Ricoh 2010 Annual Report Download - page 44

43 ANNUAL REPORT 2010
assets determined to have an indefinite useful life are reassessed
periodically based on the expected use of the asset by us, legal or
contractual provisions that may affect the useful life or renewal or
extension of the asset’s contractual life without substantial cost,
and the effects of demand, competition and other economic factors.
Impairment of Long-Lived Assets and Goodwill
As of March 31, 2010, the aggregate of Ricoh’s property, goodwill
and intangible assets was ¥657.5 billion, which accounted for
27.5% of Ricoh’s total consolidated assets. Ricoh believes that
impairment of long-lived assets and goodwill are critical to Ricoh’s
financial statements because the recoverability of the amounts or
lack thereof, could significantly affect its results of operations.
Ricoh periodically reviews the carrying value of its goodwill for
continued appropriateness. This review is based upon Ricoh’s
projections of anticipated future cashflows and estimated fair value
of the reporting units for which goodwill is assigned. Ricoh reviews
long-lived assets and acquired intangible assets with a definite life
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset or asset group may
not be recoverable. The recoverability of assets to be held and used
is assessed by comparing the carrying amount of an asset or asset
group to the expected future undiscounted net cashflows of the
asset or asset group. If an asset or asset group is considered to be
impaired, the impairment charge to be recognized is measured as
the amount by which the carrying amount of the asset or asset
group exceeds fair value. Long-lived assets meeting the criteria to
be considered as held for sale are reported at the lower of their
carrying amount or fair value less costs to sell.
While Ricoh believes that its estimates of future cashflows are
reasonable, different assumptions regarding such cashflows could
materially affect Ricoh’s evaluations.
Ricoh completed its annual impairment assessment of goodwill and
indefinite-lived intangible assets for the fiscal years 2009 and 2010
and determined that there were no reporting units with material
amounts of goodwill that were at risk of failing step one.
Accordingly, Ricoh concluded that no impairment charge was
necessary for fiscal years 2009 and 2010.
Impairment of Securities
Individual securities classified as available-for-sale securities are
reduced to their fair market value by a charge to income for
declines in value that are not temporary. Factors considered in
assessing whether an impairment other than a temporary
impairment exists include: (1) the financial condition and near term
prospects of the issuer and (2) the intent and ability of Ricoh to
retain such investment for a period of time sufficient to allow for
any anticipated recovery in market value. Ricoh believes that
3.2%, respectively. In determining the expected long-term rate of
return on pension plan assets, Ricoh considers the current and
projected asset allocations, as well as expected long-term
investment returns and risks for each category of the plan assets
based on Ricoh’s analysis of historical results. The projected
allocation of the plan assets is developed in consideration of the
expected long-term investment returns for each category of the
plan assets. To moderate the level of volatility in pension plan asset
returns and to reduce risks, approximately 35%, 40%, 20% and 5%
of the plan assets is projected to be allocated to equity securities,
debt securities, life insurance company general accounts and other
financial instruments, respectively. As of March 31, 2010, the
actual allocation of assets was generally consistent with the
projected allocation stated above. The actual returns for fiscal years
2008, 2009 and 2010 were approximately 6.4% (loss), 15.7%
(loss) and 15.5% (gain), respectively. The actual returns on
pension plan assets may vary in future periods, depending on
market conditions. The market-related value of plan assets is
measured using fair values on the plan measurement date.
With respect to the discount rate used in the annual actuarial
valuation of the pension benefit obligations, the other critical
assumption, Ricoh’s weighted average discount rates for fiscal
years 2008, 2009 and 2010 were 3.1%, 3.6% and 3.7%,
respectively. In determining the appropriate discount rate, Ricoh
considers available information about the current yield on high-
quality fixed-income investments that are currently available and are
expected to be available during the period corresponding to the
expected duration of the pension benefit obligations.
Purchase Accounting
Ricoh accounts for acquired businesses using the purchase method
of accounting which requires that the assets acquired and liabilities
assumed be recorded at the date of the acquisition at their
respective estimated fair values. The judgments made in
determining the estimated fair value assigned to each class of
assets acquired, as well as the estimated life of each asset, can
materially impact the net income of the periods subsequent to the
acquisition through depreciation and amortization, and in certain
instances through impairment charges, if the asset becomes
impaired in the future. In determining the estimated fair value for
intangible assets, Ricoh typically utilizes the income approach,
which discounts the projected future net cash flow using an
appropriate discount rate that reflects the risks associated with
such projected future cash flow. Determining the useful life of an
intangible asset also requires judgment, as different types of
intangible assets will have different useful lives and certain assets
may even be considered to have indefinite useful lives. Intangible