8. Financial Statements
In addition to business and other risks described above, the Group may also be impacted by the following risks related to its Financial Statements.
8-1. Property, Plant and Equipment
Depreciation of property, plant and equipment is mainly calculated by the declining balance method at rates based on the estimated useful lives of the respective assets, which vary according to their general classification, structure and function. In the future, in cases where equipment is no longer in use owing to obsolescence from technological advances, or due to the exiting of a business, useful life may end up being shorter originally estimated. As such, there is a risk that incidental losses may occur.
In addition, there is a risk of asset impairment losses if anticipated cash flow from assets declines as a result of sudden changes in the operating environment that lead to higher rates of idle equipment or lower rates of capacity utilization.
8-2. Intangible Assets (Software)
For the depreciation of software intended for commercial sale, we have adopted a method based on projected sales volume over the estimated life of the product. While projected sales volume is calculated based upon reasonable sales plans, one-time losses may occur if unit sales fall short of the original sales plan.
For software used in-house, we utilize a straight-line method based on the estimated useful life of the software. Should actual useful life in the future be less than the original estimate, there is a risk of incidental losses.
8-3. Goodwill
In terms of goodwill, incidental losses may occur if the profitability of an acquired business declines or we sell or exit from an acquired business.
8-4. Marketable Securities
In regard to other marketable securities that have market value, the value of such securities may change due to fluctuations in market value and, as a result, net assets may increase or decrease. In addition, when the fair value of other marketable securities decreases significantly, and excepting those cases in which the value is deemed to be recoverable, an impairment loss is posted. In future, should there be a significant decrease in fair value, and such value is not deemed to be recoverable, there is a possibility of impairment losses.
8-5. Retirement Benefit Obligations
Expenses and obligations for employee retirement benefits are calculated according to a variety of actuarial assumptions (discount rate, retirement rate, mortality rate, expected income rate, etc.). If actual experience differs from these underlying assumptions, or if the underlying assumptions themselves change, there is a possibility that it will affect the amount of the expense or obligation for retirement benefits.
In addition, in the event of a change in accounting standards in the countries in which our overseas subsidiaries are located or in Japan, there may be an impact on the amount of the expense or obligation for retirement benefits or shareholders' equity.
8-6. Deferred Tax Assets
The amount of deferred tax assets is posted appropriately on our balance sheet taking into account the balance of losses carried forward and other temporary differences. In the event that projected taxable income is higher or lower because of variations in future financial performance, there is a risk that the balance of deferred tax assets may increase or decrease. In addition, in the event that future revisions to tax regulations cause a change in the effective tax rate, there is a risk that the balance of deferred tax assets may increase or decrease.
8-7. Provision for Loss on Repurchase of Computers
A portion of the computers manufactured by the Fujitsu Group are sold to Japan Electronic Computer Co. Ltd. (JECC) and other leasing companies, which lease them to end users. Fujitsu enters into a contract with the leasing companies to repurchase the computers in the future, and at the time of sale a provision is recorded reflecting the expected loss that will be incurred at the time of repurchase. In the event there are changes in usage trends among customers, additions or reductions to the provision may be needed.
8-8. Provision for Product Warranties
To prepare for expenses to cover costs relating to the free repair and exchange of products covered under contracted warranty periods, we record at the time of sales a provision, based on past experience, to cover future estimated product repair and exchange costs. The Fujitsu Group is pursuing vigorous quality control measures at the manufacturing, development and procurement stages. However, should product defects exceed estimated levels, there is the possibility that additional expenses may arise.
8-9. Preparation for International Financial Reporting Standards
The Fujitsu Group is preparing to adopt International Financial Reporting Standards (IFRS). There is the possibility of losses as a result of the application of the lower-of-cost-or-market method of inventories valuation or depreciation methods based on economic changes in business situations. In addition, when we disclose reports based on IFRS, there is a possibility that discrepancies may arise with reports based on Japanese financial reporting standards.
