Toshiba 2010 Annual Report Download - page 75

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financial condition and business operations.
(6) 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
The Company accounted for a substantial amount of deferred tax assets. 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 therefore involves uncertainty.
The Group may be required hereafter to record further valuation allowances, 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 is therefore exposed 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 “accumu-
lated other comprehensive income (loss)” reported as a component of equity attributable to shareholders of Toshiba
Corporation. As a result, the Group’s equity attributable to shareholders of Toshiba Corporation may be 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 “accumulat-
ed other comprehensive income (loss)” reported as a component of equity attributable to shareholders of Toshiba
Carporation. 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.
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 equity attributable to shareholders of Toshiba Corporation may be adversely affected,
and the net periodic pension and severance costs to be recorded in “cost of sales” or “selling, general and administrative expens-
es” 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 the impairment loss is recognized as the amount
by which the carrying value of the asset exceeds its fair value. A substantial amount of goodwill has been recorded in the
Company’s consolidated balance sheet in accordance with U.S.GAAP. Goodwill is required to be tested for impairment annu-
ally. 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 with goodwill.
(7) 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 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 institu-
tions. 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 adversely
affected.
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 appro-
priate 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 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