Fujitsu 2003 Annual Report Download - page 47

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The Company and the wholly-owned subsidiaries in Japan have adopted the consolidated tax return system of Japan
effective for and after the year ended March 31, 2003.
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
In accordance with the Commercial Code of Japan (the “Code”), the Company has accounted for the issuance of shares
including upon conversion of convertible bonds and the exercise of stock purchase warrants 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 additional paid-in
capital account. Additional paid-in capital was included in the capital surplus account and amounted to ¥394,441 millions
($3,287,008 thousands) at March 31, 2002 and 2003.
Also, in accordance with the Code, the Company has provided a legal reserve. The Code provides that an amount equal
to at least 10% of the amount to be disbursed as distributions of earnings be appropriated to the legal reserve account
until the total amount of such reserve and additional paid-in capital equals 25% of the amount of common stock. The
legal reserve was included in the retained earnings (deficit) account and amounted to ¥36,447 millions ($303,725
thousands) at March 31, 2002 and 2003.
The Code provides that neither additional paid-in capital nor the legal reserve is available for dividends, but both may
be used to reduce or eliminate a deficit by resolution of the shareholders or may be transferred to common stock by
resolution of the board of directors. On October 1, 2001, an amendment (the “Amendment”) to the Code became
effective. The Amendment provides that if the total amount of additional paid-in capital and the legal reserve exceeds
25% of the amount of common stock, the excess may be distributed to the shareholders either as return of capital or as
dividends subject to the approval of the shareholders. In addition, the Amendment eliminates the stated par value of the
Company’s outstanding shares, which resulted in all outstanding shares having no par value as of October 1, 2001. The
Amendment also provides that all share issuances after September 30, 2001 will be of shares with no par value. Prior to
the date on which the Amendment came into effect, the Company’s shares had a par value of ¥50.
Appropriations of retained earnings (deficit) for the year ended March 31, 2003, were recorded on the Company’s
statutory books of account after approval at the Annual Shareholder’s Meeting held on June 24, 2003, and will be
included in the following year’s consolidated balance sheet.
An increase as a result of stock exchange for the year ended March 31, 2002 reflected the issuance of shares by which
the Company turned Fujitsu Systems Construction Ltd. into a wholly owned subsidiary.
The changes in the number of issued shares of common stock for the years ended March 31, 2001, 2002 and 2003 are
as follows: Number of shares
2001 2002 2003
Balance at beginning of year 1,962,939,607 1,977,227,929 2,001,962,672
Exercise of warrants 11,488,174 ——
Conversion of convertible bonds 2,800,148 19,452,895 —
Increase as a result of stock exchange —5,281,848 —
Balance at end of year 1,977,227,929 2,001,962,672 2,001,962,672
13. Commitments and Contingent Liabilities
Commitments outstanding at March 31, 2003 for purchases of property, plant and equipment were approximately
¥15,130 millions ($126,083 thousands).
Contingent liabilities for guarantee contracts amounted to ¥39,001 millions ($325,008 thousands) at March 31, 2003.
Of the total contingent liabilities, guarantees given for employees’ housing loans were ¥16,900 millions ($140,833
thousands) in the aggregate and for credit facilities arranged for telecommunication equipment sales to China were
¥4,345 millions ($36,208 thousands).
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.