Fujitsu 2004 Annual Report Download - page 30

28
lion), a decrease of ¥6.5 billion from the previous year,
reflecting the continuing redemption of corporate bonds that
contributed to the reduction in interest-bearing loans.
Also with respect to other income (expenses), we record-
ed gains on sales of marketable securities and the transfer of
the substitutional portion of our employees’ pension funds
to the Japanese government, and losses from restructuring
charges and other items. Further details are provided in the
“Explanation of Extraordinary Items in Other Income
(Expenses)” section below.
The amortization of unrecognized obligation for retire-
ment benefits was ¥56.9 billion ($537 million), an increase
of ¥13.0 billion compared to the prior year. This occurred
because weakness in equity markets during the prior fiscal
year resulted in a larger actuarial variance. After factoring in
these items, income before income taxes and minority inter-
ests was ¥157.0 billion ($1,481 million).
Income taxes were ¥92.2 billion ($870 million), and the
effective tax rate with respect to income before income taxes
and minority interests was 58.7%. Because of differences in
consolidated and non-consolidated capital gains recorded on
the sales of Fanuc shares, this exceeded the statutory income
tax rate. Current income tax in fiscal 2003 amounted to
¥34.1 billion ($322 million) and was primarily recorded for
domestic subsidiaries in the Software & Services segment.
Deferred income tax was ¥58.0 billion ($548 million), most-
ly reflecting the reversal of deferred tax assets for the
Company and its consolidated domestic subsidiaries.
Minority interests were ¥15.1 billion ($142 million), an
increase of ¥11.8 billion over the prior year. This was due
mainly to the increase in profits of such publicly listed
domestic companies as Fujitsu Support and Service Inc.,
Fujitsu Business Systems Ltd., and Shinko Electric
Industries Co., Ltd., as well as of Fujitsu TEN Limited.
Consolidated net income for the year was ¥49.7 billion
($469 million), representing the first net profit posted since
fiscal 2000.
Explanation of Extraordinary Items in
Other Income (Expenses)
During fiscal 2003, in addition to aggressive sales of assets
aimed at improving our financial strength, we transferred the
substitutional portion of our employees’ pension funds in
order to reduce the unrecognized obligation of retirement
benefits and lower the asset management risk related to pen-
sion assets.
· Gain on Sales of Marketable Securities
...............................................¥134.6 billion ($1,270 million)
At the request of Fanuc, we sold approximately 37 mil-
lion shares of our shareholdings in the company. The
proceeds from the sales were ¥217.5 billion ($2,052 mil-
lion), and the gains realized were ¥117.0 billion ($1,104
million). As a result of the sales, our ownership interest in
Fanuc was reduced to 18.64% (including shares held in our
pension trust account), and we therefore no longer treated it
as an equity method affiliate. Because the capital gains on
these sales were taxable on a non-consolidated basis, the
contribution of the sales proceeds to consolidated net
income in the fiscal year was limited to ¥28.1 billion ($265
million). Including gains from the sales of Fanuc shares,
total gains on the sales of marketable securities were ¥134.6
billion ($1,270 million).
· Gain on Sales of Property, Plant and Equipment
....................................................¥13.6 billion ($129 million)
In addition to securitizing the land and buildings of
newly constructed Fujitsu Solution Square (located in
Kamata, Tokyo), we aggressively sold properties, including
those that had been used for employee recreation, realizing
sales proceeds of ¥29.3 billion ($276 million).
· Gain on Transfer of Substitutional Portion of Employees’
Pension Funds .......................¥146.5 billion ($1,382 million)
We applied for an exemption from the obligation to pay
benefits for future employee services related to the substitu-
tional portion of the employees’ pension funds in which the
Company and our domestic subsidiaries participate. On
March 23, 2004, we received the approval for the exemption
from the Minister of Health, Labour and Welfare.
Accordingly, as of the date of approval, we recognized the
elimination of both the employee retirement obligations and
pension assets corresponding to the substitutional portion,
reporting the resulting gain in other income (expenses).
In order to strengthen the profitability of our global busi-
ness and our software and services business in Japan, we
implemented various measures to improve our business
structure, resulting in the following restructuring charges.
· Restructuring Charges ....................¥164.2 billion ($1,549 million)
· Global Restructuring Focusing on
North America.................¥75.7 billion ($715 million)
To better serve customers expanding their business on a
global basis, we are enhancing our ability to offer leading-
edge hardware and software worldwide under a unified
presence (our “One FUJITSU” initiative), and to continually
provide high-quality one-stop solutions in each region.
We merged two computer hardware sales operations in
the US, Fujitsu PC Corporation (focusing on PCs), and
Fujitsu Technology Solutions Inc. (focusing on servers), a
subsidiary of Fujitsu IT Holdings, Inc. (“FIH,” formerly
Amdahl), integrating them into the newly established Fujitsu
Computer Systems Corporation. This merger created a uni-
fied organization for hardware offerings and enabled a
reduction in overlapping functions and personnel, as well as
the disposal of assets.
In software and services, we realigned the operations of
Fujitsu Consulting Holdings, Inc. (the former DMR), which
had been a subsidiary of FIH, to focus on the North
American market. In conjunction with this, Fujitsu
Consulting’s operations in Spain were sold to a third party,
and other European operations were merged into Fujitsu
Services Holdings PLC (the former ICL). Operations in
Australasia were merged into Fujitsu Australia Limited.
These moves also enabled a reduction in overlapping func-
tions and personnel, and the elimination of assets.
The scope of the personnel reductions from these meas-
ures, primarily in North America and Europe, was
approximately 1,000 employees globally.
Thus, in North America, Fujitsu Computer Systems and
Fujitsu Consulting were made direct subsidiaries of Fujitsu
Limited, and FIH is being liquidated. Along with these
measures, we took a one-time charge for the amortization of
goodwill associated with the acquisition of Amdahl, the pre-
decessor of FIH, as well as for currency translation
adjustments on past investments.
The breakdown of the recognized losses was ¥28.9 bil-
FINANCIAL SECTION
Management’s Discussion and Analysis of Operations