Ricoh 2004 Annual Report Download - page 31

2. SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The accompanying consolidated financial statements of Ricoh have been
prepared in conformity with accounting principles generally accepted in the
United States of America. Significant accounting and reporting policies are
summarized below:
(a) Basis of Presentation
The accompanying consolidated financial statements for the three years
ended March 31, 2004 are presented in Japanese yen, the functional
currency of the Company and its domestic subsidiaries. The translation of
Japanese yen into U.S. Dollar equivalents for the year ended March 31, 2004
is included solely for the convenience of readers outside Japan and has been
made using the exchange rate of ¥104 to US$1, the approximate rate of
exchange prevailing at the Federal Reserve Bank of New York on March 31,
2004.
The books of the Company and its domestic subsidiaries are
maintained in conformity with Japanese accounting principles and
practices, while foreign subsidiaries maintain their books in conformity with
the standards of their country of domicile.
The accompanying consolidated financial statements reflect necessary
adjustments, not recorded in the books, to present them in conformity with
accounting principles generally accepted in the United States of America.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Ricoh. Investments in entities in which Ricoh has the ability to exercise
significant influence over the entities’ operating and financial policies
(generally 20 to 50 percent ownership) are accounted for on an equity basis.
All significant intercompany balances and transactions have been
eliminated in consolidation.
The accounts of certain consolidated subsidiaries have been included
on the basis of fiscal periods ended within three months prior to March 31.
(c) Revenue Recognition
Ricoh generates revenue principally through the sale of equipment, supplies
and related services under separate contractual arrangements for each.
Generally, Ricoh recognizes revenue when (1) it has a firm contract, (2) the
product has been shipped to and accepted by the customer or the service has
been provided, (3) the sales price is fixed or determinable and (4) amounts
are reasonably assured of collection.
Most equipment sales require that Ricoh install the product. As such,
revenue is recognized at the time of delivery and installation at the customer
location. Equipment revenues are based on established prices by product
type and model and are net of discounts and trade-in allowances. A sales
return is accepted only when the equipment is defective and does not meet
Ricoh’s product performance specifications. Other than installation, there
are no customer acceptance clauses in the sales contract.
Service revenues result primarily from maintenance contracts that are
normally entered into at the time the equipment is sold. Standard service
fee prices are established depending on equipment classification and
include a cost value for the estimated services to be performed based on
historical experience plus a profit margin thereon. As a matter of policy,
Ricoh does not discount such prices. On a monthly basis, maintenance
service revenues are earned and recognized by Ricoh and billed to the
customer in accordance with the contract and include a fixed monthly fee
plus a variable amount based on usage. The length of the contract ranges
up to five-years, however, most contracts are cancelable at any time by the
customer upon a short notice period.
Ricoh enters into arrangements with multiple elements, which may
include any combination of products, equipment, installment and
maintenance. Ricoh allocates revenue to each element based on its relative
fair value if such element meets the criteria for treatment as a separate unit
of accounting as prescribed in the Emerging Issues Task Force Issue
00-21(“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables”.
Pursuant to EITF 00-21, the delivered item in a multiple element
arrangement should be considered a separate unit of accounting if all of the
following criteria are met: 1) a delivered item has value to customers on a
stand-alone basis, 2) there is objective and reliable evidence of fair value of
an undelivered item, and 3) the delivery of the undelivered item must be
probable and controlled by Ricoh if the arrangement includes the right of
return. The price charged when the element is sold separately generally
determines fair value. Otherwise, revenue is deferred until the undelivered
elements are fulfilled as a single unit of accounting. EITF 00-21 was
effective for revenue arrangements entered into after June 30, 2003. EITF
00-21 did not have a material effect on Ricoh’s financial position or results
of operations.
(d) Foreign Currency Translation
For foreign operations with functional currencies other than the Japanese
yen, assets and liabilities are translated at the exchange rates in effect at
each fiscal year-end, and income and expenses are translated at the average
rates of exchange prevailing during each fiscal year. The resulting
translation adjustments are included as a part of accumulated other
comprehensive income (loss) in shareholders’ investment.
All foreign currency transaction gains and losses are included in other
income and expense in the period incurred.
(e) Cash Equivalents
Cash and cash equivalents include highly liquid investments with
maturities of three months or less at the date of purchase such as time
deposits and short-term investment securities which are available-for sale at
any time, present insignificant risk of changes in value due to being readily
30
Notes to Consolidated Financial Statements
Ricoh Company, Ltd. and Consolidated Subsidiaries
1. NATURE OF OPERATIONS
Ricoh Company, Ltd. (the “Company”) was established in 1936 and is
headquartered in Tokyo, Japan. The Company and its consolidated
subsidiaries (“Ricoh” as a consolidated group) is a world-wide supplier of
office automation equipment, including copiers, facsimile machines, data
processing systems, printers and related supplies. Ricoh is also well known
for its state-of-the-art electronic devices, digital photographic equipment
and other products.
Ricoh distributes its products primarily through domestic (Japanese)
and foreign sales subsidiaries. Overseas, Ricoh owns and distributes not
only Ricoh brand products but also other brands, such as Gestetner, Lanier
and Savin.
Ricoh manufactures its products primarily in 15 plants in Japan and 6
plants overseas, which are located in the United States, United Kingdom,
France and China.