Ricoh 2006 Annual Report Download - page 31

Notes to Consolidated Financial Statements
Ricoh Company, Ltd. and Consolidated Subsidiaries
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 equipm ent, including copiers, facsimile m achines,
data processing system s, 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 m anufactures its products prim arily in 15 plants in Japan and 6
plants overseas, which are located in the United States, United
Kingdom , France and China.
To Our Shareholders and
Customers
General Information
by Business Area Ricoh's Core Values Solutions Environmental Financial Section
30
ANNUAL REPORT 2006
1 . NATURE OF OPERATIONS
The accompanying consolidated financial statements of Ricoh have
been prepared in conform ity with U.S. generally accepted accounting
principles. Significant accounting and reporting policies are
summ arized below:
( a) Basis of Pr esentation
The accompanying consolidated financial statements for each of years
in the three years ended March 31, 2006 are presented in Japanese yen,
the functional currency of the Com pany and its dom estic subsidiaries.
The translation of Japanese yen into U.S. Dollar equivalents for the year
ended March 31, 2006 is included solely for the convenience of readers
outside Japan and has been m ade using the exchange rate of ¥117 to
US$1, the approxim ate rate of exchange prevailing at the Federal
Reserve Bank of New York on March 31, 2006.
The books of the Company and its domestic subsidiaries are maintained
in conform ity with Japanese accounting principles and practices, while
foreign subsidiaries m aintain their books in conformity with the
standards of their country of domicile.
The accompanying consolidated financial statements reflect necessary
adjustm ents, not recorded in the books, to present them in conform ity
with U.S. generally accepted accounting principles.
( 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 intercom pany 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.
At the beginning of fiscal year 2005, the Company changed the year end
of certain overseas subsidiaries from December 31 to March 31. As a
result, unappropriated retained earnings increased by ¥777 m illion and
accum ulated other comprehensive income ( loss) in shareholders’
investm ent decreased by ¥1,665 million.
( c) Revenue Recognition
Ricoh generates revenue principally through the sale of equipment,
supplies and related services under separate contractual arrangem ents
for each. Ricoh recognizes revenue when ( 1) it has a firm contract, ( 2)
the product has been shipped to and accepted by the custom er or the
service has been provided, ( 3) the sales price is fixed or determinable
and ( 4) am ounts are reasonably assured of collection.
Products sales is recognized at the time of delivery and installation at
the custom er location. Equipment revenues are based on established
prices by product type and model and are net of discounts. 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.
Post sales and rentals result prim arily from m aintenance contracts that
are norm ally entered into at the tim e 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 perform ed
based on historical experience plus a profit m argin thereon. As a
matter of policy, Ricoh does not discount such prices. On a m onthly
basis, m aintenance service revenues are earned and recognized by
Ricoh and billed to the custom er in accordance with the contract and
include a fixed m onthly fee plus a variable am ount based on usage.
The length of the contract ranges up to five-years, however, m ost
contracts are cancelable at any tim e by the custom er upon a short
notice period. Leases not qualifying as sales-type leases or direct
financing leases are accounted for as operating leases and related
revenue is recognized over the lease term .
Ricoh enters into arrangements with multiple elem ents, which may
include any combination of products, equipment, installation and
maintenance. Ricoh allocates revenue to each element based on its
relative fair value if such elem ent meets the criteria for treatm ent 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 m et: 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 m ust be probable and controlled by
Ricoh if the arrangem ent includes the right of return. The price
charged when the element is sold separately generally determ ines fair
value. Otherwise, revenue is deferred until the undelivered elem ents are
2 . SIGNIFICANT ACCOUNTING AND REPORTING POLICIES