, to ¥177.0 billion, causing the R&D expense ratio to decline

0.4 of a percentage point, to 6.4%.

Operating income rose 60.5%, or ¥42.6 billion, to ¥113.0 billion, from ¥70.4 billion in the

previous fiscal year. Operating income was adversely affected by higher costs stemming from

a steep rise in major raw materials prices; the posting of expenses associated with structural

reforms that the Group carried out intensively from the fiscal year ended March 31, 2006 to

the fiscal year under review; and the “Slim & Strong Drive” that was initiated in the second

half of the fiscal year under review. However, the negative impact of these factors was

absorbed mainly by an improvement in gross profit resulting from higher sales volume and a

reduction in fixed costs, the more efficient use of expenditure, and the effects of the weaker

yen.

Income Before Income TaxesThe Company posted a nonoperating expense of ¥9.8 billion, compared to nonoperating income

of ¥9.2 billion in the previous fiscal year. The posting of a ¥23.9 billion decline in value of invest-

ment securities had a substantial impact. In addition, reflecting changes in the foreign exchange

settlement account and in the valuation of foreign currency assets at the fiscal year-end, foreign

exchange gains, net decreased ¥0.8 billion, to a gain of ¥6.7 billion. Interest and dividend income

rose ¥3.3 billion, to ¥11.4 billion. Income before income taxes grew 29.7%, or ¥23.6 billion, to

¥103.2 billion.

2,782.5

’07’06’05’04’03

2,511.9

2,566.7

2,527.3

2,667.4

58.7 58.6 59.8 58.959.8

Revenue and Ratio of Cost of Sales to Revenue(Billions of yen / %)

RevenueRatio of cost of sales to revenue

’07’06’05’04’03

164.4

184.9 164.4

70.46.5 7.26.5

113.04.1

2.6

Operating Income and Ratio of Operating Income to Revenue(Billions of yen / %)

Operating incomeRatio of operating income to revenue

’07’06’05’04’03

120.5

164.9

162.3

79.6

4.86.4 6.4

3.0

103.2

3.7

Income Before Income Taxes and Ratio of Income Before Income Taxes to Revenue(Billions of yen / %)

Income before income taxesRatio of income before income taxes to revenue

Year ended March 31

Results of Operations

FUJIFILM

Annual Report 2007

37

Net IncomeIncome taxes rose 70.0%, or ¥24.5 billion, to ¥59.5 billion. The effective tax rate rose from

44.0% in the previous fiscal year to 57.7% in the fiscal year under review. The statutory tax

rate for the fiscal year was 40.6%, but the effective rate was increased by such factors as

expenses not deductible for tax purposes. Minority interests, mainly attributed to Fuji Xerox

Co., Ltd. and its subsidiaries, decreased ¥0.1 billion, to ¥12.7 billion. Equity in net earnings of

affiliated companies declined ¥1.8 billion, to ¥3.4 billion. Net income decreased 6.9%, or ¥2.6

billion, to ¥34.4 billion, and net income per share declined to ¥67.46, from ¥72.65. In addi-

tion, diluted net income per share was ¥65.04, compared to ¥72.65 in the previous fiscal year.

Imaging SolutionsConsolidated revenue in this segment fell 12.2%, or ¥84.0 billion, to ¥605.4 billion. Sales of

color paper grew on the back of such factors as a rise in market share. However, color film,

development services at photo-processing laboratories, and digital minilab sales fell, resulting

in the overall decline in sales. The segment operating loss contracted 43.7%, or ¥33.1 billion,

to ¥42.6 billion. Although the Company continued to implement structural reforms, as in the

previous fiscal year, the increase in share of the color paper market had a substantial positive

impact.

Information SolutionsConsolidated revenue in this segment rose 17.0%, or ¥148.8 billion, to ¥1,026.1 billion.

Revenue increased mainly due to robust sales of SYNAPSE medical-use picture archiving and

communications systems, endoscopes, CTP plates, and flat panel display materials, while sales

at consolidated subsidiaries acquired in the fourth quarter of the fiscal year ended March 31,

2006 and the third quarter of fiscal year under review also made a contribution. Segment

operating income increased 20.4%, or ¥16.1 billion, to ¥95.2 billion. Despite such negative

factors as a steep rise in the price of the main raw materials such as silver and aluminum and

the posting of ¥17.3 billion in structural reform expenses, positive contributions came from

higher sales of such major products as medical systems products, CTP plates, and flat panel

display materials as well as the streamlining of manufacturing facilities.

Document SolutionsConsolidated revenue in this segment grew 4.6%, or ¥50.3 billion, to ¥1,151.0 billion. This

growth mainly reflected strong exports of digital color multifunction devices for office use to

North America and Europe as well as robust sales in the Asia-Pacific region including China.

Segment operating income fell 8.7%, or ¥5.8 billion, to ¥61.2 billion, chiefly reflecting

expenses posted as part of the ”Slim & Strong Drive.”

Segment Information

’07’06’05’04’03

831.0724.3

956.6

815.5755.1

996.1

743.0768.6

1,015.7

689.4877.3

1,100.7

33.128.8

38.1

31.829.4

38.8

29.430.4

40.2

25.832.9

41.3

605.41,026.1

1,151.021.7

36.941.4

Segment Revenue and Component Ratio(Billions of yen / %)

Imaging Solutions


Document Solutions

’07’06’05’04’03

48.5

82.3

84.5 37.0

1.93.2 3.3

1.4

34.4

1.2

Net Income and Ratio of Net Income to Revenue(Billions of yen / %)

Net incomeRatio of net income to revenue

’07’06’05’04’03

2.9

4.8 4.7

1.9 1.7

Return on Equity(%)

Year ended March 31

FUJIFILM

Annual Report 2007

38

Research & Development ActivitiesTo provide new solutions that match user needs in the imaging, information, and document

fields, the Fujifilm Group is working to further develop and utilize the unique technologies

and know-how it has cultivated in the photographic film field while also proactively conduct-

ing R&D related to new digital and networking technologies.

In April 2006, we established the FUJIFILM Advanced Research Laboratories, with the aim

of developing products and technologies that will support the Group’s future growth.

Through collaboration among researchers from different fields, these facilities will strongly

promote the creation of differentiated technologies. In addition, Fuji Xerox Co., Ltd., which is

responsible for the Document Solutions segment, decided to establish an R&D base at Minato

Mirai 21 in Yokohama. By concentrating its R&D facilities, which were previously dispersed,

Fuji Xerox aims to align functions more closely regardless of business field, shorten develop-

ment lead times and enhance efficiency.

During the fiscal year under review, R&D expenses declined 2.8%, or ¥5.1 billion, to

¥177.0 billion, and the ratio of R&D expenses to revenue fell 0.4 of a percentage point, to

6.4%. By business segment, R&D expenses amounted to ¥21.5 billion in Imaging Solutions,

down 34.1%; ¥77.0 billion in Information Solutions, up 13.3%; and ¥78.5 billion in

Document Solutions, down 3.8%

Year ended March 31 2007 2006 2005

(Millions of yen)Imaging Solutions Revenue:

External customers ¥ 605,383 ¥ 689,458 ¥ 742,993Intersegment 899 618 306Total 606,282 690,076 743,299

Operating loss (42,631) (75,713) (7,101)Operating margin (7.0)% (11.0)% (1.0)%

Information Solutions Revenue:External customers ¥1,026,085 ¥ 877,366 ¥ 768,680Intersegment 2,818 2,965 4,414Total 1,028,903 880,331 773,094

Operating income 95,170 79,056 71,089Operating margin 9.2% 9.0% 9.2%

Document Solutions Revenue:External customers ¥1,151,058 ¥1,100,671 ¥1,015,701Intersegment 12,187 12,478 13,560Total 1,163,245 1,113,149 1,029,261

Operating income 61,186 67,026 100,407Operating margin 5.3% 6.0% 9.8%

Notes: 1. Operating income (loss) in Imaging Solutions, Information Solutions and Document Solutions for the fiscal year ended March 31,2007 is affected by structural reform expenses of ¥60,121 million, ¥17,269 million and ¥16,691 million, respectively.

2. Operating income (loss) in Imaging Solutions and Information Solutions for the fiscal year ended March 31, 2006 is affected bystructural reform expenses of ¥77,401 million and ¥8,642 million, respectively.

3. The effects of Fuji Xerox's employee pension system reform, including the transfer of the substitutional portion of employee pension fund liabilities in the fiscal year ended March 31, 2005, are included in the Document Solutions seg-ment's operating income for the fiscal year ended March 31, 2005.

177.0

6.4

’07’06’05’04’03

159.1

173.3

168.0

182.1

6.3 6.7 6.6 6.8

R&D Expenses and Ratio of R&D Expenses to Revenue(Billions of yen / %)

R&D expensesRatio of R&D expenses to revenue

Year ended March 31

FUJIFILM

Annual Report 2007

39

Assets, Liabilities, and Shareholders’ EquityTotal assets at the end of the fiscal year amounted to ¥3,319.1 billion, up ¥291.7 billion, or

9.6%, from the previous fiscal year-end. Total liabilities rose ¥286.2 billion, or 30.3%, to

¥1,230.6 billion, while shareholders’ equity increased ¥13.0 billion, or 0.7%, to ¥1,976.5 bil-

lion. As a result, the liquidity ratio rose 13.0 percentage points, to 202.9%, the debt ratio

increased 14.2 percentage points, to 62.3%, and the equity ratio dropped 5.4 percentage

points, to 59.5%.

Capital Expenditures and DepreciationCapital expenditures during the fiscal year declined 8.1%, or ¥14.6 billion, to ¥165.2 billion.

In the field of flat panel display materials, Fujifilm proceeded with the construction of new

plants to boost production capacity at FUJIFILM Kyushu Co., Ltd., a major manufacturing

base. In addition, the Company started building a new plant with R&D functions at the

Ashigara site of the Kanagawa Factory.

Total depreciation (excluding intangible fixed assets and depreciation of rental equipment

in the Document Solutions segment) declined 6.8%, or ¥10.5 billion, to ¥146.4 billion.

Net cash provided by operating activities amounted to ¥297.3 billion, an increase of ¥24.7 billion.

During the fiscal year under review, although there were factors that reduced cash, such as a

decrease in impairment losses for long-lived assets and goodwill and a decline in depreciation

and amortization, cash was boosted by such factors as a decline in value of investment securities

and increase in notes and accounts payable—trade.

Net cash used in investing activities totaled ¥298.0 billion, an increase of ¥25.9 billion. Primary

applications of cash included ¥172.6 billion for purchases of property, plant and equipment,

¥146.9 billion for purchases of marketable and investment securities and other investments, and

¥20.5 billion for purchases of software. These items were offset in part by ¥109.1 billion in pro-

ceeds from sales and maturities of marketable and investment securities and other investments.

In addition, ¥45.7 billion was used for acquisitions of businesses and minority interests, net of

cash acquired.

Net cash provided by financing activities totaled ¥158.3 billion, up ¥238.6 billion. An increase

in proceeds from long-term debt and an increase in short-term debt, net were the main inflows

during the fiscal year under review. Cash dividends paid by the parent company amounted to

¥12.8 billion, approximately the same as in the previous fiscal year.

As a result of these factors and the effect of exchange rate changes on cash and cash equiva-

lents, cash and cash equivalents at the end of the fiscal year under review amounted to ¥384.7

billion, up ¥166.1 billion from the previous fiscal year-end.

’07’06’05’04’03

2,958.3

3,023.5

2,983.4

3,027.4

56.8 57.9 62.0 64.9

3,319.1

59.5

Total Assets and Equity Ratio(Billions of yen / %)

Total assetsEquity ratio

Financial Position

Cash Flow Analysis

’07’06’05’04’03

127.3

160.7

157.4

179.8

126.7

124.6

130.4

156.9

165.2 146.4

(Figures do not include amounts forrental equipment handled by the Document Solutions segment.)

Capital Expenditures and Depreciation(Billions of yen)

Capital expendituresDepreciation

’07’06’05’04’03

303.5

327.4

219.4

272.5

297.3

Net Cash Provided by Operating Activities(Billions of yen)

Year ended March 31

FUJIFILM

Annual Report 2007

40

Fujifilm’s basic policy regarding the distribution of profits is to provide shareholders with sta-

ble dividends as well as to maintain sufficient internal reserves to strengthen the manage-

ment foundation, permitting it to support an aggressive expansion of business while being

prepared for sudden changes in the business environment.

In line with this basic policy, the Company has set cash dividends applicable to the fiscal

year at ¥25 per share.

Fujifilm has intensively carried out structural reforms and growth strategies in line with the

VISION75 medium-term management plan. Consequently, we estimate that consolidated

operating income will reach a record high of ¥200 billion in the fiscal year ending March 31,

2008. Taking advantage of the opportunity provided by this sharp improvement in business

performance, as we intend to proactively return growing profits to shareholders, we have

decided to revise our basic policy on the distribution of dividends to shareholders from the fis-

cal year ending March 31, 2008 onward. Details of the new policy are as follows.

Basic Policy on the Distribution of Profits to Shareholders

In addition to reflecting consolidated performance trends, dividend levels are to be deter-

mined based on consideration of such factors as the level of cash required for capital and

R&D investments needed to support future business expansion as well as other measures

aimed at increasing the Company’s corporate value in the future. As a means of supplement-

ing dividends, the Company will also flexibly move to employ surplus cash flow to buy back

shares in a manner that contributes to greater capital efficiency. Considering the current time

as a period of “Second Foundation,” the Company is intensively implementing capital invest-

ments, M&A transactions, and R&D investments in its priority business fields. In view of this

situation, the Company has targeted a return to shareholders ratio of 25%, which represents

the ratio of total of cash dividends and share buybacks to consolidated net income.

The following types of risk have the potential for affecting the Fujifilm Group’s financial con-

dition and business performance. Text referring to the future is written from the perspective

of the end of the fiscal year under review.

(1) Impact of Economic and Exchange Rate Trends on PerformanceFujifilm provides products and services in diverse markets throughout the world, and the

share of consolidated sales accounted for by overseas sales was approximately 53% in the fis-

cal year under review. There is a possibility that performance will be greatly affected by eco-

nomic conditions throughout the world and particularly by currency exchange rates.

To reduce the impact of currency exchange rates on performance, Fujifilm undertakes

hedging measures, primarily using forward exchange contracts for the U.S. dollar and the

euro, but currency exchange fluctuations, depending on their degree, still could have an

impact on performance.

(2) Competition in MarketsFujifilm provides diverse digital-related products and services—including digital cameras and

other consumer products as well as such commercial-use products as those for medical,

graphic arts, and office applications—and, in recent years, the rising and broadening use of

digital and networking technologies has led to a sustained rise in the share of digital products

and services. In these business fields, although business volume is expanding, the intensifica-

tion of competition with electronic equipment manufacturers and other companies is leading

to falls in the selling prices of products during short periods of time and is also shortening

product life cycles. By affecting sales, increasing R&D costs, and exerting other effects, these

trends have the potential for reducing profitability. In the future, Fujifilm will continually work

to develop products incorporating new technologies and to support the sales of such prod-

ucts with marketing activities, and the success or failure of these activities is expected to have

an influence on performance.

Business-Related and Other Risks

Distribution of Profits

FUJIFILM

Annual Report 2007

41

(3) Patents and Other Intellectual PropertyFujifilm has diverse patents, know-how, and other intellectual property that enable competi-

tive benefits, but such future events as the expiration of patents and emergence of replace-

ment technologies may make it difficult to maintain competitive superiority.

In the wide range of business fields with which Fujifilm is associated, there are numerous

companies with sophisticated and complex technologies, and the number of these technolo-

gies is rising rapidly. Developing Fujifilm’s business operations sometimes may require the use

of other companies’ patents, know-how, and other intellectual property, and when negotia-

tions for the use of such intellectual property are not successful there is a potential for perfor-

mance to be affected. In addition, Fujifilm is developing its business while constantly taking

care not to infringe on the intellectual property of other companies, but it must be recog-

nized that in reality it is difficult to completely eliminate the risk of becoming involved with lit-

igation. If Fujifilm becomes involved with litigation, not only litigation costs would arise but

also the potential for compensatory payment costs that could have an influence on perfor-

mance.

(4) Public RegulationsIn the regions where Fujifilm is developing its operations, diverse government regulations

exist that apply to Fujifilm’s operations, such as business and investment permits as well as

limits and regulations related to imports and exports. Moreover, Fujifilm is subject to commer-

cial, fair trade, patent, consumer protection, tax, foreign exchange administration, environ-

mental, and other laws and regulations.

If Fujifilm were not to strictly comply with one of these laws or regulations, it could be sub-

ject to fines. Moreover, it is possible that these laws and regulations might be tightened or

greatly changed, and in such cases it is impossible to deny the possibility that Fujifilm’s activi-

ties could be limited or that Fujifilm might have to bear greater costs to attain compliance or

respond to the changes. Accordingly, these laws and regulations have the potential for

affecting Fujifilm’s performance.

(5) Manufacturing OperationsAs Fujifilm engages in manufacturing operations throughout the world, it is possible that pro-

vision of Fujifilm’s products could be halted by earthquakes or other natural disasters, the dis-

continuation of the manufacture of raw materials and components, the bankruptcy of

suppliers, terrorist activities, wars, labor strikes, major disease outbreaks, and other factors

that cause disorder. It is also possible that a rapid rise in the price of raw materials could

affect Fujifilm’s performance.

Fujifilm manufactures its products in conformance with rigorous quality control standards,

but the possibility of defective products does exist. If Fujifilm were to have to respond to such

an event by undertaking product recalls or other actions, Fujifilm’s performance might be

affected.

(6) Structural ReformsFujifilm is proceeding with structural reform measures that involve the manufacturing, mar-

keting, and service activities of Group companies and mergers of Group companies, and it

intends to continue such measures with the goal of striving to increase management efficien-

cy. Depending on the degree of progress in structural reforms, it is possible that Fujifilm

might bear additional costs that would affect its performance.

Ten-year Summary

FUJIFILM

Annual Report 2007

42

Year ended March 31

2007 2006 2005 2004 2003

(Millions of yen)

Revenue:Domestic ¥1,303,647 ¥1,329,284 ¥1,311,893 ¥1,336,015 ¥1,330,119Overseas 1,478,879 1,338,211 1,215,481 1,230,710 1,181,802

Total ¥2,782,526 ¥2,667,495 ¥2,527,374 ¥2,566,725 ¥2,511,921Cost of sales 1,638,337 1,593,804 1,510,681 1,503,843 1,474,551Operating expenses:

Selling, general and administrative 760,042 735,058 767,363 704,659 765,987Research and development 177,004 182,154 168,017 173,323 159,119Restructuring and other charges 94,081 86,043 — — —Subsidy related to transfer of substitutional portion of employee pension fund liabilities — — (83,129) — (52,136)

Operating income 113,062 70,436 164,442 184,900 164,400Interest and dividend income 11,376 8,133 6,080 4,246 3,909Interest expense (6,351) (3,886) (4,668) (5,459) (6,674)Income before income taxes 103,264 79,615 162,346 164,948 120,513Income before minority interests and equity in net earnings of affiliated companies 43,731 44,591 98,457 92,659 60,230

Net income 34,446 37,016 84,500 82,317 48,579

Capital expenditures (Note 1) ¥ 165,159 ¥ 179,808 ¥ 157,420 ¥ 160,740 ¥ 127,319Depreciation (Note 1) 146,325 156,928 130,360 124,634 126,695Net cash provided by operating activities 297,276 272,558 219,361 327,358 303,500

Average number of shares outstanding (in thousands) 510,621 509,525 512,801 513,252 514,011

Total assets ¥3,319,102 ¥3,027,491 ¥2,983,457 ¥3,023,509 ¥2,958,317Long-term debt 267,965 74,329 96,040 116,823 124,404Total shareholders’ equity 1,976,508 1,963,497 1,849,102 1,749,882 1,680,611Number of employees 76,358 75,845 75,638 73,164 72,633

Per share of common stock (Yen/U.S. dollars)Net income (Note 2) ¥ 67.46 ¥ 72.65 ¥ 164.78 ¥ 160.38 ¥ 94.51Cash dividends (Note 3) 25.00 25.00 25.00 25.00 25.00Shareholders’ equity (Note 4) 3,867.04 3,848.32 3,630.67 3,409.80 3,274.17Stock price at year-end 4,820 3,930 3,920 3,310 3,640

PBR (Price-to-Book Value Ratio) (Times) 1.25 1.02 1.08 0.97 1.11PER (Price-to-Earnings Ratio) (Times) 71.45 54.09 23.79 20.64 38.51ROE (Return on Equity) (%) 1.7 1.9 4.7 4.8 2.9ROA (Return on Asset) (%) 1.1 1.2 2.8 2.8 1.6

See notes on page 43.


FUJIFILM

Annual Report 2007

43

Notes:1. Figures do not include amounts

for rental equipment handled bythe Document Solutions seg-ment.

2. The computation of net incomeper share is based on the aver-age number of shares outstand-ing during each period.

3. Cash dividends per share repre-sent the amount declared pershare for the respective period.

4. The computation of sharehold-ers‘ equity per share is based onthe number of shares outstand-ing at the end of each period.

5. U.S. dollar amounts presentedare translated from yen, forconvenience only, at the rate of¥118=US$1, the exchange rateprevailing on March 31, 2007.

6. At the end of March 2001,Fujifilm acquired an additional25% of the outstanding sharesof Fuji Xerox Co., Ltd., bringingits total shareholding to 75%.As a result, Fuji Xerox became aconsolidated subsidiary ofFujifilm. In the financial state-ments for the Fujifilm Group forthe year ended March 31, 2001,the balance sheet of Fuji Xeroxwas consolidated and the con-solidated statements of incomewere accounted for by the equi-ty method, with an ownershipinterest of 50% as in prioryears. From the year endedMarch 31, 2002, the consolidat-ed statements of income of FujiXerox were consolidated in theincome statements.

¥1,355,192 ¥ 656,059 ¥ 635,588 ¥ 618,719 ¥ 636,755 $11,047,8561,052,325 727,310 713,253 768,307 694,861 12,532,873

¥2,407,517 ¥1,383,369 ¥1,348,841 ¥1,387,026 ¥1,331,616 $23,580,7291,403,571 803,460 774,757 779,985 735,953 13,884,211

684,370 351,033 344,424 356,967 338,920 6,441,034146,881 79,144 81,725 84,740 81,043 1,500,034

— — — — — 797,297

— — — — — —172,695 149,732 147,935 165,334 175,700 958,153

5,577 8,180 6,975 11,298 10,479 96,407(9,289) (11,093) (9,957) (11,994) (11,524) (53,822)

159,549 199,661 137,405 138,591 162,756 875,119

88,696 113,126 74,763 69,169 78,044 370,60181,331 117,900 84,895 74,709 91,280 291,915

¥ 155,525 ¥ 118,786 ¥ 91,313 ¥ 115,536 ¥ 112,800 $ 1,399,653121,777 82,063 82,770 83,377 77,818 1,240,042248,185 140,454 212,306 157,159 147,000 2,519,288

514,583 514,603 514,612 514,615 514,610

¥2,946,362 ¥2,830,313 ¥2,235,812 ¥2,165,695 ¥2,173,989 $28,127,983137,446 81,246 20,897 47,363 53,113 2,270,890

1,698,063 1,624,856 1,575,065 1,489,194 1,463,014 16,750,06872,569 70,722 37,151 37,551 36,580

¥ 158.05 ¥ 229.11 ¥ 164.97 ¥ 145.17 ¥ 177.38 $ 0.5725.00 22.50 22.50 22.50 22.50 0.21

3,300.45 3,157.55 3,060.68 2,893.82 2,842.91 32.774,170 4,640 4,520 4,480 4,960 40.85

1.26 1.47 1.48 1.55 1.7426.38 20.25 27.40 30.86 27.96

4.9 7.4 5.5 5.1 6.42.8 4.7 3.9 3.4 4.3

Year ended March 31

2002 2001 2000 1999 1998 2007

(Millions of yen) (Thousands ofU.S. dollars)

(Note 5)

Consolidated Balance Sheets

FUJIFILM

Annual Report 2007

44

Current assets:Cash and cash equivalents ¥ 384,719 ¥ 218,598 $ 3,260,331Marketable securities (Notes 4 and 9) 48,536 69,829 411,322Notes and accounts receivable (Note 5):

Trade and finance 597,985 548,586 5,067,670Affiliated companies (Note 7) 23,952 33,272 202,983Allowance for doubtful receivables (16,345) (15,543) (138,517)

Inventories (Note 6) 393,594 385,463 3,335,542Deferred income taxes (Note 11) 100,440 96,030 851,186Prepaid expenses and other 52,368 36,225 443,797

Total current assets 1,585,249 1,372,460 13,434,314

Investments and long-term receivables:Investments in and advances to affiliated companies (Note 7) 44,782 54,283 379,508Investment securities (Notes 4 and 9) 336,886 310,152 2,854,966Long-term finance and other receivables (Note 5) 106,979 102,773 906,602Allowance for doubtful receivables (3,975) (4,357) (33,686)

Total investments and long-term receivables 484,672 462,851 4,107,390

Property, plant and equipment:Land 92,400 77,469 783,051Buildings 634,045 602,585 5,373,263Machinery and equipment 1,674,487 1,647,474 14,190,568Construction in progress 44,444 41,742 376,644

2,445,376 2,369,270 20,723,526Less accumulated depreciation (1,672,344) (1,617,885) (14,172,407)

Net property, plant and equipment 773,032 751,385 6,551,119

Other assets:Goodwill, net (Notes 8 and 17) 257,866 233,547 2,185,305Other intangible assets, net (Notes 8, 10 and 17) 59,397 52,767 503,364Deferred income taxes (Note 11) 53,798 38,217 455,915Other (Note 10) 105,088 116,264 890,576

Total other assets 476,149 440,795 4,035,160

Total assets ¥3,319,102 ¥3,027,491 $28,127,983

March 31

Assets 2007 2006 2007

(Millions of yen) (Thousands of U.S. dollars)

(Note 3)


U.S. dollar amounts presented are translated from yen, for convenience only, at the rate of ¥118=US$1, the exchange rate prevailing on March 31, 2007.

FUJIFILM

Annual Report 2007

45

March 31

Liabilities and shareholders’ equity 2007 2006 2007


(Note 3)Current liabilities:

Short-term debt (Note 9) ¥ 106,043 ¥ 99,088 $ 898,669Notes and accounts payable:

Trade 279,470 255,423 2,368,390Construction 49,548 49,764 419,898Affiliated companies (Note 7) 4,887 7,322 41,415

Accrued income taxes (Note 11) 41,034 36,547 347,746Accrued liabilities (Notes 10 and 18) 225,848 214,993 1,913,966Other current liabilities (Note 11) 74,534 59,769 631,645

Total current liabilities 781,364 722,906 6,621,729

Long-term debt (Notes 9 and 16) 267,965 74,329 2,270,890

Accrued pension and severance costs (Note 10) 84,510 44,215 716,186

Deferred income taxes (Note 11) 54,268 64,348 459,898

Customers’ guarantee deposits and other (Note 7) 42,459 38,647 359,822

Minority interests in subsidiaries 112,028 119,549 949,390

Commitments and contingent liabilities (Note 14)

Shareholders’ equity (Note 12):Common stock, without par value:

Authorized: 800,000,000 sharesIssued: 514,625,728 shares 40,363 40,363 342,059

Additional paid-in capital 68,412 68,412 579,763Retained earnings 1,840,168 1,818,610 15,594,644Accumulated other comprehensive income (loss) (Notes 10 and 13) 40,950 52,917 347,034Treasury stock, at cost(3,509,582 shares in 2007; 4,403,655 shares in 2006) (13,385) (16,805) (113,432)

Total shareholders‘ equity 1,976,508 1,963,497 16,750,068

Total liabilities and shareholders‘ equity ¥3,319,102 ¥3,027,491 $28,127,983

See notes to consolidated financial statements.

Consolidated Statements of Income

FUJIFILM

Annual Report 2007

46

Year ended March 31

2007 2006 2005 2007


(Note 3)Revenue:

Sales ¥2,399,636 ¥2,300,842 ¥2,172,003 $20,335,898Rentals 382,890 366,653 355,371 3,244,831

2,782,526 2,667,495 2,527,374 23,580,729

Cost of sales:Sales 1,478,828 1,435,757 1,365,601 12,532,440Rentals 159,509 158,047 145,080 1,351,771

1,638,337 1,593,804 1,510,681 13,884,211Gross profit 1,144,189 1,073,691 1,016,693 9,696,518

Operating expenses:Selling, general and administrative (Note 10) 760,042 735,058 767,363 6,441,034Research and development 177,004 182,154 168,017 1,500,034Restructuring and other charges (Note 18) 94,081 86,043 — 797,297Subsidy related to transfer of substitutional portion of employee pension fund liabilities (Note 10) — — (83,129) —

Operating income 113,062 70,436 164,442 958,153

Other income (expenses):Interest and dividend income 11,376 8,133 6,080 96,407Interest expense (6,351) (3,886) (4,668) (53,822)Foreign exchange gains, net 6,746 7,526 1,862 57,169Decline in value of investment securities (23,946) (122) (304) (202,932)Other, net 2,377 (2,472) (5,066) 20,144

(9,798) 9,179 (2,096) (83,034)Income before income taxes 103,264 79,615 162,346 875,119

Income taxes (Note 11):Current 62,910 52,756 55,083 533,137Deferred (3,377) (17,732) 8,806 (28,619)

59,533 35,024 63,889 504,518Income before minority interests and equity in net earnings of affiliated companies 43,731 44,591 98,457 370,601

Minority interests (12,643) (12,785) (18,103) (107,144)Equity in net earnings of affiliated companies 3,358 5,210 4,146 28,458Net income ¥ 34,446 ¥ 37,016 ¥ 84,500 $ 291,915

(Yen) (U.S. dollars)(Note 3)

Amounts per share of common stock:Net income (Note 15) Basic ¥ 67.46 ¥ 72.65 ¥ 164.78 $ 0.57

Diluted 65.04 72.65 164.78 0.55Cash dividends declared 25.00 25.00 25.00 0.21



Consolidated Statements of Changes in Shareholders’ Equity

FUJIFILM

Annual Report 2007

47


Balance at March 31, 2004 ¥ 40,363 ¥ 68,135 ¥1,722,692 ¥ (76,121) ¥ (5,187) ¥1,749,882

Comprehensive income:Net income — — 84,500 — — 84,500Net increase in unrealized gains on securities (Note 13) — — — 2,948 — 2,948Foreign currency translation adjustments (Note 13) — — — 12,669 — 12,669Minimum pension liability adjustments (Note 13) — — — 26,801 — 26,801Change in net unrealized gains (losses) on derivatives (Note 13) — — — 178 — 178

Net comprehensive income 127,096Purchases of stock for treasury — — — — (15,370) (15,370)Sales of stock from treasury — — (25) — 301 276Dividends applicable to earnings of the year — — (12,782) — — (12,782)Balance at March 31, 2005 40,363 68,135 1,794,385 (33,525) (20,256) 1,849,102

Comprehensive income:Net income — — 37,016 — — 37,016Net increase in unrealized gains on securities (Note 13) — — — 27,311 — 27,311Foreign currency translation adjustments (Note 13) — — — 37,323 — 37,323Minimum pension liability adjustments (Note 13) — — — 21,822 — 21,822Change in net unrealized gains (losses) on derivatives (Note 13) — — — (14) — (14)

Net comprehensive income 123,458Purchases of stock for treasury — — — — (80) (80)Sales of stock from treasury — — (46) — 3,531 3,485Dividends applicable to earnings of the year — — (12,745) — — (12,745)Other — 277 — — — 277Balance at March 31, 2006 40,363 68,412 1,818,610 52,917 (16,805) 1,963,497

Comprehensive income:Net income — — 34,446 — — 34,446Net decrease in unrealized gains on securities (Note 13) — — — (6,888) — (6,888)Foreign currency translation adjustments (Note 13) — — — 27,539 — 27,539Minimum pension liability adjustments (Note 13) — — — (13,729) — (13,729)Change in net unrealized gains (losses) on derivatives (Note 13) — — — (2) — (2)

Net comprehensive income 41,366Adjustment to initially apply SFAS 158,net of tax (Note 10) — — — (18,887) — (18,887)Purchases of stock for treasury — — — — (711) (711)Sales of stock from treasury — — (122) — 4,131 4,009Dividends applicable to earnings of the year — — (12,766) — — (12,766)Balance at March 31, 2007 ¥ 40,363 ¥ 68,412 ¥1,840,168 ¥ 40,950 ¥(13,385) ¥1,976,508


Balance at March 31, 2006 $342,059 $579,763 $15,411,949 $448,449 $(142,415) $16,639,805Comprehensive income:

Net income — — 291,915 — — 291,915Net decrease in unrealized gains on securities (Note 13) — — — (58,373) — (58,373)Foreign currency translation adjustments (Note 13) — — — 233,381 — 233,381Minimum pension liability adjustments (Note 13) — — — (116,347) — (116,347)Change in net unrealized gains (losses) on derivatives (Note 13) — — — (17) — (17)

Net comprehensive income 350,559Adjustment to initially apply SFAS 158,net of tax (Note 10) — — — (160,059) — (160,059)Purchases of stock for treasury — — — — (6,025) (6,025)Sales of stock from treasury — — (1,034) — 35,008 33,974Dividends applicable to earnings of the year — — (108,186) — — (108,186)Balance at March 31, 2007 $342,059 $579,763 $15,594,644 $347,034 $(113,432) $16,750,068

AccumulatedCommon Additional Retained other Treasury Total

stock paid-in earnings comprehensive stock shareholders’capital income (loss) equity

(Millions of yen)


Consolidated Statements of Cash Flows

FUJIFILM

Annual Report 2007

48


Year ended March 31

2007 2006 2005 2007


(Note 3)Operating activitiesNet income ¥ 34,446 ¥ 37,016 ¥ 84,500 $ 291,915Adjustments to reconcile net income to net cash provided

by operating activities:Depreciation and amortization 215,429 225,434 182,286 1,825,669Impairment losses for long-lived assets and goodwill (Note 18) 12,202 42,121 — 103,407Decline in value of investment securities 23,946 122 304 202,932Deferred income taxes (3,377) (17,732) 8,806 (28,619)Minority interests 12,643 12,785 18,103 107,144Equity in net earnings of affiliated companies, less dividends received (1,987) (3,899) (2,031) (16,839)Subsidy related to transfer of substitutional portion of employee pension fund liabilities (Note 10) — — (83,129) —

Changes in operating assets and liabilities:Notes and accounts receivable (9,637) (7,223) 19,593 (81,669)Inventories 10,976 15,118 (5,964) 93,017Notes and accounts payable—trade 12,700 (33,486) (23,320) 107,627Accrued income taxes and other liabilities 1,326 (9,909) 20,869 11,237

Other (11,391) 12,211 (656) (96,533)Net cash provided by operating activities 297,276 272,558 219,361 2,519,288

Investing activitiesPurchases of property, plant and equipment (172,572) (186,980) (150,915) (1,462,475)Purchases of software (20,483) (16,693) (33,050) (173,585)Proceeds from sales and maturities of marketable

and investment securities and other investments 109,116 83,629 40,733 924,712Purchases of marketable and investment securities

and other investments (146,911) (58,757) (85,287) (1,245,008)(Increase) decrease in investments in and advances to

affiliated companies 1,383 (19,237) (1,156) 11,720Acquisitions of businesses and minority interests, net of cash acquired (45,741) (40,587) (58,010) (387,636)Other (22,793) (33,504) (24,716) (193,160)Net cash used in investing activities (298,001) (272,129) (312,401) (2,525,432)

Financing activitiesProceeds from long-term debt 200,568 1,728 1,940 1,699,729Repayments of long-term debt (29,725) (21,452) (19,085) (251,907)Increase (decrease) in short-term debt, net 6,120 (43,119) (31,042) 51,864Cash dividends paid (12,754) (12,734) (12,831) (108,085)Subsidiaries’ cash dividends paid to minority interests (5,220) (4,941) (7,091) (44,237)Net sales (purchases) of stock for treasury (702) 209 (15,297) (5,949)Net cash provided by (used in) financing activities 158,287 (80,309) (83,406) 1,341,415

Effect of exchange rate changes on cash and cash equivalents 8,559 10,321 2,839 72,534Net increase (decrease) in cash and cash equivalents 166,121 (69,559) (173,607) 1,407,805Cash and cash equivalents at beginning of year 218,598 288,157 461,764 1,852,526Cash and cash equivalents at end of year ¥384,719 ¥218,598 ¥288,157 $ 3,260,331

Supplemental disclosures of cash flow informationCash paid for:

Interest ¥ 6,514 ¥ 5,640 ¥ 6,838 $ 55,203Income taxes 63,302 50,811 69,460 536,458


Notes to Consolidated Financial Statements

FUJIFILM

Annual Report 2007

49

FUJIFILM Holdings Corporation (the “Company”) is engaged in imaging, information and documentsolutions. “Imaging Solutions” develops, manufactures, markets and services color films, digital cam-eras, photofinishing equipment, color paper, chemicals and services for photofinishing and related prod-ucts. “Information Solutions” develops, manufactures, markets and services equipment and materialsfor medical systems and life sciences, equipment and materials for graphic arts, flat panel display materi-als, recording media, optical devices, electronic materials, inkjet materials and related products.“Document Solutions” develops, manufactures, markets and services office copy machines/multifunc-tion devices, printers, production systems and services, paper, consumables, office services and otherrelated products and services. The Company and its subsidiaries operate throughout the world, generat-ing approximately 53% of its worldwide revenue outside Japan, predominantly in North America,Europe and Asia. The Company’s principal manufacturing operations are located in Japan, the UnitedStates of America, Brazil, Germany, the Netherlands, Singapore and China.

On October 1, 2006, for the purpose of establishing a new group management structure and aimingtoward new growth strategies, Fuji Photo Film Co., Ltd. moved to a holding company structure andchanged its name to “FUJIFILM Holdings Corporation.” The former business of Fuji Photo Film Co., Ltd.was transferred to the newly created operating company “FUJIFILM Corporation.”

The Company and its domestic subsidiaries maintain their records and prepare their financial statementsin accordance with accounting principles generally accepted in Japan. The Company’s foreign sub-sidiaries maintain their records and prepare their financial statements in conformity with the conventionsof their countries of domicile. Certain reclassifications and adjustments have been incorporated in theaccompanying consolidated financial statements to conform them to accounting principles generallyaccepted in the United States of America. These adjustments have not been recorded in the Company’sor subsidiaries’ statutory books of account.

Significant accounting policies, after reflecting the adjustments referred to above, are summarized asfollows:

Principles of Consolidation and Accounting for Investments in AffiliatedCompaniesThe consolidated financial statements include the accounts of the Company and all entities that theCompany directly or indirectly controls. All significant intercompany transactions and accounts havebeen eliminated.

The Company’s investments in affiliated companies (20% to 50% owned companies), in whichthe ability to exercise significant influence exists, are accounted for by the equity method.Consolidated net income includes the Company’s equity in the current net earnings or losses of suchcompanies after the elimination of unrealized intercompany profits.

Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally acceptedin the United States of America requires management to make estimates and assumptions thataffect the amounts reported in the financial statements and accompanying notes. Significant itemssubject to such estimates and assumptions include the valuation of trade receivables, inventories,and deferred income tax assets, the valuation and determination of useful lives and depreciation oramortization method for property, plant and equipment and intangible assets, and assumptionsrelated to the estimation of actuarial determined employee benefit obligations. Actual results coulddiffer from those estimates.

Foreign Currency Translations The Company’s foreign subsidiaries generally use the local currency as their functional currency.Accordingly, assets and liabilities are translated into the reporting currency using exchange rates ineffect at the balance sheet date and income and expenses are translated using average exchangerates prevailing during the year. Adjustments resulting from this translation process are accumulatedin other comprehensive income (loss), a separate component of shareholders’ equity.

Assets and liabilities denominated in currencies other than the functional currency are remeasuredinto the functional currency using exchange rates in effect at the respective balance sheet dates withthe resulting gains or losses included in operations.

2. Summary ofSignificantAccountingPolicies

1. Nature of Operations

FUJIFILM Holdings Corporation and Subsidiaries March 31, 2007

FUJIFILM

Annual Report 2007

50

Cash EquivalentsThe Company considers all highly liquid investments which are readily convertible into cash and thathave original maturities of three months or less to be cash equivalents.

Marketable Securities and Investment SecuritiesThe Company has designated their marketable securities and investment securities as available-for-sale, which are carried at their fair value with changes in unrealized gains or losses reported in othercomprehensive income (loss), net of applicable taxes. The Company records an impairment chargeto earnings when a decline in value of the marketable security is deemed to be other-than-tempo-rary. In determining whether such a decline is other-than-temporary, the Company evaluates variousfactors including the length of time, the extent to which the fair value has been less than cost, thefinancial condition and near-term prospects of the investee as well as the Company’s intent andability to retain the investment for a period of time sufficient to allow any expected recovery in fairvalue. The cost of securities sold is based on the moving-average-cost method. Dividends on avail-able-for-sale securities are included in “Interest and dividend income” in the accompanying consoli-dated statements of income.

Allowance for Doubtful ReceivablesAllowances for doubtful trade, finance and other receivables are determined based on a combina-tion of historical experience, aging analysis and any specific factors affecting customer accounts.

InventoriesInventories are valued at the lower of cost or market with cost being determined principally by themoving-average method. Periodically, the Company reviews inventories for obsolete, slow-movingor excess amounts and if required, provides an allowance to recognize their estimated net realizablevalues.

Property, Plant and Equipment and DepreciationProperty, plant and equipment is carried at cost, less accumulated depreciation computed primarily bythe declining-balance method and, for certain foreign subsidiaries, by the straight-line method.Estimated useful lives for buildings are primarily 15 to 50 years and for machinery and equipment are 2to 15 years.

Machinery and equipment includes machines rented to customers under operating leases with acost and accumulated depreciation of ¥99,256 million ($841,153 thousand) and ¥70,950 million($601,271 thousand) as of March 31, 2007 and ¥88,471 million and ¥57,063 million as of March 31,2006, respectively.

Goodwill and Other Intangible AssetsGoodwill represents the excess of the purchase price over the fair value of the net assets acquired.Other intangible assets principally consist of costs allocated to technology-based intangibles, cus-tomer-related intangibles and long-term product supply agreements.

Under Statement of Financial Accounting Standards Board (“SFAS”) No.142 “Goodwill and OtherIntangible Assets,” goodwill and other indefinite lived intangible assets are tested annually, as ofJanuary 1, for impairment. Impairment tests for goodwill are performed based on the present valueof estimated future cash flows of each reporting unit. The discount rate used is based on the report-ing unit’s weighted average cost of capital. In addition to the annual impairment test, an interimtest for goodwill impairment would be performed if events occur or circumstances indicate that thecarrying value may not be recoverable. Intangible assets other than those with an indefinite life areamortized on a straight-line basis over their estimated useful lives.

FUJIFILM

Annual Report 2007

51

Capitalized Software Costs The Company capitalizes certain software development costs in accordance with Statement of Position98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” TheCompany also follows accounting guidelines as specified in SFAS No. 86, “Accounting for the Costs ofComputer Software to Be Sold, Leased, or Otherwise Marketed.” Capitalized costs are amortized on astraight-line basis over the estimated useful lives of the software of 3 to 5 years. Total capitalized soft-ware costs and accumulated amortization amounted to ¥170,272 million ($1,442,983 thousand) and¥82,373 million ($698,076 thousand), respectively, as of March 31, 2007 and ¥162,126 million and¥66,889 million, respectively, as of March 31, 2006. Capitalized software costs to be sold and accu-mulated amortization, included in the above, amounted to ¥30,695 million ($260,127 thousand) and¥17,827 million ($151,076 thousand), respectively, as of March 31, 2007 and ¥26,094 million and¥14,505 million, respectively, as of March 31, 2006. Capitalized software costs are included in otherassets.

Impairment of Long-lived AssetsThe Company reviews long-lived assets, excluding goodwill and other intangible assets not beingamortized, for impairment whenever events or changes in business circumstances indicate the carry-ing amount of the assets may not be fully recoverable. If an evaluation is required, the estimatedfuture undiscounted cash flows associated with the assets would be compared to the assets’ carry-ing amount to determine if a writedown is required. If this evaluation indicates that the assets willnot be recoverable, the carrying value of the assets would be reduced to their estimated fair value.In determining the fair value, the Company uses quoted market prices in active markets or other val-uation methods, if quoted market prices are unavailable, primarily based on the estimated discount-ed future cash flows expected to result from the use of the assets and their eventual disposition.

Long-lived assets to be disposed of by sale are evaluated at the lower of carrying amount or fairvalue less cost to sell.

Revenue RecognitionThe Company recognizes revenue when it is realized or realizable and earned. The Company consid-ers revenue realized or realizable and earned when it has persuasive evidence of an arrangement,the products or services have been provided to customers, the sales price is fixed or determinable,and collectibility is reasonably assured.

The above conditions are generally met when products are delivered to customers for productsales, services are performed or at the inception of leases for revenue from sales-type leases. Interestincome on sales-type leases is recognized using the effective interest method with the allocationbased on the net investment in outstanding leases and is included in revenue. Rentals from operat-ing leases are recognized as earned over the respective lease terms.

Costs incurred by the Company in connection with sales incentives related to purchase or promo-tion of the Company’s products are classified as reduction of revenue in accordance with EmergingIssues Task Force (“EITF”) 01-9, “Accounting for Consideration Given by a Vendor to a Customer(Including a Reseller of the Vendor’s Products).” Such costs include the estimated cost of promotion-al discount, dealer price protection, dealer volume rebates and cash discounts. These costs are main-ly based on claims from customers/dealers or amount calculated in accordance with agreements.

The Company sells certain products and services under bundled contract agreements which con-tain multiple deliverable elements as defined in EITF 00-21, “Revenue Arrangements with MultipleDeliverables.” The Company has recognized revenue from the sale of such products upon deliveryand acceptance by customers and such services upon customers’ usage.

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Product WarrantiesThe Company provides product warranties for certain of its products. These warranties generallyextend for periods of one year from the date of sale. A liability for expected warranty costs andadditional service actions is accrued at the time that the related revenue is recognized. In estimatingthe warranty liability, historical experience is considered.

Shipping and Handling CostsShipping and handling costs of ¥75,232 million ($637,559 thousand), ¥67,676 million and ¥60,511million for the years ended March 31, 2007, 2006 and 2005, respectively, are included in selling,general and administrative expenses in the consolidated statements of income.

Advertising CostsAdvertising costs are expensed as incurred and included in selling, general and administrativeexpenses. Advertising expenses amounted to ¥34,928 million ($296,000 thousand), ¥39,380 millionand ¥47,561 million for the years ended March 31, 2007, 2006 and 2005, respectively.

Income TaxesIncome taxes have been provided using the liability method in accordance with SFAS No. 109,“Accounting for Income Taxes.”

Deferred tax assets and liabilities are determined based on the differences between the financialreporting and the tax bases of assets and liabilities and are measured using the enacted tax ratesand laws which will be in effect when the differences are expected to reverse. A valuation allowanceis recognized to reduce the deferred tax assets to the amount that is considered more likely than notto be realized.

Consumption TaxesRevenues, costs and expenses on the consolidated statements of income do not include consump-tion taxes.

Derivative Financial InstrumentsThe Company recognizes all derivative financial instruments, such as interest rate swaps, cross cur-rency interest rate swaps, forward foreign exchange contracts, and currency swaps in the consoli-dated financial statements at fair value regardless of the purpose or intent for holding theinstrument. Generally, changes in fair values of derivatives accounted for as fair value hedges arerecorded in income along with the portions of the changes in the fair values of the hedged itemsthat relate to the hedged risks. Changes in fair values of derivatives accounted for as cash flowhedges, to the extent they are effective as hedges, are recorded in other comprehensive income(loss), net of deferred taxes. Changes in fair values of derivatives, which are not designated or quali-fied as hedges, are reported in income.

Net Income per ShareThe amounts of basic net income per share are based on the weighted average number of shares ofcommon stock outstanding during the year.

Diluted net income per share reflects the potential dilution and has been computed on the basisthat all conversion rights of the Euroyen convertible bonds were exercised and outstanding.

ReclassificationCertain reclassifications to prior years’ consolidated financial statements and related footnoteamounts have been made to conform with the presentation in the current year.

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New Accounting StandardsIn June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes, and interpretation of FASB Statement No. 109” (“FIN48”). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing the recognitionthreshold a tax position is required to meet before being recognized in the financial statements. Italso provides guidance on derecognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15,2006 and is required to be adopted by the Company in the year beginning April 1, 2007. The adop-tion of FIN 48 is not expected to have a material impact on the results of operations and the finan-cial condition of the Company.

In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS157 defines fair value, establishes a market-based framework for measuring fair value, and expandsdisclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning afterNovember 15, 2007 and is required to be adopted by the Company in the year beginning April 1,2008. The Company is evaluating the impact that the adoption of SFAS 157 will have on the resultsof operations and the financial condition of the Company.

In September 2006, FASB issued SFAS No. 158, “Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans” (“SFAS 158”). SFAS 158 requires the recognition of thefunded status of defined benefit pension and other postretirement plans in the balance sheet andthe recognition in other comprehensive income (loss) of actuarial gains or losses, prior service costsor credits, and transition assets or obligations. These requirements of SFAS 158 were effective forthe fiscal years ending after December 15, 2006 and were adopted by the Company in the year end-ing March 31, 2007. The incremental effects of adopting SFAS 158 on the accompanying consoli-dated financial statements at March 31, 2007 and for the year then ended are disclosed in Note 10“Pension and Severance Plans”.

In addition, SFAS 158 requires plan assets and benefit obligations to be measured as of the dateof the fiscal year-end. This requirement of SFAS 158 is effective for fiscal years ending afterDecember 15, 2008 and is not expected to have a material impact on the results of operations andthe financial condition of the Company as the Company already uses a measurement date of March31 for the majority of its plans.

In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities – Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159permits entities to choose to measure certain financial assets and liabilities at fair value. Unrealizedgains and losses on items for which the fair value option has been elected will be reported in earn-ings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning afterNovember 15, 2007 and is required to be adopted by the Company in the year beginning April 1,2008. The Company is evaluating the impact that the adoption of SFAS 159 will have on the resultsof operations and the financial condition of the Company.

Solely for the convenience of the reader and as a matter of arithmetical computation only, the 2007amounts in the consolidated financial statements have been translated from Japanese yen into U.S.dollars at the rate of ¥118 = U.S.$1.00, the exchange rate prevailing on March 31, 2007. The trans-lation should not be construed as a representation that Japanese yen could be converted into U.S.dollars at this or any other rate.

3. U.S. Dollar Amounts

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The cost, gross unrealized gains, gross unrealized losses and estimated fair value of the available-for-sale securities by major security type at March 31, 2007 and 2006 are summarized as follows:

2007

Gross GrossCost unrealized unrealized Estimated

gains losses fair value

(Millions of yen)

Marketable securities:Government debt securities ¥ 22,330 ¥ 3 ¥ 36 ¥ 22,297Corporate debt securities 26,269 1 31 26,239

¥ 48,599 ¥ 4 ¥ 67 ¥ 48,536

Investment securities:Government debt securities ¥ 50,115 ¥ 118 ¥ 86 ¥ 50,147Corporate debt securities 87,485 150 529 87,106Equity securities 107,869 82,829 627 190,071

¥245,469 ¥83,097 ¥1,242 ¥327,324

2006



(Millions of yen)

Marketable securities:Government debt securities ¥ 20,042 ¥ 2 ¥ 9 ¥ 20,035Corporate debt securities 49,771 73 50 49,794

¥ 69,813 ¥ 75 ¥ 59 ¥ 69,829

Investment securities:Government debt securities ¥ 37,713 ¥ 6 ¥ 276 ¥ 37,443Corporate debt securities 58,253 98 1,309 57,042Equity securities 83,502 95,355 397 178,460

¥179,468 ¥95,459 ¥1,982 ¥272,945

2007



(Thousands of U.S. dollars)

Marketable securities:Government debt securities $ 189,237 $ 26 $ 305 $ 188,958Corporate debt securities 222,619 8 263 222,364

$ 411,856 $ 34 $ 568 $ 411,322Investment securities:

Government debt securities $ 424,703 $ 1,000 $ 728 $ 424,975Corporate debt securities 741,398 1,271 4,483 738,186Equity securities 914,144 701,941 5,314 1,610,771

$2,080,245 $704,212 $10,525 $2,773,932

Gross realized losses of available-for-sale securities and proceeds from and gross realized gains onsales of available-for-sale securities for each of the three years in the period ended March 31, 2007were insignificant.

Net unrealized holding gains on available-for-sale securities, net of the related taxes, decreased by¥6,888 million ($58,373 thousand) and increased by ¥27,311 million and ¥2,948 million for theyears ended March 31, 2007, 2006 and 2005, respectively.

The cost and estimated fair value of debt securities at March 31, 2007, by contractual maturity,are shown below. The actual maturities may differ from the contractual maturities because theissuers of the debt securities may have the right to prepay the obligations without penalties.

4. Investments in Debt and EquitySecurities

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Estimated EstimatedCost fair value Cost fair value


Due in one year or less ¥ 48,599 ¥ 48,536 $ 411,856 $ 411,322Due after one year through five years 130,434 130,121 1,105,372 1,102,720Due after five years through ten years 1,130 1,141 9,576 9,670Due after ten years 6,036 5,991 51,153 50,771

¥186,199 ¥185,789 $1,577,957 $1,574,483

At March 31, 2007, estimated fair value and gross unrealized losses of the available-for-sale secu-rities with unrealized losses, aggregated by the period of time for which individual investment secu-rities have been in a continuous unrealized loss position are summarized as follows. At March 31,2006, substantially all of the available-for-sale securities with unrealized losses had been in a contin-uous unrealized loss position for less than 12 months.

Less than 12 months 12 months or greater Total

Estimated Gross

Estimated Gross

EstimatedGross

fair valueunrealized



losses losses losses(Millions of yen)

Government debt securities ¥ — ¥ — ¥34,922 ¥122 ¥ 34,922 ¥ 122Corporate debt securities 39,231 79 48,077 481 87,308 560Equity securities 12,238 439 12,786 188 25,024 627Total ¥51,469 ¥518 ¥95,785 ¥791 ¥147,254 ¥1,309

Less than 12 months 12 months or greater Total

EstimatedGross

Estimated Gross

EstimatedGross




losses losses losses(Thousands of U.S. dollars)

Government debt securities $ — $ — $295,949 $1,033 $ 295,949 $ 1,033Corporate debt securities 332,466 670 407,432 4,076 739,898 4,746Equity securities 103,712 3,720 108,356 1,594 212,068 5,314Total $436,178 $4,390 $811,737 $6,703 $1,247,915 $11,093

The aggregate cost of non-marketable equity securities accounted for under the cost methodtotaled ¥9,562 million ($81,034 thousand) and ¥37,207 million at March 31, 2007 and 2006,respectively. Investments with an aggregate cost of ¥9,546 million ($80,898 thousand) at March 31,2007 were not evaluated for impairment because (a) the Company did not estimate the fair value ofthose investments as it was not practicable to estimate the fair value of the investment and (b) theCompany did not identify any events or changes in circumstances that might have had a significantadverse effect on the fair value of those investments.

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Finance receivables are recorded on sales-type leases of the Company’s printing and copyingmachines. The current portion of finance receivables and amounts due after one year are included innotes and accounts receivable – trade and finance and long-term finance and other receivables,respectively. These receivables generally mature over one to seven years. The components of financereceivables as of March 31, 2007 and 2006 are as follows:

2007 2006 2007(Millions of yen) (Thousands of

U.S. dollars)

Gross receivables ¥128,392 ¥103,591 $1,088,067Unearned income (20,139) (16,314) (170,669)Allowance for doubtful receivables (3,627) (2,544) (30,737)Finance receivables, net ¥104,626 ¥ 84,733 $ 886,661

The future minimum lease payments to be received under sales-type leases as of March 31, 2007are summarized as follows:

(Millions (Thousands ofof yen) U.S. dollars)

Year ending March 31;2008 ¥ 49,137 $ 416,4152009 32,337 274,0422010 24,814 210,2882011 15,906 134,7972012 5,914 50,1192013 and thereafter 284 2,407

Total future minimum lease payments ¥128,392 $1,088,068

Inventories at March 31, 2007 and 2006 consisted of the following:


U.S. dollars)

Finished goods ¥246,074 ¥234,725 $2,085,373Work in process 62,045 66,737 525,805Raw materials and supplies 85,475 84,001 724,364

¥393,594 ¥385,463 $3,335,542

Investments in affiliated companies accounted for by the equity method amounted to ¥41,164 mil-lion ($348,847 thousand) and ¥50,347 million at March 31, 2007 and 2006, respectively. These affil-iates primarily operate in the Imaging Solutions, Information Solutions and Document Solutionsbusinesses. The combined financial position and results of operations of the Company’s affiliatesaccounted for by the equity method are summarized as follows:

March 31


U.S. dollars)

Current assets ¥109,948 ¥120,707 $ 931,762Noncurrent assets 54,962 59,455 465,780Total assets ¥164,910 ¥180,162 $1,397,542

Current liabilities ¥ 60,344 ¥ 75,747 $ 511,390Long-term liabilities 22,084 21,724 187,152Shareholders’ equity 82,482 82,691 699,000Total liabilities and shareholders’ equity ¥164,910 ¥180,162 $1,397,542

7. Investmentsin AffiliatedCompanies

6. Inventories

5. Finance Receivables

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Year ended March 31

2007 2006 2005 2007(Millions of yen) (Thousands of

U.S. dollars)

Revenue ¥243,229 ¥275,295 ¥252,345 $2,061,263Net income 7,496 8,020 3,008 63,525

Transactions with affiliated companies for the years ended March 31, 2007, 2006 and 2005 aresummarized as follows:


U.S. dollars)

Revenue ¥99,668 ¥105,397 ¥96,047 $844,644Purchases 16,379 40,636 43,568 138,805Dividends received 1,371 1,311 2,115 11,619

Customers’ guarantee deposits received from affiliated companies amounted to ¥1,293 million($10,958 thousand) and ¥765 million at March 31, 2007 and 2006, respectively.

The changes in goodwill by operating segment for the years ended March 31, 2007 and 2006 were as follows:

Imaging Information Document Solutions Solutions Solutions Total

(Millions of Yen)

As of March 31, 2005 ¥9,658 ¥25,862 ¥192,255 ¥227,775Acquired — 14,664 — 14,664Impaired (9,834) — — (9,834)Translation and other 176 766 — 942

As of March 31, 2006 — 41,292 192,255 233,547Acquired — 20,852 3,278 24,130Impaired — — — —Translation and other — 189 — 189As of March 31, 2007 ¥ — ¥62,333 ¥195,533 ¥257,866

Imaging Information Document Solutions Solutions Solutions Total


As of March 31, 2006 $ — $349,932 $1,629,280 $1,979,212Acquired — 176,712 27,779 204,491Impaired — — — —Translation and other — 1,602 — 1,602As of March 31, 2007 $ — $528,246 $1,657,059 $2,185,305

Based on the impairment test of goodwill for the year ended March 31, 2006, the Company rec-ognized an impairment charge of ¥9,834 million for goodwill in the Imaging Solutions segment.This mainly resulted from the revised earnings forecast of future operations for the segment reflect-ing the recent severe business environment. The fair value of the reporting unit was determinedbased on the estimated discounted future net cash flows.

8. Goodwill and Other IntangibleAssets

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Intangible assets subject to amortization at March 31, 2007 and 2006 are as follows:

2007 2006 2007Gross Gross Gross

carrying Accumulated carrying Accumulated carrying Accumulatedamount amortization amount amortization amount amortization


Technology-based ¥49,963 ¥24,546 ¥ 41,824 ¥19,425 $423,415 $208,017Customer-related 28,312 6,136 24,329 5,136 239,932 52,000Product supply agreements — — 51,593 49,410 — —Other 17,459 5,655 15,422 7,797 147,958 47,924

¥95,734 ¥36,337 ¥133,168 ¥81,768 $811,305 $307,941

The difference between the above amounts disclosed and the amounts of other intangible assetson the balance sheet at March 31, 2006 include intangible assets of ¥1,367 million, associated withthe Company’s defined benefit pension plans which were recorded in accordance with SFAS No. 87,“Employers’ Accounting for Pensions.”

During the years ended March 31, 2007 and 2006, the Company recognized impairment chargesof ¥4,664 million ($39,525 thousand) and ¥2,850 million, respectively, in amortizable intangibles,which are included in “Restructuring and other charges” in the accompanying consolidated state-ments of income. See Note 18. “Restructuring and Other Charges.”

The weighted-average amortization period for technology-based intangibles and customer-relat-ed intangibles is 9 years. The aggregate amortization expense for intangible assets for the yearsended March 31, 2007, 2006 and 2005 were ¥14,166 million ($120,051 thousand), ¥17,244 mil-lion, and ¥10,939 million, respectively.

The estimated aggregate amortization expense for intangible assets subject to amortization forthe next five years is as follows:


Year ending March 31;2008 ¥ 10,410 $88,2202009 9,968 84,4752010 7,083 60,0252011 6,292 53,3222012 5,625 47,669

Short-term debt at March 31, 2007 and 2006 consisted of the following:


U.S. dollars)

Borrowings from banks ¥ 48,806 ¥38,217 $413,610Commercial paper 45,670 32,000 387,034Current portion of long-term debt 11,567 28,871 98,025

¥106,043 ¥99,088 $898,669

The weighted-average interest rates per annum on bank borrowings and commercial paper out-standing at March 31, 2007 and 2006 were 2.59% and 2.44%, respectively. Short-term debt isprincipally unsecured.

9. Short-term and Long-term Debt

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Long-term debt at March 31, 2007 and 2006 consisted of the following:


U.S. dollars)

Loans, principally from banks and insurance companies, due 2007 to 2011 with interest rates ranging from 0.905% to 6.71% at March 31, 2007 and due 2006 to 2011, with interest rates ranging from 0.545% to 7.5% at March 31, 2006:

Secured ¥ 3,365 ¥ 6,094 $ 28,517Unsecured 37,567 49,313 318,364

Unsecured Euroyen convertible bonds:Libor minus 0.3000% Series A Convertible Bond,due 2011 50,290 — 426,1860.5000% Series B Convertible Bond, due 2011 50,520 — 428,136Libor minus 0.3000% Series A Convertible Bond, due 2013 50,264 — 425,9660.7500% Series B Convertible Bond, due 2013 50,400 — 427,119

Unsecured bonds in Japanese yen:0.6200% yen bonds, due 2006 — 3,000 —0.6475% yen bonds, due 2006 — 7,500 —1.6300% yen bonds, due 2007 5,000 5,000 42,3731.0075% yen bonds, due 2008 6,100 6,100 51,6951.0050% yen bonds, due 2008 2,000 2,000 16,9491.9900% yen bonds, due 2010 10,000 10,000 84,7461.5175% yen bonds, due 2011 3,000 3,000 25,424Yen bonds due 2010 to 2011 with interest rates ranging from 0.98% to 1.43% at March 31, 2007 and Yen bonds due 2006 to 2011 with interest rates ranging from 0.98% to 1.43% at March 31, 2006 850 1,350 7,203

Other 10,176 9,843 86,237279,532 103,200 2,368,915

Portion due within one year (11,567) (28,871) (98,025)¥267,965 ¥ 74,329 $2,270,890

The weighted-average interest rates of long-term loans in the above table were approximately1.67% and 1.57% at March 31, 2007 and 2006, respectively.

The aggregate annual maturities of long-term debt subsequent to March 31, 2007 are summarizedas follows:


Year ending March 31;2008 ¥ 11,567 $ 98,0252009 28,250 239,4072010 2,527 21,4152011 111,884 948,1702012 21,957 186,0762013 and thereafter 103,347 875,822

¥279,532 $2,368,915

Certain bank loans are made under general agreements which provide that security and guaran-tees for present and future indebtedness may be provided upon request of the bank, and that thebank shall have the right to offset cash deposits against obligations that have become due or, in theevent of default, against all obligations due to the bank. Certain of the long-term debt agreementswith lenders other than banks also stipulate that the Company must provide additional securityupon request of the lender.

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At March 31, 2007, certain loans were secured by marketable and investment securities with anet book value of ¥1,245 million ($10,551 thousand).

On April 5, 2006, the Company issued unsecured Euroyen convertible bonds totaling ¥200,000million ($1,694,916 thousand) in a private placement. The bonds consist of ¥50,000 million($423,729 thousand) of series A Euroyen convertible bonds due March 31, 2011 with variable inter-est rates (“2011 Series A convertible bond”), ¥50,000 million ($423,729 thousand) of series BEuroyen convertible bonds due March 31, 2011 with fixed interest rates (“2011 Series B convertiblebond”), ¥50,000 million ($423,729 thousand) of series A Euroyen convertible bonds due March 31,2013 with variable interest rates (“2013 Series A convertible bond”) and ¥50,000 million ($423,729 thousand) of series B Euroyen convertible bonds due March 31, 2013 with fixed interestrates (“2013 Series B convertible bond”).

The period, during which the conversion rights are exercisable, is from April 5, 2006 to March 28,2011 for 2011 Series A convertible bond and 2011 Series B convertible bond. The period, duringwhich the conversion rights are exercisable, is from April 5, 2006 to March 28, 2013 for 2013 SeriesA convertible bond and 2013 Series B convertible bond.

The price to be paid upon exercise of conversion rights per share (“conversion price”) for 2011Series A convertible bond and 2011 Series B convertible bond is ¥5,278 ($44.73). The conversionprice for 2013 Series A convertible bond and 2013 Series B convertible bond is ¥4,901 ($41.53),respectively, both of which are subject to reset as follows:

The conversion price shall be subject to reset on each of March 31, 2009 and March 31, 2010 incase of 2011 Series A convertible bond and 2011 Series B convertible bond, or September 30, 2008,September 30, 2009, September 30, 2010, September 30, 2011 and September 30, 2012 (each a“Reset Date”) in case of 2013 Series A convertible bond and 2013 Series B convertible bond to 90%of the average last reported selling price of common shares of the Company on the Tokyo StockExchange on a trading day (“Closing Price”) for the ten consecutive trading days up to and includ-ing the relevant Reset Date. In case the calculated reset price would be below ¥3,770, that isClosing Price on March 7, 2006 (“Minimum Conversion Price”), the reset conversion price shall bethe Minimum Conversion Price.

The Company may redeem bonds at its option earlier than the stated maturity dates if theClosing Price for each of five consecutive trading days, the last of which occurs not more than 10business days prior to the date upon which the notice of such redemption is first published, exceeds115% of the applicable conversion price in effect on each such trading day. In order to redeem thebonds, the Company has to give not less than 30 nor more than 60 days’ prior notice to the bond-holders.

Employees of domestic subsidiaries of the Company who terminate their employment are entitled,under most circumstances, to lump-sum payments and/or pension payments as described below,determined by reference to their current basic rate of pay, length of service and the conditionsunder which termination occurs.

Certain domestic subsidiaries have funded non-contributory defined benefit pension plans whoseassets are maintained at trust banks and insurance companies and also have defined contributionplans. The funding policy for defined benefit plans is to make actuarially determined contributionsto provide the plans with sufficient assets to meet future benefit payment requirements.

During the year ended March 31, 2007, as a result of implementation of restructuring activities,settlements and curtailments occurred related to the defined benefit pension plans of certain sub-sidiaries of the Company. In connection with these settlements and curtailments, the Company rec-ognized losses of ¥5,146 million ($43,610 thousand), which are included in restructuring and othercharges. Also, the projected benefit obligations and the fair value of the plan assets decreased by¥10,506 million ($89,034 thousand) and ¥10,405 million ($88,178 thousand), respectively. In addi-tion, plan amendments were made for certain other subsidiaries, mainly in the Document Solutionssegment, which decreased the projected benefit obligations by ¥2,788 million ($23,627 thousand).

10. Pension andSeverance Plans

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During the year ended March 31, 2006, certain domestic subsidiaries combined their definedbenefit pension plans with their other defined benefit plans and merged into the Company’s existingdefined benefit plan and defined contribution plan. Under this restructuring of pension and sever-ance plans, the projected benefit obligation decreased by ¥10,916 million, attributable to benefitpayments, and increased by ¥237 million for the plan amendment, which was treated as unrecog-nized prior service cost. In addition, plan amendments were made for certain other subsidiaries,which increased projected benefit obligations by ¥199 million.

Certain of its domestic subsidiaries in the Document Solutions segment had a defined benefitpension plan, which had been funded in conformity with the requirements of the Welfare PensionInsurance Law of Japan. The pension plan consisted of two portions: a governmental welfare con-tributory portion (which would otherwise be provided by the Japanese government) and an addi-tional non-contributory defined benefit portion. In January 2004, the subsidiaries obtained the finalapproval from the Japanese government to be relieved of all past benefit obligations related to thegovernmental welfare component, or substitutional portion, of the plans and completed the transferof the plan assets equivalent to the substitutional portion to the government in August 2004.

In accordance with the consensus on EITF Issue No. 03-2, “Accounting for the Transfer to theJapanese Government of the Substitutional Portion of Employee Pension Fund Liabilities,” for theyear ended March 31, 2005, the Company recognized a settlement loss of ¥76,401 million and alsorecognized a reduction in net periodic pension cost related to derecognition of previously accruedsalary progression of ¥29,014 million, both of which are included in selling, general and administra-tive expenses. In addition, the Company recognized a subsidy from the government of ¥83,129 mil-lion representing the difference between the obligation settled and the assets transferred to thegovernment.

Most foreign subsidiaries have various retirement plans, primarily defined contribution plans, cov-ering substantially all of their employees. The funding policy for such defined contribution plans is tocontribute annually an amount equal to a certain percentage of the participant’s annual salary.

The aggregate cost charged to income for the Company’s domestic and foreign defined contribu-tion plans discussed above amounted to ¥7,297 million ($61,839 thousand), ¥7,036 million, and¥5,938 million for the years ended March 31, 2007, 2006 and 2005, respectively.

The Company uses a measurement date of March 31 for the majority of its plans.On March 31, 2007, the Company adopted the recognition and disclosure provisions of SFAS

158. SFAS 158 required the Company to recognize the funded status (i.e., the difference betweenthe fair value of plan assets and the benefit obligations) of its defined benefit pension plans in theMarch 31, 2007 consolidated balance sheet with a corresponding adjustment to accumulated othercomprehensive income (loss), net of tax. The adjustment to accumulated other comprehensiveincome (loss) at adoption represents the net actuarial loss, prior service credit, and net transitionobligation, all of which were previously netted against the plans’ funded status in the consolidatedbalance sheet pursuant to the provisions of SFAS 87.

The incremental effects of adopting SFAS 158 on the accompanying consolidated balance sheetat March 31, 2007 are summarized as follows. The adoption of SFAS 158 had no effect on theaccompanying consolidated statement of income for the year ended March 31, 2007.

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Before AfterApplication Application of SFAS 158 Adjustments of SFAS 158

(Millions of yen)

Prepaid pension cost ¥ 10,974 ¥ (6,199) ¥ 4,775Accrued liabilities — (2,552) (2,552)Accrued pension and severance costs (62,837) (21,673) (84,510)Other intangible assets, net 1,638 (1,638) —Deferred income taxes 23,046 11,706 34,752Minority interests in subsidiaries 6,955 628 7,583Accumulated other comprehensive loss 25,807 18,887 44,694

Before AfterApplication Application of SFAS 158 Adjustments of SFAS 158


Prepaid pension cost $ 93,000 $ (52,534) $ 40,466Accrued liabilities — (21,627) (21,627)Accrued pension and severance costs (532,517) (183,669) (716,186)Other intangible assets, net 13,881 (13,881) —Deferred income taxes 195,305 99,203 294,508Minority interests in subsidiaries 58,941 5,322 64,263Accumulated other comprehensive loss 218,703 160,059 378,762

Components of Net Periodic Benefit CostComponents of net periodic benefit cost for the defined benefit plans for the years ended March 31,2007, 2006 and 2005 are as follows:


U.S. dollars)

Components of net periodic benefit cost:Service cost ¥ 25,206 ¥ 25,025 ¥ 24,899 $ 213,610Interest cost 14,207 12,827 13,670 120,398Expected return on plan assets (16,741) (13,626) (12,488) (141,873)Recognized net actuarial loss 5,151 8,339 7,407 43,653Amortization of prior service credit (1,719) (2,271) (1,380) (14,568)Amortization of net transition obligation 172 545 150 1,458Derecognition of previously accruedsalary progression — — (29,014) —

Settlement and curtailment loss 5,146 — 76,401 43,610Net periodic benefit cost ¥ 31,422 ¥ 30,839 ¥ 79,645 $ 266,288

As of March 31, 2007, the estimated net actuarial loss, prior service credit and net transitionobligation for the defined benefit pension plans that will be amortized from accumulated othercomprehensive loss into net periodic benefit cost over the next fiscal year are as follows:


Net actuarial loss ¥ 3,903 $ 33,076Prior service credit (1,853) (15,703)Net transition obligation 285 2,415

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Obligations and Fund StatusReconciliation of the beginning and ending balances of the benefit obligation and the fair value ofthe plan assets, the funded status and the amounts recognized in the consolidated balance sheetsof the non-contributory and contributory defined benefit pension plans at March 31, 2007 and2006 are outlined as follows:


U.S. dollars)

Changes in benefit obligation:Benefit obligation at beginning of year ¥621,973 ¥ 590,230 $5,270,958Service cost 25,206 25,025 213,610Interest cost 14,207 12,827 120,398Plan participants’ contributions 568 651 4,813Plan amendments (2,788) 436 (23,627)Actuarial loss 371 2,106 3,144Acquisitions 9,743 17,241 82,568Benefits paid (30,963) (28,446) (262,398)Settlements and curtailments (10,506) — (89,034)Foreign currency translation 4,651 1,903 39,415Benefit obligation at end of year 632,462 621,973 5,359,847

Changes in plan assets:Fair value of plan assets at beginning of year 505,622 410,754 4,284,932Actual return on plan assets 23,540 53,829 199,492Acquisitions 6,117 12,776 51,839Employers’ contributions 45,818 49,701 388,288Plan participants’ contributions 568 651 4,813Benefits paid (26,783) (25,147) (226,974)Settlement (10,405) — (88,178)Foreign currency translation 5,698 3,058 48,288Fair value of plan assets at end of year 550,175 505,622 4,662,500

Funded status ¥ (82,287) (116,351) $ (697,347)Unrecognized net actuarial loss 124,762Unrecognized prior service credit (20,068)Unrecognized net transition obligation 749

Net amount recognized ¥ (10,908)

Amounts recognized in the consolidated balance sheets consist of:Prepaid pension cost ¥ 4,775 ¥ 6,486 $ 40,466Accrued liabilities (2,552) — (21,627)Accrued pension and severance costs (84,510) (44,215) (716,186)Additional minimum liability adjustments:

Intangible assets — 1,367 —Accumulated other comprehensive loss — 25,454 —

Net amount recognized ¥ (82,287) ¥ (10,908) $ (697,347)

Amounts recognized in accumulated other comprehensive loss consist of:Net actuarial loss ¥108,549 — $ 919,907Prior service credit (21,234) — (179,949)Net transition obligation 576 — 4,881

¥ 87,891 — $ 744,839

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The accumulated benefit obligation for defined benefit pension plans amounted to ¥596,010 mil-lion ($5,050,932 thousand) and ¥541,598 million at March 31, 2007 and 2006, respectively.

The aggregate projected benefit obligation and aggregate fair value of plan assets for the pen-sion plans where projected benefit obligations exceeded plan assets, and the aggregate accumulat-ed benefit obligation and aggregate fair value of plan assets where accumulated benefit obligationsexceeded plan assets as of March 31, 2007 and 2006 were as follows:


U.S. dollars)

Plans with projected benefit obligation in excess of plan assets:

Projected benefit obligation ¥611,726 ¥596,176 $5,184,119Fair value of plan assets 524,776 478,213 4,447,254

Plans with accumulated benefit obligation in excess of plan assets:

Accumulated benefit obligation 379,421 507,906 3,215,432Fair value of plan assets 320,015 466,364 2,711,992

AssumptionsThe weighted-average assumptions used to determine benefit obligations at March 31, 2007 and2006 are as follows: Rate of compensation increases was calculated excluding pension plans whosecompensation levels did not impact the amount of benefit obligations.

2007 2006

Discount rate 2.30% 2.29%Rate of compensation increases 2.30% 2.13%

The weighted-average assumptions used to determine net periodic benefit cost for the yearsended March 31, 2007, 2006 and 2005 are as follows:

2007 2006 2005

Discount rate 2.29% 2.21% 2.14%Rate of compensation increases 2.13% 2.09% 2.06%Expected long-term rate of return on plan assets 3.25% 3.21% 3.15%

The expected long-term rate of return on plan assets is based on the long-term expected return ofthe plans’ asset allocations and an evaluation of the historical behavior of the Company’s portfolio.

Plan AssetsThe Company’s actual weighted-average assets allocations for defined benefit pension plans atMarch 31, 2007 and 2006, by asset category are as follows:

Asset Category 2007 2006

Equity securities 44% 43%Debt securities 36 35General accounts of life insurance companies 15 16Other 5 6

Total 100% 100%

Target allocations of plan assets for equity securities, debt securities and general accounts of lifeinsurance companies are 43%, 40% and 15%, respectively.

The Company’s investment policy for defined benefit plans is designated to provide the planswith sufficient assets to meet future benefit payment requirements. The Company monitors assetallocation periodically and adjusts asset allocation, if necessary in order to meet the target asset allo-cation. The Company’s investment policy pursues diversified investments and prohibits speculativeinvestments.

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ContributionThe Company expects to contribute approximately ¥45,517 million ($385,737 thousand) to thedefined benefit pension plan for the year ending March 31, 2008.

Estimated Future Benefit PaymentsThe expected benefit payments, which reflect estimated future service, are summarized as follows:


Year ending March 31;2008 ¥ 20,226 $ 171,4072009 20,996 177,9322010 22,276 188,7802011 23,377 198,1102012 25,704 217,8312013 through 2017 141,569 1,199,737

Income taxes applicable to the Company and its domestic subsidiaries comprise corporation, inhabi-tants’ and enterprise taxes which, in the aggregate, resulted in a statutory tax rate of approximately40.6% for the years ended March 31, 2007, 2006 and 2005.

The effective tax rates reflected in the consolidated statements of income for the years endedMarch 31, 2007, 2006 and 2005 differ from the statutory tax rate due to the following reasons:

2007 2006 2005

Statutory tax rates 40.6% 40.6% 40.6%Increase (decrease) in income taxes resulting from:

Expenses not deductible for tax purposes 4.6 4.3 2.2Goodwill impairment — 5.0 —Lower effective tax rates of other countries (4.4) (4.1) (2.8)Deferred tax liabilities on undistributed earnings 2.3 (0.4) (0.1)R&D credits (5.2) (3.7) (2.8)Foreign tax credit (0.2) (1.7) (0.7)Net changes in valuation allowances 17.9 4.5 2.5Other 2.1 (0.5) 0.5

Effective tax rates 57.7% 44.0% 39.4%

Income before income taxes for the years ended March 31, 2007, 2006 and 2005 was taxed inthe following jurisdictions:


U.S. dollars)

Income before income taxes:Domestic ¥ 92,845 ¥69,821 ¥138,206 $786,822Foreign 10,419 9,794 24,140 88,297

¥103,264 ¥79,615 ¥162,346 $875,119

11. Income Taxes

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The provision (benefit) for income taxes for the years ended March 31, 2007, 2006 and 2005consisted of the following:


U.S. dollars)

Current:Domestic ¥42,769 ¥ 42,611 ¥44,119 $362,450Foreign 20,141 10,145 10,964 170,687

Total current 62,910 52,756 55,083 533,137

Deferred:Domestic 3,922 (10,344) 11,723 33,237Foreign (7,299) (7,388) (2,917) (61,856)

Total deferred (3,377) (17,732) 8,806 (28,619)¥59,533 ¥ 35,024 ¥63,889 $504,518

The significant components of deferred tax assets and liabilities at March 31, 2007 and 2006 were asfollows:


U.S. dollars)

Deferred tax assets:Inventories ¥ 41,456 ¥ 39,500 $ 351,322Depreciation 36,943 28,908 313,076Accrued expenses 46,444 46,532 393,593Accrued pension and severance costs 7,295 13,570 61,822Minimum pension liability adjustments — 10,129 —Pension liability adjustments 34,752 — 294,508Accrued enterprise tax 2,891 2,565 24,500Tax loss carryforwards 27,367 22,179 231,924Valuation of investment securities 13,413 2,589 113,669Allowance for doubtful receivables 5,065 5,599 42,924Other 38,630 30,668 327,373

254,256 202,239 2,154,711Less valuation allowance (38,875) (22,989) (329,449)

Total deferred tax assets 215,381 179,250 1,825,262

Deferred tax liabilities:Depreciation 3,886 8,645 32,932Lease accounting 5,641 4,790 47,805Taxes on undistributed earnings 13,848 10,272 117,356Valuation of available-for-sale securities 33,212 38,049 281,458Goodwill 14,253 13,610 120,788Accrued pension and severance costs 13,978 12,092 118,458Other intangible assets 15,429 10,776 130,754Other 15,282 12,413 129,508

Total deferred tax liabilities 115,529 110,647 979,059Net deferred tax assets ¥ 99,852 ¥ 68,603 $ 846,203

The valuation allowance relates primarily to the deferred tax assets of certain subsidiaries whichhave net operating loss carryforwards for tax purposes. The valuation allowances increased by¥15,886 million ($134,627 thousand), ¥4,517 million and ¥3,981 million for the years ended March31, 2007, 2006 and 2005, respectively.

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Deferred tax assets and liabilities at March 31, 2007 and 2006 are included in the consolidatedbalance sheets as follows:


U.S. dollars)

Deferred income taxes (current assets) ¥100,440 ¥ 96,030 $ 851,186Deferred income taxes (other assets) 53,798 38,217 455,915Other current liabilities (118) (1,296) (1,000)Deferred income taxes (noncurrent liabilities) (54,268) (64,348) (459,898)Net deferred tax assets (liabilities) ¥ 99,852 ¥ 68,603 $ 846,203

At March 31, 2007, certain subsidiaries had net operating loss carryforwards for income tax pur-poses of ¥68,058 million ($576,763 thousand), of which ¥11,903 million ($100,873 thousand) willbe carried forward indefinitely and ¥56,155 million ($475,890 thousand) will expire through 2027.These net operating loss carryforwards are available to offset future taxable income of the sub-sidiaries.

The Company has not recognized deferred tax liabilities for a portion of undistributed earnings offoreign subsidiaries in the Document Solution segment, because such earnings have been perma-nently reinvested. Deferred tax liabilities will be recognized when the Company expects that it willrealize those undistributed earnings in a taxable manner, such as through receipt of dividends orsale of the investments. Deferred income taxes have also not been provided on undistributed earn-ings of its domestic subsidiaries as such earnings, if distributed in the form of dividends, are not tax-able under present tax laws.

The Corporation Law of Japan (the “Law”) provides that an amount equal to 10% of the amount tobe disbursed as a distribution of earnings be appropriated to the additional paid-in capital or legalreserve.

The Law also provides to the extent that if the sum of the additional paid-in capital account andthe legal reserve account exceed 25% of the common stock account, then the amount of the excess(if any) is available for appropriations by resolution of the shareholders.

Retained earnings available for dividends under the Law are based on the amount presented inthe Company’s non-consolidated financial statements, which are prepared in accordance withaccounting principles and practices generally accepted in Japan. Under the Law, the amount ofretained earnings available for dividends as of March 31, 2007 amounted to ¥1,470,737 million($12,463,873 thousand).

The appropriation of retained earnings for the year ended March 31, 2007 has been reflected inthe consolidated financial statements, including for the amount approved at the general sharehold-ers’ meeting held on June 28, 2007.

Takeover Defense MeasureThe Company has announced on March 30, 2007 that its Board of Directors (the “Board”) hasadopted Fair Rules for Acquisition of Substantial Shareholdings (“Shareholders’ Will ConfirmationType” Takeover Defense Measure) (the “Plan”). Under the plan, a bidder who proposes to acquire15% or more of the Company’s voting shares is required to provide the Company with certainrequired information, and a time period that enables the Board to review will be determined. If theBoard determines that the takeover proposal would not preserve and enhance corporate value andthe common interests of shareholders of the Company, the Company will take procedures to ascer-tain the shareholders’ view. The stock acquisition rights will be issued by the way of a gratis allot-ment in either of the following circumstances: (i) the shareholders have approved the issuance ofthe stock acquisition rights or (ii) the bidder has not followed the procedures required by the Plan.Since the Company is not issuing the stock acquisition rights at the time of the adoption of thisPlan, this Plan will have no particular direct impact on the rights and interests of the shareholders. If

12. Shareholders’ Equity

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a shareholder holding the stock acquisition rights does not exercise such rights, such shareholder’sownership will be diluted due to the exercise of the stock acquisition rights by other shareholders.The Stock acquisition rights held by the bidder will not be exercisable. The term of the Plan shall bethree years from March 30, 2007, the Plan implementation date, and the renewal of the term of thePlan shall be made by a resolution of the Board.

Accumulated other comprehensive income (loss) as reflected in the consolidated balance sheets atMarch 31, 2007 and 2006 is summarized as follows:


U.S. dollars)

Unrealized gains on securities ¥ 46,231 ¥ 53,119 $ 391,788Foreign currency translation adjustments 39,404 11,865 333,932Minimum pension liability adjustments — (12,078) —Pension liability adjustments (44,694) — (378,762)Unrealized gains (losses) on derivatives 9 11 76

¥ 40,950 ¥ 52,917 $ 347,034

The related tax effects allocated to each component of other comprehensive income (loss) for theyears ended March 31, 2007, 2006 and 2005 are as follows:

Before-tax Tax (expense) Net-of-taxamount or benefit amount

(Millions of yen)

2007

Unrealized gains on securities:Decrease in unrealized gains on securities ¥ (12,159) ¥ 4,937 ¥ (7,222)Less: reclassification adjustment for losses realized in net income 563 (229) 334

Net decrease in unrealized gains (11,596) 4,708 (6,888)

Foreign currency translation adjustments:Increase in unrealized foreign currency translation adjustments 30,625 (1,151) 29,474

Less: reclassification adjustment for gains realized in net income (1,935) — (1,935)

Net increase in unrealized foreign currency translation adjustments 28,690 (1,151) 27,539

Minimum pension liability adjustments (26,077) 12,348 (13,729)

Unrealized gains (losses) on derivatives:Change in unrealized gains (losses) on derivatives 52 (25) 27Less: reclassification adjustment for gains realized in net income (56) 27 (29)

Change in net unrealized gains (losses) (4) 2 (2)¥ (8,987) ¥15,907 ¥ 6,920

13. Other ComprehensiveIncome (Loss)

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(Millions of yen)

2006

Unrealized gains on securities: Increase in unrealized gains on securities ¥ 46,172 ¥(18,746) ¥27,426Less: reclassification adjustment for gains realized in net income (194) 79 (115)

Net increase in unrealized gains 45,978 (18,667) 27,311

Foreign currency translation adjustments:Increase in unrealized foreign currency translation adjustments 38,637 (440) 38,197

Less: reclassification adjustment for gains realized in net income (874) — (874)

Net increase in unrealized foreign currency translation adjustments 37,763 (440) 37,323

Minimum pension liability adjustments 38,169 (16,347) 21,822


Change in net unrealized gains (losses) (29) 15 (14)

¥121,881 ¥(35,439) ¥86,442


(Millions of yen)

2005

Unrealized gains on securities:Increase in unrealized gains on securities ¥ 4,927 ¥ (2,000) ¥ 2,927Less: reclassification adjustment for losses realized in net income 36 (15) 21

Net increase in unrealized gains 4,963 (2,015) 2,948

Foreign currency translation adjustments 13,267 (598) 12,669

Minimum pension liability adjustments 49,422 (22,621) 26,801

Unrealized gains (losses) on derivatives:Change in unrealized gains (losses) on derivatives 104 (51) 53Less: reclassification adjustment for losses realized in net income 246 (121) 125

Change in net unrealized gains (losses) 350 (172) 178

¥68,002 ¥(25,406) ¥42,596

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2007

Unrealized gains on securities:Decrease in unrealized gains on securities $(103,042) $ 41,839 $(61,203)Less: reclassification adjustment for losses realized in net income 4,771 (1,941) 2,830

Net decrease in unrealized gains (98,271) 39,898 (58,373)

Foreign currency translation adjustments:Increase in unrealized foreign currency translation adjustments 259,533 (9,754) 249,779

Less: reclassification adjustment for gains realized in net income (16,398) — (16,398)

Net increase in unrealized foreign currency translation adjustments 243,135 (9,754) 233,381

Minimum pension liability adjustments (220,991) 104,644 (116,347)


Change in net unrealized gains (losses) (34) 17 (17)$ (76,161) $134,805 $ 58,644

GuaranteesThe Company guarantees certain indebtedness of others and other obligations. At March 31, 2007,the maximum potential amount of future payments (undiscounted) the guarantor could be requiredto make under the guarantee was ¥32,463 million ($275,110 thousand), of which ¥28,530 million($241,780 thousand) were guarantees of employee mortgage loans to financial institutions. In theevent of an employee’s insolvency, the Company and certain of its subsidiaries will need to pay thedefault mortgage on behalf of the employee. Certain guarantees are secured by the employees’property in the amount of ¥28,293 million ($239,771 thousand). The term of the mortgage loanguarantees is from 1 year to 29 years. As of March 31, 2007, the carrying amount of the liability forthe Company’s obligations under the guarantee was insignificant.

Lease CommitmentsThe Company and its subsidiaries lease office and retail space, warehouses, offices and laboratoryequipment as well as certain residential facilities for employees.

The future minimum lease payments required under operating leases which, at March 31, 2007,had initial or remaining noncancelable lease terms in excess of one year are summarized as follows:


Year ending March 31;2008 ¥ 19,738 $167,2712009 15,675 132,8392010 11,562 97,9832011 8,909 75,5002012 6,046 51,2372013 and thereafter 7,967 67,517

Total future minimum lease payments ¥ 69,897 $592,347

Rental expenses under operating leases for the years ended March 31, 2007, 2006 and 2005were ¥65,966 million ($559,034 thousand), ¥64,188 million and ¥60,335 million, respectively.

14. Commitments and ContingentLiabilities

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Purchase Commitments, Other Commitments and ContingenciesCommitments outstanding at March 31, 2007, principally for the construction and purchase ofproperty, plant and equipment, amounted to ¥62,937 million ($533,364 thousand). At March 31,2007, the Company was contingently liable for discounted notes receivable on a full recourse basiswith banks of ¥7,796 million ($66,068 thousand).

Due to the nature of its business, the Company is subject to various threatened or filed legalactions and regulatory investigations. In the opinion of management, the Company has providedthe necessary accruals, if any, for environmental remediation, litigation and regulatory investiga-tions, for which occurrence of future events is probable and the amount of loss can be reasonablyestimated. At March 2007, the Company received Statement of Objections from the EuropeanCommission relating to the investigations into alleged practices of the Company and certain of itssubsidiaries in the professional videotape industry. Since the Statement of Objection is a preparatorydocument that does not prejudge the European Commission’s final decision, the amount of the ulti-mate exposure, if any, cannot be determined at this time. The Company, based upon the advice ofexternal counsel, does not expect the final outcome of the above-mentioned matters to have amaterial adverse effect on the financial position and operating results of the Company.

Product WarrantiesThe Company provides a warranty for certain of its products. These warranties generally extend fora period of one year from the date of sale. The following table sets forth the changes in theCompany’s warranty liability balance:


U.S. dollars)

Balance, at April 1 ¥ 8,871 ¥ 7,951 ¥ 7,838 $ 75,178Warranties issued during the current period 12,972 14,692 13,426 109,932Settlements made during the current period (11,743) (13,412) (12,103) (99,517)Change in liability for pre-existing warranties during the current period, including expirations (430) (360) (1,210) (3,644)

Balance, at March 31 ¥ 9,670 ¥ 8,871 ¥ 7,951 $ 81,949

A calculation of the basic and diluted net income per share for the years ended March 31, 2007,2006 and 2005 is as follows:


U.S. dollars)

Net income available to common shareholders ¥ 34,446 ¥37,016 ¥84,500 $291,915

Dilutive effect of:2011 Series A Convertible Bond 200 — — 1,6952011 Series B Convertible Bond 455 — — 3,8562013 Series A Convertible Bond 184 — — 1,5592013 Series B Convertible Bond 456 — — 3,865Diluted net income available to common shareholders ¥ 35,741 ¥37,016 ¥84,500 $302,890

15. Net Income perShare

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2007 2006 2005(Shares)

Weighted-average common sharesoutstanding-Basic 510,620,624 509,525,143 512,801,030

Dilutive effect of:2011 Series A Convertible Bond 9,369,468 — —2011 Series B Convertible Bond 9,369,468 — —2013 Series A Convertible Bond 10,090,196 — —2013 Series B Convertible Bond 10,090,196 — —

Weighted-average common sharesoutstanding-Diluted 549,539,952 509,525,143 512,801,030

2007 2006 2005 2007(Yen) (U.S. dollars)

Net income per share: Basic ¥67.46 ¥72.65 ¥164.78 $0.57Diluted ¥65.04 ¥72.65 ¥164.78 $0.55

The Company operates internationally, and is exposed to market risks arising from fluctuations in for-eign currencies, interest rates and certain commodity prices. The Company and certain of its sub-sidiaries utilize derivative financial instruments solely to reduce these risks. The Company has policiesand procedures for risk management and the approval, reporting and monitoring of derivative finan-cial instruments. The Company’s policies prohibit holding or issuing derivative financial instrumentsfor trading purposes. The following is a summary of the Company’s risk management strategies andthe effect of these strategies on the Company’s consolidated financial statements.

Fair Value Hedging StrategyUnder certain circumstances, certain subsidiaries of the Company may enter into cross currencyinterest rate swaps for interest rate exposure and/or foreign currency exchange rate exposure man-agement purposes. The cross currency interest rate swaps generally modify their exposure effectivelyto interest rate risk and/or foreign currency exchange rate risk associated with the underlying debtobligation by converting the underlying debt amounts in exchange for floating rate interest pay-ments over the life of the agreements. There were no outstanding fair value hedge transactions asof March 31, 2007 and March 31, 2006.

Cash Flow Hedging StrategyCertain subsidiaries of the Company have entered into forward currency exchange contracts to pro-tect against the increase or decrease in value of forecasted intercompany purchases or export salesdenominated in foreign currencies over the next year (maximum length of time is through May2007). If the yen weakens significantly against foreign currencies (primarily the U.S. dollar), theincrease in the value of future foreign currency cost or revenue is offset by gains or losses in thevalue of the forward exchange contract designated as a hedge. Conversely, if the yen strengthens,the decrease in the value of future foreign currency cash flow is offset by gains or losses in the valueof the forward contracts designated as a hedge.

Changes in the fair value of those derivative instruments designated and qualifying as cash flowhedges of variability of cash flows are reported in other comprehensive income (loss), net of applica-ble taxes. These amounts are reclassified into earnings in the same period and same line item as thehedged items that affect earnings. The amount of gains or losses on derivatives or portions thereofthat were either ineffective as hedges or excluded from the assessment of hedge effectiveness werenot material to the financial position or operating results of the Company.

As of March 31, 2007, the Company expects to reclassify ¥12 million ($102 thousand) of netgains on derivatives from accumulated other comprehensive income (loss) to earnings during thenext twelve months due to actual export sales and import purchases and the payment of the under-lying debt.

16. Financial Instruments

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Derivatives Not Designated as HedgesDerivatives not designated as hedges include certain interest rate swaps, cross currency interest rateswaps, and forward currency exchange contracts which have been entered into by the Companyand certain of its subsidiaries. Although these derivatives are effective as hedges from an economicperspective, the Company did not designate these contracts as hedges as required in order to applyhedge accounting. As a result, the Company reported the changes in the fair value of these deriva-tives in the statement of income in the line titled “Other, net” in other income (expenses).

Concentration of Credit RiskFinancial instruments that potentially subject the Company to significant concentrations of creditrisk consist principally of cash and cash equivalents, investments, trade and finance accounts receiv-able, and derivatives.

The Company maintains cash and cash equivalents and short-term investments with variousfinancial institutions. These financial institutions are located throughout Japan and the Company’spolicy is designed to limit exposure to any one institution. The Company performs periodic evalua-tions of relative credit standing of those financial institutions that are considered in the Company’sinvestment strategy.

Concentration of credit risk associated with trade receivables is limited due to the Company’slarge customer base, maintenance of customers’ guarantee deposits and the Company’s perfor-mance of ongoing credit evaluations. An allowance for doubtful accounts is maintained at a levelwhich management believes is sufficient to cover potential losses.

The Company is exposed to credit risk in the event of nonperformance by counterparties to deriv-ative instruments. The Company limits this exposure by acquiring such derivative instruments fromcounterparties with high credit ratings.

Fair Value of Financial InstrumentsThe estimated fair value of financial instruments has been determined using available market infor-mation or other appropriate valuation methodologies. Although management uses its best judg-ment in estimating the fair value of such instruments, the methodologies and assumptions for theestimate of fair value are inherently subjective. Consequently, the estimates are not necessarilyindicative of the amounts which could be realized or would be paid in a current market exchange.The following methodologies and assumptions were used by the Company in estimating the fairvalue of its financial instruments:

Cash and cash equivalents, Notes and accounts receivable, Short-term debt, Notes andaccounts payable: The carrying amounts in the consolidated balance sheets approximate fairvalue because of the short maturity of these instruments.

Marketable securities and Investment securities: The fair value of current and noncurrentmarketable securities is estimated based on quoted market prices. The fair value of nonmar-ketable debt securities with variable rates approximates their carrying amounts.

Customers’ guarantee deposits: The carrying amounts approximate fair value becausethey are variable rate instruments.

Long-term debt: The fair value of long-term debt is estimated using discounted cash flowanalysis based on the current incremental borrowing rates for similar types of borrowingarrangements. The fair value of long-term debt, including the current portion, as of March31, 2007 and 2006 was ¥78,772 million ($667,559 thousand) and ¥104,058 million, respec-tively. The fair value as of March 31, 2007 did not include the fair value of the Euroyen con-vertible bonds issued on April 5, 2006 with a carrying value of ¥201,474 million becausethere was no quoted market price and it was not practicable to estimate the fair value.

Derivative financial instruments: The fair values of forward currency exchange contracts,interest rate swaps, currency swaps and cross currency interest rate swaps are estimated onthe basis of the market prices of derivative financial instruments with similar contract condi-tions or obtained from brokers. The fair value and the carrying amounts of these derivativeassets were ¥531 million ($4,500 thousand) and ¥536 million, and those of derivative liabili-ties were ¥3,745 million ($31,737 thousand) and ¥781 million, as of March 31, 2007 and2006, respectively.

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In order to expand its distribution channels in Japan, the United States of America, Europe and Asiaand increase in technological developments in certain products, the Company acquired seven, twen-ty nine and eleven businesses and/or minority interests during the years ended March 31, 2007,2006 and 2005, respectively. Considerations for all significant acquisitions were paid in cash or trea-sury stock of the Company and aggregate purchase prices for acquisitions amounted to ¥49,743million ($421,551 thousand), ¥44,053 million and ¥58,010 million, net of cash acquired for theyears ended March 31, 2007, 2006 and 2005, respectively. There were no significant contingentpayments, options or commitments related to those acquisitions. Each acquisition that qualified as abusiness combination has been accounted for under the purchase method of accounting in accor-dance with SFAS No. 141, “Business Combinations” and the excess of the purchase price over theestimated fair value of net assets acquired has been recorded as goodwill, which is primarily taxnon-deductible.

Significant acquisitions completed during the year ended March 31, 2007 included (i) 100% ofthe common stock of Dimatix, Inc. based in the United States of America, which is a manufacturerof inkjet printer heads for industrial use, (ii) 100% of the common stock of Daiichi RadioisotopeLaboratories, Ltd. which is a domestic manufacturer of radiopharmaceuticals and (iii) additional pur-chase of 46.6% of the common stock of Fuji Xerox Taiwan Corporation, which is a marketing com-pany of office equipment. In addition, the Company acquired 11.9% of the common stock ofFUJINON Corporation which was a 88.1% owned subsidiary and has ultimately become a whollyowned subsidiary of the Company in exchange for treasury stock of the Company. The Companyrecognized ¥24,130 million ($204,491 thousand) of goodwill, ¥7,572 million ($64,169 thousand) oftechnology-based intangibles and ¥7,603 million ($64,432 thousand) of customer-related intangi-bles on its acquisitions for the year ended March 31, 2007, including those mentioned above.

Significant acquisitions completed during the year ended March 31, 2006 included (i) 100% ofthe common stock of Avecia Inkjet Limited, based in the United Kingdom and (ii) 60% of the com-mon stock of Sankio Chemical Co., Limited, which was a 40% owned affiliate and has ultimatelybecome a wholly owned subsidiary of the Company in exchange for treasury stock of the Company.The Company recognized ¥14,664 million of goodwill, ¥4,919 million of technology-based intangi-bles and ¥7,788 million of customer-related intangibles on its acquisitions for the year ended March31, 2006, including those mentioned above.

Significant acquisitions completed during the year ended March 31, 2005 included (i) theMicroelectronic Materials Division of Arch Chemicals, Inc. and 49% of the common stock of FUJI-FILM ARCH Co., Ltd., which was a 51% owned subsidiary of the Company before acquisition and(ii) 100% of the common stock of Sericol Group Limited, which is manufacturer of screen ink andindustry inkjet ink based in the United Kingdom.

The results of operations for the acquired entities since the date of the acquisitions have beenincluded in the Company’s consolidated statements of income. Pro forma results of operations havenot been presented for any of the acquisitions because the results of operations related to the enti-ties acquired were not significant to the operating results of the Company on either an individual oran aggregate annual basis.

Imaging Solutions SegmentThe business environment in the Imaging Solutions segment has been drastically changing morequickly than previously expected and future forecasts for improvement in results are not favorable.Management of the Company has implemented the radical restructuring activities in both photo-graphic materials business and electric imaging business through the course of the previous and cur-rent fiscal years. Restructuring activities in photographic materials business consisted of plantintegration, termination of certain manufacturing lines, streamlining in supply-chains includingworkforce reduction and cost reductions, research and development costs reduction and integrationand termination of photo-finishing laboratories. Restructuring activities in electric imaging businessinvolving digital cameras, consisted of redevelopment of manufacturing to China and other supplychain and cost reduction measures. As a result, total restructuring costs of ¥163,433 million($1,385,025 thousand) were incurred during the two fiscal years ended March 31, 2007.Restructuring activities initiated for this business have been conducted as planned and completedthrough the end of the current fiscal year. Costs that have been incurred for the year ended March31, 2007 and 2006 are summarized as follows:

18. Restructuring and Other Charges

17. Acquisitions

FUJIFILM

Annual Report 2007

75

Employee Loss on fixedtermination assets and other

benefits associated costs Total(Millions of yen)

Cost incurred ¥ 20,883 ¥ 65,160 ¥ 86,043Non-cash charges — (63,664) (63,664)Cash payments (3,752) (991) (4,743)

Liability balance at March 31, 2006 ¥ 17,131 ¥ 505 ¥ 17,636

Cost incurred ¥ 23,073 ¥ 54,317 ¥ 77,390Non-cash charges — (47,963) (47,963)Cash payments (35,088) (6,018) (41,106)Adjustment (195) 920 725Liability balance at March 31, 2007 ¥ 4,921 ¥ 1,761 ¥ 6,682

Employee Loss on fixedtermination assets and other

benefits associated costs Total(Thousands of U.S. dollars)

Liability balanceat March 31, 2006 $145,178 $ 4,280 $149,458Cost incurred 195,534 460,314 655,848Non-cash charges — (406,466) (406,466)Cash payments (297,356) (51,000) (348,356)Adjustment (1,653) 7,796 6,143Liability balance at March 31, 2007 $ 41,703 $ 14,924 $ 56,627

Loss on fixed assets and other associated costs for the year ended March 31, 2006 includedimpairment charges in long-lived assets, which primary consisted of manufacturing facilities, of¥32,287 million and impairment charges of goodwill of ¥9,834 million. These impairments mainlyresulted from the reduced earnings forecast of future operations for the Imaging Solutions segmentas mentioned above. During the year ended March 31, 2007, the business environment in theImaging Solutions segment was worse than anticipated in the previous year. As a result, impairmentcharges of ¥12,202 million ($103,407 thousand) were recognized for certain manufacturing facili-ties and amortizable intangibles such as customer lists. The fair values of respective long-lived assetsor asset group were determined based on estimated discounted future net cash flows using theupdated earnings forecast. The remaining charges mainly related to accelerated depreciation in con-nection with shortened estimated remaining useful lives on certain machinery and equipment andlosses on disposal of fixed assets.

Substantially, all of the restructuring and other charges were related to the Imaging Solutionssegment. However, charges of ¥17,269 million ($146,347 thousand) and ¥8,642 million wereincurred in the Information Solutions segment for the years ended March 31, 2007 and 2006,respectively, mainly related to losses on manufacturing facilities and equipment used for both of theImaging and Information Solutions activities, and certain restructuring initiatives relating to theInformation Solutions segment.

Document Solutions SegmentDuring the year ended March 31, 2007, the Company initiated the restructuring activities in theDocument Solutions segment and recognized costs of ¥16,136 million ($136,746 thousand) relatingto employees benefits and ¥555 million ($4,703 thousand) relating to fixed assets. This initiativerelated to relocations of domestic customer engineers to regional sales subsidiary companies inorder to provide more community-based maintenance services. The costs accrued as of March 31,2007 will be paid no later than March 31, 2008.

FUJIFILM

Annual Report 2007

76

Operating SegmentsThe Company has three operating segments. The Company’s operating segments were determinedbased upon common technology, manufacturing processes as well as distribution processes andtype of customers, and they reflect how management reviews the businesses and operating resultsand makes decisions about strategic investments and the allocation of resources. “ImagingSolutions” manufactures, develops, markets and services color films, digital cameras, photofinishingequipment, color paper, chemicals and services for photofinishing and related products, primarily forthe individual consumer. “Information Solutions” manufactures, develops, markets and servicesequipment and materials for medical systems and life sciences, equipment and materials for graphicarts, flat panel display materials, recording media, optical devices, electronic materials, inkjet materi-als and related products, primarily for commercial enterprises. “Document Solutions” manufactures,develops, markets and services office copy machines/multifunction devices, printers, production sys-tems and services, paper, consumables, office services and other related products and services, pri-marily for commercial enterprises.

Year ended March 31

Revenue 2007 2006 2005 2007(Millions of yen) (Thousands of

U.S. dollars)

Revenue:Imaging Solutions:

External customers ¥ 605,383 ¥ 689,458 ¥ 742,993 $ 5,130,364Intersegment 899 618 306 7,619Total 606,282 690,076 743,299 5,137,983

Information Solutions:External customers 1,026,085 877,366 768,680 8,695,636Intersegment 2,818 2,965 4,414 23,881Total 1,028,903 880,331 773,094 8,719,517

Document Solutions:External customers 1,151,058 1,100,671 1,015,701 9,754,729Intersegment 12,187 12,478 13,560 103,280Total 1,163,245 1,113,149 1,029,261 9,858,009

Eliminations (15,904) (16,061) (18,280) (134,780)Consolidated total ¥2,782,526 ¥2,667,495 ¥2,527,374 $23,580,729

Year ended March 31

Segment profit or loss 2007 2006 2005 2007(Millions of yen) (Thousands of

U.S. dollars)

Operating income (loss):Imaging Solutions ¥ (42,631) ¥(75,713) ¥ (7,101) $(361,280)Information Solutions 95,170 79,056 71,089 806,526Document Solutions 61,186 67,026 100,407 518,525Total 113,725 70,369 164,395 963,771Corporate expenses and eliminations (663) 67 47 (5,618)

Consolidated operating income 113,062 70,436 164,442 958,153Other income (expenses), net (9,798) 9,179 (2,096) (83,034)Consolidated income before income taxes ¥ 103,264 ¥ 79,615 ¥162,346 $ 875,119

19. Segment Information

FUJIFILM

Annual Report 2007

77

March 31

Assets 2007 2006 2005 2007(Millions of yen) (Thousands of

U.S. dollars)

Total assets:Imaging Solutions ¥ 542,419 ¥ 610,536 ¥ 706,698 $ 4,596,771Information Solutions 1,242,844 1,031,933 857,993 10,532,576Document Solutions 1,056,374 984,906 978,820 8,952,322Total 2,841,637 2,627,375 2,543,511 24,081,669Eliminations (5,292) (4,207) (4,623) (44,847)

Corporate assets 482,757 404,323 444,569 4,091,161Consolidated total ¥3,319,102 ¥3,027,491 ¥2,983,457 $28,127,983

Year ended March 31

Other significant items 2007 2006 2005 2007(Millions of yen) (Thousands of

U.S. dollars)

Depreciation and amortization:Imaging Solutions ¥ 52,818 ¥ 75,339 ¥ 62,870 $ 447,610Information Solutions 88,147 80,879 59,625 747,008Document Solutions 74,333 69,216 59,791 629,941Total 215,298 225,434 182,286 1,824,559

Corporate 131 — — 1,110Consolidated total ¥215,429 ¥225,434 ¥182,286 $1,825,669

Capital expenditures for segment assets:Imaging Solutions ¥ 19,827 ¥ 24,901 ¥ 41,964 $ 168,026Information Solutions 95,947 114,124 83,190 813,110Document Solutions 48,127 40,783 32,266 407,856Total 163,901 179,808 157,420 1,388,992

Corporate 1,258 — — 10,661Consolidated total ¥165,159 ¥179,808 ¥157,420 $1,399,653

Transfers between operating segments are generally based on market pricing. Corporate expensesare the expenses related to the Corporate Division of the Company. Corporate assets consist primarily ofcash and cash equivalents as well as marketable and investment securities maintained for general corpo-rate purposes. Corporate, in the “Other significant items” in the above table, is the depreciation andamortization or capital expenditures related to facilities and equipment which the Company holds forCompany-wide use. The capital expenditures in the above table represent the purchase of fixed assets ofeach segment.

FUJIFILM

Annual Report 2007

78

Geographic InformationRevenues, which are attributed to geographic areas based on the country of the Company or thesubsidiary that transacted the sale with the external customer, operating income for the years endedMarch 31, 2007, 2006 and 2005 and long-lived assets at March 31, 2007, 2006 and 2005 were asfollows. Although the geographic information of operating income is not required under SFAS No.131, the Company discloses this information as supplemental information in light of the disclosurerequirement of the Japanese Securities and Exchange Law.

Year ended March 31


U.S. dollars)

Revenue:Japan

External customers ¥1,666,182 ¥1,666,130 ¥1,624,748 $14,120,186Intersegment 459,120 385,242 338,601 3,890,848Total 2,125,302 2,051,372 1,963,349 18,011,034

The AmericasExternal customers 491,129 456,461 428,361 4,162,110Intersegment 25,021 26,575 15,520 212,042Total 516,150 483,036 443,881 4,374,152

EuropeExternal customers 340,246 307,535 271,438 2,883,441Intersegment 18,536 13,279 11,707 157,085Total 358,782 320,814 283,145 3,040,526

Asia and othersExternal customers 284,969 237,369 202,827 2,414,992Intersegment 316,774 236,060 143,699 2,684,525Total 601,743 473,429 346,526 5,099,517

Eliminations (819,451) (661,156) (509,527) (6,944,500)Consolidated total ¥2,782,526 ¥2,667,495 ¥2,527,374 $23,580,729

Operating income (loss):Japan ¥ 86,999 ¥ 66,169 ¥ 137,448 $ 737,280The Americas (12,927) (14,434) (1,782) (109,551)Europe (2,356) (12,300) 10,336 (19,966)Asia and others 41,056 25,804 17,231 347,932Eliminations 290 5,197 1,209 2,458Consolidated total ¥ 113,062 ¥ 70,436 ¥ 164,442 $ 958,153

March 31


U.S. dollars)

Long-lived assets:Japan ¥588,054 ¥562,455 ¥538,747 $4,983,509The Americas 58,001 80,387 100,721 491,534Europe 71,084 70,458 73,610 602,407Asia and others 55,893 38,085 34,134 473,669Consolidated total ¥773,032 ¥751,385 ¥747,212 $6,551,119

Transfers between geographic areas are generally based on market pricing.Primarily all of the revenue and long-lived assets of The Americas are related to operations in the

United States of America.Revenue to external customers, which are attributed to geographic areas based on the location of

the customers for the years ended March 31, 2007, 2006 and 2005, were as follows:

FUJIFILM

Annual Report 2007

79

Year ended March 31


U.S. dollars)

Revenue:Japan ¥1,303,647 ¥1,329,284 ¥1,311,893 $11,047,856The Americas 572,797 558,702 515,169 4,854,212Europe 422,965 375,516 349,903 3,584,449Asia and others 483,117 403,993 350,409 4,094,212

Consolidated total ¥2,782,526 ¥2,667,495 ¥2,527,374 $23,580,729

Major Customers and OtherNo single customer of the Company accounted for more than 10% of consolidated revenue foreach of the three years in the period ended March 31, 2007.

The Document Solutions subsidiary sold certain copy machines and other equipment to a minorityshareholder and also purchased certain equipment from a minority shareholder, which amounted to¥209,111 million ($1,772,127 thousand) and ¥20,871 million ($176,873 thousand), ¥173,457 mil-lion and ¥19,266 million, and ¥123,479 million and ¥19,959 million for the years ended March 31,2007, 2006 and 2005, respectively.

In conjunction with a license agreement and other arrangements between the DocumentSolutions subsidiary and a minority shareholder, certain expenses of ¥14,782 million ($125,271thousand), ¥15,468 million and ¥15,199 million, which primarily related to royalty and researchexpenses, were incurred and certain expenses of ¥2,529 million ($21,432 thousand), ¥3,021 millionand ¥2,308 million, which primarily related to research expenses, were reimbursed for the yearsended March 31, 2007, 2006 and 2005, respectively.

FUJIFILM

Annual Report 2007

80

Report of Independent Auditors

The Board of Directors and ShareholdersFUJIFILM Holdings Corporation(Formerly, Fuji Photo Film Co., Ltd.)

We have audited the accompanying consolidated balance sheets of FUJIFILM Holdings Corporation (formerly, Fuji Photo Film Co.,Ltd.) and subsidiaries as of March 31, 2007 and 2006, and the related consolidated statements of income, changes in sharehold-ers’ equity and cash flows for each of the three years in the period ended March 31, 2007, all expressed in Japanese yen. Thesefinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriatein the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controlover financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant esti-mates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial positionof FUJIFILM Holdings Corporation and subsidiaries at March 31, 2007 and 2006, and the consolidated results of their operationsand their cash flows for each of the three years in the period ended March 31, 2007, in conformity with accounting principlesgenerally accepted in the United States.

We have also reviewed the translation of the consolidated financial statements as of and for the year ended March 31, 2007 intoU.S. dollars on the basis described in Note 3. In our opinion, such U.S. dollar amounts have been translated on such basis.

June 28, 2007

■ Tel: 03 3503 1191Fax: 03 3503 1277

■ ERNST & YOUNG SHINNIHON

Hibiya Kokusai Bldg.2-2-3, Uchisaiwai-choChiyoda-ku, Tokyo, Japan 100-0011C.P.O. Box 1196, Tokyo, Japan 100-8641

Corporate Information

FUJIFILM Holdings Corporation7-3, Akasaka 9-chome,Minato-ku, Tokyo 107-0052, JapanTEL : 81-3-6271-1111URL: http: //www.fujifilmholdings.com/＊

Date of Establishment : January 20, 1934

Capital : ¥40,363 million (as of March 31, 2007)

Fiscal Year-end : March 31

Number of employees (Persons) : 76,358 (as of March 31, 2007)

Independent Auditor : Ernst & Young ShinNihon

The Master Trust Bank of Japan, Ltd. (trust account)

Japan Trustee Services Bank, Ltd. (trust account)

Nippon Life Insurance Company

State Street Bank & Trust Company 505103

Depositary Nominees Inc.

The Chase Manhattan Bank, NA London

Deutsche Bank Trust Company Americas

State Street Bank & Trust Company

The Chuo Mitsui Trust and Banking Company, Limited

Sumitomo Mitsui Banking Corporation

6.1

5.1

3.9

2.7

2.7

2.7

2.6

2.4

2.2

2.0

Stock Exchange Listings : Tokyo, Osaka, Nagoya

Share Registrar : The Chuo Mitsui Trust and Banking Company, Limited33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574,Japan

Distribution of Shareholders and Shares : (As of March 31, 2007)

Number of Shareholders : 31,551Number of Shares Outstanding (In thousands) : 514,626

Common Share Price : (Tokyo Stock Exchange)

Financial Institutions187,86536.5%

Treasury Stocks3,4660.7%

ForeignCorporations258,32950.2%

Individuals and Others35,8007.0%

OtherCorporations

20,0843.9%

SecuritiesCompanies

9,0821.7%

Name Percentage of issued shares (%)

Major Shareholders : (As of March 31, 2007)

(Yen)

HighLow

＊Public notices of the Company shall be made available electronically (in Japanese) via its corporate website (http://www.fujifilmholdings.com/). However, in the event that electronic public notices cannot be made due to accident or other unavoidable circumstances, public notices shall be made in the Nihon Keizai Shimbun.

Year ended March 31

(In thousand shares)

81

FUJIFILM

Annual Report 2007

0

1,000

2,000

3,000

4,000

5,000

6,000

（month）

4,4003,270

3,8502,830

3,9903,180

4,1103,320

5,4103,570

7-9 10-12 1-34-6 7-9 10-12 1-34-6 7-9 10-12 1-34-6 7-9 10-12 1-34-6 7-9 10-12 1-34-6FY 2003 FY 2004 FY 2005 FY 2006 FY 2007

(As of March 31, 2007)

JAPAN

FUJIFILM CorporationFuji Xerox Co., Ltd.FUJINON CorporationFUJINON MITO CorporationFUJINON SANO CorporationFujinon Toshiba ES Systems Co., Ltd.FUJIFILM TECHNO PRODUCTS CO., LTD.FUJIFILM Electronic Materials Co., Ltd.FUJIFILM PHOTONIX CO., LTD.FUJIFILM Opto Materials Co., Ltd.FUJIFILM Kyushu Co., Ltd.FUJIFILM FINECHEMICALS CO., LTD.FUJIFILM Healthcare Laboratory Co., Ltd.Daiichi Radioisotope Laboratories, Ltd.＊1

Fuji Technics Co., Ltd.FUJIFILM TPX Co., Ltd.FUJIFILM MEDIA MANUFACTURING CO., LTD.FUJIFILM PHOTO MANUFACTURING CO., LTD.FUJIFILM MEDICAL CO., LTD.FUJIFILM BUSINESS SUPPLY CO., LTD.FUJIFILM IMAGING Co., Ltd.FIC PRODUCTION CENTER CO., LTD.FUJIFILM IMAGETEC CO., LTD.FUJIFILM Graphic Systems Co., Ltd.FFGS Techno Service Co., Ltd.FUJIFILM Techno Service Co., Ltd.FUJIFILM Media Crest Co., Ltd.FUJIFILM Imaging Colorants Co., Ltd.FUJIFILM LOGISTICS CO., LTD.FUJIFILM Computer System Co., Ltd.FUJIFILM Software Co., Ltd.FUJIFILM PRESENTEC CO., LTD.FUJIFILM Insurance Service Co., Ltd.＊2

FUJIFILM Human Resources Development Co., Ltd.Suzuka Fuji Xerox Co., Ltd.Fuji Xerox Information Systems Co., Ltd.Fuji Xerox Engineering Co., Ltd.Fuji Xerox Career Net Co., Ltd.Fuji Xerox System Service Co., Ltd.Fuji Xerox Learning Institute Inc.Fuji Xerox General Business Co., Ltd.＊2

FXPS Sales Co., Ltd.Niigata Fuji Xerox Manufacturing Co., Ltd.Fuji Xerox Imaging Materials Co., Ltd.Xworks Co., Ltd.CrossForce Co., Ltd.

EUROPE

FUJIFILM Europe B.V.FUJIFILM Europe GmbH FUJIFILM Holdings France S.A.S. FUJIFILM Graphic Systems France S.A.S. FUJIFILM France S.A.S.Laboratories FUJIFILM S.A.FUJIFILM Medical Systems France S.A.SFUJIFILM Espana, S.A.FUJIFILM Italia S.r.l.FUJIFILM Medical Systems Italia S.p.A. FUJIFILM Medical Systems Benelux N.V.Photofinishing Holding International B.V.Fujicolor Central Europe Photofinishing GmbH & Co. KGFUJIFILM Europe N.V.FUJIFILM Hunt Chemicals Europe, N.V.FUJIFILM Recording Media GmbHFUJINON (EUROPE) GmbH FUJIFILM Finance Europe B.V. FUJIFILM HOLDINGS UK LTD. FUJIFILM UK LIMITED. FUJIFILM Manufacturing Europe B.V. FUJIFILM Sericol Overseas Holdings LimitedFUJIFILM Sericol UK LimitedSericol Ink Limited FUJIFILM Imaging Colorants LimitedFUJIFILM Imaging Colorants Pension Trustees LimitedFUJIFILM Electronic Materials (Europe) N.V.

THE AMERICAS

FUJIFILM Holdings America CorporationFUJIFILM U.S.A., Inc.FUJIFILM e-Systems, Inc.FUJIFILM Sericol U.S.A., Inc.FUJIFILM Sericol Brasil Produtos para Impressao LtdaFUJIFILM Finance U.S.A., Inc. FUJIFILM Manufacturing U.S.A., Inc.FUJIFILM Hunt Chemicals U.S.A., Inc. FUJIFILM Hunt do Brasil - Producao de Quimicos Ltda. FUJIFILM Recording Media Manufacturing U.S.A., Inc. FUJIFILM Electronic Materials U.S.A., Inc. FUJIFILM Dimatix, Inc.FUJIFILM Medical Systems U.S.A., Inc.Problem Solving Concepts, Inc.FUJIFILM Hawaii, Inc.FUJIFILM Graphic Systems U.S.A., Inc.FUJIFILM Imaging Colorants, Inc.FX Global, Inc.FX Global Supply Solutions, Inc.FX Palo Alto Laboratory, Inc.FUJINON INC.FUJIFILM Canada Inc. Black Photo CorporationFUJIFILM do Brasil Ltda. FUJIFILM da Amazonia Ltda.

＊1: On April 1, 2007, Daiichi Radioisotope Laboratories, Ltd. changed its name to FUJIFILM RI Phama Co., Ltd.＊2: On July 1, 2007, FUJIFILM Insurance Service Co., Ltd. and Fuji Xerox General Business Co., Ltd. were integrated to form a new company, FUJIFILM Business Expert Corporation.

82

FUJIFILM

Annual Report 2007

Consolidated Subsidiaries

For updated mailing addresses and contact information for major Group companies, visit the FUJIFILM Holdings website

http://www.fujifilmholdings.com/en/business/group/

The following are included under “Others”:

Fuji Xerox Co., Ltd. Group sales companies(http://www.fujixerox.co.jp/eng/company/locations/)

FUJIFILM Sericol Group companies(http://www.fujifilmsericol.com/)

Fuji Hunt Photographic Chemicals, N.V. Group companies(http://www.fujihunt.com/)

FUJIFILM Electronic Materials (Europe) N.V. Group companies(http://www.fujifilm-ffem.com/)

ASIA & OTHERS

FUJIFILM (China) Investment Co., Ltd. FUJIFILM Imaging Systems (Suzhou) Co., Ltd.FUJIFILM Printing Plate (Suzhou) Co., Ltd. FUJIFILM Digital Imaging Products (SUZHOU) Co., Ltd.FUJIFILM STARLIGHT CO., LTD.FUJIFILM Starlight GRAPHIC SYSTEMS (SHANGHAI) CO., LTD.FUJIFILM Medical Systems (Shanghai) Co., Ltd.FUJIFILM (Shanghai) Trading Co., Ltd. FUJIFILM Hong Kong LimitedFUJINON TIANJIN OPTICAL CO., LTD. Fuji Xerox China Investments (Bermuda) LimitedFuji Xerox (China) LimitedFuji Xerox Eco-Manufacturing (Suzhou) Co., Ltd.Fuji Xerox of Shanghai LimitedFuji Xerox Industry Development (Shanghai) Co., Ltd.Fuji Xerox of Shenzhen Ltd.Fuji Xerox (Hong Kong) LimitedFuji Xerox Far East LimitedFuji Xerox Korea Company LimitedFuji Xerox Chung Cheong Company LimitedFuji Xerox Korea Information System Co., Ltd.Seoul Fuji Xerox Service Co., Ltd.Fuji Xerox Honam Co., Ltd.FUJIFILM Regional Services (Singapore) Pte LtdFUJIFILM (Singapore) Pte. Ltd. FUJIFILM Hunt Chemicals Singapore Pte. Ltd. FUJIFILM Electronic Materials Taiwan Co., Ltd.FUJIFILM (Malaysia) Sdn. Bhd. FUJIFILM (Thailand) Ltd. FUJIFILM Holdings Australasia Pty Ltd.FUJIFILM Australia Pty LtdRabbit Photo Pty Ltd.FUJIFILM Holdings NZ Ltd.Camera House Ltd.FUJIFILM NZ Ltd.Viko New Zealand Ltd. Fuji Xerox Asia Pacific Pte LtdFuji Xerox Leasing (China) LimitedFuji Xerox (Singapore) Pte LtdFuji Xerox Taiwan CorporationTaiwan Fuji Xerox System Service Corp.Fuji Xerox Australia Pty LimitedFuji Xerox Finance Limited (Australia)

Fuji Xerox (Sales) Pty LimitedFuji Xerox New Zealand LimitedFuji Xerox Finance Limited (New Zealand)

Thai Fuji Xerox Co., Ltd.Fuji Xerox Leasing (Thailand) LimitedFuji Xerox Philippines, IncorporatedFuji Xerox Myanmar Ltd.Fuji Xerox Asia Malaysia Sdn BhdFuji Xerox Eco-Manufacturing Co., Ltd.

Others: 77 companies Total consolidated subsidiaries: 227 companies

83

FUJIFILM

Annual Report 2007

July 2007 Printed in Japan

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This report is printed using Fujifilm graphic arts products.

For further information, please contact:

IR Office, Corporate Planning Div.FUJIFILM Holdings Corporation7-3, Akasaka 9-Chome, Minato-ku, Tokyo 107-0052, JapanTel: 81-3-6271-1111URL: http://www.fujifilmholdings.com/

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