Ricoh 2003 Annual Report Download - page 35

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The related future m inimum lease paym ents and the present value of the net
minim um lease paym ents as of March 31, 2003 were ¥4,676 million ( $39,627
thousand) and ¥4,237 m illion ( $35,907 thousand) , respectively.
Ordinary maintenance and repairs are charged to expense as incurred. Major
replacem ents and improvem ents are capitalized. When properties are retired or
otherwise disposed of, the property and related accum ulated depreciation
accounts are relieved of the applicable am ounts, and any differences are included
in earnings.
( k) Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board ( “FASB”) issued SFAS
No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other
Intangible Assets.” SFAS No. 141 requires the use of only the purchase m ethod of
accounting for business com binations and refines the definition of intangible
assets acquired in a purchase business combination. SFAS No. 142 eliminates the
amortization of goodwill and instead requires annual impairm ent testing thereof.
SFAS No. 142 also requires acquired intangible assets with a definite useful life to
be am ortized over their respective estim ated useful lives and reviewed for im pair-
ment in accordance with SFAS No. 144. Any acquired intangible asset determ ined
to have an indefinite useful life is not amortized, but instead is tested for im pair-
ment based on its fair value until its life would be determ ined to no longer be
indefinite.
Ricoh fully adopted the provisions of SFAS No. 141 and SFAS No. 142 as of
April 1, 2002. Goodwill acquired in business combinations completed before July
1, 2001, was amortized until March 31, 2002. In connection with the transitional
impairm ent evaluation, SFAS No. 142 required Ricoh to perform an assessment of
whether there was an indication that goodwill was im paired as of April 1, 2002.
To accom plish this, Ricoh ( 1) identified its reporting units, ( 2) determ ined the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units,
and ( 3) determ ined the fair value of each reporting unit. Ricoh completed the
transitional assessment by Septem ber 30, 2002, and determined there was no
indication that goodwill had been im paired as of April 1, 2002. Ricoh also com-
pleted the annual assessment for the year ended March 31, 2003 and determ ined
that no goodwill im pairment charge was necessary.
Prior to the adoption of SFAS No. 142, Ricoh classified the cost in excess of
fair value of the net assets of com panies acquired in purchase transactions as
goodwill, and the goodwill was being amortized on a straight-line method over
the estim ated periods benefited, not to exceed 20 years.
( l) Pension and Retirement Allowances Plans
The measurem ent of pension costs and liabilities is determ ined in accordance
with SFAS No. 87, “Em ployers’ Accounting for Pensions.” Under SFAS No. 87,
changes in the amount of either the projected benefit obligation or plan assets
resulting from actual results different from that assum ed and from changes in
assum ptions can result in gains and losses not yet recognized in the consolidated
financial statem ents. Amortization of an unrecognized net gain or loss is
included as a com ponent of the net periodic benefit plan cost for a year if, as of
the beginning of the year, that unrecognized net gain or loss exceeds 10 percent of
the greater of ( 1) the projected benefit obligation or ( 2) the fair value of that
plan’s assets. In such case, the am ount of amortization recognized is the result-
ing excess divided by the average rem aining service period of active employees
expected to receive benefits under the plan. The expected long-term rate of return
on plan assets used for pension accounting is determ ined based on the historical
long-term rate of return on plan assets. The discount rate is determ ined based on
the rates of return of high-quality fixed-incom e investments currently available
and expected to be available during the period to m aturity of the pension benefits.
( m) Income Taxes
Incom e taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statem ent carrying am ounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit car-
ryforwards. Deferred tax assets and liabilities are m easured using enacted tax
rates expected to apply to taxable income in the years in which those tem porary
differences and carryforwards are expected to be realized or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in incom e
in the period that includes the enactment date.
Incom e taxes are provided for undistributed earnings of foreign subsidiaries.
( n) Research and Development Expenses and Advertising Costs
Research and development expenses and advertising costs are expensed as
incurred.
( o) Shipping and Handling Costs
Shipping and handling costs, which mainly include transportation to custom ers,
are included in selling, general and administrative expenses in the consolidated
statem ents of income.
( p) Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Im pair-
ment or Disposal of Long-Lived Assets.” SFAS No. 144 develops a single
accounting m odel, based on the framework established in SFAS No. 121,
“Accounting for the Im pairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of” for long-lived assets to be disposed of by sale, and broadens
the scope of what constitutes a business to be disposed of that should be
reported as a discontinued operation. The new standard was adopted on April
1, 2002, and did not have a m aterial effect on Ricoh’s consolidated financial
position or results of operations.
SFAS No. 144 requires that long-lived assets and acquired intangible assets
with a definite life are reviewed for impairm ent whenever events or changes in cir-
cumstances indicate that the carrying am ount of an asset or group of assets m ay
not be recoverable. Recoverability of assets to be held and used is assessed by com -
paring the carrying am ount of an asset or asset group to the expected future
undiscounted net cash flows of the asset or group of assets. If an asset or group of
assets is considered to be im paired, the im pairment charge to be recognized is
measured as the amount by which the carrying am ount of the asset or group of
assets exceeds fair value. Long-lived assets meeting the criteria to be considered as
held for sale are reported at the lower of their carrying am ount or fair value less
costs to sell.
Prior to the adoption of SFAS No. 144, Ricoh accounted for long-lived assets
in accordance with SFAS No. 121.
( q) Earnings Per Shar e
Basic net income per common share is calculated by dividing net incom e by the
weighted-average number of shares outstanding during the period. The calcula-
tion of diluted net incom e per com m on share is sim ilar to the calculation of basic
net incom e per share, except that the weighted-average num ber of shares out-
standing includes the additional dilution from potential common stock equiva-
lents such as convertible bonds.