Fujitsu 2010 Annual Report Download - page 93

Other Income (Expenses) and Net Income
In other income (expenses), equity in earnings of affiliates, net,
improved ¥36.8 billion from the previous year to ¥2.8 billion ($30
million), from a loss of ¥34.0 billion posted a year earlier. This out-
come stemmed from the conversion of Fujitsu Technology
Solutions and FDK, two equity-method affiliates that posted losses
in the previous fiscal year due to worsening performances and
structural reforms, into consolidated subsidiaries. The Company also
recorded a gain of ¥89.6 billion ($964 million) on sales of investment
securities as a result of FANUC Ltd.’s (FANUC) solicitation to repur-
chase its own shares from the Company, as well as ¥47.4 billion
($510 million) in restructuring charges. The restructuring charges
consisted of ¥26.3 billion in expenses to streamline personnel as
part of the realignment of European subsidiaries in operations
outside Japan, along with ¥21.1 billion related to the reassignment
of personnel accompanying LSI business production system realign-
ment, and to enhance the efficiency of administrative operations.
In April 2009, former equity-method affiliate in Europe, Fujitsu
Technology Solutions was converted into a wholly owned subsid-
iary. In tandem with this move, the Group realigned the Fujitsu
Technology Solutions Group and Fujitsu Services Group across
Europe, including in the U.K. and Ireland, Germany and the
Netherlands. This step was taken to eliminate redundancies and
heighten efficiencies in regions across Europe, as well as to maxi-
mize synergies with the Fujitsu Services Group. Furthermore, as
part of structural reforms in the LSI business, the Group made
progress on a plan begun in January 2009 to realign the produc-
tion system to match demand, as well as to enhance the efficiency
of administrative operations. By the end of fiscal 2009, the Group
had completed the integration and consolidation of three wafer
production lines phased in from September 2009.
Net income was ¥93.0 billion ($1,001 million), representing a
substantial improvement of ¥205.4 billion from the previous fiscal year.
Income before income taxes and minority interests improved
¥226.0 billion due to higher operating income, the gain on sales of
investment securities and the reflection of the posting in the previ-
ous fiscal year of impairment losses, a loss on revaluation of invest-
ment securities, and other charges. Income taxes were ¥15.7 billion
($170 million), with a tax burden relative to income before income
taxes and minority interests of 14%. Alongside the improvement
related to business activities, the Company reversed valuation
allowances due to an increase in the recoverable amount of
deferred tax assets in line with the posting of a gain on sales of
investment securities. In combination, these factors culminated in a
low tax burden for the year. The Company has material tax loss
carryforwards associated with past business structural reforms, and
records valuation allowances with respect to deferred tax assets in
excess of the estimated amount deemed recoverable for up to five
years in the future. While the Company has conservatively estimated
these future recoverable amounts, greater progress was made
recovering loss carryforwards than initially anticipated, due mostly
to the gain on sales of investment securities. Minority interests in
income of consolidated subsidiaries, meanwhile, came to ¥3.8
billion ($41 million), up ¥5.1 billion year on year, due primarily to
improved performance from a publicly listed electronic compo-
nents subsidiary.
The Group views profitability and efficiency of invested capital
in businesses as important management indicators. For fiscal 2009,
the return on equity, calculated by dividing net income by average
owners’ equity*1, was 12.0%, ending the year above 10% for the first
time since the fiscal year ended March 31, 2007.
*1 Owners’ equity = total net assets – subscription rights to shares – minority inter-
ests in consolidated subsidiaries.
2. Segment Information
Net Sales and Operating Income by Business Segment
Information on consolidated sales (including intersegment sales)
and operating income by business segment are presented below.
Technology Solutions
Sales in this segment in fiscal 2009 amounted to ¥3,121.0 billion
($33,560 million), up 1.4% from fiscal 2008. Sales in Japan were
down 7.3%. While sales from outsourcing services grew steadily,
revenues from system integration and solutions services declined
mainly in the manufacturing, retail/distribution, and financial ser-
vices sectors as companies cut spending. Sales were also hurt by
drops in prices for server-related products and the downturn in the
demand cycle for mobile phone base stations. Sales outside of
Japan rose 21.0%, but excluding the effects of the consolidation of
Fujitsu Technology Solutions and exchange rate fluctuations, actu-
ally declined 4.0%. Sales in this segment were negatively impacted
most notably by economic stagnation in Europe.
Segment operating income declined ¥36.2 billion year on year
to ¥152.4 billion ($1,639 million). In addition to lower revenues for
system integration and solutions services and an increase of ¥16.5
billion in retirement benefit costs, stemming from a worsening
investment environment for pension assets in the previous fiscal
year, there was a deterioration in profitability for certain projects at
the fiscal year-end. Outside Japan, in addition to the negative
impact of economic stagnation particularly in Europe, operating
income was affected by a one-time charge for expensing the fair
value of in-process R&D and the amortization of goodwill accompa-
nying the consolidation of Fujitsu Technology Solutions. Profitability
also deteriorated for some private- and public-sector projects.
In April 2009, the Company acquired all shares in former equity-
method affiliate Fujitsu Technology Solutions held by Siemens AG of
Germany, which held a 50% stake in the company, converting it into
a wholly owned subsidiary. In conjunction, the Group realigned the
Fujitsu Technology Solutions Group and Fujitsu Services Group in
every region across Europe, with the goal of eliminating
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FUJITSU LIMITED Annual Report 2010
Management’s Discussion and
Analysis of Operations