Ricoh 2008 Annual Report Download - page 50

49 ANNUAL REPORT 2008
The net changes in the total valuation allowance for the years ended
March 31, 2006, 2007 and 2008 were a decrease of ¥1,118 million,
an increase of ¥4,202 million and a decrease of ¥1,738 million
($17,380 thousand), respectively. The valuation allowance
primarily relates to deferred tax assets of the consolidated
subsidiaries with net operating loss carryforwards for tax purposes
that are not expected to be realized.
In assessing the realizability of deferred tax assets, Ricoh considers
whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary
differences become deductible and whether loss carryforwards are
utilizable. Ricoh considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income
over the periods in which the deferred tax assets are deductible,
Ricoh believes it is more likely than not that the benefits of these
deductible differences, net of the existing valuation allowance will
be realized. The amount of the deferred tax asset considered
realizable, however, would be reduced if estimates of future taxable
income during the carryforward period are reduced.
As of March 31, 2008, certain subsidiaries had net operating losses
carried forward for income tax purposes of approximately ¥33,086
million ($330,860 thousand) which were available to reduce future
income taxes, if any. Approximately ¥1,294 million ($12,940
thousand) of the operating losses will expire within 3 years and
¥13,056 million ($130,560 thousand) will expire within 4 years to 7
years. The remainder principally have an indefinite carryforward
period.
Ricoh has not recognized a deferred tax liability for certain portion
of the undistributed earnings of its foreign subsidiaries of ¥249,361
million ($2,493,610 thousand) as of March 31, 2008 because Ricoh
considers these earnings to be permanently reinvested. Calculation
of related unrecognized deferred tax liability is not practicable.
Ricoh adopted FIN48 effective April 1, 2007. Total unrecognized tax
benefits as of the date of adoption were ¥8,508 million ($85,080
thousand), and no change to the balance was required as a result of
the adoption of FIN 48.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
Thousands of
Years ending March 31 Millions of Yen U.S. Dollars
Balance at April 1, 2007 ¥ 8,508 $85,080
Additions for tax positions of the current year 2,972 29,720
Additions for tax positions of prior years 2,456 24,560
Reductions for tax positions of prior years (1,768) (17,680)
Settlements (5,662) (56,620)
Other (883) (8830)
Balance at March 31, 2008 ¥ 5,623 $56,230
Total amount of unrecognized tax benefits that would reduce the
effective tax rate, if recognized, is ¥4,503 million ($45,030
thousand).
Although Ricoh believes its estimates and assumptions of
unrecognized tax benefits are reasonable, uncertainty regarding the
final determination of tax audit settlements and any related litigation
could affect the effective tax rate in the future periods. Based on
each of the items of which Ricoh is aware at March 31, 2008, no
significant changes to the unrecognized tax benefits are expected
within the next twelve months.
Ricoh recognizes interest and penalties accrued related to
unrecognized tax benefits in income taxes in the consolidated
statements of income. Both interest and penalties accrued as of
March 31, 2008 and interest and penalties included in income taxes
for the year ended March 31, 2008 are not material.
Ricoh files income tax returns in Japan and various foreign tax
jurisdictions. In Japan, Ricoh is no longer subject to regular income
tax examinations by the tax authority for years before 2007. While
there has been no specific indication by the tax authority that Ricoh
will be subject to a transfer pricing examination in the near future,
the tax authority could conduct a transfer pricing examination for
years after 2001. In other major foreign tax jurisdictions, including
the United States and United Kingdom, Ricoh is no longer subject
to income tax examinations by tax authorities for years before 2006
with few exceptions.
Net deferred tax assets as of March 31, 2007 and 2008 are included in the consolidated balance sheets as follows:
Thousands of
Millions of Yen U.S. Dollars
2007 2008 2008
Deferred income taxes and other (Current Assets) ¥ 44,682 ¥ 41,581 $ 415,810
Lease deposits and other (Non-current Assets) 35,652 43,528 435,280
Accrued expenses and other (Current Liabilities) (366) (781) (7,810)
Deferred income taxes (Long-Term Liabilities) (44,183) (36,373) (363,730)
¥ 35,785 ¥ 47,955 $ 479,550