Japan


Home > About Toshiba > Investor Relations > Toshiba Overview >

Business Risk Factors

Risk factors relating the Group and its business

Source: Financial Review of Annual Report 2016 (FY2015)

The business areas of energy, infrastructure and storage, on which the Group focuses, require highly advanced technology for their operation. At the same time, the Group faces fierce global competition. Under such circumstance, major risk factors related to the Group recognized by the Company are described below. However, they should not be regarded as a complete and comprehensive statement of risk factors relating to the Group, and there are unforeseeable risk factors other than those described below. The actual occurrence of any of those risk factors may adversely affect the Group's operating results and financial condition.

The risks described below are identified by the Group based on information available to the Group as of June 22, 2016 and involve inherent uncertainties, and, therefore, the actual results may differ.

1. Risks related to management policy

(1) Strategic concentrated investment

The Group now focuses its capital expenditure and its investments and lending on the memory area. However, this area may not grow as anticipated, the Group may not maintain or strengthen its competitive power in such area, or the relevant investments may not fully generate the anticipated level of profit.

(2) Success of strategic business alliances and acquisitions

The Group has actively promoted business alliances with other companies, including the formation of joint ventures, and acquisitions, in order to grow new businesses in research and development, production, marketing and various other areas. If the Group has any disagreement with its partner in a business alliance or an acquisition in respect of financing, technological management, product development, management strategies or otherwise, such business alliance may be terminated or such business alliance or acquisition may not have the expected effects. In addition, additional capital expenditures and provision of guaranties may be needed to meet the obligations for such partnership business that may be incurred due to the deterioration of the financial condition of the partner, as well as for other reasons, and as a result, the Group's operating results and financial condition may be adversely affected.

(3) Business structure reformation

The Group as a whole forced through large scale business structure reform in the fiscal year ended March 31, 2016 (“FY2015”), and the Group has incurred a large amount of expenses for such business structure reform. Now we have some good prospect that we can complete our business structure reform. However, in the event of the failure of the reform programs to produce the expected results, the Group may incur additional expenses for business structure reform due to the necessity of additional measures and in such case the Group's operating results or financial condition may be adversely affected.

To Top

2. Risks related to financial condition, results of operations and cash flow

(1) Business environment of the Energy Systems & Solutions business

A significant portion of the net sales in the Energy Systems & Solutions business is attributable to sales related to capital expenditures by the private sector centering on operators of electricity utilities in Japan and overseas. Accordingly, this business could be affected by trends in such capital expenditures, and low levels of private capital expenditures due to the economic recession, and exchange rate fluctuations may have a negative impact on this business.

Furthermore, this business promotes and involves the supply of products and services for large-scale projects on a worldwide basis. Post order changes in the specifications or other terms, delays, appreciation of material costs, changes to and suspension or stoppage of plans for various reasons, including policy changes, natural and other disasters and other factors, may adversely and substantially affect the progress of such projects. In addition, in the projects where the percentage-of-completion method is used for revenue recognition, the Group may retroactively reassess profits that had been recorded as accrued and record them as losses if, among other things, the original estimate is underestimated, the expected profits from such projects do not meet original expectations, or the projects are delayed or cancelled for some reason. In the past, the Group recorded losses on certain projects.

Furthermore, it may not be possible to pass on to the customer or others any additional costs incurred due to the stoppage of the project, changes in regulations or other terms, delays in the work process, or unexpected events specific to first models and such costs may not be collected, or a dispute may arise over such costs. In fact, there are certain projects regarding which the Group is taking legal action. With respect to the investments in an operator that promotes a certain project which investment is made in order to secure the order from such operator, there may be impairments in investments, increases in the financial burden, delays in payouts depending upon the trends in projects.

Although difficulties may arise for the continuance of certain currently ongoing projects due to a change in the policies of fund providers and other factors, the Group is making every effort to obtain other fund providers for such pending projects.

(2) Business environment of the Infrastructure Systems & Solutions business

The Infrastructure Systems & Solutions business provides diversified solutions for the areas of public infrastructure, buildings and facilities, and industrial systems.

Since a significant portion of the net sales in this business is attributable to sales related to expenditures on public works and capital expenditures by the private sector, reductions or delays in spending on public works, low levels of private capital expenditures due to the economic recession, and trends in building and housing construction on a worldwide basis and other factors may have a negative impact on this business.

This business is promoting its business development on a worldwide basis. Post order changes in the specifications or other terms, changes to and stoppages of plans for various reasons including policy changes, changes in regulations, appreciation of material costs and personnel expenses, natural and other disasters and other factors, may adversely and substantially affect the progress of this business. In addition, exchange rate fluctuations and other factors may also have a negative impact on this business.

In addition, in projects where the percentage-of-completion method is used for revenue recognition, the Group may retroactively reassess profits that had been recorded as accrued and record them as losses if, among other things, the original estimate is underestimated, the expected profits from such projects do not meet original expectations, or the projects are delayed or cancelled for some reason. In the past, the Group recorded losses on certain projects.

(3) Business environment of the Retail & Printing Solutions business

The Retail & Printing Solutions business provides retail solutions for the retail distribution industry and service industry, offices, manufacturing and logistics industries and particular customers, as well as printing solutions for offices, and manufacturing and logistics industries. The results of this business may be adversely affected by any changes in political and economic conditions, taxation, environmental regulations and foreign exchange; and postponement or suspension of capital expenditure by reason of customers' earnings deterioration, acceleration of industrial realignment due to compounding and systemization, more intensified market competition with competitors, new entries into such industry, and similar events.

(4) Business environment of the Storage & Electronic Devices Solutions business

While the substantial portion of operating income/loss of the Group relies on the Storage & Electronic Devices Solutions business, the market for this business is highly cyclical, depending on demand and supply, and intensely competitive, with many companies, mainly in overseas markets, manufacturing and selling products similar to those offered by the Group. The results of this business tend to change with economic fluctuations and, in particular, to be heavily affected by exchange rate fluctuations. Unforeseen market changes such as changes in the consumer market or in semiconductor heavy users and corresponding changes in demand at the time of production may result in a mismatch between the production of particular products based on the sales volume initially expected and the actual demand for such products, or cause the business to be adversely affected by a decrease in product unit prices due to oversupply. In particular, the price for NAND flash memory, the Group's major product in this business, may undergo rapid change.

Fluctuations in the results of this business may materially and adversely affect the Group's overall business performance. In addition, the market may face a downturn, the Group may fail to market new products in a timely manner, production may not go as planned, or a rapid introduction of new technology may make the Group's current products obsolete. Economies of scale with respect to the manufacture of NAND flash memory are significant and there is intense competition to develop and market new products. Therefore, significant levels of capital expenditures are required to maintain and improve competitiveness in both the price and quality of products. However, there is a possibility that the necessary amount of capital expenditure cannot be secured at appropriate timing depending on the financing environment of the Group and other factors.

(5) Business environment of the Industrial ICT Solutions business

A significant portion of the net sales in the Industrial ICT Solutions business is attributable to sales related to private IT investments by, among others, the financial sector and major manufacturers, as well as national and local government expenditures on public IT investments. Accordingly, this business could be affected by changes in such investments. Low levels of private IT investments due to economic recession, and reductions and delays in spending on public IT investments may have a negative impact on this business. Since the solution services field of this business accepts most orders by executing service contracts and the term from order to delivery is relatively long, additional costs over original expectations may be incurred, if, among others, the original estimate is underestimated or a problem occurs in project management. Furthermore, in the case of delay of delivery or defects of delivered systems, the Group may be required to pay damages.

(6) Business environment of Others

The market for personal computers and televisions is intensely competitive, with many companies manufacturing and selling products similar to those offered by the Group and under the circumstances where earnings are structurally difficult to be recorded. Additionally, such businesses may be significantly affected by exchange rate fluctuations, wide availability of alternative products or lower priced products, economic fluctuations and consumer spending trends which may be affected by the scheduled increase in consumption tax, among other things. Moreover, any rapid fluctuation in demand may result in price erosion or increases in prices of parts and components, which may adversely affect the Group's financial results with respect to this business. Large scale business structure reform was implemented in such businesses, but in the event where the reform programs fail to produce the expected results, or in case of similar events, additional measures may be needed.

(7) Financial risk

Apart from being affected by the business operations of the Company or the Group, the Company's consolidated and nonconsolidated results and financial condition may be affected by the following major financial factors:

(ⅰ) Deferred tax assets

The Group accounted for deferred tax assets. The Group reduces deferred tax assets by a valuation allowance if, based on the weight of available evidence, some portion or all of the deferred tax assets are unlikely to be realized. Recording of valuation allowances includes estimates and therefore involves inherent uncertainty.

The Group may also be required hereafter to record further valuation allowances, and the Group's future results and financial condition may be adversely affected thereby.

In addition, the Group may be affected by future tax regulatory changes as the recordation of deferred tax assets and valuation allowances have been made based on the currently-effective tax regulations.

(ⅱ) Exchange rate fluctuations

The Group conducts business in various regions worldwide using a variety of foreign currencies and is therefore exposed to exchange rate fluctuations.

Although the Group makes efforts to minimize the effect of fluctuation in exchange rates by balancing sales in foreign currencies and purchase in foreign currencies, there is a possibility that operating income/loss will be affected by exchange rate fluctuations due to a change in the balance in each business segments and other factors. Also, there is a possibility that such foreign exchange losses will occur, as resulting from a difference between the exchange rates at the time of recognizing and at the time of settlement of the credits and debts in foreign currencies, in case of steep exchange rate fluctuations.

Foreign currency denominated assets and liabilities held by the Group are translated into yen as the currency for reporting consolidated financial results. The effects of currency translation adjustments are included in “accumulated other comprehensive income (loss)” reported as a component of equity attributable to shareholders of the Company (“shareholders' equity”). As a result, the Group's shareholders' equity may be adversely affected by exchange rate fluctuations.

(ⅲ) Accrued pension and severance costs

The Group recognizes the funded status (i.e., the difference between the fair value of plan assets and the benefit obligations) of its pension plan in the consolidated balance sheets, with a corresponding adjustment, net of tax, included in “accumulated other comprehensive loss” reported as a component of shareholders' equity. Such adjustment to “accumulated other comprehensive loss” represents the result of adjustment for the net unrecognized actuarial losses, unrecognized prior service costs, and unrecognized transition obligations. These amounts will be subsequently recognized as net periodic pension and severance costs calculated pursuant to the applicable accounting standards. The funded status of the Group's pension plan may deteriorate due to declines in the fair value of plan assets caused by lower returns, increases of severance benefit obligations caused by changes in the discount rate, salary increase rates or other actuarial assumptions. As a result, the Group's shareholders' equity may be adversely affected, and the net periodic pension and severance costs to be recorded in “cost of sales” or “selling, general and administrative expenses” may increase.

(ⅳ) Impairment of long-lived assets, goodwill and listed shares.

If there is an indication of impairment for a long-lived asset and the carrying amount of such asset will not be recovered by the future undiscounted cash flow, the carrying amount may be reduced to its fair value and a loss may be recognized as an impairment with respect to such difference. As of March 31, 2016, 337.3 billion yen of goodwill was recorded in the Company's consolidated balance sheets in accordance with U.S. generally accepted accounting principles. Out of the above, 268.1 billion yen was allocated to the Energy Systems & Solutions business, most of which was recorded due to the acquisition of Westinghouse group conducted in October 2006 and the acquisition of Landis+Gyr conducted in July 2011. Goodwill is required to be tested for impairment annually. If an impairment test shows that the total of the carrying amounts, including goodwill, in relation to the business related to such goodwill exceeds its fair value, the relevant goodwill must be recalculated, and the difference between the current amount and the recalculated amount will be recognized as an impairment. In addition to the above annual impairment test, if any event indicating a decline in corporate value owing to changes in the business environment or other factors arises, and the total of the carrying amounts exceeds its fair value, an impairment will be recognized. Therefore, additional impairments may be recorded, depending on the valuation of long- lived assets, the estimate of future cash flow from business related to goodwill, and changes in the discount rate for the weighted average capital cost.

Also, if the market price of listed shares held by the Group as the marketable securities declines, there is a possibility that an impairment loss on the relevant shares will be recorded or that the net unrealized losses on securities will be negatively recognized.

(ⅴ) Shareholders' equity

The Group recorded a very large operating loss and net loss attributable to shareholders of the Company in FY2015 owing to, among others, the impact of impairment of goodwill and intangible assets, provisions for unprofitable projects, and expenses incurred for business structure reform, and as a result, substantial consolidated net assets of the Group decreased. Therefore, when the Company executes an EPC (Engineering, Procurement and Construction) agreement in overseas markets, the Company may not be able to satisfy the financial standards required by the ordering party, and as a result, the Company's ability to accept orders may be adversely affected.

(8) Changes in financing environment and others

The Group has substantial amounts of interest-bearing debt for financing that is highly susceptible to market environments, including the financial crisis, interest rate movements and fund supply and demand. Thus, changes in these factors may have an adverse effect on the Group's funding activities. The Group has also been raising funds by issuing bonds or taking loans from financial institutions. In the case the financial markets fall into unstable turmoil, the financial institutions' reduction in their lending in response to the change in capital adequacy requirements, or the downgrading of the credit rating of the Company given by rating agencies, there can be no assurance that the Group will obtain refinancing loans or new loans in the future on similar terms. If the Group is unable to obtain loans for the amount needed by the Group in a timely manner, the Group's financing may be adversely affected. Moreover, because of the amendments of the past Annual Securities Reports and other reports, which is described in “10. Past inappropriate accountings,” below and the continuing deterioration in the operating results, the long-term credit rating assigned by Moody's Japan K.K. was downgraded by 7 notches, the long-term credit rating assigned by Standard & Poor's Ratings Japan K.K. was downgraded by 6 notches, and the long-term credit rating assigned by Rating and Investment Information, Inc. was downgraded by 3 notches for the period from the filing date of the Annual Securities Report for the 176th term of the previous fiscal year to June 22, 2016, and the credit ratings may be downgraded further in the future.

In addition, loan agreements entered into between the Company and several financial institutions provide for financial covenants. Therefore, if the Company's consolidated net assets, consolidated operating income or credit rating falls below the respective levels provided for in the financial covenants, the Company's obligations with respect to the relevant loan repayments may be accelerated upon demand by the relevant lending financial institutions. Furthermore, any breach by the Company of those financial covenants may trigger acceleration of the bonds or other borrowings of the Company.

The Company will make all possible efforts to obtain the understanding of the lending financial institutions with respect to this, in order to avoid breaching financial covenants and the consequent acceleration of repayments. However, if any acceleration of the Company's loan repayments occurs, it may materially and adversely affect the Company's business operations.

To Top

3. Risks related to business partners and others

(1) Procurement of components and materials

It is important for the Group's business activities to procure materials, components and other goods in a timely and appropriate manner. However, such materials, components and goods may only be obtainable from a limited number of suppliers due to the particularity of such materials, components and goods, and, therefore, such suppliers may not be easily replaced [if the need to do so arises]. In cases of delay or other problems in receiving supply of such materials, components and other goods, shortages may occur or procurement costs may rise. It is necessary to procure materials, components and other goods at competitive costs and to optimize the entire supply chain, including suppliers, in order for the Group to bring competitive products to market. In addition, a shortage in the electric power supply resulted from the suspension of the operation of nuclear power plants in Japan and a further rise in electricity costs due to the rise of fuel costs affected by exchange rate fluctuations may affect business activities, including manufacturing operations, of the Group, since a stable supply of electricity is essential to the Group's business activities.

Any failure by the Group to procure such materials, components and other goods from key suppliers or any shortage in the power supply or further rise in electricity costs may adversely impact the Group's competitiveness. Furthermore, any case of defective materials, components or other goods, or any failure to meet required specifications with respect to such materials, components or other goods, may also have an adverse effect on the reliability and reputation of the Group and Toshiba brand products.

(2) Securing human resources

A large part of the success of the Group's businesses depends on securing excellent human resources in every business area and process, including product development, production, marketing and business management. In particular, securing the necessary human resources is essential in respect of achieving globalization of the Group's businesses. However, competition to secure human resources is intensifying, as the number of qualified personnel in each area and process is limited, while demand for such personnel is increasing. As a result, the Group may fail to retain existing employees or to obtain new human resources or require costs more than in the past in order to obtain such human resources.

In order to reduce fixed costs, the Group carried out in FY2015 a personnel rationalization through rearrangement of personnel and early retirement incentive program including re-employment support and is implementing personnel measures, including the reallocation of human resources to focus on strong and promising businesses, bonus reduction, reduction of remuneration of the management, revision of various allowances and daily wages, reclaiming jobs that are outsourced to third parties or conducted by limited-term employees, and reducing the number of limited-term employees. However, fixed costs may not be reduced as anticipated or the implementation of such personnel measures may adversely affect the Group's employee morale, production efficiency or the ability to secure capable human resources.

To Top

4. Risks related to products and technologies

(1) Investments in new businesses

The Group invests in companies involved in new businesses, enters into alliances with other companies with respect to new businesses, and actively develops its own new businesses.

Cultivation of new businesses entails substantial uncertainty, and if any new business in which the Group invests or which the Group attempts to develop does not progress as planned, the Group may be adversely affected by incurring investment expenses that do not lead to the anticipated results.

To Top

5. Risks related to trade practices

(1) Parent company's guarantees

When a subsidiary of the Company accepts an order for a large project, such as a plant, the Company, as the parent company, may, at the request of the customer, provide guarantees with respect to the subsidiary's performance under the contract. Such parent guarantees are made pursuant to standard business practices and in the ordinary course of business. If the subsidiary subsequently fails to fulfill its obligations, the Company may be obligated to bear losses as a result.

In addition, if the Company's consolidated net assets, consolidated operating income or credit ratings fall below the respective levels provided for in the contracts with such customers, the relevant guarantees could be required to be replaced by letters of credit or bonds. In fact, certain contracts have been so replaced.

To Top

6. Risks related to new products and new technology

(1) Development of new products

It is critically important for the Group to offer innovative and attractive new products and services. However, due to the rapid pace of technological innovation, the emergence of alternative technologies and products and changes in technological standards, the optimum introduction of new products to the market may not be accomplished, or new products may be accepted by the market for a shorter period than anticipated. In addition, any failure on the part of the Group to continuously obtain sufficient funding and resources for development of technologies may affect the Group's ability to develop new products and services and to introduce them to market.

From the viewpoint of enhancing concentration and selection of managerial resources, the Group now selects research and development themes more rigorously, with a primary focus on developing original and advanced technologies, with close consideration for the timing of market introduction. In certain products and technological fields, the research and development may not proceed due to more focus on research and development in other products and technological fields, and as a result, the Group's technological superiority may be impaired.

To Top

7. Risks related to laws and regulations

(1) Information security

The Group maintains and manages personal information obtained through business operations. Even though the Group makes every effort to manage this information appropriately, the Group's brand image, reputation and business performance may be subject to negative influences, or the Group may be found to be liable for damages in the event of an unanticipated leak of such information which results in illegal retention or usage of such information by a third party.

The Group also maintains and manages trade secrets regarding the Group's technology, marketing and other business operations. The Group is implementing measures to prevent leakage of such trade secrets outside the Group through maintaining and tightening control of its information management system, training its employees, and other measures.

However, in the past, situations have occurred in which leakage of trade secrets was suspected. The Group's competitive power may be weakened and the Group's business, operating results and financial condition may be subject to negative influences, in the event of an unanticipated leak of such information which results in illegal retention or usage of such information by a third party.

Additionally, the role of information systems in the Group is critical to carrying out business activities. While the Group makes every effort to ensure the stable operation of its information systems, there is no assurance that their functionality would not be impaired or destroyed by computer viruses, software or hardware failures, disaster, terrorism, or other causes, and in such cases the Group's business performance may be adversely affected.

(2) Compliance and internal control

The Group is active in various businesses in regions worldwide, and its business activities are subject to the laws and regulations of each region. The Group has implemented and operates the internal control systems for a number of purposes, including compliance with laws and regulations and strict reporting of business and financial matters.

However, in FY2015, it was recognized that inappropriate accountings such as the priority of benefit and advance of expenses were repeatedly conducted in the Company for the past several years, and there was deficiency in the internal control related to reporting of business and financial matters. Based on the recommendations by the Independent Investigation Committee made on July 20, 2015, the Company established a Management Revitalization Committee which is intended to appropriately operate and implement, among others, a new management structure, reform of the governance structure and measures to prevent reoccurrence of inappropriate accountings. Under the management revitalization structure established on September 30, 2015, the Company carried out construction and operation of appropriate internal control systems, and as a result, the Company has already established and largely implemented the measures of its improvement plan for rectifying the material weakness in company-level internal controls over financial report that the Company identified in the fiscal year ended March 31, 2015. However, there are some measures regarding which the implementation status cannot be verified yet due to constraints in the implementation period, and not all the implementation status of the improvement measures have been sufficiently verified. Moreover, in connection with the closing and financial reporting process, certain items for restatement were discovered in the course of the audit of financial statements. Taking these factors into account, the Company has judged that there is material weakness in internal controls requiring disclosure as of June 22, 2016.

Moreover, such internal control systems may themselves, by their nature, have limitations, and it is not possible to guarantee that they will fully achieve their objectives. Therefore, there is no assurance that the Group will not unknowingly and unintentionally violate laws and regulations in future. Changes in laws and regulations or changes in interpretations of laws and regulations by the relevant authorities may also cause difficulty in achieving compliance with laws and regulations, or in continuing business in certain regions or business categories, and may result in increased compliance costs. Furthermore, if the Group is in violation of these laws and regulations, the Group may be subject to administrative sanctions, such as fines, or criminal penalties, and legal actions claiming damages may be filed against the Group. In such cases, the Group's reputation may be adversely affected, and the Group's business, operating results and financial condition may be adversely affected. In the past, the Company was imposed fines as administrative sanctions.

(3) The environment

The Group is subject to various environmental laws, including laws on air pollution, water pollution, toxic substances, waste disposal, product recycling, prevention of global warming and energy policies, in its global business activities.

It is possible that the Group may encounter legal or social liability for environmental matters, such as liability for the clean up of land at manufacturing bases throughout the world, regardless of whether the Group is at fault or not, with respect to its business activities, including its past activities.

It is also possible that, in future, the Group will face more stringent requirements on the removal of environmental hazards, including toxic substances, or on further reducing emissions of greenhouse gases, as a result of the introduction of more demanding environmental regulations or in accordance with societal requirements.

The Group's operations require the use of various chemical compounds, radioactive materials, nuclear materials and other toxic materials.

However, the Group may incur damage, or the Group's reputation may be adversely affected, as a result of a natural disaster, the threat or occurrence of a terrorist incident, or of an accident or other contingency (including those beyond the Group's control) that leads to environmental pollution or the potential for such pollution.

(4) Product quality claims

While the Group makes every effort to implement quality control measures and to manufacture its products in accordance with appropriate quality-control standards, in the past, the Group recalled certain products, and lawsuits and other claims relating to product quality were filed against the Group, and there is no assurance that all products are free of defects that may result in such product quality claims due to unforeseen reasons or circumstances. Furthermore, if material product quality claims occur in large projects, and there are long delays in deliveries to customers or reworking is needed, the Group may be liable for a large amount in expenses or damages.

To Top

8. Risks related to material legal proceedings

(1) Legal proceedings

The Group undertakes global business operations and is involved from time to time in disputes, including lawsuits and other legal proceedings, and investigations by relevant authorities. It is possible that such cases may arise in the future.

Due to the differences in judicial systems and the uncertainties inherent in such proceedings, the Group may be subject to a ruling requiring payment of amounts far exceeding its expectations. Any judgment or decision unfavorable to the Group could also have a material adverse effect on the Group's business, operating results or financial condition. In addition, due to various circumstances, there can be no assurance that lawsuits involving claims for large sums will not be brought, even if the possibility of receiving orders for such payment is quite low.

The Group is under investigation by the European Commission, and other competition regulatory authorities, for alleged violations of competition laws with respect to products that include semiconductors, cathode ray tubes (CRT), heavy electrical equipment, and optical disc devices. In addition, class action lawsuits and other claims with respect to alleged anti-competitive behavior regarding certain products brought against the Group are currently pending.

In November 2014, there was an arbitral award against the Group to find the breach of contracts with clients for the reason of defect of electricity meter in Europe. In July 2015, new arbitration seeking damages and others was filed. Now, the Group is asserting its opinion in the arbitration.

To Top

9. Risks related to directors, employees, major shareholders and affiliates

(1) Alliance in NAND flash memory

The Group has a strategic alliance with a U.S. company, SanDisk Corporation (“SanDisk”), for the production of NAND flash memory, which includes production joint ventures (equity method affiliates). Under the joint venture agreement, the Group may purchase SanDisk's ownership interests in the production joint ventures. In addition, the Company and SanDisk each provide a 50% guaranty in respect of the lease agreements of production facilities held by the production joint ventures. In the event that SanDisk's operating results and financial condition deteriorate, the Company may succeed to SanDisk's guaranty obligations or purchase SanDisk's ownership interests in the relevant production joint ventures, in which case the production joint ventures will be treated as consolidated subsidiaries of the Company.

(2) Alliance in nuclear power systems business

The Group acquired Westinghouse group in October 2006. The Company's ownership interest in Westinghouse group (including the holding companies) is currently 87% at present. The remainder is held by two companies in Japan and overseas (the “Minority Shareholders”). The Company is considering inviting the participation of new investors in Westinghouse, on the condition that the Company retains a majority-in-interest.

The Minority Shareholders, based on a separate agreement with the Company, have been given an option to sell all or part of their ownership interests to the Company (“Put Options”).

The Group also has an option to purchase from the Minority Shareholders all or part of their respective ownership interests in companies of Westinghouse group under certain conditions. These options are in place for the purpose of protecting the interests of the Minority Shareholders, while preventing equity participation by a third party which may put the Group at disadvantage. The Company makes every effort to maintain a favorable relationship with the Minority Shareholders in connection with Westinghouse group's business. However in the event that the Minority Shareholders exercise their respective Put Options, or the Group exercises its purchase option, the Group will seek investment from a new strategic partner. Prior to such an investment, the Group may need to procure a certain amount of funds in connection with the exercise of Put Options or purchase options.

(3) Agreements regarding natural gas

The Company executed (i) the service agreements for processing liquefied natural gas (the “Service Agreements”) with the companies providing services for liquefying natural gas in the United States, and (ii) the pipeline agreements with the pipeline companies in United States, for the purpose to sell natural gas to the users in other countries including Japan. Pursuant to these agreements, the Company will be provided the series of services. In these agreements, it is assumed that the Company will use certain amount of the liquefying ability of the companies providing services for liquefying natural gas and the pipelines of the pipeline companies for the period of twenty (20) years from 2019. The Company generally expects to execute long-term transaction agreements with users with respect to the total amount of liquefied natural gas (LNG) the Company will obtain. However, depending on the movement of crude-oil prices or other prices, there is a possibility that the Company cannot sell LNG to the users or in the market under conditions (including the price) the Company expects. Even in that case, fixed service fee payment obligations to such companies continue, and as a result, the Company may be obligated to bear losses.

To Top

10. Past inappropriate accountings

In February 2015, the Company received an order from the Securities and Exchange Surveillance Commission, based on Article 26 of the Financial Instruments and Exchange Act, requiring submission of a report. The Company was then subject to inspection regarding projects that used percentage-of-completion accounting. Later, after establishing the Independent Investigation Committee and conducting the investigation, it was found that the Company made inappropriate accountings and, therefore, the Company filed amendments of the past Annual Securities Reports and other reports. The Tokyo Stock Exchange (“TSE”) and the Nagoya Stock Exchange (“NSE”) deemed that the Company had a serious problem in its internal control systems and that improvement of such internal control systems was essential, due to the fact that the Company made misstatements in such Annual Securities Reports and other reports. Therefore, in September 2015, TSE and NSE imposed sanctions under which the shares of the Company were designated as “Securities on Alert”. After a year from the designation of “Securities on Alert”, the Company will be required to submit to stock exchanges on which the Company is listed a “Whitten Confirmation of Internal Management Systems”, and, if, among others, it is deemed that the Company has any problems in its internal management systems, the shares of the Company may be delisted, and such delisting may adversely affect the Group's operating results and financial condition and may restrict opportunities for the Company's shareholders to sell their shares.

In a class action brought against the Company as defendant in the State of California in the U.S. with respect to the Group's inappropriate accountings, an order granting a motion to dismiss was issued. However, such order is subject to an appeal by the plaintiffs, and is not definitive. Several lawsuits have been initiated in Japan. Going forward, the Company may also be sued by its shareholders and others and depending on the progress of such procedures, the Group's business, operating results and financial condition may be adversely affected. In addition, the Company may be charged administrative actions or investigations by Japanese or overseas authorities, including the suspension of business related to construction. If the Company receives such sanctions, the Group may suffer from opportunity loss such as nomination stop by governmental authorities, or degradation of social reputation accompanied thereby, and as a result, the Group's business, operating results and financial condition may be adversely affected.

The Company was ordered to pay administrative monetary penalty of 7,373.5 million yen by the Financial Services Agency of Japan in December 2015 with respect to the relevant inappropriate accountings issues, and completed the payment of such penalty.

To Top

11. Others

(1) Measures against counterfeit products

While the Group protects and seeks to enhance the value of the Toshiba brand, counterfeit products created by third parties are found worldwide. While the Group makes every effort to prevent counterfeit products, the heavy circulation of counterfeit products may dilute the value of the Toshiba brand, and the Group's net sales may be adversely affected.

(2) Protection of intellectual property rights

The Group makes every effort to secure intellectual property rights. However, in some regions, it may not be possible to secure sufficient protection.

The Group uses the intellectual property of third parties pursuant to licenses. It is possible that the Group may fail to receive the necessary third-party licenses for new technology or is unable to obtain the renewal of existing licenses or receives them on unfavorable terms.

In the past, law suits or similar actions or proceedings have been brought against the Group in respect of intellectual property rights, and the Group has filed law suits in order to protect its intellectual property rights. Such lawsuits and actions may be brought against the Group or the Group may file lawsuits against infringing third parties in the future.

Such lawsuits may require time, costs and other management resources, and depending on the outcome of these lawsuits, the Group may not be able to use important technology, or the Group may be found to be liable for damages.

(3) Political, economic and social conditions

The Group undertakes global business operations. Any changes in political, economic, and social conditions and policies, legal or regulatory changes, including rules and regulations concerning investment, repatriation of profits, export and import controls, foreign exchange, and taxation, and exchange rate fluctuations, in Japan or overseas, may adversely impact market demand and the Group's business operations.

(4) Natural disasters

Most of the Group's Japanese production facilities are located in the Keihin region of Japan, which includes Tokyo, Kawasaki City, Yokohama City and the surrounding area, while key semiconductor production facilities are located in Kyushu, Tokai, Hanshin, Hokuriku and Tohoku. The Group is currently expanding its production facilities in Asia. As a result, any occurrence of a wide-scale disaster, strike, terrorism or epidemic illness, such as a new type of flu, particularly in any of these areas could have a significant adverse effect on the Group's results.

Additionally, large-scale disasters, such as earthquakes, floods or typhoons, in regions where production or distribution sites are located may damage or destroy production capabilities, suspend procurement of raw materials or components, and cause transportation and sales interruptions or other similar disruptions, which could adversely affect asset value and production capabilities significantly. The massive flooding was caused by heavy rains that fell on Chennai and its surrounding region in South India, which forced the flooded factory of the Group to suspend operations on and after November 2015. Going forward, such suspension may affect the delivery schedule of the products to be produced at that factory, and penalty charges may be claimed by the relevant customers. In the past, the businesses of the Group were affected to a certain extent by the Great East Japan Earthquake and the floods in Thailand.

This Web site contains projections of business results, statements regarding business plans and other forward-looking statements. This information is based on certain assumptions, such as the economic environment, business policies and other factors, as of the date when each document was posted. Actual results may differ significantly from the estimates listed here.

Related Information

Stock ChartA separate window will open.

Stock chart
@Euroland > Terms of useA separate window will open.