Fujitsu 2002 Annual Report Download - page 41

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The tax loss carryforwards expire at various dates, but extend up to 5 years in Japan and primarily 20 years outside
Japan. Realization is dependent on the abilities of the companies to generate sufficient taxable income prior to the
expiration of the tax loss carryforwards. A valuation allowance has been recorded for these deferred tax assets to the loss
carryforwards except for those expected to be realized.
Deferred tax liabilities has not been provided on the undistributed profit of affiliates, as it is deemed that any
distributions will not give rise to tax liabilities.
Deferred tax assets have not been provided for losses of subsidiaries except for those expected to be realized.
12. Shareholders’ Equity
The changes in the number of issued shares of common stock during the years ended March 31, 2000, 2001 and 2002 are
as follows: Number of shares
2000 2001 2002
Balance at beginning of year 1,884,139,404 1,962,939,607 1,977,227,929
Exercise of warrants 58,018,995 11,488,174 —
Conversion of convertible bonds 20,781,208 2,800,148 19,452,895
Increase arising from exchange offer procedures ——5,281,848
Balance at end of year 1,962,939,607 1,977,227,929 2,001,962,672
The issuance of shares upon the conversion of convertible bonds and the exercise of stock purchase warrants is
accounted for by crediting an amount equal to at least 50% of the amount of each issuance to the common stock account
and the balance to the capital surplus account in accordance with a provision of the Commercial Code of Japan, which
became effective October 1, 1982.
Appropriations of retained earnings for the year ended March 31, 2002, which included year-end cash dividends of
¥5,004 million ($37,624 thousand), were recorded on the Company’s statutory books of account after approval at the
Annual Shareholders’ Meeting held on June 25, 2002, and will be included in the following year’s consolidated balance
sheet.
An increase arising from exchange offer procedures during the year ended March 31, 2002 reflected the issuance of
stock which the Company made Fujitsu Systems Construction Ltd., a wholly owned subsidiary.
13. Commitments and Contingent Liabilities
Commitments outstanding at March 31, 2002 for purchases of property, plant and equipment were approximately
¥18,454 million ($138,752 thousand).
Contingent liabilities for guarantee contracts amounted to ¥47,686 million ($358,541 thousand) at March 31, 2002. Of
the total contingent liabilities, guarantees given for employees’ housing loans were ¥20,877 million ($156,970 thousand)
in the aggregate and for credit facilities arranged for telecom equipment sales to China were ¥6,385 million ($48,008
thousand).
14. Derivative Financial Instruments
Purpose of Derivative Trading
The Group enters into derivative transactions related to foreign currency exchange rates and interest rates in order to
reduce their risk exposure arising from fluctuations in these rates, to reduce the cost of the funds financed, and to improve
their return on invested funds.
Basic Policies for Derivative Trading
The Group basically enters into derivative transactions only to cover their actual requirements for the effective
management of receivables/liabilities, and not for speculative or dealing purposes.
The Group, in principle, has no intention to use derivative financial instruments that would increase market risks.
Furthermore, the counterparties to the derivative transactions are thoroughly assessed in terms of their credit risks.
Therefore, the Group believes that their derivative financial instruments entail minimal market and credit risks.
Control of Derivative Trading
The Group enters into derivative transactions based on regulations established by the Company, and control the risk of
the transaction by assessing the efficiency of their hedging.
Hedge accounting
The group has adopted hedge accounting for its derivative transactions.
Gains or losses on changes in the fair values of the hedging instruments which consist of forward exchange, option and
swap contracts and related complex contracts are recognized in income when the relating hedged items are reflected in
income.
Fair value of derivative financial instruments:
At March 31, 2001 and 2002, all derivative financial instruments were stated at fair value and recorded on the balance
sheet.