Toshiba 2011 Annual Report Download - page 80

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Management’s Discussion and Analysis
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 and goodwill
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. A substantial amount of goodwill has been recorded in the Company’s
consolidated balance sheets in accordance with U.S. generally accepted accounting principles. 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. 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.
(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 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. 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.
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. Any failure by the Group to procure such materials, components and
other goods from 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.
In order to deal with such situations, the Group makes every effort to avoid risks by developing and cultivating new
suppliers, promoting multi-vendor procurement by means of adopting standard products, and engaging in comprehensive
procurement on a Group-wide basis, in addition to ensuring acquisition of materials, components and other goods
through enhanced cooperation with key suppliers.
(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. The Group will further reinforce educational programs for employees, toward developing
human resources, including nurturing personnel able to support and promote business globalization.
In order to reduce fixed costs, the Group is implementing personnel measures, including the 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, reducing the number of limited-term employees implementing a leave system, and reducing
overtime through a review of working systems. However, fixed costs may not be reduced as anticipated or the