Toshiba 2009 Annual Report Download - page 66

14
M anagement ’s Discussion and Analysis
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 unless SanDisk and the lessors agree other-
wise. Upon the occurrence of such cancellation event, the Company may succeed to SanDisk’s guaranty obligations or pur-
chase SanDisk’s ownership interests in the relevant production joint venture, in which case the relevant production joint ven-
ture may be treated as a consolidated subsidiary of the Company.
(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 the economic recession may have a negative impact on 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, a loss may be recognized against prior accrued profits. While orders in the nuclear power systems busi-
ness materially affect sales in this area, even if an order has been successfully received, profit from the relevant project may be
affected by the above factors. To reduce such risk, the Group makes effort to ensure adequate and appropriate risk manage-
ment in accepting and fulfilling orders for large-scale projects.
(4) Business environment of Home Appliances business
The Home Appliances business faces intense competition with many companies manufacturing and selling products similar
to those offered by the Group. In addition, the results of this business tend to be strongly affected by consumer spending,
demand for LCD displays using industrial light sources, one of the major products of this business, and trends in building
and housing construction starts. Accordingly the impact of the current recession may lead to the deterioration of the results
of this business.
(5) Action program to improve profitability
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 whole Group is taking measures to accelerate strategic allocation of resources to select growth
businesses, to reform the structure of poorly performing businesses, and to strengthen the Group’s profitability. Although
these programs have successfully progressed and the Group has achieved an improvement more rapidly than initially
planned, if, in the future, such programs do not proceed as scheduled, fail to produce the expected results or result in unex-
pected negative results, the Group’s results of operation or financial condition may be affected. To reduce such risk, the
Group makes effort, including following-up with the progress of these programs in the monthly meetings of management, to
ensure steady implementation of these programs.
(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 IH I
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. Each of Shaw,
IHI and Kazatomprom has been 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. We currently have not received any
indications from Shaw, IHI or Kazatomprom with respect to a contemplated exercise of their Put Option. Shaw’s Put
Option 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 certain bonds which were issued by Shaw upon making its
investment in Westinghouse group. The terms of such bonds also provide that such Put Option will be exercised immedi-
ately prior to the maturity of such bonds in March 2013. Upon the exercise of the Put Option, the shareholders’ agreement