Toshiba 2014 Annual Report Download - page 99

11
TOSHIBA Annual Report 2014
2. Risks related to financial condition, results of operations and cash flow
(1) Business environment of the Energy and Infrastructure business
A significant portion of the net sales in the Energy and Infrastructure business is attributable to national and local
government expenditures on public works and to capital expenditures by the private sector. The Group monitors trends
in such capital 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
the economic recession, and exchange rate fluctuations may have a negative impact on this business.
Furthermore, this business promotes and 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 suspension or stoppage 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 retroactively
reassess profits recorded as accrued and record them as a loss, in the event that, among other things, the original
estimate is over- or understated, the expected profits from such projects do not meet original expectations or the
projects are delayed or cancelled for some reason. In the past, the Group recorded losses on certain projects.
Furthermore, it may not be possible to pass on to the customer or others any additional costs incurred due to changes in
terms or delays in the work process, and such costs may not be collected, or a dispute may arise over such costs. In fact,
there are certain projects regarding which the Group is taking legal action. With respect to the investments in an operator
that promotes a certain project which investment is made in order to secure the order from such operator, there may be
impairments in investments, increases in the financial burden, delays in payouts depending upon the trends in projects.
In order to deal with these issues, the Group makes every effort to grasp trends in markets and projects, make sound
investment decisions and 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.
(2) Business environment of the Community Solutions business
The Community Solutions business provides diversified solutions and strengthens the smart community business aimed
at delivering multiple urban and regional solutions that include the facilities business related to facilities, such as
buildings, factories and housings, and the urban infrastructure solution business and the retail business. Furthermore, the
Group has participated in demonstration experiments in the area of the smart community business on a worldwide basis
and has provided diversified solutions in collaboration with local governments.
Since a significant portion of the net sales in this business is attributable to sales related to expenditures on public
works and capital expenditures by the private sector, reductions or delays in spending on public works, low levels of
private capital expenditures due to the economic recession, and trends in building and housing construction on a
worldwide basis and other factors may have a negative impact on this business.
This business is promoting its business development on a worldwide basis. Post order changes in the specifications or
other terms, changes to and stoppages of plans for various reasons including policy changes, changes in regulations,
appreciation of material costs and personnel expenses, natural and other disasters and other factors, may adversely and
substantially affect the progress of this business. In addition, exchange rate fluctuations and other factors may also have a
negative impact on this business.
(3) Business environment of the Healthcare Systems and Services business
A significant portion of the net sales in the Healthcare Systems and Services business is attributable to medical
businesses. While the medical businesses expands and develops its global market amid improvements in the medical
infrastructure in emerging economies, the escalation of social welfare spending is a challenge for countries in which the
population is aging, and this business is situated in a business environment which is significantly affected by policy to
reduce medical expenses.
Products for medical institutions, by their nature, require a lot of time to design, research and develop and, sell the
products since they require a certain amount of time to prove the clinical effects of the new technology and products,
and also require obtaining approval and homologation pursuant to the laws and regulations on medical devices in
various countries. On the other hand, as recent medical technology has been remarkably advanced, state-of-the-art
research and development, collaborating with advanced medical institutions in various countries, has been carried out
on a global scale. Continuous investments in R&D expenditures are essential to keeping up with the speed of
revolutionary medical technology. As a result, although the Group makes investments based on detailed considerations
and expectations, the Group may not be able to foresee changes in the market environment and medical policies and
other factors, to sell products in line with market needs in a timely manner and thus may not be able to maintain its