Business Risk Factors

Risk factors relating to the Toshiba Group and its Business
The business areas of energy and electronics, the Group’s main business areas, require highly advanced technology for their operation. At the same time, the Group faces fierce global competition. Therefore, appropriate risk management is indispensable. Major risk factors related to the Group recognized by the Company are described below. The actual occurrence of any of those risk factors may materially adversely affect the Group’s results of operation and financial condition.

The risks described below are identified by the Group based on information available to the Group as of the date (May 8, 2009) of filing this document and involve uncertainties. Therefore the actual effects of such risks upon the Group’s business may differ. Please note that the risk factors discussed below should not be regarded as a complete and comprehensive statement of risks relating to the Group’s business. They also include issues that may not affect investment decisions, but which are mentioned in line with the Group’s policy of proactive disclosure. The Group recognizes these risks and makes every effort to maintain the proper risk management and to minimize any impact from them.

1. Business environment of Digital Products business

The market for the Digital Products business is intensely competitive, with many companies manufacturing and selling products similar to those offered by the Group. In addition, this business is heavily affected by economic fluctuations. Demand for products in this business is volatile. In times of decreases in demand for the Group’s products in a market that is experiencing a downturn, prices may decline, while in times of rapid increases in demand, our profit may be reduced due to high costs of parts and components, and a shortage of parts and components may occur hindering the Group’s ability to supply products to the market in a timely manner. While we make every effort to monitor the demand situation, any rapid fluctuation in demand may result in price erosion or increases in component prices, which may adversely affect the Group’s financial results with respect to this business.

Furthermore, sales in the mobile phone business are decreasing as the entire market shrinks due to changes in the marketing method adopted by the mobile network operators. In addition, this business is highly dependent on a particular domestic mobile network operator.

2. Business environment of Electronic Devices business

The market for the Electronic Devices business is highly cyclical in demand. In addition, there is intense competition to develop and market new products. The Group makes every effort to monitor shifts in the market, but if the market faces a downturn, if the Group fails to market new products in a timely manner, or if there is a rapid introduction of new technology, the Group’s current products may become obsolete. The results of this business tend to be heavily affected by economic fluctuations.

A rapid and large decline in product prices and sales volume may be caused by a decrease in demand. This business has recently seen a substantial decline in revenue caused by an economic downturn which has led, in particular, to substantially lower prices for NAND flash memories and a sudden decrease in demand for system LSIs, and the prospects for this business are uncertain. Also in the LCD business, the market for small and mid-size LCD panels has become highly competitive while the Group experiences a sharp decline in demand. Consequently, the results of the Company’s affiliate conducting such business, Toshiba Matsushita Display Technology Co., Ltd. (which will be known as Toshiba Mobile Display Co., Ltd. on and after May 25, 2009), is suffering a serious downturn that has resulted in a situation in which its liabilities exceed its assets. In this regard, its prospects are uncertain. Furthermore, results of this business tend to be substantially affected by exchange rate fluctuations and the Group has recently been suffering a significant sales decline due to sharp appreciation of the Japanese yen and lower operating income caused thereby.

The operation of this business requires significant levels of capital expenditures. In this regard, the Group has implemented substantial capital expenditures, including development of NAND flash memory fabrication facilities jointly with a US company, SanDisk Corporation (“SanDisk”), and the acquisition of system LSI production facilities from Sony Group at the end of March 2008. While efforts are made to carefully monitor demand and invest in stages, unanticipated market change may result in production capacity for particular products becoming available at a time when demand for those products is on the wane causing this business to fail to achieve the expected sales volume, or to be adversely affected by product price declines due to oversupply. In FY2009, the Group plans to reinforce its competitiveness in the semiconductor business through focusing on carefully selected investments, namely in finer lithography, and to curb investments in new production facilities. Also in the LCD business, the Group will curb investments for capacity increase. Such restrictions on investment may weaken the Group’s competitive power in this business.

In addition, operating income from the Electronic Devices business is prone to large fluctuations, and if the market conditions worsen significantly, the performance of this business may have a large influence on the Group’s operating income.

3. Business environment of Social Infrastructure business

A significant portion of net sales in the Social Infrastructure business is attributable to governmental and local municipality expenditures on public works and to capital expenditures by the private sector. The Group monitors trends in such capital expenditures, and also makes best efforts to cultivate new business and customers, in order to avoid undue impact from any fluctuations. However, reductions and delays in public works spending, as well as low levels of private capital expenditures due to recession, may adversely affect this business.

Furthermore, this business involves the supply of products and services for large-scale projects on a worldwide basis. Post-order changes in specifications or other terms of a project, delays, changes in plans, stoppages, natural and other disasters, and other factors, may adversely affect the progress of such projects in a substantial way. The “percentage of completion method” is applied for revenue recognition for long term construction work contracts. The Company reassesses expected costs and profits accordingly, and if the expected profits from such projects do not meet original expectations or if a project is delayed or cancelled due to some reason, a loss may be recognized against prior accrued profits. While orders in the nuclear power systems business materially affect sales in this business, even if an order has been successfully received, profit from the relevant project may be affected by the above factors.

4. Business environment of Home Appliances business

The Home Appliances business faces intense competition from competitors. In addition, the results of this business tend to be strongly affected by the trend of consumer spending. Impacted by the current recession, the results of this business may deteriorate.

One of the major products of this business includes industrial light sources, including Cold Cathode Fluorescent Lamp used for backlights in LCD displays. This business is suffering a severe business environment particularly due to reduced demand for LCD displays and the development of alternative light sources.

5. Action program to improve profitability

As stated in the section titled “Issues to be Addressed” above, the Group is currently implementing “Action Programs to Improve Profitability” that was publicly announced on January 29, 2009. The program aims to develop the profit making system that enables the Group to generate profit without an increase in sales and to establish a strong business foundation that enables quick seizure of business opportunities during the future market recovery. The entire Group is taking measures to accelerate strategic allocation of resources to select growth businesses, to reform the structure of businesses exhibiting bad performance and to strengthen the Group’s business structure. However, if such programs do not proceed as scheduled, fail to produce the expected results or bring unexpected negative results, the Group’s results of operation or financial condition may be adversely affected.

6. Acquisitions and others

The Group acquired Westinghouse group in October 2006. The Company’s ownership interest in Westinghouse group (including the holding company) is currently 67 percent. The remainder is held by The Shaw Group Inc. (“Shaw”), which holds 20 percent, National Atomic Company Kazatomprom JSC (“Kazatomprom”), which holds ten percent, and IHI Corporation (“IHI”), which holds three percent.

Under the shareholders’ agreements related to Westinghouse group, Shaw, IHI and Kazatomprom are restricted from transferring their respective ownership interests in Westinghouse’s holding company until October 1, 2012, whereas each of Shaw, IHI and Kazatomprom is given an option to sell all or part of its ownership interests to the Company (“Put Options”). The Put Options will, in principle, be exercisable from March 31, 2010. For the moment, we have not received any indications from Shaw, IHI or Kazatomprom with respect to a contemplated exercise of their Put Option. Shaw’s Put Options may be exercised before the above date in certain circumstances which are beyond the control of Shaw, such as the passing of a special resolution at a meeting of the holders of the bonds issued by Shaw upon making an investment in Westinghouse group. The terms of such bonds also provide that such Put Option will be exercised immediately prior to the maturity of such bonds in March 2013. Upon exercise of the Put Option, the shareholders’ agreement with Shaw will be terminated. However, such exercise may not occur if Shaw takes measures to redeem the bonds with its own funds before such maturity.

On the other hand, the Group has an option to purchase from Shaw, IHI or Kazatomprom all or part of their respective ownership interests in Westinghouse’s holding companies under certain conditions. These options are in place for the purpose of protecting the interests of the minority shareholders and preventing equity participation by a third party which may put the Group at disadvantage. In the event that Shaw, IHI or Kazatomprom exercise their respective Put Options, or the Group exercises its purchase option, the Group will seek investment from a new strategic partner. Before such investment is made, the Group may need to procure substantial funds in connection with the exercise of such Put Options or purchase option.

7. Lawsuits and others

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. There is a possibility 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 have a materially adverse effect on the Group’s business, results of operations or financial condition.

In January 2007, the European Commission (the “Commission”) adopted a decision imposing fines on 19 companies, including the Company, for violating EU competition laws in the gas insulated switchgear market. The Company was individually fined EUR86.25 million and was also fined EUR4.65 million jointly and severally with Mitsubishi Electric Corporation. The Company contends that it did not violate EU competition laws and appealed the decision of the European Court of First Instance in April 2007.

The Group is also under investigation by the Commission for violating EU competition laws in the power transformer market and may be subject to an adverse ruling. However, the Group believes, according to its own investigations, that it did not violate EU competition laws and intends to contest any adverse ruling.

Furthermore, with regard to alleged anti-competitive behavior, the Group is under investigation by the US Department of Justice, the Commission and other relevant authorities for alleged violations of competition laws with respect to semiconductors, LCD products, cathode ray tubes (CRT) and heavy electrical equipment; and class action lawsuits have been filed in the United States against the Group and are currently pending with respect to alleged anti-competitive behavior.

The Group will continue to cooperate with the investigations by the relevant authorities and to make efforts to have its contentions admitted in the relevant investigations or litigation. However, if any ruling or judgment is rendered against the Group in such investigations or litigation, the Group’s business, results of operations or financial condition may be adversely affected depending on the outcome of such ruling or judgment.

8. Development of new products

It is critically important for the Group to offer the market viable and innovative new products and services. The Group identifies strategic product areas to support, which include products that are expected to drive future profits, and makes its best efforts to timely introduce new products in such areas. However, due to the rapid pace of technological innovation, the development of new technologies and products that replace current ones, and changes in technology standards, the optimum introduction of new products to 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 assure sufficient funding and resources for continuous product development may affect the Group’s ability to develop new products and services and to introduce them to market.

As stated in the section titled “Issues to be Addressed” below, from the viewpoint of enhancing concentration and selection of managerial resources, the Group selects development themes more rigorously in the research and development process so that the research and development costs of the entire Group will be substantially reduced. The Group intends to enhance efficiency of research and development activities by sharing intellectual property through promotion of common platforms and using overseas resources more efficiently in system development. However, the Group’s research and development costs may not decrease as anticipated, or reduction of research and development costs may impair the Group’s technological superiority.

9. Investments in new business

The Group invests in companies involved in new businesses, enters into alliances with other companies for new businesses, or actively develops its own new businesses. As stated in the section titled “Issues to be Addressed” above, the Company is now actively promoting new businesses, including new rechargeable batteries (SciB^TM), direct methanol fuel cells (DMFC) (including fuel cell-packs for cellular phones and fuel cells for personal computers), solar photovoltaic systems, separation and capture of carbon dioxide emitted from thermal power plants and other facilities (CCS business), and new lighting systems, such as LEDs. In connection with this, various technological issues must be resolved, and potential demand effectively discovered and captured, in order for a new line of business to become successful. The progress and success of new businesses entails substantial uncertainty. 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 investment expenses that have not led to the anticipated results or otherwise.

10. Success of strategic business alliances and acquisitions

The Group is actively promoting the formation of joint ventures and business alliances for growing new and other businesses in research, development, production, marketing and other various areas. The Group makes full use of such strategic business alliances to optimize the business structure corresponding to the relevant business character. However, if the Group faces any disagreement with its relevant partner in a joint venture or business alliance in respect of financing, technological management, product development, management strategies or otherwise, such joint venture or business alliance may be terminated.

As a strategic alliance concerning production of NAND flash memories, the Group has formed two production joint ventures (equity method affiliates) with SanDisk. Under the joint venture agreement related to one of these production joint ventures, Flash Alliance, Ltd., SanDisk has an option to request the Company to purchase its ownership interests in such production joint venture at book value. In addition, the Company and SanDisk each provide a 50 percent guaranty in respect of the lease agreements of production facilities held by each production joint venture. Such lease agreements contain financial covenants of SanDisk. Noncompliance by SanDisk of any such covenant will constitute a cancellation event with respect to the relevant lease agreement. Upon the occurrence of such cancellation event, the Company may succeed to SanDisk’s guaranty obligations or purchase SanDisk’s ownership interests in the relevant production joint venture, in which case the relevant production joint venture may be treated as a consolidated subsidiary of the Company.

11. Global environment

The Group undertakes global business operations. Any changes in political, economic and social conditions, legal or regulatory changes and exchange rate fluctuations, in any region, may impact market demand and the Group’s business operations.

12. Natural disasters

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

While the Group promotes measures, such as the construction of earthquake-resistant buildings at production facilities, large-scale disasters, such as earthquakes or typhoons in regions where production sites are located, may damage or destroy production capabilities, cause operational and transportation interruptions or other similar disruptions, and thus affect production capabilities significantly.

13. Measures against counterfeit products

While the Group protects and seeks to enhance the value of the Toshiba brand, lesser-quality counterfeit products created by third parties are found worldwide, that may dilute the value of the Toshiba brand. Distribution of such counterfeit products may decrease the Group’s net sales.

14. Product quality claims

While the Group has instituted measures to manufacture its products in accordance with appropriate quality-control standards, there can be no assurance that all products are free of defects that could result in a large-scale recall, lawsuits or other claims relating to product quality.

15. Information security

The Group keeps and manages various personal information obtained through business operations as well as various trade secrets regarding the Group’s technology, marketing and other business operations. While the Group makes every effort to manage this information properly, an unanticipated leak of such information could occur, and such information could be obtained and used illegally by a third party. In such circumstances, the Group’s business performance and financial situation may be subject to negative influences.

Additionally, the role of information systems in the Group is critical to carrying out business activities. While the Group makes every effort to assure stable operation of its information systems, it is possible that their functionality could be impaired or destroyed by computer viruses, software or hardware failures, disaster, terrorism, and other factors.

16. 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 proper manner. Such materials, components and goods, however, may be those the possible suppliers of which are limited due to the respective particularity of such materials, components and goods and cannot be easily replaced if the need arises to do so. 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. Any failure by the Group to achieve proper cooperation with key suppliers may 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.

17. Securing human resources

The success of the Group’s businesses depends in large part on securing excellent human resources in every business area and process, including product development, production, marketing and business management. 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. Due to this factor, the Group may fail to retain existing employees or to obtain new human resources.

As stated in the section titled “Issues to be Addressed” below, for the reduction of fixed costs, the Group is implementing personnel measures, including reallocation of human resources to focus on strong and promising businesses, reclaiming jobs that are outsourced to third parties or conducted by limited-term employees, reduction of the number of limited-term workers, implementation of a leave system, and reduction of overtime by a review of working systems. However, the fixed costs may not be reduced as anticipated. Further, the implementation of such personnel measures may adversely affect the Group’s employee morale, production efficiency or securing of human resources.

18. Compliance and internal control

The Group is active in various businesses in various regions worldwide, and its business activities are subject to laws and regulations in each region. The Group puts in place and operates appropriate internal control systems for a variety of purposes, including compliance with laws and regulations and rigid and proper reporting of business and financial matters. However, there can be no assurance that the Group will always be able to structure and operate effective internal control systems. Further, 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. There is a possibility that the Group will 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 may result in increased compliance costs.

19. Strategic concentrated investment

The Group makes strategic investments that concentrate on specific business areas, including the nuclear and other power and industrial systems businesses, new businesses, such as a new type of rechargeable battery, compact fuel cells and new lighting systems, and NAND flash memory. As stated in the section titled “Issues to be Addressed” below, as a part of such strategic concentrated investment, the Company entered into a definitive agreement in April 2009 with Fujitsu Limited (“Fujitsu”) to take over Fujitsu’s hard disk drive (HDD) business (excluding Fujitsu’s HDD head and media businesses). In or prior to March 2009, the Company acquired a part of the production facilities for the NAND flash memories owned by the production joint venture of the Company and SanDisk (See “(10) Success of strategic business alliances and acquisitions” above). In April 2009, a consolidated subsidiary of the Company, Westinghouse Electric UK Limited, agreed to acquire a part of the shares of Nuclear Fuel Industries, Ltd. While it is essential to allocate limited management resources to strategic, high growth areas and businesses in which the Group enjoys competitiveness in order to secure and maintain the Group’s advantages, the businesses in which the Company has made concentrated investments may not grow as anticipated, the Group may not maintain or strengthen its competitive power in such areas, or the relevant investments may not generate the anticipated level of profit.

20. 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.

Also, the Group uses intellectual property from third parties, for which the Group has acquired the relevant licenses to use. It may be possible that the Group will fail to receive the necessary third-party licenses or will receive them only on unfavorable terms.

It is also possible that any suit in respect of intellectual property rights may be brought against the Group or that the Group may have to file suit in order to protect its intellectual property rights. Such lawsuits may require time, costs and other management resources. As a result of the ruling handed down, the Group may not be able to use important technology, or the Group may be liable for significant damages.

21. Environment

In the Group’s global business activities, various environmental laws, including laws on air pollution, water pollution, toxic substances, waste disposal, product recycling, prevention of global warming and energy policies, are in force around the world. While the Group carefully pays attention to those laws and regulations, it may be possible that the Group will encounter legal or social liability for the environment, regardless of whether it is at fault or not, with respect to its past, present or future business activities. In particular, the Group has manufacturing and other bases throughout the world and may be held liable for purification of land at such bases regardless of whether it is at fault or not. It may also be possible that, in the future, the Group will face more stringent requirements to remove environmental hazards, including toxic substances, or to further reduce 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 involve use of various chemical compounds, radioactive materials, nuclear materials and other toxic materials. The Group operates with maximum attention to such matters, giving first priority to human life and safety. However, the Group may incur damages, or the Group’s reputation may be affected, as a result of the occurrence or threatened occurrence of any natural disaster, terrorism, accident or other contingency (including those beyond the Group’s control) that leads to environmental pollution.

22. Parent company’s guaranty

When a subsidiary of the Group, such as Westinghouse Electric Company, LLC or Toshiba International Corporation, accepts orders for large projects, the Company, as its parent company, may provide guaranties with respect to performance under the relevant contracts. Such guaranties of the Company are made, upon the request of the relevant customers, pursuant to business practice and in the ordinary course of business. However, should the relevant subsidiary fail to fulfill its obligations, the Company may be obliged to bear the resulting loss.

23. Financial covenants

During the period of the current deteriorating business environment, which has been characterized by reduced consumption, shrinkage of the entire market and a sharp price decline of semiconductors and liquid crystals, caused by the global financial crisis and the recession triggered by the US subprime mortgage problem (see “(1) Business environment of Digital Products business,” “(2) Business environment of Electronic Devices business,” “(3) Business environment of Social Infrastructure business” and “(4) Business environment of Home Appliances business” above), according to the Company’s consolidated results for FY2008, as presented in the Company’s earnings release (unaudited) released as of May 8, 2009 and the consolidated financial statements (audited under the Companies Act) approved by the Board of Directors of the Company on May 8, 2009, sales were ¥6,654.5 billion (a 13% decrease from FY2007), there was an operating loss of ¥250.2 billion (operating income of ¥246.4 billion in FY2007) and a net loss of ¥343.6 billion (net income of ¥127.4 billion in FY2007), and the net assets as at the end of such fiscal year was ¥447.3 (a 56% decrease from FY2007).

While loan agreements entered into between the Company and financial institutions provide for financial covenants, and there was a concern that the consolidated financial position for FY2008 would constitute a breach of such financial covenants, the Company and the relevant financial institutions have, upon agreement, amended such financial covenants prior to the finalization of such results, and any possible breach of financial covenants was avoided. Nonetheless, if the Company’s consolidated net assets, consolidated operating income or credit rating falls below the respective level provided for in the modified financial covenants, the Company’s obligations with respect to the relevant loan may be accelerated upon request from the relevant lending financial institutions. With respect to the covenant relating to consolidated operating income, the recording of a consolidated operating loss of the Company in FY2009 will result in a breach of such covenant. Furthermore, any breach by the Company of such financial covenants may also trigger acceleration of the bonds or other borrowings of the Company.

The Company intends to continuously take maximum measures to avoid breach of the financial covenants in and after FY2009 and consequent acceleration by improving its earnings through implementation of the action program to improve profitability and making efforts to obtain understanding from the lending financial institutions. However, any acceleration of the Company’s loan may materially affect the Company’s business operation.

24. Financial risk

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

(i) Deferred tax assets
Although the Company provided deferred tax assets - valuation allowance for local tax in the amount of ¥101.6 billion in FY2008 on a non-consolidated basis, the Group still recorded in the consolidated and non-consolidated balance sheets as of March 31, 2009 prepared under the Companies Act (both audited under the Companies Act) deferred tax assets of ¥494.0 billion and ¥186.2 billion, respectively, based on future earnings estimates and certain other factors. The Group reduces deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.. Recording of valuation allowances includes estimates and by nature involves uncertainty.

The Group may also be required in FY2009 and thereafter to record further valuation allowances depending the judgment about the realizability of the related deferred tax assets, and the Group’s future results and financial condition may be adversely affected thereby.

(ii) Exchange rate fluctuations
The Group conducts business in various regions worldwide using a variety of foreign currencies and thus is substantially subject to 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 shareholders’ equity. As a result, the Group’s shareholders’ equity may be materially 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 statements of income with a corresponding adjustment, net of tax, included in “accumulated other comprehensive income (loss)” reported as a component of shareholders’ equity. Such adjustment to “accumulated other comprehensive income (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 pursuant to the applicable accounting standards. 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, the 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 and goodwill
If events or changes in circumstances indicate that the carrying amount of any long-lived asset will not be recovered by the future undiscounted cash flow, the loss is recognized as an impairment, and impairment loss is recognized as the amount by which carrying value of the assets exceeds its fair value. As a result of the acquisition of Westinghouse group in October 2006, a substantial amount of goodwill has been recorded in the Company’s consolidated balance sheet in accordance with US generally accepted accounting principles. Goodwill shall 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 balance of the current amount and the recalculated amount will be recognized as an impairment. Therefore, additional impairments may be recorded, depending on the valuation of long-lived assets and the estimate of future cash flow from business related to goodwill.

25. Financing environment and others

The Group has substantial amounts of interest-bearing debt for financing that is highly susceptible to market environments, including 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 also has loans from financial institutions. 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 necessary amount in a timely manner, the Group’s financing may be materially adversely affected.

26. Takeover defense measure

The Company introduced a plan for countermeasures to any large-scale acquisitions of the Company’s shares (the “Takeover Defense Measure”). However, this Takeover Defense Measure will cease to be effective at the close of the ordinary general shareholders’ meeting of the Company to be held in June 2009. In response to this situation, the Company resolved at the meeting of the Board of Directors held on May 8, 2009 that the Takeover Defense Measure will, after partial amendment, be renewed for three more years subject to the shareholders’ approval at the ordinary general shareholders’ meeting. If a person making a large-scale acquisition of the Company’s shares does not comply with the procedures under the Takeover Defense Measure, the Company will make a gratis allotment of stock acquisition rights (shinkabu yoyakuken) as a countermeasure under the Takeover Defense Measure. Although such Takeover Defense Measure was introduced for the purpose of protecting and enhancing the corporate value of the Company and the common interests of its shareholders, it may limit the opportunities for the shareholders of the Company to sell their shares to hostile acquirers.