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16
Management’s Discussion and Analysis
recall, lawsuits or other claims relating to product quality.
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 cir-
cumstances, 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.
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 indi-
vidually 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 to the European
Court of First Instance in April 2007.
Furthermore, with regard to alleged anti-competitive behavior, the Group is under investigation by the US Department of
Justice, the Commission, and other authorities, for alleged violations of competition laws with respect to products that
include semiconductors, LCD products, cathode ray tubes (CRT), heavy electrical equipment, and optical disc devices. Class
action lawsuits with respect to alleged anti-competitive behavior have been brought against the Group in the United States
and are currently pending.
9. Risks related to directors, employees, major shareholders and affiliates
(1) Alliance in NAND flash memories
The Group has a strategic alliance with a U.S. company, SanDisk Corporation (“SanDisk”), for the production of NAND
flash memories, 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 at book value. 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
venture, in which case the production joint ventures will thereafter 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 company) is currently 67%. The remainder is held by three companies in Japan and overseas (the
“minority shareholders”).
While the shareholders’ agreements restrict the minority shareholders from transferring their respective ownership inter-
ests in Westinghouse’s holding company until October 1, 2012, the minority shareholders have been given an option to sell
all or part of their ownership interests to the Company (“Put Options”). However, since exercising the Put Options held by
some of the minority shareholders requires consent from a third party, such minority shareholders are not able to exercise
their Put Options at their own discretion.
The Group also has an option to purchase from the minority shareholders all or part of their respective ownership interest
in Westinghouse’s holding company 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 dis-
advantage. The Company makes every effort to maintain a favorable relationship with the minority shareholders in connec-
tion with Westinghouse’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 substantial funds in connection with the exercise of Put Options or pur-
chase options.