Toshiba 2013 Annual Report Download - page 85

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TOSHIBA Annual Report 2013
expenditures in conducting its business and also makes best efforts to cultivate new business and customers. However,
reductions and delays in spending on public works, low levels of private capital expenditures due to economic recession,
and exchange rate fluctuations 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 the specifications or other terms, delays, appreciation of material costs, changes to and stoppages
of plans for various reasons, including policy changes, natural and other disasters and other factors, may adversely and
substantially affect the progress of such projects. In addition, when the percentage of completion method is applied to
revenue recognition for long term construction contracts, the Group may reassess profits previously recorded as accrued
and record them as a loss, in the event that the expected profits from such projects do not meet original expectations or
projects are delayed or cancelled for some reason. Furthermore, it may not be possible to pass on to the customer or
others any additional costs incurred due to delays in the work process, and such costs may not be collected. In order to
deal with such cases, the Group makes every effort to grasp trends in markets and projects and to ensure thorough risk
management before and after accepting orders. In addition, whenever possible, the Group makes every effort to
appropriately avoid risk by making agreements with customers for advance payment or performance payments, as well
as other agreements on supplemental payments in the event of changes in specifications and delays in work. Although
difficulties may arise for the continuance of certain currently ongoing projects due to a change in the policies of fund
providers and other factors, the Group is making every effort to obtain other fund providers for such pending projects.
With respect to the nuclear power business, since the incident that occurred at the Fukushima Nuclear Power Plant,
there is a possibility that, to some extent, the project plans and orders obtained by the Group may be reconsidered. With
respect to the existing power plants, we will respond with permanent improvements in accordance with safety standards
to be revised based on the analysis of the situation resulting from the incident above. In addition, taking into account the
lessons learned from the situation resulting from the incident above, upon development of the nuclear power reactor
with higher safety standards corresponding to the loss of all electric sources or severe accident and next-generation small
reactor, the Group is promoting the establishment of a low carbon mainstay electric source. With respect to the new
construction of power plants, it is necessary to incorporate revised future safety standards, and the Group will determine
its future development while confirming the status of customers in various countries and regions. In overseas countries,
construction of the Group's new pressurized-water reactor is proceeding smoothly in the United States and China.
There is a possibility that the Japanese electric power companies' reduction of investment in the electricity distribution
fields resulted from the Great East Japan Earthquake will affect the Company's electric power distribution system
business. In response to this, by accelerating the global expansion of the electric power distribution system business,
including production, the Group plans to expand the business centered around emerging economies.
(4) Business environment of the Home Appliances business
The Home Appliances business faces intense competition from 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 exchange
rate fluctuations, consumer spending and trends in building and housing construction starts relative to the lighting and
air-conditioning businesses. Accordingly, this business may be affected by the impact of a decrease in prices and an
increase in consumption tax, among other things. Given this, the Group is making every effort to expand this business by
developing it at the global level, including in emerging economies that have a high growth rate, as well as by developing
new products that are environmentally friendly and that contribute to energy saving, such as new lighting systems.
(5) Financial risk
Apart from being affected by the business operations of the Company or the Group, the Company's consolidated and
nonconsolidated 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, some portion or all of the deferred tax assets are
unlikely to be realized. Recording of valuation allowances includes estimates and therefore involves inherent uncertainty.
The Group may also be required hereafter to record further valuation allowances, and the Group's future results and
financial condition may be adversely affected thereby.
The Group may be affected by future tax regulatory changes as the recordation of deferred tax assets and valuation
allowances have been made based on the currently-effective tax regulations.
(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.
Although the Group makes efforts to minimize the effect of fluctuation in exchange rates by balancing sales in foreign
currencies and purchase in foreign currencies, there is a possibility that operating income/loss will be affected by
exchange rate fluctuations due to a change in the balance in each business segments and other factors. Also, there is a