Ricoh 2009 Annual Report Download - page 42

41 ANNUAL REPORT 2009
shareholders’ investment.
All foreign currency transaction gains and losses are included in
other income and expenses 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 convertible into cash and have an
original maturity of three months or less, such as money
management funds and free financial funds.
(f) Derivative Financial Instruments and
Hedging Activities
As discussed further in Note 16, Ricoh manages its exposure to
certain market risks, primarily foreign currency and interest rate
risks, through the use of derivative instruments. As a matter of
policy, Ricoh does not enter into derivative contracts for trading or
speculative purposes.
In accordance with Statement of Financial Accounting Standards
(“SFAS”) No.133, as amended, Ricoh recognizes all derivative
instruments as either assets or liabilities in the consolidated
balance sheets and measures those instruments at fair value.
When Ricoh enters into a derivative contract, it makes a
determination as to whether or not for accounting purposes the
derivative is part of a hedging relationship. In general, a derivative
may be designated as either (1) a hedge of the fair value of a
recognized asset or liability or an unrecognized firm commitment
(“fair value hedge”), (2) a hedge of the variability of the expected
cash flows associated with an existing asset or liability or a
forecasted transaction (“cash flow hedge”), or (3) a foreign
currency fair value or cash flow hedge (“foreign currency hedge”).
Ricoh formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management
objective and strategy for undertaking various hedge transactions.
This process includes linking all derivatives that are designated as
fair value, cash flow, or foreign currency hedges to specific assets
and liabilities on the consolidated balance sheets or to specific firm
commitments or forecasted transactions.
For derivative contracts that are designated and qualify as fair value
hedges including foreign currency fair value hedges, the derivative
instrument is marked-to-market with gains and losses recognized in
current period earnings to offset the respective losses and gains
recognized on the change in fair value of the hedged item. For
derivative contracts that are designated and qualify as cash flow
hedges including foreign currency cash flow hedges, the effective
portion of gains and losses on these contracts is reported as a
component of accumulated other comprehensive income (loss) and
reclassified into earnings in the same period the hedged item or
transaction affects earnings. Any hedge ineffectiveness on cash
flow hedges is immediately recognized in earnings. For all derivative
instruments that are not designated as part of a hedging
relationship and for designated derivative instruments that do not
qualify for hedge accounting, the contracts are recorded at fair
value with the gain or loss recognized in current period earnings.
(g) Allowance for Doubtful Trade Receivables
and Finance Receivables
Ricoh records allowances for doubtful receivables that are based
upon historical experience and specific customer collection issues.
The estimated amount of probable credit losses in its existing
receivables is determined from write-off history adjusted to reflect
current economic conditions and specific allowances for
receivables including nonperforming leases, impaired loans or
other accounts for which Ricoh has concluded it will be unable to
collect all amounts due according to original terms of the lease or
loan agreement. Account balances net of expected recovery from
available collateral are charged-off against the allowances when
collection is considered remote.
(h) Securities
Ricoh applies SFAS No.115, “Accounting for Certain Investments in
Debt and Equity Securities” which requires all investments in debt
and marketable equity securities to be classified as either held-to-
maturity, trading, or available-for-sale securities. As of March 31,
2008 and 2009, Ricoh’s investments in debt and marketable equity
securities are classified as trading or available-for-sale securities.
Trading securities are reported at fair value with gains and losses
recognized in current earnings. Available-for-sale securities are
reported at fair value with unrealized gains and losses, net of related
taxes, reported in accumulated other comprehensive income (loss).
Available-for-sale securities, which mature or are expected to be
sold in one year, are classified as current assets.
Individual securities classified as available-for-sale securities are
reduced to fair market value by a charge to income for other than
temporary declines in value. Factors considered in assessing
whether an indication of other than temporary impairment exists
with respect to available-for-sale securities include: length of time
and extent of decline, financial condition and near term prospects of
issuer and intent and ability of Ricoh to retain its investments for a
period of time sufficient to allow for any anticipated recovery in
market value.
The cost of the securities sold is computed based on the average
cost of each security held at the time of sale.
Investments in affiliated companies over which Ricoh has the ability
to exercise significant influence, but does not hold a controlling
financial interest, are accounted for by the equity method.
Non-marketable equity securities owned by Ricoh primarily relate to
less than 20% owned companies and are stated at cost unless
indication of impairment exist, which require the investment to be
written down to its estimated fair value.
(i) Inventories
Inventories are mainly stated at the lower of average cost or net
realizable values. Inventory costs include raw materials, labor and
manufacturing overheads.
(j) Property, Plant and Equipment
For the Company and its domestic subsidiaries, depreciation of
property, plant and equipment is computed principally by using the
declining-balance method over the estimated useful lives. Most of
the foreign subsidiaries have adopted the straight-line method for
computing depreciation, which currently accounts for
approximately 33% of the consolidated depreciation expense. The
depreciation period generally ranges from 5 years to 50 years for
buildings and 2 years to 12 years for machinery and equipment.
Effective rates of depreciation for the years ended March 31, 2007,
2008 and 2009 are summarized below:
2007 2008
2009
Buildings 9.8% 10.1%
10.7%
Machinery and equipment 40.8 43.1
44.4