Ricoh 2009 Annual Report Download - page 55

54
ANNUAL REPORT 2009
To Our Shareholders
and Customers
Fiscal 2009
Highlights
Progress of the
16th MTP
Creating New
Customer Value
RICOH
Milestones
Sustainable Environ-
mental Management
Corporate Social
Responsibility
Financial
Section
The net changes in the total valuation allowance for the years ended
March 31, 2007, 2008 and 2009 were an increase of ¥4,202
million, a decrease of ¥1,738 million and an increase of ¥13,511
million ($136,475 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, 2009, certain subsidiaries had net operating losses
carried forward for income tax purposes of approximately ¥98,028
million ($990,182 thousand) which were available to reduce future
taxable income, if any. Approximately ¥1,576 million ($15,919
thousand) of the operating losses will expire within 3 years,
¥12,151 million ($122,737 thousand) will expire within 4 years to 7
years and ¥63,060 million ($636,970 thousand) will expire over 7
years. The remainder have indefinite carryforward period.
Ricoh has not recognized a deferred tax liability for certain portion
of the undistributed earnings of its foreign subsidiaries of ¥167,769
million ($1,694,636 thousand) as of March 31, 2009 because Ricoh
considers these earnings to be indefinitely reinvested. The
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, and
a cumulative-effect adjustment was not 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:
Total amount of unrecognized tax benefits as of March 31, 2008
and 2009 that would reduce the effective tax rate, if recognized, are
¥4,503 and ¥11,071 million ($111,828 thousand), respectively.
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 as of March 31, 2009, no
significant changes to the unrecognized tax benefits are expected
within the next twelve months.
Ricoh recognizes interest and penalties related to unrecognized tax
benefits in provision for income taxes in the consolidated
statements of income. Both interest and penalties accrued as of
March 31, 2008 and 2009 and interest and penalties included in
provision for income taxes for the years ended March 31, 2008 and
2009 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 fiscal 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 fiscal years after 2003. 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 fiscal years before 2006 with few exceptions.
Thousands of
Millions of Yen U.S. Dollars
2008
2009 2009
Beginning balance ¥ 8,508
¥ 5,623 $ 56,798
Additions due to acquisition -
1,917 19,364
Additions for tax positions of current year 2,972
4,350 43,939
Additions for tax positions of prior years 2,456
1,538 15,535
Reductions for tax positions of prior years (1,768)
(546) (5,515)
Settlements (5,662)
(721) (7,283)
Other (883)
(345) (3,484)
Ending balance ¥ 5,623
¥ 11,816 $ 119,354