Ricoh 2007 Annual Report Download - page 37

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 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.
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36
ANNUAL REPORT 2007
1. NATURE OF OPERATIONS
The accompanying consolidated financial statements of Ricoh have
been prepared in conformity with U.S. generally accepted accounting
principles. Significant accounting and reporting policies are
summarized below:
(a) Basis of Presentation
The accompanying consolidated financial statements for each of the
years in the three year period ended March 31, 2007 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, 2007 is included solely for the
convenience of readers outside Japan and has been made using the
exchange rate of ¥118 to US$1, the approximate rate of exchange
prevailing at the Federal Reserve Bank of New York on March 31, 2007.
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 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% 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.
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 million and
accumulated other comprehensive income (loss) in shareholders’
investment decreased by ¥1,665 million.
(c) Revenue Recognition
Ricoh generates revenue principally through the sale of equipment,
supplies and related services under separate contractual arrangements
for each. 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.
Products sales 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. 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 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. 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 elements, 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 element meets the criteria for treatment as a
separate unit of accounting as prescribed in Emerging Issues Task Force
Issue (“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.
Revenue from the sale of equipment under sales-type leases is
recognized as product sales at the inception of the lease. Other revenue
2. SIGNIFICANT ACCOUNTING AND REPORTING POLICIES