Toshiba Corp.
Annual Report 2013

Plain-text annual report

Public Relations & Investor Relations Office Corporate Communications Division REASON FOR THE SUBMISSION OF AMENDMENT REPORT ON ANNUAL SECURITIES REPORT Because the full text was amended, the text is not underlined. (1) Background On February 12, 2015, Toshiba Corporation (the “Company”) received a report order from the Securities and Exchange Surveillance Commission pursuant to Article 26 of the Financial Instruments and Exchange Act and was subject to a disclosure inspection with respect to some projects in which the percentage-of-completion of accounting method was used, among others. Following that, in the course of a self-investigation by the Company to deal with the issues identified relating to those projects in the disclosure inspection, it was noted that some matters require investigation in respect of accounting treatments for some infrastructure projects of the Company in which the percentage-of-completion method was used during the fiscal year ended March 31, 2014. Based on this situation, it was decided that the Special Investigation Committee consisting of the Company’s internal committee members as well as external attorneys-at-law and certified public accountants would be established as of April 3, 2015, and the Company would of its own accord implement an investigation of the relevant facts. Then the Special Investigation Committee found that, the total amount of the contract cost was underestimated and Contract Losses (including provisions for contract losses) were not recorded in a timely manner, and also, issues requiring further investigation were identified. Consequently, the Company decided to shift to the framework of investigation to an Independent Investigation Committee comprising independent and impartial external experts who did not have any interests in the Company as of May 8, 2015. The scope of the investigation delegated to the Independent Investigation Committee covers four matters: (1) accounting treatments in relation to projects in which the percentage-of-completion method was used; (2) accounting treatments in relation to recording of operating expenses in the Visual Products Business; (3) accounting treatments in relation to the valuation of inventory in the Semiconductor Business, mainly discrete and system LSIs; and (4) accounting treatments in relation to parts transactions, etc. in the PC Business. The Company received an investigation report from the Independent Investigation Committee on July 20, 2015. In parallel with such efforts, the Company and all its consolidated subsidiaries as of March 31, 2015 underwent self- checks with respect to whether or not there was any issue that was not compliant with the accounting standards, internal regulations and other rules or any other inappropriate accounting treatment, and whether or not the Company and its consolidated subsidiaries were aware of any such issue or inappropriate accounting treatment, etc. including minor matters at each quarter-end in the period between the fiscal year ended March 31, 2010 and the fiscal year ended March 31, 2015 and during the period between April 1, 2015 and May 31, 2015. The Company resolved at a meeting of the Board of Directors on September 7, 2015, to amend the annual securities reports for fiscal years from the fiscal year ended March 31, 2010 to the fiscal year ended March 31, 2014 and quarterly securities reports for quarters in the period from the fiscal year ended March 31, 2011 to the fiscal year ended March 31, 2015, to reflect the correction of the events identified in the investigation report of the Independent Investigation Committee stated above and the internal self-checks and the correction of other issues that had not been corrected due to a materiality viewpoint. In line with the amendment, data in the consolidated financial statements were also reclassified for disclosure in connection with discontinued operations. The overview of the corrections is stated below. (2) Overview Restatement for the accounting treatment under the percentage-of-completion method As the result of the above investigations, it was found that in certain infrastructure projects in which the percentage-of- completion of accounting method was used, there were cases where the estimated total cost was not calculated based on the latest information on incurred expenses, where provisions for contract losses were not recorded at the time when generation of losses became evident, and where the estimated total cost was calculated in anticipation of cost reductions which remained unsubstantiated. The accounting treatments for these projects were corrected. Restatement for the accounting treatment in relation to recording operating expenses in the Visual Products Business As the result of the above investigations, it was found that in the Visual Products Business, there were cases where some expenses were not recorded as expenses using the accrual-based method, where profits that should not be realized were recognized by making use of transactions between consolidated group companies, and where discounts in the purchase prices were recognized, for example by reflecting adjustment or increase of the procurement prices for the following periods, even if cost was not actually reduced. The accounting treatments for these cases were corrected. 02 TOSHIBA Annual Report 2013 Restatement for the accounting treatment in the parts transactions in the PC Business As the result of the above investigations, it was found that in the PC Business, there were cases where inappropriate profits were recognized in each fiscal period for parts transactions with manufacturing subcontractors, as well as cases where some expenses were not recorded as expenses using the accrual-based method and where profits that should not be realized were recognized by making use of transactions between consolidated group companies. The accounting treatments for these transactions were corrected. Restatement for the accounting treatment in relation to valuation of inventory in the Semiconductor Business As the result of the above investigations, it was found that in the Semiconductor Business, there were cases where valuation losses for work-in-progress inventories, and others were not recognized until the time of actual disposal of the inventories, and where the book values of term-end intermediate products and term-end completed products were overstated due to the lack of consistency between the front-end and back-end for revision of the standard cost in the standard cost accounting, and consequently cost of goods sold was understated. The accounting treatments for these cases were corrected. Restatement for the account treatment for events identified in self-check and others The Company corrected the account treatments for events identified in the above self-check and other matters that had not been corrected from the standpoint of materiality. Additional recognition of impairment losses and resulting adjustment to depreciation Incidental with the adjustment of the above correction of accounting treatments, the Company recognized impairment losses on fixed assets and made a correction of the recognition timing thereof and the resulting adjustment to depreciation for the Visual Products Business, PC Business, discrete and system LSIs businesses of the Semiconductor Business. Adjustments to income taxes Due to a change in temporary differences resulting from the above correction of accounting treatments for prior years, the Company made adjustments to deferred tax assets and liabilities and reviewed valuation allowances. Due to these corrections to financial results, the Company needed to make amendments to part of the annual securities report for the 174th Fiscal Period from April 1, 2012 to March 31, 2013, which was submitted as of June 25, 2013, and there were also matters to be corrected in part of other information described therein. Therefore, the Company has submitted the amendment report on the annual securities report pursuant to the provision of Article 24-2, paragraph 1 of the Financial Instruments and Exchange Act. The amended consolidated financial statements were audited by Ernst & Young ShinNihon LLC, and the audit report of the independent auditors has been attached hereto. The information provided is about the status as of the submission date of the original annual securities report in June 25, 2013 before correction for restatements in September 7, 2015. TOSHIBA Annual Report 2013 03 Management's Discussion and Analysis FIVE-YEAR SUMMARY Toshiba Corporation and Subsidiaries Years ended March 31 Net sales Cost of sales Selling, general and administrative expenses Operating income (loss) (Note 1) Income (loss) from continuing operations, before income taxes and noncontrolling interests Income taxes Net income (loss) attributable to shareholders of the Company Per share of common stock: Earnings (loss) attributable to shareholders of the Company (Note 2) −Basic −Diluted Cash dividends Total assets Equity attributable to shareholders of the Company Capital expenditures (Property, plant and equipment) Depreciation (Property, plant and equipment) R&D expenditures Number of employees ¥ ¥ ¥ 2013 ¥ 5,722,248 4,413,476 1,216,719 92,053 74,926 38,356 13,425 ¥ 3.17 3.17 8.00 ¥ 6,021,603 824,584 237,280 153,799 300,028 206,000 ¥ Millions of yen, except per share amounts 2011 6,263,990 4,771,797 1,247,661 244,532 ¥ 201,785 27,944 158,326 2012 5,996,414 4,628,451 1,253,061 114,902 61,427 48,440 3,194 2010 6,137,689 4,760,217 1,305,684 71,788 ¥ 2009 6,373,020 5,185,997 1,496,214 (309,191) (14,342) (336,059) 24,789 41,401 (53,943) (398,878) 0.75 0.74 8.00 5,673,064 718,664 298,104 198,907 319,418 210,000 ¥ ¥ 37.38 35.90 5.00 5,351,343 793,860 229,913 209,239 318,803 203,000 ¥ ¥ ¥ ¥ (13.47) (13.47) − 5,463,714 705,930 209,287 246,218 310,651 204,000 (123.27) (123.27) 5.00 5,435,282 385,170 354,199 306,680 355,980 199,000 Notes: 1) Operating income (loss) is derived by deducting the cost of sales and selling, general and administrative expenses from net sales, and reported as a measurement of segment profit or loss. This result is regularly reviewed to support decision-making in allocation of resources and to assess performance. Certain operating expenses such as restructuring charges and gains (losses) from the sale or disposition of fixed assets are not included in it. 2) Basic earnings (loss) per share attributable to shareholders of the Company (EPS) are computed based on the weighted-average number of shares of common stock outstanding during each period. Diluted EPS assumes the dilution that could occur if convertible bonds were converted or stock acquisition rights were exercised to issue common stock, unless their inclusion would have an antidilutive effect. 3) Following the acquisition of Landis+Gyr AG in July 2011, the Company completed the allocation of the cost of the acquisition to assets and liabilities, according to Accounting Standards Codification (“ASC”) No.805 “Business Combinations”, in the current fiscal year. Results for the fiscal year ended March 31, 2012 has been revised to reflect this change. 4) The Mobile Phone business has been classified as discontinued operations since the end of the fiscal year ended March 2011, in accordance with ASC No.205-20 “Presentation of Financial Statements - Discontinued Operations”. Prior-period data for the fiscal years ended from March 31, 2009 through 2010 has been reclassified to conform with the current classification. 5) Beginning with the fiscal year ended March 31, 2010, the Company adopted ASC No.810 “Consolidation”. Prior-period data for the fiscal year ended March 31, 2009 has been reclassified to conform with the current classification. 6) Some prior-period data relating to the discontinued operations has been amended following corrections to the consolidated financial statements. 4. Management's Discussion and Analysis 22. Consolidated Balance Sheet 24. Consolidated Statement of Income 25. Consolidated Statement of Comprehensive Income 26. Consolidated Statement of Equity 28. Consolidated Statement of Cash Flows 47. Notes to Consolidated Financial Statements 92. Report of Independent Auditors 04 TOSHIBA Annual Report 2013 SCOPE OF CONSOLIDATION As of the end of March 2013, Toshiba Group (“the Group”) comprised Toshiba Corporation (“the Company”) and 590 consolidated subsidiaries and its principal operations were in the Digital Products, Electronic Devices, Social Infrastructure and Home Appliances business domains. Of the consolidated subsidiaries, 131 were involved in Digital Products, 44 in Electronic Devices, 290 in Social Infrastructure, 56 in Home Appliances and 69 in Others. The number of consolidated subsidiaries was 36 more than at the end of March 2012. 200 affiliates were accounted for by the equity method as of the end of March 2013. RESULTS OF OPERATIONS NET SALES AND INCOME (LOSS) The global economy remained uncertain. Although the United States continued to see gradual recovery, Europe has entered a recession accompanied by deepening anxieties for sovereign debt. The slowdown in growth in emerging economies, such as China and Southeast Asia, also had a negative effect. There are few prospects for immediate improvement in sight. The downturn in Europe is expected to be prolonged, and it is possible that growth will slow in the U.S. and China. The Japanese economy has returned to a path of moderate recovery as yen depreciation has gathered pace since the end of 2012, bringing with it a rise in stock prices. Although there are concerns for higher import costs due to the fall in the yen, and declines in exports due to the sluggish global economy, the economy is expected to continue to recover. In these circumstances, the Group, aiming to become a world-leading diversified electric and electronics provider and looking ahead to changes in the business environment, promoted transformation of its business structure toward securing autonomous growth by creating future markets. The Group is promoting Total Energy Innovation and Total Storage Innovation to support realization of its Smart Community concept, strengthening its six focus businesses, and making steady progress in continuing to develop world first and world No.1 products and services. The Group also steadily advanced structural reforms, seeking to maximize synergies and rationalize operations by consolidating and optimizing domestic and overseas facilities, and improving cost structures by optimizing global production and procurement, in order to establish a business structure able to secure profit even at times of low growth. The Group's consolidated net sales for the year ended March 31, 2013 were 5,722.2 billion yen ($60,875.0 million), a decrease of 274.2 billion yen against the previous year. Although the Social Infrastructure segment including the Power Systems and Social Infrastructure businesses, the Elevator and Building Systems business and the Medical Systems business saw higher sales, as did the Home Appliances segment, overall sales were lower, due to divestiture of the LCD business and lower sales in the Digital Products and Electronic Devices segments due to market downturns. Consolidated operating income (loss) was 92.1 billion yen ($979.3 million), a decrease of 22.8 billion yen, mainly due to the divestiture of the LCD business, although the Electronic Devices segments recorded a significant increase in operating income. Income (Loss) from continuing operations, before income taxes and noncontrolling interests increased by 13.5 billion yen to 74.9 billion yen ($797.1 million), a result that reflects improved currency exchange rates and the positive effect of asset reductions. Net income (loss) attributable to shareholders of the Company increased by 10.2 billion yen to 13.4 billion yen ($142.8 million). KEY PERFORMANCE INDICATORS Following are the key performance indicators (“KPIs”) that the Management of the Group uses in managing its business. Net sales and operating income are basic indicators to measure the business results of the Group. Operating income is regularly reviewed to support decision-making in allocations of resources and to assess performance. Operating income ratio (ratio of operating income to net sales) is also KPIs. To assess financial position of the Group, the Management emphasizes shareholders' equity ratio (ratio of equity attributable to shareholders of the Company to total assets) and debt-to-equity ratio. Investments including capital expenditure and investments & loans for M&A and R&D activity are indispensable for growth of the Group and accordingly total investments and R&D expenditure are KPIs. To measure efficiency of investments and business results, the Management uses ROI (return on investment) and ROE (return on equity), respectively. TOSHIBA Annual Report 2013 05 Management's Discussion and Analysis Year ended March 31 Net sales Operating income (Note 1) Operating income ratio (%) Return on equity (ROE) (%) (Note 2) Shareholders' equity ratio (%) Debt/equity ratio (%) Total investments (Note 3) R&D expenditures Return on investment (ROI) (%) (Note 4) Billions of yen 2013 5,722.2 92.1 1.6 1.7 13.7 178 419.8 300.0 3.7 2012 5,996.4 114.9 1.9 0.4 12.7 172 436.4 319.4 5.1 Notes: 1) Operating income is derived by deducting the cost of sales and selling, general and administrative expenses from net sales. This result is regularly reviewed to support decision-making in allocations of resources and to assess performance. Certain operating expenses such as restructuring charges and gains (losses) from the sale or disposition of fixed assets are not included in it. 2) ROE is net income attributable to shareholders of the Company divided by equity attributable to shareholders of the Company. 3) Total investments including capital expenditure and investments and loans for M&A are on an ordering amount basis. The amount of investments for PPE includes the Group's portion in the investments made by Flash Forward, Ltd. etc., which are companies accounted for by the equity method. 4) ROI is operating income divided by total equity plus total debts. 5) Following the acquisition of Landis+Gyr AG in July 2011, the Company completed the allocation of the cost of the acquisition to assets and liabilities, according to ASC 805 “Business Combinations” in the current fiscal year. Results for the fiscal year ended March 31, 2012 has been revised to reflect this change. The Group's consolidated net sales for the year ended March 31, 2013 were 5,722.2 billion yen ($60,875.0 million), a decrease of 274.2 billion yen against the previous year. Although the Social Infrastructure segment including the Power Systems and Social Infrastructure businesses, the Elevator and Building Systems business and the Medical Systems business saw higher sales, as did the Home Appliances segment, overall sales were lower, due to divestiture of the LCD business and lower sales in the Digital Products and Electronic Devices segments due to market downturns. Consolidated operating income (loss) was 92.1 billion yen ($979.3 million), a decrease of 22.8 billion yen, mainly due to the divestiture of the LCD business, although the Electronic Devices segments recorded a significant increase in operating income. This resulted in operating income ratio as 1.6%, same as the previous year, and a decreased ROE as 1.7%. Also ROI decreased by 1.4 points to 3.7%. Shareholders' equity, or equity attributable to the shareholders of the Company, was 824.6 billion yen ($8,772.2 million), an increase of 105.9 billion yen from the end of March 2012. This reflects a rise in net income (loss) attributable to shareholders of the Company and a significant improvement in the accumulated other comprehensive income, due to the acceleration in yen depreciation and ensuing upturn in the stock market since the end of 2012. Total interest-bearing debt increased by 235.8 billion yen since the end of March 2012 to 1,471.6 billion yen ($15,655.1 million). This reflected a rise of capital requirements to meet increased orders in the Social Infrastructure segment and for strategic investments for future growth. As a result of the foregoing, the shareholders' equity ratio at the end of March 2013 was 13.7%, a 1.0-point increase from the end of March 2012, and the debt-to-equity ratio was 178%, a 6-point increase from the end of March 2012. The Group strongly promotes capital expenditure and investments & loans. The Group sets “Shiftable funds”, which enables the Company to make speedy and flexible decisions of investments in response to change of business environment, and executes strategic investments. In the year ended March 31, 2013, the Group strongly promoted strategic investments in new businesses for enhancement of global competitiveness and future growth. As a result, the Group invested 419.8 billion yen in total, including capital expenditure and investments & loans for M&A. 06 TOSHIBA Annual Report 2013 DIVIDEND The Company, while giving full consideration to such factors as the strategic investments necessary to secure medium- to long-term growth, seeks to achieve continuous increases in its actual dividend payments, in line with a payout ratio in the region of 30 percent, on a consolidated basis. The Company has decided to pay both an interim dividend and a year-end dividend. The Company paid 4.0 yen per share as the interim dividend and the year-end dividend has been set at 4.0 yen per share. As a result, the annual dividend for the year ended March 31, 2013 was 8.0 yen per share, same as the previous year. The Company will carefully examine and decide on the dividend plan for the next term, the year ending March 31, 2014, in light of the Group's financial position, strategic investment plans and other factors. The Company will announce the dividend for the year ending March 31, 2014 as soon as it is determined. RESULTS BY INDUSTRY SEGMENT Year ended March 31 Digital Products Electronic Devices Social Infrastructure Home Appliances Others Eliminations Total Net Sales Operating Income (loss) Billions of yen − 1,430.7 1,255.7 2,567.8 591.5 310.7 (434.2) 5,722.2 Change (%) (14%) (6%) +6% +3% (38%) − (5%) − (55.7) 41.4 115.2 1.8 (11.8) 1.2 92.1 Change (16.2) 27.2 0 (0.3) (33.0) − (22.8) DIGITAL PRODUCTS The Digital Products segment saw overall sales decrease by 232.8 billion yen to 1,430.7 billion yen ($15,219.7 million). The Retail Information Systems and the Office Equipment businesses reported higher sales due to the positive effects of the acquisition of IBM's Retail Store Solutions business. However, the Visual Products business, which includes LCD TVs, saw sales slide on a deepening decline in demand in Japan. The PC business also recorded a decrease on lower unit sales, due to eroding demand in the United States. Overall segment operating income (loss) deteriorated by 16.2 billion yen to -55.7 billion yen ($-592.8 million). Although the Retail Information Systems and the Office Equipment businesses reported higher operating income on higher sales, the Visual Products business deteriorated due to a continuing decline in demand in Japan. The PC business also saw deteriorated lower sales. The Digital Products segment is now undertaking structural reform, particularly in Visual Products business, in order to secure an enhanced operating structure and improved profitability. ELECTRONIC DEVICES The Electronic Devices segment saw overall sales decrease by 75.2 billion yen to 1,255.7 billion yen ($13,359.0 million). Although the Storage Products business secured comparable year-on-year sales, the Semiconductor business saw lower sales. In Memories, sales volume increased considerably in the second half, but lower overall sales for the full year period reflected price declines in the first half and the impact of production cutbacks due to an adjustment in production. Discretes and System LSIs also recorded lower sales on decline in demand. Overall segment operating income increased by 27.2 billion yen to 41.4 billion yen ($440.6 million). As a result of price declines in the first half, Memories saw lower operating income. System LSIs saw a considerable improvement in operating income on a higher ratio of high value-added products. The Storage Products secured operating income. TOSHIBA Annual Report 2013 07 Management's Discussion and Analysis SOCIAL INFRASTRUCTURE The Social Infrastructure segment saw overall sales increase by 155.4 billion yen to 2,567.8 billion yen ($27,317.2 million). The Power Systems and Social Infrastructure businesses, most notably in energy-related areas, saw growth that reflected healthy performances in the Thermal & Hydro Power Systems business, along with good results in the overseas Nuclear Power Systems business and increased sales at Landis+Gyr AG. The Elevator and Building Systems business increased overseas sales and made acquisitions, while the Medical Systems business expanded sales in Japan and in emerging economies; both reported higher sales. Overall segment operating income was the same as for the year-earlier period at 115.2 billion yen ($1,225.8 million). The domestic Nuclear Power Systems business saw lower Operating Income, although the Thermal & Hydro Power Systems business saw a healthy performance and the Transmission & Distribution Systems business and Landis+Gyr AG saw positive results. The Elevator and Building Systems and the Medical Systems businesses also recorded higher operating income on higher sales. HOME APPLIANCES The Home Appliances segment saw overall sales increase by 16.2 billion yen to 591.5 billion yen ($6,292.2 million). The Lighting business reported higher sales, primarily in LEDs, and the overseas Air-conditioning business and the White Goods business also recorded higher sales. Overall segment operating income decreased by 0.3 billion yen to 1.8 billion yen ($18.5 million). The White Goods business saw sales decline due to factors that included currency exchange shifts, although the Lighting business saw a higher operating income on higher sales. The Home Appliances segment consolidated its lighting business subsidiaries and carried out structural reforms, including reorganizations of its operating bases, in order to expand growing business and strengthen its earnings structure. OTHERS The Others segment saw sales decrease by 194.2 billion yen to 310.7 billion yen ($3,305.6 million) while its operating income deteriorated by 33.0 billion yen to -11.8 billion yen ($-125.3 million), reflecting the March 2012 transfer of all shares of Toshiba Mobile Display Co., Ltd. to Japan Display Inc. Note: The Group's Consolidated Financial Statements are based on U.S. generally accepted accounting principles (“GAAP”). Operating income (loss) is derived by deducting the cost of sales and selling, general and administrative expenses from net sales. This result is regularly reviewed to support decision-making in allocations of resources and to assess performance. Certain operating expenses such as restructuring charges and gains (losses) from sale or disposition of fixed assets are not included in it. Mobile Broadcasting Corporation and the Mobile Phone business have been classified as discontinued operations in the consolidated accounts in accordance with ASC No. 205-20, “Presentation of Financial Statements – Discontinued Operations”. The performances of these businesses are excluded from consolidated net sales, operating income (loss), and income (loss) from continuing operations, before income taxes and noncontrolling interests. The Group's net income (loss) is calculated by reflecting these business results to income (loss) from continuing operations, before income taxes and noncontrolling interests. Following the acquisition of Landis+Gyr AG in July 2011, the Company completed the allocation of the cost of the acquisition to assets and liabilities, according to ASC 805 “Business Combinations”, in the current fiscal year. Results for the year ended March 31, 2012 have been revised to reflect this change. Prior-period data on consolidated segment information has been reclassified to conform with the current classification, mainly due to changes of the structure of the Group's organization in the year ended March 31, 2013. 08 TOSHIBA Annual Report 2013 RESEARCH AND DEVELOPMENT With its Basic Management Policy, “Aiming to be an even stronger global contender”, the Group has been aiming to become a world-leading diversified electric and electronics provider through promoting further evolution of innovation with deepened imagination. The Group accelerates expanding overseas business answering market needs through promoting Total Energy Innovation and Total Storage Innovation, in order to suggest innovative solutions using technologies that the Group has competitive advantage. In addition, as an approach for creating innovations of new businesses, the Group will promote R&D with the projects of creating World's First, World No.1 Products and services, in order to create future of the world. The Group's overall R&D expenditure reached 300.0 billion yen ($3,191.4 million) in the fiscal year ended March 31, 2013. Expenditures for each business segment were as follows: Digital Products Electronic Devices Social Infrastructure Home Appliances Others CAPITAL EXPENDITURES Billions of yen 50.2 126.1 107.4 14.6 1.7 CAPITAL EXPENDITURE OVERVIEW (1) Overview The Group strongly promotes capital expenditure and investments & loans to accelerate enhancement of its focus businesses and to establish new profit basis. The Group sets “Shiftable funds”, which enables the Company to make speedy and flexible decisions of investments in response to change of business environment, and executes strategic investments. In the year ended March 31, 2013, the Group strongly promoted strategic investments in new businesses for enhancement of global competitiveness and future growth. As a result, the Group increased total investments, including capital expenditure and investments & loans for M&A, from previous year to 419.8 billion yen. Among the total investments, in relation to capital investment, the Group carefully select projects in fields in which growth are expected, forecasting changes in the market while placing importance on efficiency of investment. As a result, capital expenditure on an ordering basis amounted to 239.3 billion yen. The above capital expenditure includes the Group's portion in the investments made by Flash Forward, Ltd. and other affiliates accounted for by the equity method. Digital Products Electronic Devices Social Infrastructure Home Appliances Others Total Notes: 1) Based on ordering basis and includes intangible assets. 2) Based on payment basis. Capital expenditure (billion yen) (Note 1) 14.7 93.8 71.8 18.8 40.2 239.3 Investments & loans (billion yen) (Note 2) 32.7 8.3 134.2 2.3 3.0 180.5 Total investments (billion yen) 47.4 102.1 206.0 21.1 43.2 419.8 TOSHIBA Annual Report 2013 09 Management's Discussion and Analysis (2) Primary Capital Investment Acquired during the term Completed during the term Segment Electronic Devices Outline • Manufacturing facilities for hard disk drives (Acquired from Western Digital Corporation of the U.S.) Electronic Devices • Manufacturing facilities for hard disk drives (Philippines) • Manufacturing facilities for NAND flash memory (the Company's Yokkaichi Operations) • Manufacturing facilities for elements of white LED (Note 1) (Kaga Toshiba Electronics Corporation) Social Infrastructure • Manufacturing facilities for steam turbines and generators (the Company's Keihin Product Operations, etc.) Ordered during the term Home Appliances Electronic Devices Social Infrastructure • Building for of Keihin Global Engineering and Manufacturing Center (the Company's Keihin • Manufacturing building and facilities for washing machines (Indonesia) • Manufacturing facilities for NAND flash memory (the Company's Yokkaichi Operations) Product Operations) Home Appliances Others • Manufacturing facilities for compressor for air conditioning (Thailand) • Interior decorating and power equipment for building of the Smart Community business Notes: 1) Ordered during term. (Note 2) 2) The Company has planned to collectively lease the cutting-edge eco-friendly office building constructed by NREG Toshiba Building Co., Ltd. in order to use it as a core base toward the global deployment of the Smart Community business. (3) Primary Investment and Loan Segment Digital Products Outline • Acquisition of the distribution and retail store point-of-sale solutions business from IBM Corporation of the U.S. Electronic Devices Social Infrastructure • Acquisition of shares of NuFlare Technology Inc. • Acquisition of equity in investment of Westinghouse Group from the Shaw Group Inc., a leading Home Appliances • Acquisition of Green Star Products Inc. of the U.S. engineering company of the U.S. PLANS FOR CONSTRUCTING NEW FACILITIES AND RETIRING EXISTING FACILITIES At the end of this fiscal year ending March 31, 2013, investment for newly-established facilities and upgrades of equipment is planned to be amounted as 330.0 billion yen in the year ending March 31, 2014 (based on the value of orders placed and including intangible assets; hereinafter the same). This figure includes the Group's portion of the investment made by Flash Alliance, Ltd. and Flash Forward, Ltd. and others, which are companies accounted for by the equity method. The funds for capital expenditures will be financed by the internal funds. Business Segment Digital Products Electronic Devices Social Infrastructures Home Appliances Others Total Investments & loans Total investments billions of yen Planned Capital Investments for the year ending March 31, 2014 14.0 170.0 80.0 18.0 48.0 330.0 110.0 440.0 As of March 31, 2013 Major Contents and Purposes − Manufacturing facilities for NAND flash memories, Manufacturing facilities for HDDs, etc. Enhancement of Power systems businesses, etc. Manufacturing facilities for Home appliances, etc. − − Notes: 1) Consumption taxes are not included in these capital investment plans. 2) Retiring material facilities is not planned except for routine renewal of facilities. 3) The major planned new facilities and equipment upgrades in the year ending March 31, 2014 are as follows: Name of Company and Office Place Business Segment Type of Facility Planned Beginning Capacity Improvement after Completion of Construction Flash Forward LLC., and others Yokkaichi, Mie Electronic Devices Manufacturing facilities for semiconductors, etc. July 2013 Enhancement of manufacturing facilities, etc. As of March 31, 2013 10 TOSHIBA Annual Report 2013 FINANCIAL POSITION Total assets increased by 348.5 billion yen from the end of March 2012 to 6,021.6 billion yen ($64,059.6 million). Shareholders' equity, or equity attributable to the shareholders of the Company, was 824.6 billion yen ($8,772.2 million), an increase of 105.9 billion yen from the end of March 2012. This reflects a rise in net income (loss) attributable to shareholders of the Company and a significant improvement in the accumulated other comprehensive income, due to the acceleration in yen depreciation and ensuing upturn in the stock market since the end of 2012. Total interest-bearing debt increased by 235.8 billion yen since the end of March 2012 to 1,471.6 billion yen ($15,655.1 million). This reflected a rise of capital requirements to meet increased orders in the Social Infrastructure segment and for strategic investments for future growth. As a result of the foregoing, the shareholders' equity ratio at the end of March 2013 was 13.7%, a 1.0-point increase from the end of March 2012, and the debt-to-equity ratio was 178%, a 6-point increase from the end of March 2012. CASH FLOWS In the fiscal year under review, net cash provided by operating activities amounted to 132.3 billion yen, a decrease of 205.2 billion yen from net cash provided by operating activities of 337.5 billion yen in the previous fiscal year, due to a decrease of net income attributable to shareholders of the Company. Net cash used in investing activities amounted to 196.3 billion yen, a decrease of 180.9 billion yen from 377.2 billion yen in the previous fiscal year. This was mainly due to effect of expenditure including the acquisition of L+G which was invested in the previous year. As a result of the foregoing, free cash flow amounted to -64.0 billion yen ($-680.9 million), a decrease of 24.3 billion yen from -39.7 billion yen in the previous fiscal year, as cash flow from operating activities decreased mainly due to deterioration of working capital. Net cash used in financing activities amounted to 41.8 billion yen, an increase of 44.5 billion yen from -2.7 billion yen of net cash used in financing activities in the previous fiscal year. The effect of exchange rate changes was to increase cash by 17.1 billion yen. Cash and cash equivalents at the end of the fiscal year declined by 5.1 billion yen, from 214.3 billion yen of the end of the previous fiscal year to 209.2 billion yen. TREASURY STOCK Shares held as of the closing date of last period: Shares acquired during the period: Demand for purchase of shares less than one unit from shareholders Shares disposed during the period: Demand for sale of shares less than one unit from shareholders Shares held as of the closing date of this period: Aggregate amount of acquisition costs: Aggregate amount of sales value: 2,636,058 (common stock) 175,603 (common stock) 56 (million yen) 21,715 (common stock) 6 (million yen) 2,789,946 (common stock) TOSHIBA Annual Report 2013 11 Management's Discussion and Analysis MAJOR SUBSIDIARIES AND AFFILIATED COMPANIES Name of Company Toshiba TEC Corporation Toshiba Plant Systems & Services Corporation Toshiba Elevator and Building Systems Corporation Toshiba Solutions Corporation Toshiba Medical Systems Corporation Toshiba Nuclear Energy Holdings (US) Inc. Toshiba Nuclear Energy Holdings (UK) Ltd. Toshiba Consumer Electronics Holdings Corporation Toshiba America, Inc. Taiwan Toshiba International Procurement Corporation Voting Rights Ratio (Percentage) 52.9 61.6 80.0 100.0 100.0 87.0 87.0 100.0 100.0 100.0 As of March 31, 2013 Location Shinagawa-ku, Tokyo Yokohama Shinagawa-ku, Tokyo Minato-ku, Tokyo Otawara U.S. U.K. Chiyoda-ku, Tokyo U.S. Taiwan Notes: 1) The Company has 590 consolidated subsidiaries (including the 10 companies above) in accordance with Generally Accepted Accounting Standards in the U.S., and 200 affiliated companies accounted for by the equity method. The main affiliated companies accounted for by the equity method are Ikegami Tsushinki Co., Ltd., Shibaura Mechatronics Corporation, Toshiba Machine Co.,Ltd., and Topcon Corporation. 2) The Company has acquired the 20% equity interest in Toshiba Nuclear Energy Holdings (US) Inc. and Toshiba Nuclear Energy Holdings (UK) Ltd. held by a subsidiary wholly owned by The Shaw Group Inc, in January, 2013, to increase its share in those companies to 87%. 3) Toshiba Nuclear Energy Holdings (US) Inc. substantially owns all of the equity of Westinghouse Electric Company L.L.C. Main Places of Business and Facilities of the Company Segment Company-wide Offices Major Distribution As of March 31, 2013 Principal Office (Minato-ku, Tokyo), Hokkaido Branch Office (Sapporo), Tohoku Branch Office (Sendai), Shutoken Branch Office (Saitama), South-Shutoken Branch Office (Yokohama), Hokuriku Branch Office (Toyama), Chubu Branch Office (Nagoya), Kansai Branch Office (Osaka), Chugoku Branch Office (Hiroshima), Shikoku Branch Office (Takamatsu), Kyushu Branch Office (Fukuoka) Laboratories and others Corporate Research & Development Center (Kawasaki), Software Engineering Center (Kawasaki), Corporate Manufacturing Engineering Center (Yokohama), Yokohama Complex (Yokohama), Himeji Operations (Himeji) Digital Products Laboratories Design & Development Center (Ome), Core Technology Center (Ome) Production Facilities Fukaya Complex (Fukaya), Ome Complex (Ome) Electronic Devices Laboratories Center For Semiconductor Research & Development (Kawasaki) Production Facilities Ome Operations - Storage Products (Ome), Microelectronics Center (Kawasaki), Yokkaichi Operations (Yokkaichi), Himeji Operations-Semiconductor (Taishi, Hyogo), Kitakyushu Operations (Kitakyushu), Oita Operations (Oita) Social Infrastructure Laboratories Power and Social Systems Research and Development Center (Yokohama), Isogo Nuclear Engineering Center (Yokohama) Production Facilities Kashiwazaki Operations (Kashiwazaki), Saku Operations (Saku), Fuchu Complex (Fuchu, Tokyo), Komukai Operations (Kawasaki), Hamakawasaki Operations (Kawasaki), Keihin Product Operations (Yokohama), Mie Operations (Asahi Cho, Mie) As of May 2013, Saku Operations was integrated into Kashiwazaki Operations. 12 TOSHIBA Annual Report 2013 RISK FACTORS RELATING THE GROUP AND ITS BUSINESS The business areas of energy and electronics, the Group's main business areas, require highly advanced technology for their operation. At the same time, the Group faces fierce global competition. Therefore, appropriate risk management is indispensable. Major risk factors related to the Group recognized by the Company are described below. The actual occurrence of any of those risk factors may adversely affect the Group's operating results and financial condition. The risks described below are identified by the Group based on information available to the Group as of June 25, 2013 and involve inherent uncertainties, and, therefore, the actual results may differ. The Group recognizes these risks and makes every effort to avoid the occurrence of these risks and minimize any impact from them when they occur, by maintaining the proper risk management. 1. Risks related to management policy (1) Strategic concentrated investment In response to the issues that the current global economy faces, such as the increase in demand for energy or the rise in the price of resources, which are associated with the growth and expansion of emerging economies, and mass capacity growth of the information transmission and/or storage and the ensuring of the information security, the Group proposes a comprehensive solution through the construction of smart communities, by combining and integrating effectively the respective technologies in which the Group has an advantage. In addition, the Group makes strategic concentrated investment in the categories of total energy innovation, such as power generation systems, renewable energy and power electronics/EV, and total storage innovation, such as NAND flash memory, HDD/SSD, health care solutions, and retail solutions. In areas such as System LSIs, the Group is also restructuring and selectively allocating resources. While it is essential to allocate limited management resources to high growth areas or areas in which the Group enjoys competitiveness, in order to secure and maintain the Group's advantages, the areas in which the Group makes concentrated investments may not grow as anticipated, the Group may not maintain or strengthen its competitive power in such areas, or the relevant investments may not fully generate the anticipated level of profit. In order to avoid such risks, the Group is conscious of capital costs and of the need to conduct careful selection of investment items and to enhance progress management. Alongside these efforts, the Group also aims to achieve growth through allocation of strategic resources and to reinforce its financial base, by means of thorough implementation of comprehensive management of all relevant investments that reflect the nature of each individual business. Further to this, the Group also makes every effort to utilize external resources through strategic business alliances where necessary. (2) Success of strategic business alliances and acquisitions The Group actively promotes business alliances with other companies, including the formation of joint ventures and acquisitions, in order to grow new businesses in research and development, production, marketing and various other areas. If the Group has any disagreement with its partner in a business alliance or an acquisition in respect of financing, technological management, product development, management strategies or otherwise, such business alliance may be terminated or such acquisition may not have the expected effects. In addition, the Group's operating results and financial condition may be adversely affected by additional capital expenditures and provision of guaranties to meet the obligations for such partnership business that may be incurred due to the deterioration of the financial condition of the partner, as well as for other reasons. Based on these assumptions, the Group pays careful attention to optimizing business formation to secure correspondence to the nature of the relevant business. (3) Business structure reformation The Group as a whole is taking measures to reform its business structure, in order to continue and deepen the establishment, through self-transformation, of the business quality by which it can ensure a stable profit, not susceptible to a changing environment, and there is a possibility that the Group will incur expenses for business structure reform in this connection. Although there is a possibility that the Group's operating results or financial condition may be affected in the event of unexpected fluctuations in the foreign exchange rate, or the failure of such reform programs to produce the expected results, the Group, in an attempt to minimize impact from exchange rate fluctuations, has made efforts to expand globally optimized production and procurement and to secure multiple suppliers, among other things. While consolidating and optimizing facilities in Japan and abroad, the Group aims to achieve a structure that maximizes Group synergy, in addition to streamlining the business structure. (4) Measure for defense against hostile takeover The Company has introduced a plan outlining countermeasures that may be taken against any large-scale acquisitions of the Company's shares (the “Takeover Defense Measures”). If an entity making a large-scale acquisition of the Company's shares does not comply with the procedures under the Takeover Defense Measures, the Company will counteract by making a gratis allotment of stock acquisition rights (shinkabu yoyakuken) under the Takeover Defense Measures. Although such Takeover Defense Measures were introduced for the purpose of protecting and enhancing the corporate value of the Company and the common interests of its shareholders, they may limit the opportunities for the shareholders of the Company to sell their shares to hostile acquirers. TOSHIBA Annual Report 2013 13 Management's Discussion and Analysis 2. Risks related to financial condition, results of operations and cash flow (1) Business environment of the Digital Products business The market for the Digital Products business is intensely competitive, with many companies manufacturing and selling products similar to those offered by the Group. Additionally, this business may be significantly affected by exchange rate fluctuations, economic fluctuations and consumer spending trends which may be affected by the scheduled increase in consumption tax, among other things. The Group makes efforts to monitor the latest trends in market demand in order to better respond to changes in supply and demand conditions, as well as to better manage its production, procurement, sales and inventory. At the same time, the Group makes efforts to minimize risks and reduce costs in connection with the procurement of parts and components by promoting package procurement measures comprehensive procurement on a Group-wide basis. The Group also makes every effort to minimize the potential impact of the market volatility by undertaking regional strategies (such as with respect to the emerging markets, including China, that have relatively high economic growth rates) to promote business expansion. However, any rapid fluctuation in demand may result in price erosion or increases in prices of parts and components, which may adversely affect the Group's financial results with respect to this business. The Visual Products business, which includes TVs, has been affected by a continued decrease in Japanese market demand following completion of the shift to digital terrestrial broadcasting in Japan, the drastic decline in sales prices and sluggish sales in the United States and China. Also, the PC business has been affected by the slowdown in demand centered in the United States and competition with other digital products, such as smartphones. However, because the growth in the emerging markets centered around Asia is supposed to remain strong, the Company, in addition to continuous development of local fit products based on consideration of characteristics of each region, centering on the emerging markets, has also been making efforts to promote “local-fit reversing” by selling products developed in emerging markets in advanced economies. The Group is promoting structural reforms in an attempt to improve profit and enhance the basic structure of the Digital Products segments. To be more specific, functions to design and develop televisions were consolidated into the Ome Complex which is a site to design and develop personal and tablet computers in order to accelerate development toward creation of their fusion products, local fit products and value-added services. The Group also made operations more efficient by consolidating part of its TV repair works to a subsidiary, and transferred quality and production control operations from the Ome Complex to each overseas base. In relation to production systems, the Group has reinforced cost competitiveness by enhancing production facilities in emerging economies and expanding consignment production. (2) Business environment of the Electronic Devices business The market for the Electronic Devices business is highly cyclical, depending on demand, and intensely competitive, with many companies, mainly in overseas markets, manufacturing and selling products similar to those offered by the Group. The results of this business tend to change with economic fluctuations and, in particular, to be heavily affected by exchange rate fluctuations. Unforeseen market changes and corresponding changes in demand at the time of production may result in a mismatch between the Management's Discussion and Analysis production of particular products based on the sales volume initially expected and the actual demand for such products, or cause the business to be adversely affected by a decrease in product unit prices due to oversupply. In particular, the price for NAND flash memory, the Group's major product in this business, may undergo rapid change, and changes in the consumer market or semiconductor heavy users may influence demand for System LSIs and other semiconductor products. Fluctuations in the results of this business may materially affect the Group's overall business performance. In addition, the market may face a downturn, the Group may fail to market new products in a timely manner, production may not go as planned, or a rapid introduction of new technology may make the Group's current products obsolete. Economies of scale with respect to the manufacture of the many products produced by this business are significant and there is intense competition to develop and market new products. Therefore, significant levels of capital expenditures are required to maintain and improve competitiveness in both the price and quality of products. The Group makes every effort to implement the business by focusing its attention on these factors and promoting strategic allocation of resources. At the same time, the Group makes every effort to increase profits by enhancing cost competitiveness, which is to be achieved by maintaining a technological advantage, and expanding the product line-up. Additionally, the Group undertakes rigorous selection in its investments and makes every effort to carefully monitor the latest market trends and to make capital investments in a timely manner, while thoroughly controlling flexible production that corresponds to fluctuations in market demand, adjustment of supplies and investment management. The Group promotes procurement of components from overseas in US dollars in order to mitigate the impact of exchange rate fluctuations. 14 TOSHIBA Annual Report 2013 (3) Business environment of the Social Infrastructure business A significant portion of net sales in the Social 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 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. TOSHIBA Annual Report 2013 15 Management's Discussion and Analysis (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 possibility that such foreign exchange losses will occur, as resulting from a difference between the exchange rates at the time of recognizing and at the time of settlement of the credits and debts in foreign currencies, in case of steep 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 “accumulated other comprehensive income (loss)” reported as a component of equity attributable to shareholders of the Company (“shareholders' equity”). As a result, the Group's shareholders' equity 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 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, goodwill and listed shares. 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. Also, if the market price of listed shares held by the Group as the marketable securities declines, there is a possibility that an impairment loss on the relevant shares will be recorded or that the net unrealized losses on securities will be recognized. (6) 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 the European debt crisis, 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. In the case the financial markets fall into unstable turmoil, the financial institutions' reduction in their lending in response to the change in capital adequacy requirements, or the downgrading of the credit rating of the Company given by rating agencies, 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. In addition, loan agreements entered into between the Company and several financial institutions provide for financial covenants. Therefore, if the Company's consolidated net assets, consolidated operating income or credit rating falls below the respective levels provided for in the financial covenants, the Company's obligations with respect to the relevant loan repayments may be accelerated upon demand by the relevant lending financial institutions. Furthermore, any breach by the Company of those financial covenants may trigger acceleration of the bonds or other borrowings of the Company. The Company aims to improve business performance by promoting, among other things, restructuring programs and business structure conversions, while making all possible efforts to obtain the understanding of the lending financial institutions with respect to this, in order to avoid breaching financial covenants and the consequent acceleration of repayments. However, if any acceleration of the Company's loan repayments occurs, it may materially affect the Company's business operations. 16 TOSHIBA Annual Report 2013 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. In addition, a shortage in the electric power supply resulted from the suspension of the operation of nuclear power plants in Japan and a further rise in electricity costs due to the rise of fuel costs affected by exchange rate fluctuations may affect business activities, including manufacturing operations, of the Group, since a stable supply of electricity is essential to the Group's business activities. Any failure by the Group to procure such materials, components and other goods from key suppliers or any shortage in the power supply or further rise in electricity costs 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 implementation of such personnel measures may adversely affect the Group's employee morale, production efficiency or the ability to secure capable human resources. 4. Risks related to products and technologies (1) Investments in new businesses The Group invests in companies involved in new businesses, enters into alliances with other companies with respect to new businesses, and actively develops its own new businesses. The Group is now accelerating expansion of new growth businesses that can take advantage of a synergy of the Group's strengths in areas that include integrated storage, smart communities, power electronics and EV, renewable energy, healthcare and digital fusion products. Promotion of new business is essential for implementation of the growth strategy, and as a part of this, in the year ended March 31, 2013, the Group acquired the Retail Stores Solutions business from IBM Corporation, a company incorporated in the United States. Cultivation of new businesses entails substantial uncertainty, and if any new business in which the Group invests or which the Group attempts to develop does not progress as planned, the Group may be adversely affected by incurring investment expenses that do not lead to the anticipated results. In order to avoid these risks, the Group makes every effort to resolve various technological issues and to develop and capture potential demand effectively in the new business development process. 5. Risks related to trade practices (1) Parent company's guarantees When a subsidiary of the Company accepts an order for a large project, such as a plant, the Company, as the parent company, may, at the request of the customer, provide guarantees with respect to the subsidiary's performance under the contract. Such parent guarantees are made pursuant to standard business practices and in the ordinary course of business. If the subsidiary subsequently fails to fulfill its obligations, the Company may be obligated to bear the resulting loss. The Company makes every effort to conduct appropriate management by periodically monitoring the subsidiaries' fulfillment of the contract requirements and by cooperating with such subsidiaries where necessary. TOSHIBA Annual Report 2013 17 Management's Discussion and Analysis 6. Risks related to new products and new technology (1) Development of new products It is critically important for the Group to offer innovative and attractive new products and services. The Group has exerted its efforts to create “World-First” and “World No.1” products that deliver surprise and inspiration to customers, ahead of the needs of customers. However, due to the rapid pace of technological innovation, the emergence of alternative technologies and products and changes in technological standards, the optimum introduction of new products to the market may not be accomplished, or new products may be accepted by the market for a shorter period than anticipated. In addition, any failure on the part of the Group to continuously obtain sufficient funding and resources for development of technologies may affect the Group's ability to develop new products and services and to introduce them to market. From the viewpoint of enhancing concentration and selection of managerial resources, the Group now selects research and development themes more rigorously, with a primary focus on developing original and advanced technologies, with close consideration for the timing of market introduction. More rigorous selection of research and development items may impair the Group's technological superiority in certain products and technological fields. In order to avoid these risks, the Group intends to enhance the efficiency of research and development activities by sharing intellectual property through the promotion of common platforms and using overseas resources more efficiently in system development. 7. Risks related to laws and regulations (1) Information security The Group maintains and manages personal information obtained through business operations, as well as trade secrets regarding the Group's technology, marketing and other business operations. Even though the Group makes every effort to manage this information appropriately, the Group's business performance and financial situation may be subject to negative influences in the event of an unanticipated leak of such information and such information is obtained and used illegally by a third party. Additionally, the role of information systems in the Group is critical to carrying out business activities. While the Group makes every effort to ensure the stable operation of its information systems, there is no assurance that their functionality would not be impaired or destroyed by computer viruses, software or hardware failures, disaster, terrorism, or other causes. (2) Compliance and internal control The Group is active in various businesses in regions worldwide, and its business activities are subject to the laws and regulations of each region. The Group has implemented and operates necessary and appropriate internal control systems for a number of purposes, including compliance with laws and regulations and strict reporting of business and financial matters. However, there can be no assurance that the Group will always be able to structure and operate effective internal control systems. Furthermore, such internal control systems may themselves, by their nature, have limitations, and it is not possible to guarantee that they will fully achieve their objectives. Therefore, there is no assurance that the Group will not unknowingly and unintentionally violate laws and regulations in future. Changes in laws and regulations or changes in Management's Discussion and Analysis interpretations of laws and regulations by the relevant authorities may also cause difficulty in achieving compliance with laws and regulations or may result in increased compliance costs. On these grounds, the Group makes every effort to minimize these risks by making periodic revisions to the internal control systems, continuously monitoring operations, and so forth. (3) The environment The Group is subject to various environmental laws, including laws on air pollution, water pollution, toxic substances, waste disposal, product recycling, prevention of global warming and energy policies, in its global business activities. While the Group pays careful attention to these laws and regulations, it is possible that the Group may encounter legal or social liability for environmental matters, such as liability for the clean up of land at manufacturing bases throughout the world, regardless of whether the Group is at fault or not, with respect to its business activities, including its past activities. It is also possible that, in future, the Group will face more stringent requirements on the removal of environmental hazards, including toxic substances, or on further reducing emissions of greenhouse gases, as a result of the introduction of more demanding environmental regulations or in accordance with societal requirements. The Group's operations require the use of various chemical compounds, radioactive materials, nuclear materials and other toxic materials. The Group takes maximum care of such materials, giving first priority to human life and safety. However, the Group may incur damage, or the Group's reputation may be adversely affected, as a result of a natural disaster, the threat or occurrence of a terrorist incident, or of an accident or other contingency (including those beyond the Group's control) that leads to environmental pollution or the potential for such pollution. (4) Product quality claims While the Group makes every effort to implement quality control measures and to manufacture its products in accordance with appropriate quality-control standards, there can be no assurance that all products are free of defects that may result in a recall, lawsuits or other claims relating to product quality due to unforeseen reasons or circumstances. 18 TOSHIBA Annual Report 2013 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 circumstances, 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 adopted a decision to impose a fine on the Company for violating EU Competition Law in the gas insulated switchgear market. Following its own investigation, the Company contends that it has not found any infringement of EU Competition Law, and it brought an action to the General Court of the European Union. Then, the General Court of the European Union handed down a judgment and annulled the entire fine imposed on the Company, but upheld the European Commission's determination regarding the alleged anti-competitive behavior. The Company appealed to the European Court of Justice in September 2011, seeking annulment of that judgment. In June 2012, the European Commission decided to recalculate the fine which had been annulled with the above-mentioned judgment, and imposed it on the Company again. With this decision, the Company was individually fined 56.8 million euro and was also fined 4.65 million euro jointly and severally with Mitsubishi Electric Corporation. In September 2012, the Company brought an action to the General Court of the European Union, contending that the procedures related to the decision and its substances were unreasonable. Furthermore, the Group is under investigation by the U.S. Department of Justice, the Commission, and other competition regulatory 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, while class action lawsuits with respect to alleged anti-competitive behavior brought against the Group are currently pending in the United States. The Ministry of Defense (“MOD”) cancelled a contract for the development and manufacture of the “reconnaissance system for the F-15” between MOD and the Company. Therefore, in July 2011, the Company filed a lawsuit against MOD with the Tokyo District Court seeking payment therefor. In October 2012, MOD filed a countersuit for penalty charges based on the alleged infringement by the Company of the contract. The Company believes that it had properly executed its duties pursuant to the conditions of the contract and that MOD's cancellation of the contract and claim for penalty charges were unreasonable. Therefore, the Company will assert its opinion in the suit. In the U.S., since December 2006, actions against the Group and others to claim for damages have been filed by purchasers, etc. of LCD-related products on the ground of alleged infringements of U.S. Competition Law. Among them, lawsuits with individual companies have been pending. Believing that the Group has not committed any violations in the LCD business, the Company intends to take any legal action to have its claims accepted. In December 2012, the European Commission determined that there was an infringement of EU Competition Law in the Color Picture Cathode Ray Tube market, and adopted the decision to impose a fine of approximately 28 million euro on the Company, plus a fine of approximately 87 million euro jointly and severally with Panasonic Corporation and MT Picture Display Co., Ltd. According to the Company's investigation, the Company has not infringed EU Competition law. Therefore, the Company brought an action to the General Court of the European Union in February 2013. 9. Risks related to directors, employees, major shareholders and affiliates (1) Alliance in NAND flash memory The Group has a strategic alliance with a U.S. company, SanDisk Corporation (“SanDisk”), for the production of NAND flash memory, 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. 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 ventures, 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 companies) is currently 87% at present. The remainder is held by two companies in Japan and overseas (the “Minority Shareholders”). Several companies have already expressed an interest in investing in Westinghouse and the Company is considering inviting the participation of new investors in Westinghouse, on the condition that the Company retains a majority-in-interest. The Minority Shareholders, based on a separate agreement with the Company, have been given an option to sell all or TOSHIBA Annual Report 2013 19 Management's Discussion and Analysis part of their ownership interests to the Company (“Put Options”). The Group also has an option to purchase from the Minority Shareholders all or part of their respective ownership interest in companies of Westinghouse group under certain conditions. These options are in place for the purpose of protecting the interests of the Minority Shareholders, while preventing equity participation by a third party which may put the Group at disadvantage. The Company makes every effort to maintain a favorable relationship with the Minority Shareholders in connection with Westinghouse group'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 a certain amount of funds in connection with the exercise of Put Options or purchase options. 10. Others (1) Measures against counterfeit products While the Group protects and seeks to enhance the value of the Toshiba brand, counterfeit products created by third parties are found worldwide. While the Group makes every effort to prevent counterfeit products, the heavy circulation of counterfeit products may dilute the value of the Toshiba brand, and the Group's net sales may be adversely affected. (2) Protection of intellectual property rights The Group makes every effort to secure intellectual property rights. However, in some regions, it may not be possible to secure sufficient protection. The Group also uses the intellectual property of third parties pursuant to licenses. It is possible that the Group may fail to receive the necessary third-party licenses for new technology or is unable to obtain the renewal of existing licenses or receives them on unfavorable terms. In addition, it is also possible that a suit or such similar action or proceeding may be brought against the Group in respect of intellectual property rights or that the Group may itself have to file a suit in order to protect its intellectual property rights. Such lawsuits may require time, costs and other management resources, and depending on the outcome of these lawsuits, the Group may not be able to use important technology, or the Group may be found to be liable for damages. (3) Political, economic and social conditions The Group undertakes global business operations. Any changes in political, economic, and social conditions and policies, legal or regulatory changes and exchange rate fluctuations, in Japan or overseas, may impact market demand and the Group's business operations. The Group makes every effort to avoid these risks and to reduce any impact when such risks emerge by continuously monitoring changes in the situation in each region where the Group operates, including legal and regulatory changes, and by promptly initiating countermeasures. (4) Sovereign Risk In an environment marked by anxiety over the future financial condition of some of the European countries, concern over the financial system persists, the influence of which is not only the direct influence within Europe, but also the indirect influence on other regions, such as the deterioration in emerging economies due to fluctuation in exchange rates or withdrawal of funds by European banks or economic stagnation in the Chinese economy. If the financial condition of some countries should collapse, there is a possibility that the financial and capital markets and global economy will be significantly affected, and the Group, letting the financial crisis in 2008 be a lesson, has been advancing the measures therefor since 2011, upon implementing the stress test and setting the trigger event. (5) Natural disasters Most of the Group's Japanese production facilities are located in the Keihin region of Japan, which includes Tokyo, Kawasaki City, Yokohama City and the surrounding area, while key semiconductor production facilities are located in Kyushu, Tokai, Hanshin and Tohoku. The Group is currently expanding its production facilities in Asia. As a result, any occurrence of a wide-scale disaster, terrorism or epidemic illness, such as a new type of flu, particularly in any of these areas could have a more significant adverse effect on the Group's results. Additionally, large-scale disasters, such as earthquakes or typhoons, in regions where production or distribution sites are located may damage or destroy production capabilities, suspend procurement of raw materials or components, and cause transportation and sales interruptions or other similar disruptions, which could affect production capabilities significantly. In the past, the businesses of the Group were affected to a certain extent by the Great East Japan Earthquake and the floods in Thailand. In order to manage these risks, the Group established the “Business Continuity Plan (BCP)” as part of its continuing effort to avoid or minimize any impact from such disasters in addition to establishing the precautionary measures, such as construction of earthquake-resistant buildings and emergency procedures responsive to large-scale disasters. 20 TOSHIBA Annual Report 2013 TOSHIBA Annual Report 2013 21 Consolidated Balance Sheet Toshiba Corporation and Subsidiaries As of March 31, 2013 Assets Current assets: Cash and cash equivalents Notes and accounts receivable, trade: Notes (Notes 7 and 11) Accounts (Notes 7 and 11) Allowance for doubtful notes and accounts Inventories (Note 8) Deferred tax assets (Note 18) Other receivables (Note 7) Prepaid expenses and other current assets (Note 21) Total current assets Long-term receivables and investments: Long-term receivables (Notes 7 and 11) Investments in and advances to affiliates (Note 9) Marketable securities and other investments (Notes 5 and 6) Total long-term receivables and investments Property, plant and equipment (Notes 17 and 22): Land Buildings Machinery and equipment Construction in progress Less−Accumulated depreciation Total property, plant and equipment Other assets (Note 17): Goodwill and other intangible assets (Note 10) Deferred tax assets (Note 18) Other assets Total other assets Total assets The accompanying notes are an integral part of these statements. Millions of yen 2013 2012 Thousands of U.S. dollars (Note 3) 2013 ¥ 209,169 ¥ 214,305 $ 2,225,202 33,620 1,344,088 (16,882) 940,238 176,001 156,382 266,114 3,108,730 30,379 411,506 264,391 706,276 93,729 915,590 2,032,400 79,707 3,121,426 (2,299,127) 822,299 901,816 385,416 97,066 1,384,298 43,800 1,272,727 (19,665) 854,297 176,044 201,238 252,318 2,995,064 49,164 413,506 237,519 700,189 94,747 906,619 2,093,983 67,236 3,162,585 (2,380,915) 781,670 709,607 402,033 84,501 1,196,141 357,660 14,298,808 (179,596) 10,002,532 1,872,351 1,663,639 2,831,000 33,071,596 323,181 4,377,723 2,812,670 7,513,574 997,117 9,740,319 21,621,277 847,947 33,206,660 (24,458,798) 8,747,862 9,593,787 4,100,170 1,032,617 14,726,574 ¥ 6,021,603 ¥ 5,673,064 $ 64,059,606 22 TOSHIBA Annual Report 2013 Liabilities and equity Current liabilities: Short-term borrowings (Note 11) Current portion of long-term debt (Notes 11, 12 and 21) Notes and accounts payable, trade Accounts payable, other and accrued expenses (Note 26) Accrued income and other taxes Advance payments received Other current liabilities (Notes 18, 21 and 24) Total current liabilities Long-term liabilities: Long-term debt (Notes 11 and 21) Accrued pension and severance costs (Note 13) Other liabilities (Notes 18, 21, 26 and 27) Total long-term liabilities Millions of yen 2013 2012 ¥ 191,453 241,675 1,200,429 439,144 58,133 297,208 440,692 2,868,734 1,038,448 715,450 193,148 1,947,046 ¥ 119,515 206,626 1,290,902 397,449 46,536 271,869 405,538 2,738,435 909,620 779,414 161,737 1,850,771 Thousands of U.S. dollars (Note 3) 2013 $ 2,036,734 2,571,011 12,770,521 4,671,745 618,436 3,161,787 4,688,213 30,518,447 11,047,319 7,611,170 2,054,766 20,713,255 Total liabilities ¥ 4,815,780 ¥ 4,589,206 $ 51,231,702 Equity attributable to shareholders of the Company (Notes 12 and 19): Common stock: Authorized−10,000,000,000 shares Issued: 2013 and 2012 −4,237,602,026 shares Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock, at cost: 2013−2,789,946 shares 2012−2,636,058 shares Total equity attributable to shareholders of the Company Equity attributable to noncontrolling interests Total equity Commitments and contingent liabilities (Notes 23, 24 and 25) ¥ 439,901 401,594 428,569 (443,938) (1,542) − 824,584 381,239 ¥ 1,205,823 ¥ ¥ 439,901 396,789 449,023 (565,551) − (1,498) 718,664 365,194 1,083,858 $ 4,679,798 4,272,276 4,559,245 (4,722,745) (16,404) − 8,772,170 4,055,734 $ 12,827,904 Total liabilities and equity ¥ 6,021,603 ¥ 5,673,064 $ 64,059,606 TOSHIBA Annual Report 2013 23 Consolidated Statement of Income Toshiba Corporation and Subsidiaries For the years ended March 31, 2013 Sales and other income: Net sales Interest and dividends Equity in earnings of affiliates (Note 9) Other income (Notes 5, 6, 16 and 21) Costs and expenses: Cost of sales (Notes 5, 10, 14, 17, 22 and 26) Selling, general and administrative (Notes 10, 14, 15 and 22) Interest Other expense (Notes 5, 6, 7 and 16) Millions of yen 2013 2012 ¥ 5,722,248 12,139 21,560 100,755 5,856,702 4,413,476 1,216,719 32,677 118,904 5,781,776 ¥ 5,996,414 10,195 17,035 78,997 6,102,641 4,628,451 1,253,061 31,815 127,887 6,041,214 Thousands of U.S. dollars (Note 3) 2013 $ 60,874,979 129,138 229,362 1,071,862 62,305,341 46,951,872 12,943,820 347,628 1,264,936 61,508,256 Income from continuing operations, before income taxes and noncontrolling interests 74,926 61,427 797,085 Income taxes (Note 18): Current Deferred Income from continuing operations, before noncontrolling interests Loss from discontinued operations, before noncontrolling interests (Note 4) Net income before noncontrolling interests Less: Net income attributable to noncontrolling interests 50,854 (12,498) 38,356 47,723 717 48,440 541,000 (132,958) 408,042 36,570 12,987 389,043 (4,983) 31,587 (1,161) 11,826 (53,011) 336,032 18,162 8,632 193,213 Net income attributable to shareholders of the Company ¥ 13,425 ¥ 3,194 $ 142,819 Basic net earnings (losses) per share attributable to shareholders of the Company (Note 20) Earnings from continuing operations Losses from discontinued operations Net earnings Diluted net earnings (losses) per share attributable to shareholders of the Company (Note 20) Earnings from continuing operations Losses from discontinued operations Net earnings Cash dividends per share (Note 19) The accompanying notes are an integral part of these statements. Yen U.S. dollars (Note 3) ¥ ¥ ¥ ¥ ¥ ¥ ¥ 3.76 (0.59) 3.17 3.76 (0.59) 3.17 8.00 ¥ ¥ ¥ ¥ ¥ ¥ ¥ 1.13 (0.37) 0.75 1.11 (0.37) 0.74 8.00 $ $ $ $ $ $ $ 0.04 (0.01) 0.03 0.04 (0.01) 0.03 0.09 24 TOSHIBA Annual Report 2013 Consolidated Statement of Comprehensive Income Toshiba Corporation and Subsidiaries For the years ended March 31, 2013 Net income before noncontrolling interests ¥ 31,587 ¥ 11,826 $ Millions of yen 2013 2012 Other comprehensive income (loss), net of tax (Note 19) Net unrealized gains and losses on securities (Note 6) Foreign currency translation adjustments Pension liability adjustments (Note 13) Net unrealized gains and losses on derivative instruments (Note 21) Total other comprehensive income (loss) 25,571 145,066 38,506 (841) 208,302 (5,324) (11,007) (33,619) (659) (50,609) Thousands of U.S. dollars (Note 3) 2013 336,032 272,032 1,543,256 409,638 (8,947) 2,215,979 Comprehensive income (loss) before noncontrolling interests 239,889 (38,783) 2,552,011 Less:Comprehensive income attributable to noncontrolling interests 60,037 3,969 638,692 Comprehensive income (loss) attributable to shareholders of the Company The accompanying notes are an integral part of these statements. ¥ 179,852 ¥ (42,752) $ 1,913,319 TOSHIBA Annual Report 2013 25 Consolidated Statement of Equity Toshiba Corporation and Subsidiaries For the years ended March 31, 2013 Balance at March 31, 2011 Change in ownership for noncontrolling interests and others Dividend attributable to shareholders of the Company Dividends attributable to noncontrolling interests Comprehensive income (loss): Net income Other comprehensive income (loss), net of tax (Note 19): Net unrealized gains and losses on securities (Note 6) Foreign currency translation adjustments Pension liability adjustments (Note 13) Net unrealized gains and losses on derivative instruments (Note 21) Total comprehensive income (loss) Purchase of treasury stock, net, at cost Balance at March 31, 2012 Change in ownership for noncontrolling interests and others Dividend attributable to shareholders of the Company Dividends attributable to noncontrolling interests Comprehensive income: Net income Other comprehensive income (loss), net of tax (Note 19): Net unrealized gains and losses on securities (Note 6) Foreign currency translation adjustments Pension liability adjustments (Note 13) Net unrealized gains and losses on derivative instruments (Note 21) Total comprehensive income Purchase of treasury stock, net, at cost Common stock Additional paid-in capital Retained earnings Millions of yen Accumulated other comprehen- sive income (loss) Treasury stock Equity attributable to shareholders of the Company Equity attributable to non-controlling interests Total equity ¥ 439,901 ¥ 399,551 ¥ 475,474 ¥ (519,605) ¥ (1,461) ¥ 793,860 ¥ 309,364 ¥ 1,103,224 (2,759) (2,759) 59,490 56,731 (29,645) (29,645) (29,645) 3,194 3,194 8,632 11,826 (7,629) (7,629) (5,362) (10,517) (29,667) (5,362) 38 (5,324) (10,517) (490) (11,007) (29,667) (3,952) (33,619) (400) (400) (259) (659) (42,752) 3,969 (38,783) 439,901 (3) 396,789 449,023 (565,551) (37) (1,498) (40) 718,664 365,194 (40) 1,083,858 4,811 (44,814) (40,003) (39,057) (79,060) (33,879) (33,879) (33,879) 13,425 13,425 18,162 31,587 (4,935) (4,935) 21,072 107,078 38,992 21,072 4,499 25,571 107,078 37,988 145,066 38,992 (486) 38,506 (715) (715) (126) (841) 179,852 60,037 239,889 (6) (44) (50) (1,542) ¥ 824,584 ¥ 381,239 ¥ 1,205,823 (50) Balance at March 31, 2013 ¥ 439,901 ¥ 401,594 ¥ 428,569 ¥ (443,938) ¥ 26 TOSHIBA Annual Report 2013 Common stock Additional paid-in capital Retained earnings Thousands of U.S. dollars (Note 3) Accumulated other comprehen- sive income (loss) Treasury stock Equity attributable to shareholders of the Company Equity attributable to non-controlling interests Total equity $ 4,679,798 $ 4,221,160 $ 4,776,840 $ (6,016,500) $ (15,936) $ 7,645,362 $ 3,885,043 $ 11,530,404 51,181 (476,745) (425,564) (415,500) (841,064) (360,415) (360,415) (360,415) 142,819 142,819 193,213 336,032 (52,500) (52,500) 224,170 1,139,128 414,809 224,170 47,862 272,032 1,139,128 404,128 1,543,256 414,809 (5,171) 409,638 (7,606) (7,606) (1,341) (8,947) 1,913,319 638,692 2,552,011 Balance at March 31, 2012 Change in ownership for noncontrolling interests and others Dividend attributable to shareholders of the Company Dividends attributable to noncontrolling interests Comprehensive income: Net income Other comprehensive income (loss), net of tax (Note 19): Net unrealized gains and losses on securities (Note 6) Foreign currency translation adjustments Pension liability adjustments (Note 13) Net unrealized gains and losses on derivative instruments (Note 21) Total comprehensive income Purchase of treasury stock, net, at cost Balance at March 31, 2013 The accompanying notes are an integral part of these statements. $ 4,679,798 $ 4,272,277 $ 4,559,244 $ (4,722,744) $ (64) (468) (532) (16,404) $ 8,772,170 $ 4,055,735 $ 12,827,904 (532) TOSHIBA Annual Report 2013 27 Consolidated Statement of Cash Flows Toshiba Corporation and Subsidiaries For the years ended March 31, 2013 Cash flows from operating activities Net income before noncontrolling interests Adjustments to reconcile net income before noncontrolling interests to net cash provided by operating activities− Depreciation and amortization Provisions for pension and severance costs, less payments Deferred income taxes Equity in earnings of affiliates, net of dividends Loss from sales, disposal and impairment of property, plant and equipment and intangible assets, net Loss from sales and impairment of securities and other investments, net (Increase) decrease in notes and accounts receivable, trade Increase in inventories Increase (decrease) in notes and accounts payable, trade Increase in accrued income and other taxes Increase (decrease) in advance payments received Other Net cash provided by operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment and intangible assets Proceeds from sale of securities Acquisition of property, plant and equipment Acquisition of intangible assets Purchase of securities Decrease in investments in affiliates Acquisition of Landis+Gyr AG Other Net cash used in investing activities Cash flows from financing activities Proceeds from long-term debt Repayment of long-term debt Increase (decrease) in short-term borrowings, net Dividends paid Purchase of treasury stock, net Purchase of shares of Westinghouse group from noncontrolling interests Other Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental disclosure of cash flow information Cash paid during the year for− Interest Income taxes Acquisition of IBM’s Retail Store Solution business (Note 28)− Account payable-nontrade for consideration for acquisition Sale of Toshiba Mobile Display Co., Ltd. stock (Note 16)− Assets transferred (net of cash and cash equivalents) Liabilities relinquished The accompanying notes are an integral part of these statements. Millions of yen 2013 2012 Thousands of U.S. dollars (Note 3) 2013 ¥ 31,587 ¥ 11,826 $ 336,032 197,747 (2,021) (12,498) (13,889) 14,533 3,000 6,369 (24,804) (167,415) 8,355 (3,844) 95,196 132,316 87,672 3,876 (266,581) (29,630) (9,203) 24,616 − (7,097) (196,347) 350,101 (208,865) 66,885 (42,547) (50) (124,724) 972 41,772 17,123 (5,136) 214,305 209,169 33,090 48,662 17,874 − − ¥ ¥ 242,913 5,301 (172) (13,926) 55,574 2,322 (195,502) (2,405) 124,495 6,350 104,886 (4,165) 337,497 103,818 9,638 (291,733) (39,426) (18,435) 15,444 (129,450) (27,083) (377,227) 370,911 (206,325) (130,767) (37,007) (42) − 490 (2,740) (2,065) (44,535) 258,840 214,305 31,759 43,912 − 189,664 222,201 ¥ ¥ 2,103,692 (21,500) (132,957) (147,755) 154,606 31,915 67,755 (263,872) (1,781,011) 88,883 (40,894) 1,012,723 1,407,617 932,681 41,234 (2,835,968) (315,213) (97,904) 261,872 − (75,500) (2,088,798) 3,724,479 (2,221,968) 711,543 (452,628) (532) (1,326,851) 10,340 444,383 182,160 (54,638) 2,279,840 $ 2,225,202 $ 352,021 517,681 190,149 − − 28 TOSHIBA Annual Report 2013 RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS Because the full text was amended, the text is not underlined. 1) Background On February 12, 2015, Toshiba Corporation (“the Company”) received a report order from the Securities and Exchange Surveillance Commission pursuant to Article 26 of the Financial Instruments and Exchange Act and was subject to a disclosure inspection with respect to some projects in which the percentage-of-completion of accounting method was used, among others. Following that, in the course of a self-investigation by the Company to deal with the issues identified relating to those projects in the disclosure inspection, it was noted that some matters require investigation in respect of accounting treatments for some infrastructure projects of the Company in which the percentage-of-completion method was used during the fiscal year ended March 31, 2014. Based on this situation, it was decided that the Special Investigation Committee consisting of the Company’s internal committee members as well as external attorneys-at-law and certified public accountants would be established as of April 3, 2015, and the Company would of its own accord implement an investigation of the relevant facts. Then the Special Investigation Committee found that, in respect of some infrastructure projects, the total amount of the contract cost was underestimated and Contract Losses (including provisions for contract losses) were not recorded in a timely manner, and also, issues requiring further investigation were identified. Consequently, the Company decided to shift to the framework of investigation to an Independent Investigation Committee comprising independent and impartial external experts who did not have any interests in the Company as of May 8, 2015. The scope of the investigation delegated to the Independent Investigation Committee covers four matters: (1) accounting treatments in relation to projects in which the percentage-of-completion method was used; (2) accounting treatments in relation to recording of operating expenses in the Visual Products Business; (3) accounting treatments in relation to the valuation of inventory in the Semiconductor Business, mainly discrete and system LSIs; and (4) accounting treatments in relation to parts transactions, etc. in the PC Business. The Company received an investigation report from the Independent Investigation Committee on July 20, 2015. In parallel with such efforts, the Company and all its consolidated subsidiaries as of March 31, 2015 underwent self- checks with respect to whether or not there was any issue that was not compliant with the accounting standards, internal regulations and other rules or any other inappropriate accounting treatment, and whether or not the Company and its consolidated subsidiaries were aware of any such issue or inappropriate accounting treatment, etc. including minor matters at each quarter-end in the period between the fiscal year ended March 31, 2010 and the fiscal year ended March 31, 2015 and during the period between April 1, 2015 and May 31, 2015. The Company amended the consolidated financial statements for each fiscal year in the period from the fiscal year ended March 31, 2010 to the fiscal year ended March 31, 2014 and for each quarter (first three months, first six months and first nine months) in the period from the fiscal year ended March 31, 2011 to the fiscal year ended March 31, 2015, to reflect the correction of the events identified in the investigation report of the Independent Investigation Committee stated above and the internal self-checks and the correction of other issues that had not been corrected due to a materiality viewpoint. In line with the amendment, data in the consolidated financial statements were also reclassified for disclosure in connection with discontinued operations. Information on discontinued operations is disclosed in Note 4. 2) Overview Restatement for the accounting treatment under the percentage-of-completion method As the result of the above investigations, it was found that in certain infrastructure projects in which the percentage-of- completion of accounting method was used, there were cases where the estimated total cost was not calculated based on the latest information on incurred expenses, where provisions for contract losses were not recorded at the time when generation of losses became evident, and where the estimated total cost was calculated in anticipation of cost reductions which remained unsubstantiated. To correct these accounting treatments, the Company restated data in the consolidated financial statements issued in the fiscal year ended March 31, 2010 and the following years. The effect of this restatement on net sales and income from continuing operations, before income taxes and noncontrolling interests, for the fiscal years ended March 31, 2013 and 2012 is as stated in 3) below. Restatement for the accounting treatment in relation to recording operating expenses in the Visual Products Business As the result of the above investigations, etc., it was found that in the Visual Products Business, there were cases where some expenses were not recorded as expenses using the accrual-based method, where profits that should not be realized were recognized by making use of transactions between consolidated group companies, and where discounts in the purchase prices were recognized, for example by reflecting adjustment or increase of the procurement prices for the following periods, even if cost was not actually reduced. TOSHIBA Annual Report 2013 29  To correct these accounting treatments, the Company restated data in the consolidated financial statements issued in the fiscal year ended March 31, 2010 and the following years. The effect of this restatement on net sales and income from continuing operations, before income taxes and noncontrolling interests, for the fiscal years ended March 31, 2013 and 2012 is as stated in 3) below. Restatement for the accounting treatment in the parts transactions in the PC Business As the result of the above investigations, it was found that in the PC Business, there were cases where inappropriate profits were recognized in each fiscal period for parts transactions with manufacturing subcontractors, as well as cases where some expenses were not recorded as expenses using the accrual-based method and where profits that should not be realized were recognized by making use of transactions between consolidated group companies. To correct these accounting treatments, the Company restated data in the consolidated financial statements issued in the fiscal year ended March 31, 2010 and the following years. The effect of this restatement on income from continuing operations, before income taxes and noncontrolling interests, for the fiscal years ended March 31, 2013 and 2012 is as stated in 3) below. Restatement for the accounting treatment in relation to valuation of inventory in the Semiconductor Business As the result of the above investigations, it was found that in the Semiconductor Business, there were cases where valuation losses for work-in-progress inventories and others were not recognized until the time of actual disposal of the inventories, and where the book values of term-end intermediate products and term-end completed products were overstated due to the lack of consistency between the front-end and back-end for revision of the standard cost in the standard cost accounting, and consequently cost of goods sold was understated. To correct these accounting treatments, the Company restated data in the consolidated financial statements issued in the fiscal year ended March 31, 2010 and the following years. The effect of this restatement on income from continuing operations, before income taxes and noncontrolling interests, for the fiscal years ended March 31, 2013 and 2012 is as stated in 3) below. Restatement for the account treatment for events identified in self-check and others The Company restated data in the consolidated financial statements issued in the fiscal year ended March 31, 2010 and the following years, including events identified in the above self-check and other matters that had not been corrected from the standpoint of materiality. This restatement includes the correction of accounting period attribution in recognition of expenses and the correction of the inappropriate accounting treatment for preparing financial statements for prior years of Toshiba Medical Information Systems Corporation. The effect of this restatement on net sales and income from continuing operations, before income taxes and noncontrolling interests, for the fiscal years ended March 31, 2013 and 2012 is as stated in 3) below. Additional recognition of impairment losses and resulting adjustment to depreciation Incidental with the above correction of accounting treatments, the Company recognized impairment losses on fixed assets and made a correction of the recognition timing thereof and the resulting adjustment to depreciation for the Visual Products Business, PC Business, discrete and system LSIs businesses of the Semiconductor Business. Consequently, relevant data were restated in the consolidated financial statements issued in the fiscal year ended March 31, 2010 and the following years. The effect of this restatement on income from continuing operations, before income taxes and noncontrolling interests, for the fiscal years ended March 31, 2013 and 2012 is as stated in 3) below. Others For significant business combinations conducted in prior years, some data in the consolidated financial statements were retrospectively reclassified due to the completion of allocation of acquisition amounts to assets acquired and liabilities assumed. The effect on income from continuing operations, before income taxes and noncontrolling interests, for the fiscal years ended March 31, 2013 and 2012 is as stated in 3) below. Income taxes Although the effect of the correction of the above accounting treatments on income taxes for the current fiscal year in the consolidated tax filing group led by the Company and in subsidiaries is insignificant, the Company made adjustments to deferred tax assets and liabilities and reviewed valuation allowances due to a change in temporary differences resulting from the above correction of accounting treatments for prior years. Consequently, relevant data were restated in the consolidated financial statements issued in the fiscal year ended March 31, 2010 and the following years. The effect of this restatement on income taxes for the fiscal years ended March 31, 2013 and 2012 is as stated in 3) below. 30 TOSHIBA Annual Report 2013 3) Summary of effects of restatement (1) Summary of effects on net sales The following table shows the summary of effects of the restatement on net sales: Year ended March 31 Net sales, as previously reported Reclassified as discontinued operations Adjustments: Correction of the accounting treatment under the percentage-of- completion method Correction of the accounting treatment in relation to recording operating expenses in the Visual Products Business Correction of the account treatment for events identified in self- check and others Sub total of adjustments Net sales, as restated Millions of yen 2013 ¥ 5,800,281 (73,295) ¥ 2012 6,100,262 (105,915) Thousands of U.S. dollars 2013 $ 61,705,117 (779,734) (3,016) 191 (222) (286) (32,085) 2,032 (1,913) (4,738) ¥ 5,722,248 2,575 2,067 5,996,414 ¥ (20,351) (50,404) $ 60,874,979 TOSHIBA Annual Report 2013 31 (2) Summary of effects on income from continuing operations, before income taxes and noncontrolling interests, income from continuing operations, before noncontrolling interests, income from discontinued operations, before noncontrolling interests, and net income attributable to shareholders of the Company The following table shows the summary of effects of the restatement on income from continuing operations, before income taxes and noncontrolling interests, income from continuing operations, before noncontrolling interests, income from discontinued operations, before noncontrolling interests, and net income attributable to shareholders of the Company: Year ended March 31 Income from continuing operations, before income taxes and noncontrolling interests, as previously reported Reclassified as discontinued operations Adjustments: Correction of the accounting treatment under the percentage- of-completion method Correction of the accounting treatment in relation to recording operating expenses in the Visual Products Business Correction of the accounting treatment in the parts transactions in the PC Business Correction of the accounting treatment in relation to valuation of inventory in the Semiconductor Business Correction of the account treatment for events identified in self-check and others Additional recognition of impairment losses and resulting adjustment to depreciation Other Sub total of adjustments Income from continuing operations, before income taxes and noncontrolling interests, as restated Income taxes, as previously reported Adjustment to income taxes Income taxes, as restated Income from continuing operations, before noncontrolling interests, as restated Loss from discontinued operations, before noncontrolling interests (net of tax), as previously reported Reclassified as discontinued operations Loss from discontinued operations, before noncontrolling interests (net of tax), as restated Net income before noncontrolling interests, after reclassification as discontinued operations Less: Net income attributable to noncontrolling interests, as previously reported Adjustment to: less: net income attributable to noncontrolling interests Millions of yen 2013 2012 Thousands of U.S. dollars 2013 ¥ 155,553 ¥ 145,579 $ 1,654,819 4,983 (134) 53,011 (17,979) (2,798) (28,157) (36,587) (12,903) 13,721 (907) (85,610) 74,926 59,827 (21,471) 38,356 36,570 0 (4,983) (4,983) 31,587 18,193 (31) 18,162 13,425 (7,892) 12,717 (22,258) (10,294) (7,332) (48,959) − (84,018) 61,427 64,223 (15,783) 48,440 12,987 (1,295) 134 (1,161) 11,826 10,007 (1,375) 8,632 3,194 ¥ (191,266) (29,766) (299,543) (389,223) (137,266) 145,968 (9,649) (910,745) 797,085 636,457 (228,415) 408,042 389,043 0 (53,011) (53,011) 336,032 193,543 (330) 193,213 142,819 $ Less: Net income attributable to noncontrolling interests, as restated Net income attributable to shareholders of the Company, as restated ¥ 32 TOSHIBA Annual Report 2013 (3) Adjustments to the opening balance of each equity item The following table shows the summary of adjustments made to the balance of each equity item at the beginning of the fiscal year ended March 31, 2012 as cumulative effects in the fiscal year ended March 31, 2011 and the prior periods. No adjustment is made to common stock and treasury stock, at cost. March 31, 2011, as previously reported ¥ 399,552 ¥ 551,523 ¥ (521,396) Additional paid-in capital Retained earnings Millions of yen Accumulated other comprehensive income (loss) Equity attributable to noncontrolling interests 311,497 ¥ Adjustments: Correction of the accounting treatment under the percentage-of-completion method Correction of the accounting treatment in relation to recording operating expenses in the Visual Products Business Correction of the accounting treatment in the parts transactions in the PC Business Correction of the accounting treatment in relation to valuation of inventory in the Semiconductor Business Correction of the account treatment for events identified in self-check and others Additional recognition of impairment losses and resulting adjustment to depreciation Adjustment to income taxes Adjustment to noncontrolling interests Sub total of adjustments March 31, 2011, as restated − − − − (1) − − − (1) 399,551 ¥ ¥ (15) (19,633) (37,037) (5,910) (16,995) (38,445) 39,800 2,186 (76,049) 475,474 − − − − 1,791 − − − 1,791 (519,605) ¥ − − − − 53 − − (2,186) (2,133) 309,364 ¥ TOSHIBA Annual Report 2013 33 (4) Summary of effects on consolidated balance sheet The following table shows the summary of effects of the restatement above on the consolidated balance sheet. March 31, 2013 Assets Current assets Cash and cash equivalents Notes and accounts receivable, trade: Inventories Deferred tax assets Other receivables Prepaid expenses and other current assets Total current assets Long-term receivables and investments Long-term receivables Investments in and advances to affiliates Marketable securities and other investments Total long-term receivables and investments Property, plant and equipment Land Buildings Machinery and equipment Construction in progress Accumulated depreciation Total property, plant and equipment Other assets Goodwill and other intangible assets Deferred tax assets Other assets Total other assets Total assets Amount as previously reported Adjustment Amount as restated Millions of yen ¥ 209,169 1,372,307 1,003,108 146,388 155,961 276,774 3,163,707 30,379 411,418 264,391 706,188 99,102 948,918 2,081,402 90,858 3,220,280 (2,335,600) 884,680 919,333 336,330 96,494 1,352,157 ¥ 6,106,732 ¥ ¥ − (11,481) (62,870) 29,613 421 (10,660) (54,977) − 88 − 88 (5,373) (33,328) (49,002) (11,151) (98,854) 36,473 (62,381) (17,517) 49,086 572 32,141 (85,129) ¥ 209,169 1,360,826 940,238 176,001 156,382 266,114 3,108,730 30,379 411,506 264,391 706,276 93,729 915,590 2,032,400 79,707 3,121,426 (2,299,127) 822,299 901,816 385,416 97,066 1,384,298 ¥ 6,021,603 34 TOSHIBA Annual Report 2013 March 31, 2013 Liabilities Current liabilities Short-term borrowings Current portion of long-term debt Notes and accounts payable, trade Accounts payable, other and accrued expenses Accrued income and other taxes Advance payments received Other current liabilities Total current liabilities Long-term liabilities Long-term debt Accrued pension and severance costs Other liabilities Total long-term liabilities Total liabilities Equity Equity attributable to shareholders of Toshiba Corporation Common stock: Authorized: Issued: 10,000,000,000 shares 4,237,602,026 shares Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock, at cost Total equity attributable to shareholders of Toshiba Corporation 2,789,946 shares Equity attributable to noncontrolling interests Total equity Commitments and contingent liabilities Total liabilities and equity Amount as previously reported Adjustment Amount as restated Millions of yen ¥ 191,453 241,675 1,190,201 434,790 57,465 297,902 330,238 2,743,724 1,038,448 715,450 192,588 1,946,486 4,690,210 439,901 404,430 635,586 (443,919) (1,542) 1,034,456 382,066 1,416,522 ¥ − − 10,228 4,354 668 (694) 110,454 125,010 − − 560 560 125,570 − (2,836) (207,017) (19) − (209,872) (827) (210,699) ¥ 191,453 241,675 1,200,429 439,144 58,133 297,208 440,692 2,868,734 1,038,448 715,450 193,148 1,947,046 4,815,780 439,901 401,594 428,569 (443,938) (1,542) 824,584 381,239 1,205,823 ¥ 6,106,732 ¥ (85,129) ¥ 6,021,603 TOSHIBA Annual Report 2013 35 March 31, 2012 Assets Current assets Cash and cash equivalents Notes and accounts receivable, trade: Inventories Deferred tax assets Other receivables Prepaid expenses and other current assets Total current assets Long-term receivables and investments Long-term receivables Investments in and advances to affiliates Marketable securities and other investments Total long-term receivables and investments Property, plant and equipment Land Buildings Machinery and equipment Construction in progress Accumulated depreciation Total property, plant and equipment Other assets Goodwill and other intangible assets Deferred tax assets Other assets Total other assets Total assets Amount as previously reported Adjustment Amount as restated Millions of yen ¥ 214,305 1,307,634 884,187 146,825 202,649 253,913 3,009,513 49,164 414,542 237,519 701,225 100,029 940,935 2,132,059 79,006 3,252,029 (2,400,664) 851,365 723,577 378,474 88,583 1,190,634 5,752,737 ¥ ¥ ¥ − (10,772) (29,890) 29,219 (1,411) (1,595) (14,449) − (1,036) − (1,036) (5,282) (34,316) (38,076) (11,770) (89,444) 19,749 (69,695) (13,970) 23,559 (4,082) 5,507 (79,673) ¥ 214,305 1,296,862 854,297 176,044 201,238 252,318 2,995,064 49,164 413,506 237,519 700,189 94,747 906,619 2,093,983 67,236 3,162,585 (2,380,915) 781,670 709,607 402,033 84,501 1,196,141 5,673,064 ¥ 36 TOSHIBA Annual Report 2013 March 31, 2012 Liabilities Current liabilities Short-term borrowings Current portion of long-term debt Notes and accounts payable, trade Accounts payable, other and accrued expenses Accrued income and other taxes Advance payments received Other current liabilities Total current liabilities Long-term liabilities Long-term debt Accrued pension and severance costs Other liabilities Total long-term liabilities Total liabilities Equity Equity attributable to shareholders of Toshiba Corporation Common stock: Authorized: Issued: 10,000,000,000 shares 4,237,602,026 shares Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock, at cost Total equity attributable to shareholders of Toshiba Corporation 2,636,058 shares Equity attributable to noncontrolling interests Total equity Commitments and contingent liabilities Total liabilities and equity Amount as previously reported Adjustment Amount as restated Millions of yen ¥ 119,515 206,626 1,293,028 394,707 46,536 271,874 337,276 2,669,562 909,620 779,414 163,930 1,852,964 4,522,526 439,901 401,125 591,932 (567,979) (1,498) 863,481 366,730 1,230,211 ¥ − − (2,126) 2,742 − (5) 68,262 68,873 − − (2,193) (2,193) 66,680 − (4,336) (142,909) 2,428 − (144,817) (1,536) (146,353) ¥ 119,515 206,626 1,290,902 397,449 46,536 271,869 405,538 2,738,435 909,620 779,414 161,737 1,850,771 4,589,206 439,901 396,789 449,023 (565,551) (1,498) 718,664 365,194 1,083,858 ¥ 5,752,737 ¥ (79,673) ¥ 5,673,064 TOSHIBA Annual Report 2013 37 March 31, 2013 Assets Current assets Cash and cash equivalents Notes and accounts receivable, trade: Inventories Deferred tax assets Other receivables Prepaid expenses and other current assets Total current assets Long-term receivables and investments Long-term receivables Investments in and advances to affiliates Marketable securities and other investments Total long-term receivables and investments Property, plant and equipment Land Buildings Machinery and equipment Construction in progress Accumulated depreciation Total property, plant and equipment Other assets Goodwill and other intangible assets Deferred tax assets Other assets Total other assets Total assets Thousands of U.S. dollars Amount as previously reported Adjustment Amount as restated $ 2,225,202 14,599,011 10,671,362 1,557,319 1,659,159 2,944,404 33,656,457 323,181 4,376,787 2,812,670 7,512,638 1,054,277 10,094,872 22,142,575 966,575 34,258,299 (24,846,809) 9,411,490 9,780,138 3,577,979 1,026,532 14,384,649 $ 64,965,234 $ − (122,139) (668,830) 315,032 4,480 (113,404) (584,861) − 936 − 936 (57,160) (354,553) (521,298) (118,628) (1,051,639) 388,011 (663,628) (186,351) 522,191 6,085 341,925 (905,628) $ $ 2,225,202 14,476,872 10,002,532 1,872,351 1,663,639 2,831,000 33,071,596 323,181 4,377,723 2,812,670 7,513,574 997,117 9,740,319 21,621,277 847,947 33,206,660 (24,458,798) 8,747,862 9,593,787 4,100,170 1,032,617 14,726,574 $ 64,059,606 38 TOSHIBA Annual Report 2013 March 31, 2013 Liabilities Current liabilities Short-term borrowings Current portion of long-term debt Notes and accounts payable, trade Accounts payable, other and accrued expenses Accrued income and other taxes Advance payments received Other current liabilities Total current liabilities Long-term liabilities Long-term debt Accrued pension and severance costs Other liabilities Total long-term liabilities Total liabilities Equity Equity attributable to shareholders of Toshiba Corporation Common stock: Authorized: Issued: 10,000,000,000 shares 4,237,602,026 shares Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock, at cost Total equity attributable to shareholders of Toshiba Corporation 2,789,946 shares Equity attributable to noncontrolling interests Total equity Commitments and contingent liabilities Total liabilities and equity Thousands of U.S. dollars Amount as previously reported Adjustment Amount as restated $ 2,036,734 2,571,011 12,661,713 4,625,425 611,330 3,169,170 3,513,170 29,188,553 11,047,319 7,611,170 2,048,809 20,707,298 49,895,851 4,679,798 4,302,447 6,761,553 (4,722,543) (16,404) 11,004,851 4,064,532 15,069,383 $ − − 108,808 46,320 7,106 (7,383) 1,175,043 1,329,894 − − 5,957 5,957 1,335,851 − (30,171) (2,202,308) (202) − (2,232,681) (8,798) (2,241,479) $ 2,036,734 2,571,011 12,770,521 4,671,745 618,436 3,161,787 4,688,213 30,518,447 11,047,319 7,611,170 2,054,766 20,713,255 51,231,702 4,679,798 4,272,276 4,559,245 (4,722,745) (16,404) 8,772,170 4,055,734 12,827,904 $ 64,965,234 $ (905,628) $ 64,059,606 TOSHIBA Annual Report 2013 39 (5) Summary of effects on consolidated statement of income The following table shows the summary of effects of the restatement above on the consolidated statement of income. March 31, 2013 Sales and other income Costs and expenses Income from continuing operations, before income taxes and noncontrolling interests Income taxes Income from continuing operations, before noncontrolling interests Loss from discontinued operations, before noncontrolling interests Net income before noncontrolling interests Less: Net income attributable to noncontrolling interests Net income attributable to shareholders of Toshiba Corporation Per share information (Yen) Basic net earnings (loss) per share attributable to shareholders of Toshiba Corporation Earnings from continuing operations Loss from discontinued operations Net earnings Diluted net earnings (loss) per share attributable to shareholders of Toshiba Corporation Earnings from continuing operations Loss from discontinued operations Net earnings Millions of yen Amount as previously reported ¥ 5,935,259 5,779,706 Reclassified as discontinued operations (73,749) (78,732) ¥ Adjustment Amount as restated ¥ (4,808) 80,802 ¥ 5,856,702 5,781,776 155,553 59,827 95,726 0 95,726 18,193 77,533 18.31 0.00 18.31 18.31 0.00 18.31 4,983 − 4,983 (4,983) − − − (85,610) (21,471) (64,139) 0 (64,139) (31) (64,108) 74,926 38,356 36,570 (4,983) 31,587 18,162 13,425 3.76 (0.59) 3.17 3.76 (0.59) 3.17 40 TOSHIBA Annual Report 2013 March 31, 2012 Sales and other income Costs and expenses Income from continuing operations, before income taxes and noncontrolling interests Income taxes Income from continuing operations, before noncontrolling interests Loss from discontinued operations, before noncontrolling interests Net income before noncontrolling interests Less: Net income (loss) attributable to noncontrolling interests Net income attributable to shareholders of Toshiba Corporation Per share information (Yen) Basic net earnings (loss) per share attributable to shareholders of Toshiba Corporation Earnings from continuing operations Loss from discontinued operations Net earnings Diluted net earnings (loss) per share attributable to shareholders of Toshiba Corporation Earnings from continuing operations Loss from discontinued operations Net earnings Millions of yen Amount as previously reported 6,204,725 ¥ 6,059,146 Reclassified as discontinued operations (106,415) (106,281) ¥ ¥ (134) − (134) 134 − − − 145,579 64,223 81,356 (1,295) 80,061 10,007 70,054 16.84 (0.30) 16.54 16.62 (0.30) 16.32 Adjustment Amount as restated 4,331 88,349 (84,018) (15,783) (68,235) − (68,235) (1,375) (66,860) ¥ 6,102,641 6,041,214 61,427 48,440 12,987 (1,161) 11,826 8,632 3,194 1.13 (0.37) 0.75 1.11 (0.37) 0.74 TOSHIBA Annual Report 2013 41 March 31, 2013 Sales and other income Costs and expenses Income from continuing operations, before income taxes and noncontrolling interests Income taxes Income from continuing operations, before noncontrolling interests Loss from discontinued operations, before noncontrolling interests Net income before noncontrolling interests Less: Net income attributable to noncontrolling interests Net income attributable to shareholders of Toshiba Corporation Per share information (U.S. dollar) Basic net earnings (loss) per share attributable to shareholders of Toshiba Corporation Earnings from continuing operations Loss from discontinued operations Net earnings Diluted net earnings (loss) per share attributable to shareholders of Toshiba Corporation Earnings from continuing operations Loss from discontinued operations Net earnings Thousands of U.S. dollars Amount as previously reported $ 63,141,053 61,486,234 Reclassified as discontinued operations (784,563) (837,574) $ Adjustment Amount as restated $ (51,149) 859,596 $ 62,305,341 61,508,256 1,654,819 636,457 1,018,362 0 1,018,362 193,543 824,819 0.19 0.00 0.19 0.19 0.00 0.19 53,011 − 53,011 (53,011) − − − (910,745) (228,415) (682,330) 0 (682,330) (330) (682,000) 797,085 408,042 389,043 (53,011) 336,032 193,213 142,819 0.04 (0.01) 0.03 0.04 (0.01) 0.03 42 TOSHIBA Annual Report 2013 (6) Summary of effects on consolidated statement of comprehensive income The following table shows the summary of effects of the restatement above on the consolidated statement of comprehensive income. March 31, 2013 Net income before noncontrolling interests Other comprehensive income (loss), net of tax Net unrealized gains and losses on securities Foreign currency translation adjustments Pension liability adjustments Net unrealized gains and losses on derivative instruments Total other comprehensive income (loss) Comprehensive income before noncontrolling interests Less: Comprehensive income attributable to noncontrolling interests Comprehensive income (loss) attributable to shareholders of the Company March 31, 2012 Net income before noncontrolling interests Other comprehensive income (loss), net of tax Net unrealized gains and losses on securities Foreign currency translation adjustments Pension liability adjustments Net unrealized gains and losses on derivative instruments Total other comprehensive income (loss) Comprehensive income before noncontrolling interests Less: Comprehensive income attributable to noncontrolling interests Comprehensive income (loss) attributable to shareholders of the Company Millions of yen Amount as previously reported 95,726 ¥ Adjustment Amount as restated ¥ (64,139) ¥ 31,587 25,571 147,573 38,506 (841) 210,809 306,535 60,128 − (2,507) − − (2,507) (66,646) (91) 25,571 145,066 38,506 (841) 208,302 239,889 60,037 ¥ 246,407 ¥ (66,555) ¥ 179,852 Millions of yen Amount as previously reported 80,061 ¥ Adjustment Amount as restated ¥ (68,235) ¥ 11,826 (5,324) (11,581) (33,619) (659) (51,183) 28,878 5,407 − 574 − − 574 (67,661) (1,438) (5,324) (11,007) (33,619) (659) (50,609) (38,783) 3,969 ¥ 23,471 ¥ (66,223) ¥ (42,752) March 31, 2013 Net income before noncontrolling interests Other comprehensive income (loss), net of tax Net unrealized gains and losses on securities Foreign currency translation adjustments Pension liability adjustments Net unrealized gains and losses on derivative instruments Total other comprehensive income (loss) Comprehensive income before noncontrolling interests Less: Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to shareholders of the Company Amount as previously reported $ 1,018,362 272,032 1,569,926 409,638 (8,947) 2,242,649 3,261,011 639,660 $ 2,621,351 Thousands of U.S. dollars Adjustment Amount as restated $ (682,330) $ 336,032 − (26,670) − − (26,670) (709,000) (968) (708,032) $ 272,032 1,543,256 409,638 (8,947) 2,215,979 2,552,011 638,692 $ 1,913,319 TOSHIBA Annual Report 2013 43 (7) Summary of effects on consolidated statement of cash flows The following table shows the summary of effects of the restatement above on the consolidated statement of cash flows. Year ended March 31, 2013 Cash flows from operating activities Net income before noncontrolling interests Adjustments to reconcile net income before noncontrolling interests to net cash provided by operating activities− Amount as previously reported Millions of yen Adjustment Amount as restated ¥ 95,726 ¥ (64,139) ¥ 31,587 197,747 (2,021) (12,498) (13,889) 14,533 3,000 6,369 (24,804) (167,415) 8,355 (3,844) 95,196 (20,005) − (21,878) − 19,504 − 709 40,070 12,354 602 (689) 33,472 Depreciation and amortization Provisions for pension and severance costs, less payments Deferred income taxes Equity in earnings of affiliates, net of dividends (Gain) loss from sales, disposal and impairment of 217,752 (2,021) 9,380 (13,889) property, plant and equipment and intangible assets, net (4,971) Loss from sales and impairment of securities and other investments, net Decrease in notes and accounts receivable, trade (Increase) decrease in inventories Decrease in notes and accounts payable, trade Increase in accrued income and other taxes Decrease in advance payments received Other Net cash provided by operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment and intangible assets 3,000 5,660 (64,874) (179,769) 7,753 (3,155) 61,724 Proceeds from sale of securities Acquisition of property, plant and equipment Acquisition of intangible assets Purchase of securities Increase (decrease) in investments in affiliates Other Net cash used in investing activities Cash flows from financing activities Proceeds from long-term debt Repayment of long-term debt Increase in short-term borrowings, net Dividends paid Purchase of treasury stock, net Purchase of shares of Westinghouse Group from noncontrolling interests Other Net cash provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 36,590 132,316 87,672 3,876 (266,581) (29,630) (9,203) 24,616 (7,097) (196,347) 350,101 (208,865) 66,885 (42,547) (50) (124,724) 972 41,772 17,123 (5,136) 214,305 ¥ 209,169 64,139 − − − − − − − − − − − − − − − − − − − − − ¥ 100,729 132,316 87,672 3,876 (266,581) (29,630) (9,203) 24,616 (7,097) (196,347) 350,101 (208,865) 66,885 (42,547) (50) (124,724) 972 41,772 17,123 (5,136) 214,305 ¥ 209,169 44 TOSHIBA Annual Report 2013 Year ended March 31, 2012 Cash flows from operating activities Net income before noncontrolling interests Adjustments to reconcile net income before noncontrolling interests to net cash provided by operating activities− Amount as previously reported Millions of yen Adjustment Amount as restated ¥ 80,061 ¥ (68,235) ¥ 11,826 242,913 5,301 (172) (13,926) 55,574 2,322 (195,502) (2,405) 124,495 6,350 104,886 (4,165) (6,733) − (17,526) − 57,946 − (1,072) 16,773 3,901 1,959 (7) 15,494 Depreciation and amortization Provisions for pension and severance costs, less payments Deferred income taxes Equity in earnings of affiliates, net of dividends (Gain) loss from sales, disposal and impairment of 249,646 5,301 17,354 (13,926) property, plant and equipment and intangible assets, net (2,372) Loss from sales and impairment of securities and other investments, net Increase in notes and accounts receivable, trade (Increase) decrease in inventories Increase in notes and accounts payable, trade Increase in accrued income and other taxes Increase in advance payments received Other Net cash provided by operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment and intangible assets 2,322 (194,430) (19,178) 120,594 4,391 104,893 (19,659) Proceeds from sale of securities Acquisition of property, plant and equipment Acquisition of intangible assets Purchase of securities Increase (decrease) in investments in affiliates Acquisition of Landis+Gyr AG Other Net cash used in investing activities Cash flows from financing activities Proceeds from long-term debt Repayment of long-term debt Decrease in short-term borrowings, net Dividends paid Purchase of treasury stock, net Other Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 254,936 334,997 103,818 9,638 (291,733) (39,426) (18,435) 15,444 (129,450) (27,083) (377,227) 370,911 (206,325) (128,267) (37,007) (42) 490 (240) (2,065) (44,535) 258,840 ¥ 214,305 70,735 2,500 − − − − − − − − − − − (2,500) − − − (2,500) − − − − ¥ 325,671 337,497 103,818 9,638 (291,733) (39,426) (18,435) 15,444 (129,450) (27,083) (377,227) 370,911 (206,325) (130,767) (37,007) (42) 490 (2,740) (2,065) (44,535) 258,840 ¥ 214,305 TOSHIBA Annual Report 2013 45 Amount as previously reported Adjustment Amount as restated Thousands of U.S. dollars $ 1,018,362 $ (682,330) $ 336,032 Year ended March 31, 2013 Cash flows from operating activities Net income before noncontrolling interests Adjustments to reconcile net income before noncontrolling interests to net cash provided by (used in) operating activities− Depreciation and amortization Provisions for pension and severance costs, less payments Deferred income taxes Equity in earnings of affiliates, net of dividends (Gain) loss from sales, disposal and impairment of 2,316,510 (21,500) 99,787 (147,755) property, plant and equipment and intangible assets, net (52,883) Loss from sales and impairment of securities and other investments, net Decrease in notes and accounts receivable, trade (Increase) decrease in inventories Decrease in notes and accounts payable, trade Increase in accrued income and other taxes Decrease in advance payments received Other Net cash provided by operating activities 31,915 60,213 (690,149) (1,912,436) 82,479 (33,564) 656,638 Cash flows from investing activities Proceeds from sale of property, plant and equipment and intangible assets Proceeds from sale of securities Acquisition of property, plant and equipment Acquisition of intangible assets Purchase of securities Increase (decrease) in investments in affiliates Other Net cash used in investing activities Cash flows from financing activities Proceeds from long-term debt Repayment of long-term debt Increase in short-term borrowings, net Dividends paid Purchase of treasury stock, net Purchase of shares of Westinghouse Group from noncontrolling interests Other Net cash provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 389,255 1,407,617 932,681 41,234 (2,835,968) (315,213) (97,904) 261,872 (75,500) (2,088,798) 3,724,479 (2,221,968) 711,543 (452,628) (532) (1,326,851) 10,340 444,383 182,160 (54,638) 2,279,840 $ 2,225,202 46 TOSHIBA Annual Report 2013 (212,818) − (232,744) − 207,489 − 7,542 426,277 131,425 6,404 (7,330) 356,085 2,103,692 (21,500) (132,957) (147,755) 154,606 31,915 67,755 (263,872) (1,781,011) 88,883 (40,893) 1,012,723 682,330 − − − − − − − − − − − − − − − − − − − − − $ 1,071,585 1,407,617 932,681 41,234 (2,835,968) (315,213) (97,904) 261,872 (75,500) (2,088,798) 3,724,479 (2,221,968) 711,543 (452,628) (532) (1,326,851) 10,340 444,383 182,160 (54,638) 2,279,840 $ 2,225,202 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 Restated text is underlined except for Restatement of previously issued consolidated financial statements. 1. DESCRIPTION OF BUSINESS The Company and its subsidiaries (hereinafter collectively,“the Group”) are engaged in research and development, manufacturing and sales of high-technology electronic and energy products, which range (1)Digital Products, (2) Electronic Devices, (3)Social Infrastructure, (4)Home Appliances, and (5)Others. For the year ended March 31, 2013, sales of Social Infrastructure represented the most significant portion of the Group's total sales or approximately 42 percent. Digital Products, second to Social Infrastructure, represented approximately 23 percent, Electronic Devices approximately 20 percent and Home Appliances approximately 10 percent of the Group's total sales. For the year ended March 31, 2012, sales of Social Infrastructure represented the most significant portion of the Group's total sales or approximately 37 percent. Digital Products represented approximately 26 percent, Electronic Devices approximately 20 percent and Home Appliances approximately 9 percent of the Group's total sales. The Group's products are manufactured and marketed throughout the world with approximately 46 percent of its sales in Japan both for the years ended March 31, 2013 and 2012, respectively and the remainder in Asia, North America, Europe and other parts of the world. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PREPARATION OF FINANCIAL STATEMENTS The Company and its domestic subsidiaries maintain their records and prepare their financial statements in accordance with accounting principles generally accepted in Japan, and its foreign subsidiaries in conformity with those of the countries of their domicile. Certain adjustments and reclassifications have been incorporated in the accompanying consolidated financial statements to conform with accounting principles generally accepted in the United States. These adjustments were not recorded in the statutory books of account. BASIS OF CONSOLIDATION AND INVESTMENTS IN AFFILIATES The consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries and variable interest entities (“VIEs”) for which the Group is the primary beneficiary in accordance with the Accounting Standards Codification (“ASC”) No.810 “Consolidation” (“ASC No.810”). All significant intra-entity transactions and accounts are eliminated in consolidation. Investments in affiliates over which the Group has the ability to exercise significant influence are accounted for under the equity method of accounting. Net income (loss) attributable to shareholders of the Company includes its equity in the current net earnings (loss) of such companies after elimination of unrealized intra-entity gains. The proportionate share of the income or loss of some companies accounted for under the equity method is recognized from the most recent available financial statements. USE OF ESTIMATES The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Group has identified significant areas where it believes assumptions and estimates are particularly critical to the consolidated financial statements. These are determination of impairment on long-lived tangible and intangible assets, goodwill and investments, recoverability of receivables, realization of deferred tax assets, uncertain tax positions, pension accounting assumptions, revenue recognition and other valuation allowances and reserves including contingencies for litigations. Actual results could differ from those estimates. CASH EQUIVALENTS All highly liquid investments with original maturities of 3 months or less at the date of purchase are considered to be cash equivalents. FOREIGN CURRENCY TRANSLATION The assets and liabilities of foreign consolidated subsidiaries and affiliates that operate in a local currency environment are translated into Japanese yen at applicable current exchange rates at year end. Income and expense items are translated at average exchange rates prevailing during the year. The effects of these translation adjustments are included in accumulated other comprehensive income (loss) and reported as a component of equity. Exchange gains and losses resulting from foreign currency transactions and translation of assets and liabilities denominated in foreign currencies are included in other income or other expense in the consolidated statement of income. TOSHIBA Annual Report 2013 47 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 ALLOWANCE FOR DOUBTFUL RECEIVABLES An allowance for doubtful trade receivables is recorded based on a combination of the write-off history, aging analysis and an evaluation of any specific known troubled accounts. When all collection efforts are exhausted including legal recourse, the accounts or portions thereof are deemed to be uncollectible and charged against the allowance. MARKETABLE SECURITIES AND OTHER INVESTMENTS The Group classifies all of its marketable securities as available-for-sale which are reported at fair value, with unrealized gains and losses included in accumulated other comprehensive income (loss), net of tax. Other investments without quoted market prices are stated at cost. Realized gains or losses on the sale of securities are based on the average cost of a particular security held at the time of sale. Marketable securities and other investment securities are regularly reviewed for other-than-temporary impairments in carrying amount based on criteria that include the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer and the Group's intent and ability to retain marketable securities and investment securities for a period of time sufficient to allow for any anticipated recovery in market value. When such a decline exists, the Group recognizes an impairment loss to the extent of such decline. INVENTORIES Raw materials, finished products and work in process for products are stated at the lower of cost or market, cost being determined principally by the average method. Finished products and work in process for contract items are stated at the lower of cost or estimated realizable value, cost being determined by accumulated production costs. In accordance with general industry practice, items with long manufacturing periods are included among inventories even when not realizable within one year. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, including significant renewals and additions, are carried at cost. Depreciation for property, plant and equipment associated with the Company and domestic subsidiaries is computed generally by the 250% declining-balance method with estimated residual value recorded at a nominal value. Depreciation for property, plant and equipment for foreign subsidiaries is generally computed using the straight line method. The estimated useful lives of buildings are 3 to 50 years, and those of machinery and equipment are 2 to 20 years. Maintenance and repairs, including minor renewals and betterments, are expensed as incurred. IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets, other than goodwill and intangible assets with indefinite useful lives, are evaluated for impairment using an estimate of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of such asset may not be recoverable. If the estimate of undiscounted cash flow is less than the carrying amount of the asset, an impairment loss is recorded based on the fair value of the asset. Fair value is determined primarily by using the anticipated cash flows discounted at a rate commensurate with the risk involved. For assets held for sale, an impairment loss is further increased by costs to sell. Long-lived assets to be disposed of other than by sale are considered held and used until disposed of. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and intangible assets with indefinite useful lives are not amortized, but instead are tested for impairment at least annually. Goodwill is allocated among and tested for impairment at the reporting unit level. Intangible assets with finite useful lives, consisting primarily of core and current technology and software, are amortized using the straight-line method over their respective contractual periods or estimated useful lives. ENVIRONMENTAL LIABILITIES Liabilities for environmental remediation and other environmental costs are accrued when environmental assessments or remedial efforts are probable and the costs can be reasonably estimated, based on current law and existing technologies. Such liabilities are adjusted as further information develops or circumstances change. Costs of future obligations are not discounted to their present values. INCOME TAXES The provision for income taxes is computed based on the income (loss) from continuing operations, before income taxes and noncontrolling interests included in the consolidated statement of income. Deferred income taxes are recorded to reflect the expected future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, and are measured by applying currently enacted tax laws. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the change is enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. 48 TOSHIBA Annual Report 2013  The Group recognizes the financial statement effects of tax positions when they are more likely than not, based on the technical merits, that the tax positions will be sustained upon examination by the tax authorities. Benefits from tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. ACCRUED PENSION AND SEVERANCE COSTS The Company and certain subsidiaries have various retirement benefit plans covering substantially all employees. The unrecognized net obligation existing at initial application of ASC No.715 “Compensation-Retirement Benefits”, and prior service costs resulting from amendments to the plans are amortized over the average remaining service period of employees expected to receive benefits. Unrecognized actuarial gains and losses that exceed 10 percent of the greater of the projected benefit obligation or the fair value of plan assets are also amortized over the average remaining service period of employees expected to receive benefits. NET EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY Basic net earnings (loss) per share attributable to shareholders of the Company (“EPS”) are computed based on the weighted-average number of shares of common stock outstanding during each period. Diluted EPS assumes the dilution that could occur if stock acquisition rights were exercised to issue common stock, unless their inclusion would have an anti-dilutive effect. REVENUE RECOGNITION Revenue of mass-produced standard products, such as digital products and electronic devices, is recognized when there is persuasive evidence of an arrangement, the product has been delivered, the sales price is fixed or determinable, and collectibility is reasonably assured. Mass-produced standard products are considered delivered to customers once they have been shipped, and the title and risk of loss have transferred. Revenue related to equipment that requires installation, such as social infrastructure business, is recognized when the installation of the equipment is completed, the equipment is accepted by the customer and other specific criteria of the equipment are demonstrated by the Group. Revenue from services, such as maintenance service for plant and other systems, that are priced and sold separately from the equipment is recognized ratably over the contract term or as the services are provided. Revenue on long-term contracts is recorded under the percentage of completion method. To measure the extent of progress toward completion, the Group generally compares the costs incurred to date to the estimated total costs to complete based upon the most recent available information. When estimates of the extent of progress toward completion and contract costs are reasonably dependable, revenue from the contract is recognized based on the percentage of completion. A provision for contract losses is recorded in its entirety when the loss first becomes evident. Revenue from arrangements with multiple elements, which may include any combination of products, equipment, installment and maintenance, is allocated to each element based on its relative selling price if such element meets the criteria for treatment as a separate unit of accounting as prescribed in ASC No.605 “Revenue Recognition”. Otherwise, revenue is deferred until the undelivered elements are fulfilled as a single unit of accounting. Revenue from the development of custom software products is recognized when there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collectibility is probable, and the software product has been delivered and accepted by the customer. SHIPPING AND HANDLING COSTS The Group includes shipping and handling costs which totaled ¥69,412 million ($738,426 thousand) and ¥73,459 million for the years ended March 31, 2013 and 2012, respectively in selling, general and administrative expenses. DERIVATIVE FINANCIAL INSTRUMENTS The Group uses a variety of derivative financial instruments, which include forward exchange contracts, interest rate swap agreements, currency swap agreements and currency options for the purpose of currency exchange rate and interest rate risk management. Refer to Note 21 for descriptions of these financial instruments. The Group recognizes all derivative financial instruments, such as forward exchange contracts, interest rate swap agreements, currency swap agreements and currency options in the consolidated financial statements at fair value regardless of the purpose or intent for holding the derivative financial instruments. Changes in the fair value of derivative financial instruments are either recognized periodically in income or in equity as a component of accumulated other comprehensive income (loss) depending on whether the derivative financial instruments qualify for hedge accounting, and if so, whether they qualify as a fair value hedge or a cash flow hedge. Changes in fair value of derivative financial instruments accounted for as fair value hedges are recorded in income along with the portion of the change in the fair value of the hedged item that relates to the hedged risk. Changes in fair value of derivative financial instruments accounted for as cash flow hedges, to the extent they are effective as a hedge, are recorded in accumulated other comprehensive income (loss), net of tax. Changes in the fair value of derivative financial instruments not qualifying as a hedge are reported in income. TOSHIBA Annual Report 2013 49 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 SALES OF RECEIVABLES The Group has transferred certain trade notes and accounts receivable under several securitization programs. When a transfer of financial assets is eligible to be accounted for as a sale under ASC No.860 “Transfers and Servicing” (“ASC No.860”), these securitization transactions are accounted for as a sale and the receivables sold under these facilities are excluded from the accompanying consolidated balance sheet. ASSET RETIREMENT OBLIGATIONS The Group records asset retirement obligations at fair value in the period incurred. The fair value of the liability is added to the carrying amount of the associated asset. This additional carrying amount is then depreciated over the life of the asset. The liability increases due to the passage of time based on the time value of money until the obligation is settled. Subsequent to the initial recognition, the liability is adjusted for any revisions to the expected amount of the retirement obligation, and for accretion of the liability due to the passage of time. RECENT PRONOUNCEMENTS In February 2013, the Financial Accounting Standards Boards (“FASB”) issued Accounting Standards Updates (”ASU”) No.2013-02. ASU No.2013-02 amends ASC No.220 “Comprehensive Income”, requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component, and to present, either on the face of the statement where net income is presented or in notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. ASU No.2013-02 is effective for fiscal years beginning after December 15, 2012 and the Company will adopt ASU No.2013-02 effective April 1, 2013. The adoption of ASU No.2013-02 will not impact the Company’s financial position and results of operations. SUBSEQUENT EVENTS In accordance with ASC 855 “Subsequent Events,” the Group assessed subsequent events up to the submission date of the annual securities report before correction (June 25, 2013), and revised financial statements (September 7, 2015). RECLASSIFICATIONS In addition to the restatements previously described, certain reclassifications to the prior year's consolidated financial statements and related footnote amounts have been made to conform to the presentation for the current year. 3. U.S. DOLLAR AMOUNTS U.S. dollar amounts are included solely for convenience of readers. These translations should not be construed as a representation that the yen could be converted into U.S. dollars at this rate or any other rates. The amounts shown in U.S. dollars are not intended to be computed in accordance with generally accepted accounting principles in the United States for the translation of foreign currency amounts. The rate of ¥94=U.S.$1, the approximate current rate of exchange at March 31, 2013, has been used throughout for the purpose of presentation of the U.S. dollar amounts in the accompanying consolidated financial statements. 4. DISCONTINUED OPERATION On June 17, 2010, the Company and Fujitsu Limited (“Fujitsu”) signed a Memorandum of Understanding (MOU) to merge their mobile phone businesses, followed by a definitive contract on July 29, 2010. The purpose of this business merger was to enhance their handset development capabilities and at the same time to improve business efficiency by combining their mobile phone development know-how and technological strengths, in the domestic and overseas mobile phone market in which competition is intensifying. On October 1, 2010, the Company transferred its mobile phone business to a newly established company (Fujitsu Toshiba Mobile Communications Limited), and sold 80.1% of the shares of the new company to Fujitsu. On April 1, 2012, the Company sold 19.9% of the shares of the new company to Fujitsu. All shares of the company have been transferred by this transaction. In accordance with this contract, the Company ceased manufacturing and selling of the existing models of mobile phones during the second quarter of FY2011. However, the Company continues the maintenance service of products manufactured and supplied. 50 TOSHIBA Annual Report 2013 In accordance with ASC No.205-20 “Presentation of Financial Statements-Discontinued Operations” (“ASC No.205-20”), operating results relating to the mobile phone business are separately presented as discontinued operations in the consolidated statement of income. Operating results relating to the mobile phone business, which are reclassified as discontinued operations, are as follows. The amounts for the year ended March 31, 2013 were not significant. Year ended March 31 Sales and other income Costs and expenses Loss from discontinued operations, before income taxes and noncontrolling interests Income taxes Loss from discontinued operations, before noncontrolling interests Less:Net income (loss) from discontinued operations attributable to noncontrolling interests Net loss from discontinued operations attributable to shareholders of the Company ¥ Millions of yen 2012 21,636 23,955 (2,319) (944) (1,375) − (1,375) On March 26, 2014, the Company entered into definitive agreements with Samsung Electronics Co., Ltd. (“Samsung Electronics”) and OPTIS Co., Ltd. (“OPTIS”) for the transfer of its optical disc drive (“ODD”) business as part of the Company's restructuring of the ODD business in response to the changing market environment. Under the terms of the agreements, Toshiba Samsung Storage Technology Corporation (“TSST”), which is the Company and Samsung Electronics' Japan-based joint holding company for the ODD business, will transfer Toshiba Samsung Storage Technology Korea Corporation (“TSST-K”), which is TSST's wholly-owned operating subsidiary, to OPTIS in stages over three years. As the first step in the transfer process, OPTIS subscribed to a new issue of TSST-K’s shares on April 29, 2014, which diluted TSST’s shareholding in TSST-K to 50.1%. In accordance with ASC No.205-20, operating results relating to the ODD business are separately presented as discontinued operations in the consolidated statement of income. Operating results relating to the ODD business, which are reclassified as discontinued operations, are as follows. Year ended March 31 Sales and other income Costs and expenses Income (Loss) from discontinued operations, before income taxes and noncontrolling interests Income taxes Income (Loss) from discontinued operations, before noncontrolling interests Less: Net income (loss) from discontinued operations attributable to noncontrolling interests Net loss from discontinued operations attributable to shareholders of the Company Millions of yen ¥ 2013 73,749 78,732 ¥ 2012 106,415 106,281 (4,983) 0 (4,983) (2,504) (2,479) 134 0 134 457 (323) Thousands of U.S. dollars 2013 784,563 837,574 $ (53,011) 0 (53,011) (26,639) (26,372) Mobile Broadcasting Corporation (“MBCO”), a consolidated subsidiary of the Company, ended all its broadcasting services by the end of March 2009, and is in the course of going through the procedures for dissolution. In accordance with ASC No.205-20, operating results relating to MBCO in consolidated statement of income are separately presented as discontinued operations. These amounts were not significant. TOSHIBA Annual Report 2013 51 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 5. FAIR VALUE MEASUREMENTS ASC No.820 “Fair Value Measurements” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels below; Level 1 - Quoted prices for identical assets or liabilities in active markets. Level 2 - Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar instruments in markets that are not active. Inputs other than quoted prices that are observable. Inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 - Instruments whose significant inputs are unobservable. Assets and liabilities measured at fair value on a recurring basis Assets and liabilities that are measured at fair value on a recurring basis at March 31, 2013 and 2012 are as follows: Level 1 Level 2 Level 3 Total Millions of yen ¥ 203,355 − − − 203,355 − − − − ¥ ¥ ¥ ¥ 268 − 4,926 616 5,810 4,828 3,711 177 8,716 ¥ ¥ ¥ ¥ − 3,742 − − 3,742 − − − − ¥ 203,623 3,742 4,926 616 212,907 4,828 3,711 177 8,716 ¥ ¥ ¥ Level 1 Level 2 Level 3 Total Millions of yen 174,388 − − 174,388 − − − − ¥ ¥ ¥ ¥ 428 − 4,609 5,037 5,908 1,663 465 8,036 ¥ ¥ ¥ ¥ − 3,067 − 3,067 − − − − ¥ ¥ ¥ ¥ 174,816 3,067 4,609 182,492 5,908 1,663 465 8,036 ¥ ¥ ¥ ¥ ¥ ¥ ¥ March 31, 2013 Assets: Marketable securities: Equity securities Debt securities Derivative assets: Forward exchange contracts Currency options Total assets Liabilities: Derivative liabilities: Forward exchange contracts Interest rate swap agreements Currency swap agreements Total liabilities March 31, 2012 Assets: Marketable securities: Equity securities Debt securities Derivative assets: Forward exchange contracts Total assets Liabilities: Derivative liabilities: Forward exchange contracts Interest rate swap agreements Currency swap agreements Total liabilities 52 TOSHIBA Annual Report 2013 March 31, 2013 Assets: Marketable securities: Equity securities Debt securities Derivative assets: Forward exchange contracts Currency options Total assets Liabilities: Derivative liabilities: Forward exchange contracts Interest rate swap agreements Currency swap agreements Total liabilities Level 1 Level 2 Level 3 Total Thousands of U.S. dollars $ 2,163,351 − − − $ 2,163,351 $ $ − − − − $ $ $ $ 2,851 − 52,404 6,553 61,808 51,361 39,479 1,883 92,723 $ $ $ $ − 39,809 − − 39,809 − − − − $ 2,166,202 39,809 52,404 6,553 $ 2,264,968 $ $ 51,361 39,479 1,883 92,723 Marketable securities Level 1 securities represent marketable equity securities listed in active markets, which are valued based on quoted market prices in active markets with sufficient volume and frequency of transactions. Level 2 securities represent marketable equity securities listed in less active markets, which are valued based on quoted market prices for identical assets in inactive markets. Level 3 securities represent corporate debt securities and valued based on unobservable inputs as the markets for the assets are not active at the measurement date. Derivative instruments Derivative instruments principally represent forward currency exchange contracts and interest rate swap agreements, which are classified within Level 2. They are valued based on inputs that can be corroborated with the observable inputs such as foreign currency exchange rate, LIBOR and others. Analyses of the changes in Level 3 assets measured at fair value on a recurring basis for the years ended March 31, 2013 and 2012 are as follows: Millions of yen Marketable securities 3,067 ¥ Year ended March 31, 2013 Balance at beginning of year Total gains or losses (realized or unrealized): Included in other comprehensive income (loss): Net unrealized gains and losses on securities Purchases Sales Issuances Settlements Balance at end of year ¥ 391 3,346 − − (3,062) 3,742 TOSHIBA Annual Report 2013 53 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 Year ended March 31, 2012 Balance at beginning of year Total gains or losses (realized or unrealized): Included in other comprehensive income (loss): Net unrealized gains and losses on securities Purchases Sales Issuances Settlements Balance at end of year ¥ Year ended March 31, 2013 Balance at beginning of year Total gains or losses (realized or unrealized): Included in other comprehensive income (loss): Net unrealized gains and losses on securities Purchases Sales Issuances Settlements Balance at end of year $ Millions of yen Marketable securities ¥ 5 Thousands of U.S. dollars Marketable securities $ 32,628 (143) 3,205 − − − 3,067 4,160 35,596 − − (32,575) 39,809 At March 31, 2013 and 2012, Level 3 assets measured at fair value on a recurring basis consisted of corporate debt securities. 54 TOSHIBA Annual Report 2013 Assets and liabilities measured at fair value on a non-recurring basis Assets that are measured at fair value on a non-recurring basis at March 31, 2013 and 2012 are as follows: Year ended March 31, 2013 Assets: Equity securities Investments in affiliates Long-lived assets held for use Component held for sale Total assets Year ended March 31, 2012 Assets: Investments in affiliates Long-lived assets held for use Total assets Year ended March 31, 2013 Assets: Equity securities Investments in affiliates Long-lived assets held for use Component held for sale Total assets Level 1 Level 2 Level 3 Total Millions of yen ¥ ¥ ¥ ¥ $ $ − 25,886 − − 25,886 Level 1 3,723 − 3,723 Level 1 − 275,383 − − 275,383 ¥ ¥ ¥ ¥ $ $ − − − − − ¥ ¥ 166 2,411 0 6,000 8,577 Millions of yen Level 2 Level 3 − − − ¥ ¥ 5,872 0 5,872 Thousands of U.S. dollars Level 2 Level 3 − − − − − $ $ 1,766 25,649 0 63,830 91,245 ¥ ¥ ¥ ¥ $ $ 166 28,297 0 6,000 34,463 Total 9,595 0 9,595 Total 1,766 301,032 0 63,830 366,628 Certain non-marketable equity securities accounted for under the cost method were written down to their fair value, resulting in other-than-temporary impairment. The impaired securities were classified within Level 3 as they were valued based on the specific valuation techniques and hypotheses of the Group with unobservable inputs. Certain equity method investments were written down to their fair value, resulting in other-than-temporary impairment. Some of the impaired investments were classified within Level 1 as they were valued based on quoted market prices in active markets. Previous equity interests of newly controlled subsidiaries in step acquisitions and retained investment in the former subsidiary were remeasured to their fair value. Some of them were classified within Level 1 as they were valued based on quoted market prices in active markets. Others were classified within Level 3 as they were valued based on the specific valuation techniques and hypotheses of the Group with unobservable inputs. The impaired long-lived assets were classified within Level 3 as they were valued based on such as discounted cash flows expected to be generated by the related assets with unobservable inputs. Component held for sale were classified within Level 3 as they were valued based on such as discounted cash flows expected to be generated by the related assets with unobservable inputs. As a result, the net impacts from continuing operations for the years ended March 31, 2013 and 2012 were ¥29,011 million ($308,628 thousand) loss and ¥65,564 million loss, respectively. They are included in cost of sales, other income and other expense. TOSHIBA Annual Report 2013 55 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 6. MARKETABLE SECURITIES AND OTHER INVESTMENTS The aggregate cost, gross unrealized holding gains and losses, and aggregate fair value for marketable equity securities and debt securities classified as available-for-sale securities by security type at March 31, 2013 and 2012 are as follows: March 31, 2013: Equity securities Debt securities March 31, 2012: Equity securities Debt securities March 31, 2013: Equity securities Debt securities Cost Gross unrealized holding gains Gross unrealized holding losses Fair value Millions of yen 67,419 3,351 70,770 76,682 3,210 79,892 ¥ ¥ ¥ ¥ 137,108 391 137,499 99,957 0 99,957 ¥ ¥ ¥ ¥ 904 0 904 1,823 143 1,966 ¥ ¥ ¥ ¥ 203,623 3,742 207,365 174,816 3,067 177,883 Cost Gross unrealized holding gains Gross unrealized holding losses Fair value Thousands of U.S. dollars 717,223 35,649 752,872 $ 1,458,596 4,160 $ 1,462,756 $ $ 9,617 0 9,617 $ 2,166,202 39,809 $ 2,206,011 ¥ ¥ ¥ ¥ $ $ At March 31, 2013 and 2012, debt securities mainly consist of corporate debt securities. Contractual maturities of debt securities classified as available-for-sale at March 31, 2013 are as follows: March 31, 2013: Due within one year Due after one year within five years Due after five years within ten years Millions of yen Thousands of U.S. dollars Cost Fair value Cost Fair value ¥ ¥ 0 96 3,255 3,351 ¥ ¥ 0 99 3,643 3,742 $ $ 0 1,021 34,628 35,649 $ $ 0 1,053 38,756 39,809 The proceeds from sales of available-for-sale securities for the years ended March 31, 2013 and 2012 were ¥3,876 million ($41,234 thousand) and ¥9,297 million, respectively. The gross realized gains on those sales for the years ended March 31, 2013 and 2012 were ¥1,675 million ($17,819 thousand) and ¥3,425 million, respectively. The gross realized losses on those sales for the years ended March 31, 2013 and 2012 were ¥1,030 million ($10,957 thousand) and ¥132 million, respectively. At March 31, 2013, the cost and fair value of available-for-sale securities in an unrealized loss position over 12 consecutive months were not significant. Aggregate cost of non-marketable equity securities accounted for under the cost method totaled ¥52,009 million ($553,287 thousand) and ¥52,780 million at March 31, 2013 and 2012, respectively. At March 31, 2013 and 2012, investments with an aggregate cost of ¥51,843 million ($551,521 thousand) and ¥49,550 million were not evaluated for impairment because (a)the Group did not estimate the fair value of those investments as it was not practicable to estimate the fair value of those investments and (b)the Group did not identify any events or changes in circumstances that might have had significant adverse effects on the fair value of those investments. Included in other expense are charges of ¥5,096 million ($54,213 thousand) and ¥7,411 million related to other-than- temporary impairments in the marketable and non-marketable equity securities for the years ended March 31, 2013 and 2012, respectively. 56 TOSHIBA Annual Report 2013 7. SECURITIZATIONS The Group has transferred certain trade notes and accounts receivable under several securitization programs. These securitization transactions are accounted for as a sale in accordance with ASC No.860, because the Group has relinquished control of the receivables. Accordingly, the receivables transferred under these facilities are excluded from the accompanying consolidated balance sheet. The Group recognized losses of ¥968 million ($10,298 thousand) and ¥1,120 million on the transfers of receivables for the years ended March 31, 2013 and 2012, respectively. Subsequent to the transfers, the Group retains collection and administrative responsibilities for the receivables transferred and retains a portion of the receivables for which proceeds are defferred. Servicing fees received by the Group approximate the prevailing market rate. Related servicing assets or liabilities are immaterial to the Group's financial position. The fair value of deferred proceeds at the point of transfer of receivables is measured based on the economic hypothesis including the estimate of uncollectible receivables, average collection period of receivables and discount rate and it is classified within Level 3. The table below summarizes certain cash flows received from and paid to banking institutions or special purpose entities (“SPEs”) related to banking institutions on the above securitization transactions. Year ended March 31 Proceeds from new securitizations Servicing fees for the collection of receivables Repurchase of delinquent or unqualified receivables ¥ 2013 849,187 512 49 ¥ 2012 886,567 554 161 Millions of yen Thousands of U.S. dollars 2013 $ 9,033,904 5,447 521 Quantitative information about delinquencies, net credit losses, and components of securitized receivables as of and for the years ended March 31, 2013 and 2012 are as follows. Of these receivables, deferred proceeds for the receivables transferred as of March 31, 2013 and 2012 were ¥49,939 million ($531,266 thousand) and ¥55,915 million, respectively and were recorded as other receivables. Total principal amount of receivables March 31 Millions of yen Amount 90 days or more past due Net credit losses Year ended March 31 Accounts receivable Notes receivable Total managed portfolio Securitized receivables Total receivables 2013 ¥ 1,573,280 78,960 1,652,240 (244,153) ¥ 1,408,087 2012 1,536,550 92,134 1,628,684 (262,993) 1,365,691 ¥ ¥ 2013 35,900 12 35,912 ¥ ¥ 2012 44,839 13 44,852 ¥ ¥ 2013 2012 ¥ ¥ 1,637 0 1,637 ¥ ¥ 2,013 189 2,202 Accounts receivable Notes receivable Total managed portfolio Securitized receivables Total receivables March 31, 2013 Thousands of U.S. dollars Amount 90 days or more past due $ $ 381,915 128 382,043 Total principal amount of receivables $ 16,737,021 840,000 17,577,021 (2,597,372) $ 14,979,649 Net credit losses Year ended March 31, 2013 $ $ 17,415 0 17,415 TOSHIBA Annual Report 2013 57 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 8. INVENTORIES Inventories at March 31, 2013 and 2012 consist of the following: March 31 Finished products Work in process: Long-term contracts Other Raw materials Millions of yen 2013 334,008 ¥ 99,107 334,389 172,734 940,238 ¥ 2012 288,716 95,822 299,001 170,758 854,297 ¥ ¥ Thousands of U.S. dollars 2013 $ 3,553,277 1,054,330 3,557,330 1,837,595 $ 10,002,532 9. INVESTMENTS IN AND ADVANCES TO AFFILIATES The Group's significant investments in affiliated companies accounted for by the equity method together with the percentage of the Group's ownership of voting shares at March 31, 2013 were: NREG Toshiba Building Co., Ltd. (35.0%); Topcon Corporation (30.4%); Toshiba Machine Co., Ltd. (22.1%); Toshiba Mitsubishi-Electric Industrial Systems Corporation (50.0%); and Semp Toshiba Amazonas S.A. (40.0%). Of the affiliates which were accounted for by the equity method, the investments in common stock of the listed companies (5 companies) were carried at ¥42,804 million ($455,362 thousand) and ¥37,046 million at March 31, 2013 and 2012, respectively. The Group's investments in these companies had market values of ¥57,499 million ($611,691 thousand) and ¥61,886 million at March 31, 2013 and 2012, respectively, based on quoted market prices at those dates. Summarized financial information of the affiliates accounted for by the equity method is shown below: March 31 Current assets Other assets including property, plant and equipment Total assets Current liabilities Long-term liabilities Equity Total liabilities and equity Year ended March 31 Sales Net income Millions of yen 2013 ¥ 1,091,617 915,934 ¥ 2,007,551 764,641 ¥ 417,344 825,566 ¥ 2,007,551 2012 1,099,093 979,734 2,078,827 835,997 499,185 743,645 2,078,827 ¥ ¥ ¥ ¥ Millions of yen 2013 ¥ 1,658,877 59,367 ¥ 2012 1,933,680 62,953 Thousands of U.S. dollars 2013 $ 11,612,947 9,743,979 $ 21,356,926 $ 8,134,479 4,439,830 8,782,617 $ 21,356,926 Thousands of U.S. dollars 2013 $ 17,647,628 631,564 A summary of transactions and balances with the affiliates accounted for by the equity method is presented below: Millions of yen ¥ 2013 126,611 110,916 7,411 ¥ 2012 166,796 155,522 3,391 Thousands of U.S. dollars 2013 $ 1,346,926 1,179,957 78,840 Year ended March 31 Sales Purchases Dividends 58 TOSHIBA Annual Report 2013 March 31 Notes and accounts receivable, trade Other receivables Short-term loans receivable Long-term loans receivable Notes and accounts payable, trade Other payables Millions of yen ¥ ¥ 2013 34,038 11,029 51,500 62,982 18,565 11,208 2012 44,045 15,877 18,000 121,877 17,023 12,943 $ Thousands of U.S. dollars 2013 362,106 117,330 547,872 670,021 197,500 119,234 10. GOODWILL AND OTHER INTANGIBLE ASSETS The Group tested goodwill for impairment in accordance with ASC No.350, applying a fair value based test and has concluded that there was no impairment for the years ended March 31, 2013 and 2012. The components of acquired intangible assets excluding goodwill at March 31, 2013 and 2012 are as follows: March 31, 2013 Other intangible assets subject to amortization: Software Technical license fees Core and current technology Customer relationship Other Total Other intangible assets not subject to amortization: Brand name Other Total March 31, 2012 Other intangible assets subject to amortization: Software Technical license fees Core and current technology Customer relationship Other Total Other intangible assets not subject to amortization: Brand name Other Total Gross carrying amount ¥ ¥ 197,024 57,503 186,911 116,768 47,014 605,220 Gross carrying amount ¥ ¥ 181,801 55,522 129,516 74,512 42,982 484,333 Millions of yen Accumulated amortization ¥ ¥ 129,000 46,154 41,332 19,513 20,280 256,279 Millions of yen Accumulated amortization ¥ ¥ 118,794 40,354 29,546 11,459 18,256 218,409 Net carrying amount 68,024 11,349 145,579 97,255 26,734 348,941 42,688 2,042 44,730 393,671 Net carrying amount 63,007 15,168 99,970 63,053 24,726 265,924 37,450 2,076 39,526 305,450 ¥ ¥ ¥ ¥ ¥ ¥ TOSHIBA Annual Report 2013 59 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 March 31, 2013 Other intangible assets subject to amortization: Software Technical license fees Core and current technology Customer relationship Other Total Other intangible assets not subject to amortization: Brand name Other Total Gross carrying amount $ 2,096,000 611,734 1,988,415 1,242,213 500,149 $ 6,438,511 Thousands of U.S. dollars Accumulated amortization $ 1,372,340 491,000 439,702 207,585 215,745 $ 2,726,372 Net carrying amount $ 723,660 120,734 1,548,713 1,034,628 284,404 $ 3,712,139 454,128 21,722 475,850 $ 4,187,989 Other intangible assets acquired during the year ended March 31, 2013 primarily consisted of software of ¥24,208 million ($257,532 thousand). The weighted-average amortization period of software for the year ended March 31, 2013 was approximately 4.3 years. The weighted-average amortization periods for other intangible assets were approximately 11.4 years and 11.7 years for the years ended March 31, 2013 and 2012, respectively. Amortization expenses of other intangible assets subject to amortization for the years ended March 31, 2013 and 2012 are ¥44,083 million ($468,968 thousand) and ¥44,905 million, respectively. The future amortization expense for each of the next 5 years relating to other intangible assets currently recorded in the consolidated balance sheet at March 31, 2013 is estimated as follows: Year ending March 31 2014 2015 2016 2017 2018 ¥ Millions of yen 50,825 35,910 29,033 24,286 21,270 $ Thousands of U.S. dollars 540,691 382,021 308,862 258,362 226,277 Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. The changes in the carrying amount of goodwill for the years ended March 31, 2013 and 2012 are as follows: Year ended March 31 Balance at beginning of year Goodwill acquired during the year Foreign currency translation adjustments Balance at end of year Millions of yen 2013 404,157 49,097 54,891 508,145 ¥ ¥ 2012 283,453 123,578 (2,874) 404,157 ¥ ¥ Thousands of U.S. dollars 2013 $ 4,299,543 522,308 583,947 $ 5,405,798 As of March 31, 2013 and 2012, goodwill allocated to Social Infrastructure is ¥431,946 million ($4,595,170 thousand) and ¥376,076 million, respectively. The rest was mainly allocated to Digital Products. Toshiba TEC Corporation (“TEC”), a consolidated subsidiary of the Company, entered into an agreement with IBM and acquired IBM's Retail Store Solutions business. Accordingly, the Company is in the process of allocating the purchase price to the assets acquired and liabilities assumed in accordance with ASC No.805 “Business Combinations” (“ASC No.805”) but the process has not been finalized. The provisional amounts as of March 31, 2013 will be generally adjusted by increasing or decreasing goodwill when the purchase price allocation is finalized. 60 TOSHIBA Annual Report 2013 11. SHORT-TERM BORROWINGS AND LONG-TERM DEBT Short-term borrowings at March 31, 2013 and 2012 consist of the following: March 31 Loans and overdrafts, principally from banks, with weighted-average interest rate of 1.67% at March 31, 2013, and 1.04% at March 31, 2012: Secured Unsecured Commercial paper with weighted-average interest rate of 0.13% at March 31, 2013 Millions of yen 2013 2012 Thousands of U.S. dollars 2013 ¥ ¥ − 130,453 61,000 191,453 ¥ ¥ 22,646 96,869 − 119,515 $ − 1,387,798 648,936 $ 2,036,734 Substantially all of the short-term borrowings are with banks which have written basic agreements with the Group to the effect that, with respect to all present or future loans with such banks, the Group shall provide collateral (including sums on deposit with such banks) or guaranties immediately upon the bank's request, and that any collateral furnished pursuant to such agreements or otherwise shall be applicable to all indebtedness to such banks. At March 31, 2013, the Group had unused committed lines of credit from short-term financing arrangements aggregating ¥321,400 million ($3,419,149 thousand). The lines of credit expire on various dates from April 2013 through March 2014. Under the agreements, the Group is required to pay commitment fees ranging from 0.030 percent to 0.220 percent on the unused portion of the lines of credit. Long-term debt at March 31, 2013 and 2012 consist of the following: March 31 Loans, principally from banks, due 2013 to 2027 with weighted-average interest rate of 0.61% at March 31, 2013, and due 2012 to 2028 with weighted-average interest rate of 0.90% at March 31, 2012: Millions of yen 2013 2012 Thousands of U.S. dollars 2013 Secured Unsecured ¥ 19,206 756,008 ¥ 19,206 572,840 $ 204,319 8,042,638 Unsecured yen bonds, due 2013 to 2020 with interest rates ranging from 0.62% to 2.20% at March 31, 2013, and due 2013 to 2020 with interest rates ranging from 0.89% to 2.20% at March 31, 2012 Interest deferrable and early redeemable subordinated bonds: Due 2069 with interest rate of 7.50% at March 31, 2013 and 2012 Capital lease obligations Less-Portion due within one year 290,000 310,000 3,085,107 180,000 34,909 1,280,123 (241,675) ¥ 1,038,448 ¥ 180,000 34,200 1,116,246 (206,626) 909,620 1,914,894 371,372 13,618,330 (2,571,011) $ 11,047,319 Substantially all of the unsecured loan agreements permit the lenders to require collateral or guaranties for such loans. The carrying amount of corresponding notes and accounts receivable, trade and long-term receivables which were accounted for as secured borrowings under ASC No.860 at March 31, 2013 and 2012 were ¥26,978 million ($287,000 thousand) and ¥52,689 million, respectively. TOSHIBA Annual Report 2013 61 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 The aggregate annual maturities of long-term debt, as of March 31, 2013, excluding those of capital lease obligations, are as follows: Year ending March 31 2014 2015 2016 2017 2018 Thereafter Millions of yen 232,064 56,477 198,237 159,831 203,792 394,813 1,245,214 ¥ ¥ $ Thousands of U.S. dollars 2,468,766 600,819 2,108,904 1,700,330 2,168,000 4,200,139 $ 13,246,958 12. ISSUANCE OF CONVERTIBLE BOND In July, 2004, the Company issued ¥100,000 million Zero Coupon Convertible Bonds due 2011 (the“2011 Bonds”). The bonds include stock acquisition rights which entitle bondholders to acquire common stock under certain circumstances, and are exercisable on and after August 4, 2004 up to, and including, July 7, 2011. The exercisable period of the stock acquisition rights ended, and the principal amount of the 2011 Bonds was redeemed at maturity. (The 2011 Bonds' conditions allowing exercise of stock acquisition rights) The period prior to (but not including) July 21, 2010 The period on or after July 21, 2010 In the case that as of the last trading day of any calendar quarter, the closing price of the shares for any 20 trading days in a period of 30 consecutive trading days ending on the last trading day of such quarter is more than 120% of the conversion price in effect on each such trading day. At any time after the closing price of the shares on at least one trading day is more than 120% of the conversion price in effect on each such trading day. The 2011 Bonds were not converted into shares of common stock for the year ended March 31, 2012. The additional 175,295,212 shares relating to the potential conversion of the 2011 Bonds are included in the calculation of the diluted net income per share attributable to shareholders of the Company for the year ended March 31, 2012. 62 TOSHIBA Annual Report 2013 13. ACCRUED PENSION AND SEVERANCE COSTS All employees who retire or are terminated are usually entitled to lump-sum severance indemnities or pension benefits determined by reference to service credits allocated to employees each year according to the regulation of retirement benefit, length of service and conditions under which their employment terminates. The obligation for the severance indemnity benefit is provided for through accruals and funding of the defined benefit corporate pension plan. The Company and certain subsidiaries in Japan have amended their pension plan under the agreement between employees and managements in January 2011, and introduced Cash Balance Plan from April 2011. This plan is designed that each plan participant has a notional account, which is accumulated based on salary standards, interest rates in financial markets and others. The funding policy for the plans is to contribute amounts required to maintain sufficient plan assets to provide for accrued benefits, subject to the limitation on deductibility imposed by Japanese income tax laws. The changes in the benefit obligation and plan assets for the years ended March 31, 2013 and 2012 and the funded status at March 31, 2013 and 2012 are as follows: March 31 Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Plan participants' contributions Plan amendments Actuarial loss Benefits paid Acquisitions and divestitures Foreign currency exchange impact Benefit obligation at end of year Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Plan participants' contributions Benefits paid Acquisitions and divestitures Foreign currency exchange impact Fair value of plan assets at end of year Funded status Millions of yen 2013 2012 ¥ 1,607,643 54,841 34,463 4,401 − 37,338 (87,009) 1,974 21,629 ¥ 1,675,280 ¥ ¥ ¥ 828,636 91,958 75,441 4,401 (55,722) 134 14,233 959,081 (716,199) ¥ 1,524,466 52,940 38,265 4,390 649 77,645 (79,617) (9,736) (1,359) ¥ 1,607,643 ¥ 790,399 12,207 72,769 4,390 (53,405) 3,234 (958) ¥ ¥ 828,636 (779,007) Amounts recognized in the consolidated balance sheet at March 31, 2013 and 2012 are as follows: March 31 Other assets Other current liabilities Accrued pension and severance costs Millions of yen 2013 ¥ ¥ 198 (947) (715,450) (716,199) 2012 1,175 (768) (779,414) (779,007) ¥ ¥ Thousands of U.S. dollars 2013 $ 17,102,585 583,415 366,628 46,819 − 397,213 (925,628) 21,000 230,096 $ 17,822,128 $ 8,815,277 978,277 802,564 46,819 (592,787) 1,425 151,415 $ 10,202,990 $ (7,619,138) Thousands of U.S. dollars 2013 $ 2,106 (10,074) (7,611,170) $ (7,619,138) TOSHIBA Annual Report 2013 63 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 Amounts recognized in accumulated other comprehensive loss at March 31, 2013 and 2012 are as follows: March 31 Unrecognized actuarial loss Unrecognized prior service cost Millions of yen 2013 567,467 (32,272) 535,195 ¥ ¥ 2012 632,236 (36,318) 595,918 ¥ ¥ Thousands of U.S. dollars 2013 $ 6,036,883 (343,319) $ 5,693,564 The accumulated benefit obligation at March 31, 2013 and 2012 are as follows: March 31 Accumulated benefit obligation Millions of yen 2013 ¥ 1,562,698 2012 1,511,834 ¥ Thousands of U.S. dollars 2013 $ 16,624,447 The components of the net periodic pension and severance cost for the years ended March 31, 2013 and 2012 are as follows: Year ended March 31 Service cost Interest cost on projected benefit obligation Expected return on plan assets Amortization of prior service cost Recognized actuarial loss Settlement loss Net periodic pension and severance cost Millions of yen 2013 54,841 34,463 (23,793) (3,476) 37,625 − 99,660 ¥ ¥ 2012 52,940 38,265 (22,540) (3,550) 34,125 69 99,309 ¥ ¥ $ Thousands of U.S. dollars 2013 583,415 366,628 (253,117) (36,979) 400,266 − $ 1,060,213 Other changes in plan assets and benefit obligation recognized in the other comprehensive income (loss) for the years ended March 31, 2013 and 2012 are as follows: Year ended March 31 Current year actuarial loss Recognized actuarial loss Prior service cost due to plan amendments Amortization of prior service cost Millions of yen 2013 (30,827) (37,625) − 3,476 (64,976) ¥ ¥ 2012 87,978 (34,125) 649 3,550 58,052 ¥ ¥ Thousands of U.S. dollars 2013 (327,947) (400,266) − 36,979 (691,234) $ $ The estimated prior service cost and actuarial loss that will be amortized from accumulated other comprehensive loss into net periodic pension and severance cost over the next year are summarized as follows: Millions of yen 2014 ¥ (4,076) 27,342 Thousands of U.S. dollars 2014 (43,362) 290,872 $ Year ending March 31 Prior service cost Actuarial loss 64 TOSHIBA Annual Report 2013 For the year ended March 31, 2013, the Company contributed certain marketable equity securities to employee retirement benefit trusts, with no cash proceeds thereon. The fair value of these securities at the time of contribution was ¥18,414 million ($195,894 thousand). The Group expects to contribute ¥66,585 million ($708,351 thousand) to its defined benefit plans, included Cash Balance Plan, in the year ending March 31, 2014. The following benefit payments are expected to be paid: Year ending March 31 2014 2015 2016 2017 2018 2019 - 2023 ¥ Millions of yen 73,679 80,082 83,771 85,017 86,713 500,098 $ Thousands of U.S. dollars 783,819 851,936 891,181 904,436 922,479 5,320,191 Weighted-average assumptions used to determine benefit obligations as of March 31, 2013 and 2012 and net periodic pension and severance cost for the years then ended are as follows: March 31 Discount rate Rate of compensation increase Year ended March 31 Discount rate Expected long-term rate of return on plan assets Rate of compensation increase 2013 2.1% 3.2% 2013 2.2% 2.8% 3.3% 2012 2.2% 3.3% 2012 2.6% 2.9% 3.2% The Group determines the expected long-term rate of return in consideration of the target allocation of the plan assets, the current expectation of long-term returns on the assets and actual returns on plan assets. The Group's investment policies and strategies are to assure adequate plan assets to provide for future payments of pension and severance benefits to participants, with reasonable risks. The Group designs the basic target allocation of the plan assets to mirror the best portfolio based on estimation of mid-term and long-term return on the investments. The Group periodically reviews the actual return on the investments and adjusts the portfolio to achieve the assumed long-term rate of return on the investments. The Group targets its investments in equity securities at 25 percent or more of total investments, and investments in equity securities, debt securities and life insurance company general accounts at 70 percent or more of total investments. The equity securities are selected primarily from stocks that are listed on the securities exchanges. Prior to investing, the Group has investigated the business condition of the investee companies, and appropriately diversified investments by type of industry and other relevant factors. The debt securities are selected primarily from government bonds, municipal bonds and corporate bonds. Prior to investing, the Group has investigated the quality of the issue, including rating, interest rate, and repayment dates and has appropriately diversified the investments. Pooled funds are selected using strategies consistent with the equity securities and debt securities described above. Hedge funds are selected following a variety of strategies and fund managers, and the Group has appropriately diversified the investments. Real estate is selected for the eligibility of investment and expected return and other relevant factors, and the Group has appropriately diversified the investments. As for investments in life insurance company general accounts, the contracts with the insurance companies include a guaranteed interest and return of capital. TOSHIBA Annual Report 2013 65 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 The three levels of input used to measure fair value are more fully described in Note 5. The plan assets that are measured at fair value at March 31, 2013 and 2012 by asset category are as follows: Level 1 Level 2 Level 3 ¥ 54,579 ¥ − ¥ Millions of yen March 31, 2013 Cash and cash equivalents Equity securities: Japanese companies Foreign companies Pooled funds Debt securities: Government bonds Municipal bonds Corporate bonds Pooled funds Other assets: Hedge funds Real estate Life insurance company general accounts Other assets Total ¥ March 31, 2013 Cash and cash equivalents Equity securities: Japanese companies Foreign companies Pooled funds Debt securities: Government bonds Municipal bonds Corporate bonds Pooled funds Other assets: Hedge funds Real estate Life insurance company general accounts Other assets Total Level 1 $ 580,627 1,474,245 599,447 332,351 941,851 − − 247,681 − − − − $ 4,176,202 138,579 56,348 31,241 88,534 − − 23,282 − − − − 392,563 − − − − − − − − − − − 5,672 105,834 29,039 − − 140,545 ¥ − − − 60,340 1,125,894 308,926 − − $ 1,495,160 Total ¥ 54,579 138,579 56,348 150,686 88,534 218 26,385 238,386 105,834 29,039 64,431 6,062 959,081 ¥ Total $ 580,627 1,474,245 599,447 1,603,043 941,851 2,319 280,692 2,536,021 1,125,894 308,926 685,436 64,489 $ 10,202,990 − − 119,445 − 218 26,385 209,432 − − 64,431 6,062 425,973 − − 1,270,692 − 2,319 280,692 2,228,000 − − 685,436 64,489 $ 4,531,628 ¥ $ Thousands of U.S. dollars Level 2 Level 3 − $ Notes: 1) Pooled funds in equity securities invest in listed equity securities consisting of approximately 5% Japanese companies and 95% foreign companies. 2) Government bonds include approximately 60% Japanese government bonds and 40% foreign government bonds. 3) Pooled funds in debt securities invest in approximately 30% Japanese government bonds, 30% foreign government bonds, 40% municipal bonds and corporate bonds. 66 TOSHIBA Annual Report 2013 March 31, 2012 Cash and cash equivalents Equity securities: Japanese companies Foreign companies Pooled funds Debt securities: Government bonds Municipal bonds Corporate bonds Pooled funds Other assets: Hedge funds Real estate Life insurance company general accounts Other assets Total ¥ Level 1 Level 2 Level 3 ¥ 34,585 ¥ − ¥ Millions of yen 98,526 44,859 22,760 84,430 − − 16,933 − − − − 302,093 − − 185,019 − 224 25,926 140,644 − − 44,511 4,108 400,432 ¥ − − − − − − − 4,137 97,117 24,857 − − 126,111 ¥ Total ¥ 34,585 98,526 44,859 207,779 84,430 224 25,926 161,714 97,117 24,857 44,511 4,108 828,636 ¥ Notes: 1) Pooled funds in equity securities invest in listed equity securities consisting of approximately 40% Japanese companies and 60% foreign companies. 2) Government bonds include approximately 60% Japanese government bonds and 40% foreign government bonds. 3) Pooled funds in debt securities invest in approximately 20% Japanese government bonds, 35% foreign government bonds, 45% municipal bonds and corporate bonds. TOSHIBA Annual Report 2013 67 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 Each level into which assets are categorized is based on inputs used to measure the fair value of the assets, and does not necessarily indicate the risks or ratings of the assets. Level 1 plan assets represent marketable equity securities, pooled funds and government bonds, which are valued based on quoted market prices in active markets with sufficient volume and frequency of transactions. Level 2 plan assets represent pooled funds that invest in equity securities and debt securities, corporate bonds and life insurance company general accounts. Pooled funds, which are classified as Level 2 asset, are valued at their net asset values that are calculated by the sponsor of the fund. Corporate bonds are valued based on quoted market prices for identical assets in inactive markets. Life insurance company general accounts are valued based on contracts. Level 3 plan assets represent pooled funds that invest in debt securities, hedge funds and real estate, which are valued based on unobservable inputs as the markets for the assets are not active at the measurement date. An analysis of the changes in Level 3 plan assets measured at fair value for the year ended March 31, 2013 and 2012 are as follows: Year ended March 31, 2013 Balance at beginning of year Actual return: Relating to assets sold Relating to assets still held Purchases, issuances and settlements Balance at end of year ¥ Pooled funds 4,137 ¥ Hedge funds 97,117 ¥ Real estate ¥ 24,857 Total ¥ 126,111 Millions of yen − 1,535 − 5,672 1,693 7,458 (434) 105,834 ¥ (771) 1,397 3,556 29,039 ¥ 922 10,390 3,122 140,545 ¥ Pooled funds − ¥ Hedge funds 96,724 ¥ Real estate ¥ 17,311 Total ¥ 114,035 Millions of yen Year ended March 31, 2012 Balance at beginning of year Actual return: Relating to assets sold Relating to assets still held Purchases, issuances and settlements Balance at end of year ¥ − 180 3,957 4,137 149 211 33 97,117 ¥ 107 (518) 7,957 24,857 ¥ 256 (127) 11,947 126,111 ¥ Year ended March 31, 2013 Balance at beginning of year Actual return: Relating to assets sold Relating to assets still held Purchases, issuances and settlements Balance at end of year Pooled funds 44,010 $ Hedge funds $ 1,033,160 Real estate $ 264,436 Total $ 1,341,606 Thousands of U.S. dollars − 16,330 − 60,340 $ 18,011 79,340 (4,617) $ 1,125,894 $ (8,202) 14,862 37,830 308,926 9,809 110,532 33,213 $ 1,495,160 Certain of the Company's subsidiaries provide certain health care and life insurance benefits to retired employees. Such benefits were not material for the years ended March 31, 2013 and 2012. 68 TOSHIBA Annual Report 2013 14. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred and amounted to ¥300,028 million ($3,191,787 thousand) and ¥319,418 million for the years ended March 31, 2013 and 2012, respectively. 15. ADVERTISING COSTS Advertising costs are expensed as incurred and amounted to ¥30,725 million ($326,862 thousand) and ¥33,804 million for the years ended March 31, 2013 and 2012, respectively. 16. OTHER INCOME AND OTHER EXPENSE FOREIGN EXCHANGE GAINS AND LOSSES For the years ended March 31, 2013 and 2012, the net foreign exchange impacts were ¥8,102 million ($86,191 thousand) gain and ¥15,614 million loss, respectively. GAINS AND LOSSES ON SALES OR DISPOSAL OF FIXED ASSETS For the years ended March 31, 2013 and 2012, the sale and disposal of fixed assets resulted in net gains of ¥11,927 million ($126,883 thousand) and ¥4,383 million, respectively. Gains on sales of fixed assets were ¥21,440 million ($228,085 thousand), and losses on disposal of fixed assets were ¥9,513 million ($101,202 thousand) for the year ended March 31, 2013. Gains on sales of fixed assets were ¥24,275 million, and losses on disposal of fixed assets were ¥19,892 million for the year ended March 31, 2012. GAINS AND LOSSES ON SALES OF THE SHARES OF TOSHIBA MOBILE DISPLAY CO., LTD. In November 2011, the Company, Innovation Network Corporation of Japan (“INCJ”), Hitachi, Ltd. and Sony Corporation signed difinitive agreements to integrate their small- and medium-sized display businesses. The Company, INCJ and a new company (currently called Japan Display Inc. (“JDI”)) also signed agreements to transfer all of the issued shares of Toshiba Mobile Display Co., Ltd. (“TMD”) to JDI. In March 2012, the Company sold all of the issued shares of TMD to JDI and acquired 10% of the shares of JDI. Gains and losses on these transactions were not significant. LOSSES ON SALES OF THE SHARES OF TOSHIBA FINANCE CO., LTD. In April 2013, the Company entered into a definitive agreement to transfer all of the issued shares of Toshiba Finance Co., Ltd. (“TFC”) to AEON Financial Services Co., Ltd. (“AFS”). In May 2013, the Company sold all of the issued shares of TFC to AFS. Losses on the transaction of ¥16,280 million ($173,191 thousand) were recorded for the year ended March 31, 2013. 17. IMPAIRMENT OF LONG-LIVED ASSETS Due to a decrease in profitability of the following business, the Group recorded impairment losses related to the property, plant and equipment, and finite-lived intangible assets. Impairment losses recorded for the year ended March 31, 2013 were consisted of ¥935 million ($9,947 thousand) in the Visual Products business, ¥4,641 million ($49,372 thousand) in the PC business, ¥16,130 million ($171,596 thousand) in the Analog Imaging IC business, and ¥4,251 million ($45,223 thousand) in the System LSI business. The impairment losses recognized in the year ended March 31, 2012 consisted of ¥5,157 million in the Visual Products business, ¥3,270 million in the PC business, ¥47,380 million in the Analog Imaging IC business, and ¥3,215 million in the System LSI business. These impairment losses are recorded are included in cost of sales in the consolidated statement of income. Impairment losses in the Visual Products and the PC businesses are included in the Digital Products segment, while those in the Analog Imaging IC and the System LSI businesses are included in the Electronic Devices & Components segment. 18. INCOME TAXES The Group is subject to a number of different income taxes which, in the aggregate, result in an effective statutory tax rate in Japan of approximately 38.0 percent and 40.7 percent for the years ended March 31, 2013 and 2012, respectively. Amendments to the Japanese tax regulations were enacted into law on November 30, 2011. As a result of these amendments, the effective statutory tax rate used to calculate deferred tax assets and liabilities was changed from 40.7 percent to 38.0 percent for temporary difference expected to be eliminated during the period from the fiscal year beginning on April 1, 2012 to the fiscal year beginning on April 1, 2014, and 35.6 percent for temporary difference expected to be eliminated in and after the fiscal year beginning on April 1, 2015. The effect of re-evaluation of deferred tax assets and liabilities for this change in the tax rate was reflected in income taxes in the consolidated statement of income for the year ended March 31, 2012. A reconciliation table between the reported income tax expense and the amount computed by multiplying the income from continuing operations, before income taxes and noncontrolling interests by the applicable statutory tax rate is as follows: TOSHIBA Annual Report 2013 69 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 Year ended March 31 Expected income tax expense Increase (decrease) in taxes resulting from: Tax credits Non-deductible expenses for tax purposes Net changes in valuation allowance Net decrease in deferred tax assets by enacted changes in tax laws and rates The difference between the current effective statutory tax rate and the future effective statutory tax rate Tax rate difference relating to foreign subsidiaries Deferred tax liabilities on undistributed earnings of foreign subsidiaries and affiliates Other Income tax expense Millions of yen 2013 2012 ¥ 28,472 ¥ 25,001 $ (5,605) 5,220 11,847 − 4,785 (10,397) 1,499 2,535 38,356 ¥ (1,009) 2,650 (13,438) 36,240 12,137 (11,567) (6,425) 4,851 48,440 ¥ $ Thousands of U.S. dollars 2013 302,894 (59,628) 55,532 126,032 − 50,904 (110,606) 15,947 26,968 408,043 The significant components of deferred tax assets and deferred tax liabilities as of March 31, 2013 and 2012 are as follows: March 31 Gross deferred tax assets: Inventories Accrued pension and severance costs Tax loss carryforwards Pension liability adjustment Accrued expenses Depreciation and amortization Other Valuation allowance for deferred tax assets Deferred tax assets Gross deferred tax liabilities: Inventories Property, plant and equipment Unrealized gains on securities Gain on securities contributed to employee retirement benefit trusts Undistributed earnings of foreign subsidiaries and affiliates Goodwill and other intangible assets Other Deferred tax liabilities Net deferred tax assets Millions of yen 2013 2012 ¥ ¥ ¥ ¥ 21,710 129,705 236,571 177,590 152,469 62,495 135,671 916,211 (220,038) 696,173 (1,291) (24,107) (45,406) (15,239) (41,883) (93,727) (19,914) (241,567) 454,606 ¥ ¥ ¥ ¥ 21,177 123,486 243,253 203,581 116,149 66,574 127,257 901,477 (211,006) 690,471 (4,570) (15,987) (31,593) (19,269) (32,870) (76,859) (17,616) (198,764) 491,707 Thousands of U.S. dollars 2013 $ 230,958 1,379,840 2,516,713 1,889,255 1,622,011 664,840 1,443,309 9,746,926 (2,340,830) $ 7,406,096 $ (13,734) (256,457) (483,043) (162,117) (445,564) (997,096) (211,851) (2,569,862) $ 4,836,234 Deferred tax liabilities included in other current liabilities and other liabilities at March 31, 2013 and 2012 were ¥106,811 million ($1,136,287 thousand) and ¥86,370 million, respectively. The net changes in the total valuation allowance for the years ended March 31, 2013 and 2012 were an increase of ¥9,032 million ($96,085 thousand) and a decrease of ¥64,268 million, respectively. The amounts of adjustments of the beginning-of-the-year balance of the valuation allowance because of a change in judgment about the realizability of the related deferred tax assets in future years for the year ended March 31, 2013 were ¥36,041 million. 70 TOSHIBA Annual Report 2013  The Group's tax loss carryforwards for the corporate and local taxes at March 31, 2013 amounted to ¥569,874 million ($6,062,489 thousand) and ¥751,137 million ($7,990,819 thousand), respectively, the majority of which will expire during the period from the year ending March 2014 through 2022. The Group utilized tax loss carryforwards of ¥50,068 million ($532,638 thousand) and ¥126,432 million to reduce current corporate taxes and ¥23,904 million ($254,298 thousand) and ¥120,232 million to reduce current local taxes during the years ended March 31, 2013 and 2012, respectively. Realization of tax loss carryforwards and other deferred tax assets is dependent on the Group generating sufficient taxable income prior to their expiration or the Group exercising certain available tax strategies. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets, less the valuation allowance, will be realized. The amount of such net deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. A reconciliation table of the beginning and ending amount of unrecognized tax benefits is as follows: Year ended March 31 Balance at beginning of year Additions for tax positions of the current year Additions for tax positions of prior years Reductions for tax positions of the current year Reductions for tax positions of prior years Lapse of statute of limitations or closed audits Additions from acquisitions Foreign currency translation adjustments Balance at end of year Millions of yen 2013 2012 ¥ ¥ 4,673 346 486 (377) (24) (414) − 659 5,349 ¥ ¥ 3,473 737 225 (14) (431) (1,627) 2,375 (65) 4,673 Thousands of U.S. dollars 2013 49,713 3,681 5,170 (4,011) (255) (4,404) − 7,010 56,904 $ $ The total amounts of unrecognized tax benefits that would reduce the effective tax rate, if recognized, are ¥1,664 million ($17,702 thousand) and ¥1,715 million at March 31, 2013 and 2012, respectively. The Group recognizes interest and penalties accrued related to unrecognized tax benefits in income taxes in the consolidated statement of income. Both interest and penalties accrued as of March 31, 2013 and 2012, and interest and penalties included in income taxes for the years ended March 31, 2013 and 2012 are not significant. The Group believes its estimates and assumptions of unrecognized tax benefits are reasonable and based on each of the items of which the Group is aware at March 31, 2013, no significant changes to the unrecognized tax benefits are expected within the next twelve months. The Group files income tax returns in Japan and various foreign tax jurisdictions. In Japan, the Group is no longer subject to regular income tax examinations by the tax authority for years before the fiscal year ended March 31, 2010 with few exceptions. In other major foreign tax jurisdictions, the Group is no longer subject to regular income tax examinations by tax authorities for years before the fiscal year ended March 31, 2006 with few exceptions. TOSHIBA Annual Report 2013 71 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 19. EQUITY COMMON STOCK The total number of authorized shares of the Company is 10,000,000,000. The total number of shares issued for the years ended March 31,2013 and 2012 are 4,237,602,026. RETAINED EARNINGS Retained earnings at March 31, 2013 and 2012 included a legal reserve of ¥34,780 million ($370,000 thousand) and ¥29,286 million, respectively. The Corporation Law of Japan provides that an amount equal to 10% of distributions from retained earnings paid by the Company and its Japanese subsidiaries be appropriated as a legal reserve. No further appropriations are required when the total amount of the additional paid-in capital and the legal reserve equals 25% of their respective stated capital. The Corporation Law of Japan also provides that additional paid-in capital and legal reserve are available for distributions by the resolution of the stockholders. The amount of retained earnings available for distributions is based on the Company's retained earnings determined in accordance with generally accepted accounting principles in Japan and the Corporation Law of Japan. Retained earnings at March 31, 2013 do not reflect current year-end distributions of ¥16,939 million ($180,202 thousand) which started to be paid from June 1, 2013. Retained earnings at March 31, 2013 included the Group's equity in undistributed earnings of equity method investees in the amount of ¥115,285 million ($1,226,436 thousand). ACCUMULATED OTHER COMPREHENSIVE LOSS Analyses of the changes in accumulated other comprehensive loss, net of tax, for the years ended March 31, 2013 and 2012 are shown below: Year ended March 31 Net unrealized gains and losses on securities: Balance at beginning of year Current year change Balance at end of year Foreign currency translation adjustments: Balance at beginning of year Current year change Balance at end of year Pension liability adjustments: Balance at beginning of year Current year change Balance at end of year Net unrealized gains and losses on derivative instruments: Balance at beginning of year Current year change Balance at end of year Total accumulated other comprehensive loss: Balance at beginning of year Current year change Balance at end of year Millions of yen 2013 2012 ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ 57,093 21,072 78,165 (283,834) 64,288 (219,546) (338,348) 36,764 (301,584) (462) (511) (973) (565,551) 121,613 (443,938) ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ 62,455 (5,362) 57,093 (273,317) (10,517) (283,834) (308,681) (29,667) (338,348) (62) (400) (462) (519,605) (45,946) (565,551) Thousands of U.S. dollars 2013 $ $ 607,373 224,170 831,543 $ (3,019,511) 683,915 $ (2,335,596) $ (3,599,446) 391,106 $ (3,208,340) $ $ (4,915) (5,436) (10,351) $ (6,016,500) 1,293,755 $ (4,722,745) 72 TOSHIBA Annual Report 2013 Tax effects allocated to each component of other comprehensive income (loss) for the years ended March 31, 2013 and 2012 are shown below: For the year ended March 31, 2013: Net unrealized gains and losses on securities: Unrealized holding gains arising during year Less: reclassification adjustment for losses included in net income attributable to shareholders of the Company Foreign currency translation adjustments: Currency translation adjustments arising during year Less: reclassification adjustment for losses included in net income attributable to shareholders of the Company Pension liability adjustments: Pension liability adjustments arising during year Less: reclassification adjustment for losses included in net income attributable to shareholders of the Company Net unrealized gains and losses on derivative instruments: Unrealized losses arising during year Less: reclassification adjustment for losses included in net income attributable to shareholders of the Company Other comprehensive income For the year ended March 31, 2012: Net unrealized gains and losses on securities: Unrealized holding losses arising during year Less: reclassification adjustment for losses included in net income attributable to shareholders of the Company Foreign currency translation adjustments: Currency translation adjustments arising during year Less: reclassification adjustment for losses included in net income attributable to shareholders of the Company Pension liability adjustments: Pension liability adjustments arising during year Less: reclassification adjustment for losses included in net income attributable to shareholders of the Company Net unrealized gains and losses on derivative instruments: Unrealized gains arising during year Less: reclassification adjustment for losses included in net income attributable to shareholders of the Company Pre-tax amount Millions of yen Tax benefit (expense) Net-of-tax amount ¥ 32,510 ¥ (12,083) ¥ 20,427 1,002 (357) 645 109,061 3,155 26,664 33,189 (130) (755) (5,138) − (9,044) (11,817) (152) 322 103,923 3,155 17,620 21,372 (282) (433) ¥ 204,696 ¥ (38,269) ¥ 166,427 ¥ (13,768) ¥ 5,011 ¥ (8,757) 5,723 (2,328) 3,395 (10,813) 241 (80,668) 36,058 231 (1,285) 55 − 29,619 (14,676) 41 613 (10,758) 241 (51,049) 21,382 272 (672) Other comprehensive loss ¥ (64,281) ¥ 18,335 ¥ (45,946) TOSHIBA Annual Report 2013 73 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 For the year ended March 31, 2013: Net unrealized gains and losses on securities: Unrealized holding gains arising during year Less: reclassification adjustment for losses included in net income attributable to shareholders of the Company $ 345,851 $ (128,543) $ 217,308 10,660 (3,798) 6,862 Pre-tax amount Thousands of U.S. dollars Tax benefit (expense) Net-of-tax amount Foreign currency translation adjustments: Currency translation adjustments arising during year Less: reclassification adjustment for losses included in net income attributable to shareholders of the Company Pension liability adjustments: Pension liability adjustments arising during year Less: reclassification adjustment for losses included in net income attributable to shareholders of the Company Net unrealized gains and losses on derivative instruments: Unrealized losses arising during year Less: reclassification adjustment for losses included in net income attributable to shareholders of the Company 1,160,222 33,564 (54,659) 1,105,563 − 33,564 283,660 353,075 (1,383) (8,032) (96,213) (125,713) (1,617) 3,426 187,447 227,362 (3,000) (4,606) Other comprehensive income $ 2,177,617 $ (407,117) $ 1,770,500 TAKEOVER DEFENSE MEASURE The Company has a plan for countermeasures to any large-scale acquisitions of the Company's shares (the “Plan”), based on the shareholders' approval of the Plan for the purpose of protection and enhancement of the corporate value of the Company and the common interests of shareholders. Specifically, if an acquirer commences or plans to commence an acquisition or a tender offer that would result in the acquirer holding 20% or more of the shares issued by the Company, the Company will require the acquirer to provide the necessary information in advance to its board of directors. The Special Committee that solely consists of outside directors who are independent from the Company's management will, at its discretion, obtain advice from outside experts, evaluate and consider the details of the acquisition, disclose to the Company's shareholders the necessary information regarding the acquisition, evaluate, consider and disclose any alternative proposal presented by the Company's representative executive officers, and negotiate with the acquirer. If the acquirer does not comply with the procedures under the Plan, or the acquisition would damage the corporate value of the Company or the common interests of its shareholders, and if the acquisition satisfies the triggering requirements set out in the Plan, the countermeasures (a gratis allotment of stock acquisition rights (shinkabu yoyakuken no mushou wariate), with a condition of which will be that they cannot be exercised by acquirers or the like and subject to call to the effect that the Company can acquire stock acquisition rights from those other than such acquirers in exchange for shares of the Company) are to be implemented in accordance with the recommendation by the Special Committee or the resolution passed at the general meeting for confirming shareholders’ intention and the Company will ensure the corporate value of the Company and the common interests of shareholders. 74 TOSHIBA Annual Report 2013 20. NET EARNINGS PER SHARE ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY The following reconciliation table of the numerators and denominators sets forth the computation of basic and diluted net earnings per share attributable to shareholders of the Company for the years ended March 31, 2013 and 2012. Year ended March 31 Income from continuing operations attributable to shareholders of the Company Loss from discontinued operations attributable to shareholders of the Company Net income attributable to shareholders of the Company ¥ 13,425 Millions of yen 2013 2012 Thousands of U.S. dollars 2013 ¥ 15,904 (2,479) ¥ ¥ 4,777 $ 169,191 (1,583) 3,194 (26,372) $ 142,819 Year ended March 31 Weighted-average number of shares of common stock outstanding for the year Incremental shares from assumed conversions of dilutive convertible debentures Weighted-average number of shares of diluted common stock outstanding for the year Thousands of shares 2013 4,234,899 − 2012 4,235,024 56,982 4,234,899 4,292,006 Year ended March 31 Earnings from continuing operations per share attributable to shareholders of the Company: −Basic −Diluted Losses from discontinued operations per share attributable to shareholders of the Company: −Basic −Diluted Net earnings per share attributable to shareholders of the Company: −Basic −Diluted Yen 2013 2012 U.S. dollars 2013 ¥ ¥ ¥ 3.76 3.76 (0.59) (0.59) 3.17 3.17 ¥ ¥ ¥ 1.13 1.11 (0.37) (0.37) 0.75 0.74 $ $ $ 0.04 0.04 (0.01) (0.01) 0.03 0.03 Due to their anti-dilutive effect, incremental shares from assumed conversions of dilutive convertible debentures are excluded from the calculation of diluted net losses from discontinued operations per share attributable to shareholders of the Company for the year ended March 31, 2012. TOSHIBA Annual Report 2013 75 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 21. FINANCIAL INSTRUMENTS (1) DERIVATIVE FINANCIAL INSTRUMENTS The Group operates internationally, giving rise to exposure to market risks from fluctuations in foreign currency exchange and interest rates. In the normal course of its risk management efforts, the Group employs a variety of derivative financial instruments, which are consisted principally of forward exchange contracts, interest rate swap agreements, currency swap agreements and currency options to reduce its exposures. The Group has policies and procedures for risk management and the approval, reporting and monitoring of derivative financial instruments. The Group's policies prohibit holding or issuing derivative financial instruments for trading purposes. The Group is exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments, but the Group does not anticipate any credit-related loss from nonperformance by the counterparties because the counterparties are financial institutions of high credit standing and contracts are diversified across a number of major financial institutions. The Group has entered into forward exchange contracts with financial institutions as hedges against fluctuations in foreign currency exchange rates on monetary assets and liabilities denominated in foreign currencies. The forward exchange contracts related to accounts receivable and payable, and commitments on future trade transactions denominated in foreign currencies, mature primarily within a few years of the balance sheet date. Interest rate swap agreements, currency swap agreements and currency options are used to limit the Group's exposure to losses in relation to underlying debt instruments and accounts receivable and payable denominated in foreign currencies resulting from adverse fluctuations in foreign currency exchange and interest rates. These agreements mature during the period 2013 to 2020. Forward exchange contracts, interest rate swap agreements, currency swap agreements and currency options are designated as either fair value hedges or cash flow hedges, except for some contracts, depending on accounts receivable and payable denominated in foreign currencies or commitments on future trade transactions and the interest rate characteristics of the underlying debt as discussed below. Fair Value Hedge Strategy The forward exchange contracts and currency swap agreements utilized by the Group effectively reduce fluctuation in fair value of accounts receivable and payable denominated in foreign currencies. The interest rate swap agreements utilized by the Group effectively convert a portion of its fixed-rate debt to a floating- rate basis. The gain or loss on the derivative financial instruments designated as fair value hedges is offset by the loss or gain on the hedged items in the same location of the consolidated statement of income. Cash Flow Hedge Strategy The forward exchange contracts and currency options utilized by the Group effectively reduce fluctuation in cash flow from commitments on future trade transactions denominated in foreign currencies for the next 5 years and 2 years, respectively. The interest rate swap agreements utilized by the Group effectively convert a portion of its floating-rate debt to a fixed-rate basis for the next 7 years. The Group expects to reclassify ¥973 million ($10,351 thousand) of net income on derivative financial instruments from accumulated other comprehensive loss to net income (loss) attributable to shareholders of the Company during the next 12 months due to the collection of accounts receivable denominated in foreign currencies and the payments of accounts payable denominated in foreign currencies and variable interest associated with the floating-rate debts. Derivatives Not Designated as Hedging Instruments Strategy The Group has entered into certain forward exchange contracts, interest rate swap agreements, currency swap agreements and currency options to offset the earnings impact related to fluctuations in foreign currency exchange rates on monetary assets and liabilities denominated in foreign currencies and in interest rates on debt instruments. Although some of these contracts have not been designated as hedges as required in order to apply hedge accounting, the contracts are effective from an economic perspective. The changes in the fair value of those contracts are recorded in earnings immediately. 76 TOSHIBA Annual Report 2013 The Group's forward exchange contract amounts, the aggregate notional principal amounts of interest rate swap agreements, currency swap agreements and currency options outstanding at March 31, 2013 and 2012 are summarized below: March 31 Forward exchange contracts: To sell foreign currencies To buy foreign currencies Interest rate swap agreements Currency swap agreements Currency options Millions of yen 2013 2012 ¥ 110,637 94,190 543,520 123,376 25,955 ¥ 167,866 71,688 403,791 164,678 − Thousands of U.S. dollars 2013 $ 1,176,989 1,002,021 5,782,128 1,312,511 276,117 (2) FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Group's financial instruments and the location in the consolidated balance sheet at March 31, 2013 and 2012 are summarized as follows: March 31 Location Derivatives designated as hedging instruments: Assets: Forward exchange contracts Currency options Liabilities: Forward exchange contracts Interest rate swap agreements Prepaid expenses and other current assets Prepaid expenses and other current assets Other current liabilities Other current liabilities Other liabilities Derivatives not designated as hedging instruments: Assets: Forward exchange contracts Prepaid expenses and other current assets Liabilities: Forward exchange contracts Interest rate swap agreements Currency swap agreements Other current liabilities Other liabilities Other current liabilities March 31 Nonderivatives: Liabilities: Millions of yen 2013 2012 Thousands of U.S. dollars 2013 ¥ 2,733 ¥ 3,115 $ 29,074 616 (1,492) (143) (3,547) − 6,553 (2,735) (1,161) (477) (15,872) (1,521) (37,734) 2,193 1,494 23,330 (3,336) (21) (177) (3,173) (25) (465) (35,489) (224) (1,883) Millions of yen 2013 2012 Carrying amount Fair value Carrying amount Fair value Long-term debt, including current portion ¥ (1,245,214) ¥ (1,252,204) ¥ (1,082,046) ¥ (1,088,464) March 31 Nonderivatives: Liabilities: Thousands of U.S. dollars 2013 Carrying amount Fair value Long-term debt, including current portion $ (13,246,958) $ (13,321,319) TOSHIBA Annual Report 2013 77 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 The above table excludes the financial instruments for which fair value approximate their carrying amounts and those related to leasing activities. The table also excludes marketable securities and other investments which are disclosed in Note 6. In assessing the fair value of these financial instruments, the Group uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at that time. For certain instruments, including cash and cash equivalents, notes and accounts receivable-trade, short-term borrowings, notes and accounts payable-trade and accounts payable-other and accrued expenses, it is assumed that the carrying amount approximated fair value for the majority of these instruments because of their short maturities. Quoted market prices are used for a part of marketable securities and other investments. For long-term debt, fair value is estimated using market quotes or estimated discounted value of future cash flows when market quotes are not available, and is classified within Level 2 or Level 3. Other techniques, such as estimated discounted value of future cash flows, and replacement cost, are used to determine fair value for the remaining financial instruments. These fair value are not necessarily indicative of the amounts that could be realized in a current market exchange. The effect of derivative instruments on the consolidated statement of income for the year ended March 31, 2013 is as follows: Cash flow hedge: Forward exchange contracts Interest rate swap agreements Currency options Millions of yen Amount of gain (loss) recognized in OCI Amount recognized ¥ 705 (1,384) 601 Amount of gain (loss) reclassified from accumulated OCI into income (loss) Location Other income ¥ Other income Amount recognized 309 124 Amount of gain (loss) recognized in income (loss) (Ineffective portion and amount excluded from effectiveness testing) Location Other income Amount recognized ¥ 491 Other income 25 Derivatives not designated as hedging instruments: Forward exchange contracts Cash flow hedge: Forward exchange contracts Interest rate swap agreements Currency options Millions of yen Amount of gain (loss) recognized in income (loss) Location Other income Amount recognized ¥ 2,401 Amount of gain (loss) recognized in OCI Amount recognized $ 7,500 (14,723) 6,394 Thousands of U.S. dollars Amount of gain (loss) reclassified from accumulated OCI into income (loss) Amount of gain (loss) recognized in income (loss) (Ineffective portion and amount excluded from effectiveness testing) Location Other income Amount recognized $ 3,287 Location Other income Amount recognized $ 5,223 Other income 1,319 Other income 266 Derivatives not designated as hedging instruments: Forward exchange contracts Thousands of U.S. dollars Amount of gain (loss) recognized in income (loss) Location Other income Amount recognized $ 25,543 78 TOSHIBA Annual Report 2013 The effect of derivative instruments on the consolidated statement of income for the year ended March 31, 2012 is as follows: Cash flow hedge: Amount of gain (loss) recognized in OCI Amount recognized Forward exchange contracts Interest rate swap agreements ¥ (178) 450 Derivatives not designated as hedging instruments: Millions of yen Amount of gain (loss) reclassified from accumulated OCI into income (loss) Amount of gain (loss) recognized in income (loss) (Ineffective portion and amount excluded from effectiveness testing) Location Other income Amount recognized ¥ 672 Location Other income Amount recognized ¥ 686 Millions of yen Amount of gain (loss) recognized in income (loss) Location Other income Other income Amount recognized ¥ 404 7 Forward exchange contracts Currency options 22. LEASES The Group leases manufacturing equipment, office and warehouse space, and certain other assets under operating leases. Rent expenses under such leases for the years ended March 31, 2013 and 2012 were ¥90,660 million ($964,468 thousand) and ¥115,110 million, respectively. The Group also leases certain machinery and equipment which are accounted for as capital leases. As of March 31, 2013 and 2012, the costs of machinery and equipment under capital leases were approximately ¥65,362 million ($695,340 thousand) and ¥64,723 million, and the related accumulated amortization were approximately ¥30,501 million ($324,479 thousand) and ¥30,482 million, respectively. The costs of machinery and equipment under capital leases from affiliates of the Company and the related accumulated amortization as of March 31, 2013 and 2012, were not significant. Minimum lease payments for the Group's capital and non-cancelable operating leases as of March 31, 2013 are as follows: Year ending March 31 2014 2015 2016 2017 2018 Thereafter Total minimum lease payments Executory costs Amounts representing interest Present value of net minimum lease payments Less-current portion Millions of yen Thousands of U.S. dollars Capital leases Operating leases ¥ ¥ 40,415 23,125 19,554 9,796 6,661 21,452 121,003 ¥ ¥ 11,036 7,954 5,492 3,820 2,514 25,458 56,274 (1,963) (19,402) 34,909 (9,611) 25,298 Capital leases 117,404 84,617 58,426 40,638 26,745 270,830 598,660 (20,883) (206,405) 371,372 (102,244) 269,128 $ $ Operating leases 429,947 246,010 208,021 104,213 70,862 228,213 1,287,266 $ $ TOSHIBA Annual Report 2013 79 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 23. COMMITMENTS AND CONTINGENT LIABILITIES Commitments for the purchase of property, plant and equipment, and unconditional purchase obligation for license fees outstanding at March 31, 2013 totaled approximately ¥26,005 million ($276,649 thousand). As of March 31, 2013, contingent liabilities, other than guarantees disclosed in Note 24, approximated ¥341 million ($3,628 thousand) mainly for recourse obligations related to notes receivable transferred. 24. GUARANTEES GUARANTEES OF UNCONSOLIDATED AFFILIATES AND THIRD PARTY DEBT The Group guarantees debt as well as certain financial obligations of unconsolidated affiliates and third parties to support the sale of the Group's products and services. Expiration dates vary from 2013 to 2023 as of March 31, 2013 or terminate on payment and/or cancellation of the obligation. A payment by the Group would be triggered by the failure of the guaranteed party to fulfill its obligation under the guarantee. The maximum potential payments under these guarantees were ¥328,971 million ($3,499,691 thousand) as of March 31, 2013. GUARANTEES OF EMPLOYEES' HOUSING LOANS The Group guarantees housing loans of its employees. Expiration dates vary from 2013 to 2032. A payment would be triggered by failure of the guaranteed party to fulfill its obligation covered by the guarantee. The maximum potential payments under these guarantees were ¥4,784 million ($50,894 thousand) as of March 31, 2013. However, the Group expects that the majority of such payments would be reimbursed through the Group's insurance policy. RESIDUAL VALUE GUARANTEES UNDER SALE AND LEASEBACK TRANSACTIONS The Group has entered into several sale and leaseback transactions in which certain manufacturing equipment was sold and leased back. The Group may be required to make payments for residual value guarantees in connection with these transactions. The operating leases will expire on various dates through September 2017. The maximum potential payments by the Group for such residual value guarantees were ¥18,668 million ($198,596 thousand) as of March 31, 2013. GUARANTEES OF DEFAULTED NOTES AND ACCOUNTS RECEIVABLE The Group has transferred trade notes and accounts receivable under several securitization programs. Upon certain sales of trade notes and accounts receivable, the Group holds a repurchase obligation, which the Group is required to perform upon default of the trade notes and accounts receivable. The trade notes and accounts receivable generally mature within 3 months. The maximum potential payment for such repurchase obligation was ¥7,172 million ($76,298 thousand) as of March 31, 2013. The carrying amounts of the liabilities for the Group's obligations under the guarantees described above as of March 31, 2013 were not significant. WARRANTY Estimated warranty costs are accrued for at the time a product is sold to a customer. Estimates for warranty costs are made based primarily on historical warranty claim experience. The following is a reconciliation table of the product warranty accrual for the years ended March 31, 2013 and 2012: Year ended March 31 Balance at beginning of year Warranties issued Settlements made Foreign currency translation adjustments Other Balance at end of year Millions of yen 2013 40,902 45,675 (53,174) 2,870 − 36,273 ¥ ¥ 2012 36,961 45,605 (48,070) (428) 4,813 38,881 ¥ ¥ Thousands of U.S. dollars 2013 435,128 485,904 (565,681) 30,532 − 385,883 $ $ Other includes the warranties assumed in the acquisition of Landis+Gyr A.G. (“L+G”). 80 TOSHIBA Annual Report 2013 25. LEGAL PROCEEDINGS 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. Following its own investigation, the Company contends that it has not found any infringement of EU competition laws, and it brought an action to the General Court of the European Union (the “GC”) seeking annulment of the Commission's decision in April 2007. In July 2011, the GC handed down a judgment and annulled the entire fine imposed on the Company, but upheld the Commission's determination about alleged anti-competitive behavior. The Company appealed to the European Court of Justice in September 2011, since there was certain inconsistency between the contents of the judgment and the facts as recognized by the Company. The Company has been asserting its position in this appeal proceeding. In June 2012, the Commission adopted a decision re-imposing fines on the Company, by recalculating the above-mentioned fines. In this decision, the Company was individually fined €56.8 million and was also fined €4.65 million jointly and severally with Mitsubishi Electric Corporation. The Company filed an appeal with the GC seeking annulment of this decision in September 2012 on the ground that the procedure and substance of the decision are unreasonable. In August 2007, General Electric Capital Leasing Corporation (currently General Electric Japan Inc. (“GE Japan”)) filed a lawsuit against six companies including the Company and its two subsidiaries for compensation of damages caused by false transactions. Although such transactions were conducted by a former employee of the Group without any relation to the business operation of the Group, GE Japan alleged the damages in accordance with the employer liability clause of Civil Code. In October 2010, GE Japan settled the case with Transcosmos Inc. and Parametric Technology Corporation Japan, both of which were defendants, and assigned the claims to them. In July 2011, Tokyo District Court ordered the Company to pay approximately ¥4,550 million ($48,404 thousand). Although the Company immediately appealed against this court ruling because the Company believes it is not responsible for the illegal transactions conducted by the former employee, the Company and its two subsidiaries decided to strike a basic agreement to settle the case with Transcosmos Inc. and Parametric Technology Corporation Japan in June 2013. In February 2011, the Ministry of Defense of Japan (“MOD”) cancelled contract for development and manufacture of “reconnaissance system for F-15” between MOD and the Company. In July 2011, the Company filed a lawsuit against MOD to Tokyo District Court seeking payment of approximately ¥9,319 million ($99,138 thousand) including payment for parts which have been already completed. In October 2012, MOD filed a counterclaim seeking payment for the penalty of the cancellation of the contract. The Company asserts that it properly executed its duties pursuant to conditions of the contract. Therefore, the Company thinks that MOD's cancellation of the contract and the claim for penalty is unreasonable and will assert its position in the Court. Since December 2006, in the United States, certain purchasers of LCD panels and related products from the Group and other defendants have filed lawsuits against the Group and other defendants, seeking compensation of damages caused by alleged infringement of U.S. antitrust law. Though the Group settled with the class action plaintiffs, litigations between direct action plaintiffs are still pending. As the Group believes that there was no illegal activity in the LCD business, the Group plans to pursue all available legal avenues to defend in the pending litigations. In December 2012, the Commission adopted a decision imposing a fine of approximately €28 million on the Company, plus a fine of €87 million jointly and severally with Panasonic Corporation and MT Picture Display Co., Ltd. for infringement of EU Competition Law in the color picture tube (used for Televisions) market. Following its own investigation, the Company contends that it has not found any infringement of EU competition laws, and it brought an action to the GC in February 2013. 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. Due to 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 have a materially adverse effect on the Group's business, results of operations or financial condition. The Group's Management currently believes that there are meritorious defenses to all of these legal procedures, including lawsuits and investigations. Based on the information currently available to both the Group and its legal counsel, Management believes that such legal procedures, if any, would not have a material adverse effect on the financial position or the results of operations of the Group. The information provided is about the status as of the submission date of the annual securities report before correction. TOSHIBA Annual Report 2013 81 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 26. ENVIRONMENTAL LIABILITIES The Japanese environmental regulation, “Law Concerning Special Measure against poly chlorinated biphenyl (“PCB”) waste” requires PCB waste holders to dispose of all PCB waste by March 2027. The Group accrued ¥8,526 million ($90,702 thousand) and ¥9,021 million at March 31, 2013 and 2012, respectively, for environmental remediation and restoration costs for products or equipment with PCB which some Group's operations in Japan have retained. The Westinghouse Group, consolidated subsidiaries of the Company, is subject to federal, state and local laws and regulations relating to the discharge of pollutants into the environment, the disposal of hazardous wastes and other related activities affecting the environment, and which have had and will continue to have an impact on the Group. It is difficult to estimate the timing and ultimate costs to be incurred in the future due to uncertainties about the status of laws, regulations and technology; the adequacy of information available for individual sites; the extended time periods over which site remediation occurs; the availability of waste disposal capacity; and the identification of new sites. The Group has, however, recognized an estimated liability of ¥12,013 million ($127,798 thousand) and ¥12,572 million as of March 31, 2013 and 2012, respectively, measured in current dollars, for those sites where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The accrual will be adjusted as assessment and remediation efforts progress or as additional technical or legal information become available. Management is of the opinion that the ultimate costs in excess of the amount accrued, if any, would not have a material adverse effect on the financial position or the results of operations of the Group. 27. ASSET RETIREMENT OBLIGATIONS The Group records asset retirement obligations in accordance with ASC No.410 “Asset Retirement and Environmental Obligations”. Asset retirement obligation was related primarily to the decommissioning of nuclear power facilities. These obligations address the decommissioning, clean up and release for acceptable alternate use of such facilities. The changes in the carrying amount of asset retirement obligations for the years ended March 31, 2013 and 2012 are as follows: Year ended March 31 Balance at beginning of year Accretion expense Liabilities settled Liabilities incurred Revisions in estimated cash flows Foreign currency translation adjustments Balance at end of year Millions of yen 2013 2012 ¥ ¥ 15,616 750 (193) 1,675 (934) 1,851 18,765 ¥ ¥ 18,683 576 (1,447) 460 (2,253) (403) 15,616 Thousands of U.S. dollars 2013 166,128 7,979 (2,053) 17,819 (9,936) 19,691 199,628 $ $ 82 TOSHIBA Annual Report 2013 28. BUSINESS COMBINATIONS Vital Images, Inc. On April 27, 2011 (U.S. Eastern Standard Time), Toshiba Medical Systems Corporation (“TMSC”), a consolidated subsidiary of the Company, and Vital Images, Inc. (“VITAL”), a leading provider of advanced visualization and analysis software, entered into a definitive agreement pursuant to which a subsidiary of TMSC (“Merger Sub”) would acquire all of the outstanding shares of VITAL for $18.75 per share. In response to the commencement of the take-over bid, approximately 86.7% of the outstanding shares of VITAL were validly tendered in the offering period. In addition, Merger Sub exercised its option to purchase additional shares directly from VITAL, resulting in the acquisition of more than 90% of the outstanding shares. On June 16, 2011 (Eastern Standard Time), Merger Sub merged with VITAL, and on the same date, remaining shares were converted into the right to receive cash. As a result, VITAL has become a wholly owned subsidiary of TMSC. This transaction will allow TMSC to significantly strengthen its Imaging Solutions business by integrating technologies of TMSC and VITAL to meet the global demand for advanced visualization and imaging informatics provided to healthcare professionals and healthcare IT providers. The Group allocated the purchase price to the assets acquired and liabilities assumed in accordance with ASC No.805 “Business Combinations” (“ASC No.805”). The following table summarizes the allocation of the purchase price to the identifiable assets acquired and liabilities assumed as of the acquisition date: As of the acquisition date Purchase price Current assets Non-current assets Intangible assets subject to amortization Current liabilities Total identifiable net assets acquired Millions of yen 22,105 10,910 2,091 4,159 2,269 14,891 ¥ ¥ ¥ Identifiable intangible assets acquired mainly consist of customer relationships. The Group is amortizing the intangible assets over a weighted-average estimated life of 8.0 years. The excess of the purchase price over the fair value of the identifiable assets acquired and liabilities assumed, amounted to ¥7,214 million, which was recorded as goodwill and allocated to Social Infrastructure. Among the factors that contributed to the recognition of goodwill were the efforts of dedicated sales force and the strong relationships developed with hospitals, university medical schools and distribution partners. Operating results of VITAL are included in the Company's consolidated statement of income from the acquisition date. These amounts are not significant. TOSHIBA Annual Report 2013 83 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 Landis+Gyr A.G. On May 19, 2011 (Japan Standard Time), the Company entered into a definitive agreement to acquire the entire shares of L+G, and consequently acquired L+G for approximately $2.3 billion in cash on July 29, 2011 (Greenwich Time). Contemporaneously, the Company entered into a shareholders' agreement and a share purchase agreement with INCJ. The agreements prescribe INCJ's participation to invest in L+G. The Company transferred all shares in L+G and a part of receivables ($1.7 billion in total) to a Special Purpose Entity (“SPE”) established in Switzerland for the purpose of managing L+G, and sold 40% of share in the SPE ($680 million in total) to INCJ on August 22, 2011 (Japan Standard Time). L+G is a leading provider of smart meters, a key component for constructing smart grids, with having over 8,000 utility customers and a strong sales network around the world. L+G provides a wide range of smart meter solutions, from advanced interactive communication technologies to various applications and services based on data collected from their meters. This transaction will allow the Company to provide the sophisticated one-stop solutions that offers optimum power management and effective applications based on cloud computing technologies by the combination of L+G's extensive customer networks, advanced services and technologies, with the Company's comprehensive expertise in energy management for utility companies such as power companies and the energy consumers in corporate buildings and household sectors. The Group will position the Smart Community business as a new focus area and is determined to maximize its presence and capabilities in the market. Upon completion of the acquisition, the Company will promote these synergies through alliances, centering on cloud computing and solutions services, and aim to expand its global operations and to grow the Smart Community business. The Group allocated the purchase price to the assets acquired and liabilities assumed in accordance with ASC No.805. The consolidated financial statements and notes for the year ended March 31, 2012 have been revised to reflect the allocation of the purchase price. The following table summarizes the allocation of the purchase price and the fair value of noncontrolling interests to the identifiable assets acquired and liabilities assumed as of the acquisition date: As of the acquisition date Purchase price Noncontrolling interests Total Current assets Intangible assets subject to amortization Non-current assets Current liabilities Non-current liabilities Total identifiable net assets acquired Identifiable intangible assets acquired are as follows: Customer Relationships (Weighted-average estimated period: 12.8 years) Core and current technologies (Weighted-average estimated period: 10.5 years) Brand name (Weighted-average estimated period: 15.7 years) Millions of yen 126,126 53,179 179,305 54,552 59,221 32,956 40,849 35,086 70,794 ¥ ¥ ¥ ¥ Millions of yen ¥ 36,960 13,419 8,842 The excess of the purchase price and the fair value of noncontrolling interests over the fair value of the identifiable assets acquired and liabilities assumed, amounted to ¥108,511 million, which was recorded as goodwill and allocated to Social Infrastructure. Operating results of L+G are included in the Company's consolidated statement of income from the acquisition date. L+G's net sales included in the Company's consolidated statement of income for the year ended March 31, 2012 were ¥80,982 million. The amount of net income is not significant. 84 TOSHIBA Annual Report 2013 Toshiba Finance Co., Ltd. On February 1, 2012, the Company's former affiliate, TFC, transferred its corporate financial services business to its subsidiary, and subsequently transferred 90% of the shares in such subsidiary to IBJ Leasing. Simultaneously, the Company increased its ownership in TFC by acquiring an additional 65% stake to 100% in cash, and consequently obtained control of TFC. The Group allocated the purchase price to the assets acquired and liabilities assumed in accordance with ASC No.805. The following table summarizes the allocation of the purchase price and the fair value of previously held equity interest to the identifiable assets acquired and liabilities assumed as of the acquisition date: As of the acquisition date Purchase price Previously held equity interest Total Current assets Non-current assets Current liabilities Non-current liabilities Total identifiable net assets acquired Millions of yen 10,906 5,872 16,778 121,226 25,803 99,292 23,289 24,448 ¥ ¥ ¥ ¥ The excess of the purchase price and the fair value of previously held equity interest over the fair value of the identifiable assets acquired and liabilities assumed after reassessment of recognition and measurement with careful investigation and analysis, amounted to ¥7,670 million, was recorded in other income as a bargain purchase in the acquisition. The book value of equity interest that the Company held before acquiring the additional stake was ¥10,086 million, and the difference between the book value the fair value remeasured after acquiring the additional stake is included in the statement of income for the year ended March 31, 2012. Operating results of TFC are included in the Company's consolidated statement of income from the acquisition date. These amounts are not significant. IBM's Retail Store Solutions business On April 17, 2012 (Japan Standard Time), TEC entered into an agreement with International Business Machines Corporation (“IBM”), a US company, to acquire IBM’s Retail Store Solutions business (“RSS business”) for $850 million in cash, and acquired the business on July 31, 2012 (U.S. Eastern Standard Time). In accordance with this agreement, the business was acquired through Toshiba Global Commerce Solutions Holdings Corporation, a holding company established in Japan (“Holding Company”), and new companies and their branches established in 42 countries and regions including U.S. under the umbrella of the Holding Company. The agreement provides that the Company will acquire the business with a new company and branch established in countries other than the above-mentioned countries and regions through various procedures such as administrative license or authorization, and others. TEC acquired an 80.1% stake and IBM Taiwan Holdings B.V. (“IBM Taiwan”) acquired a 19.9% stake in the Holding Company. According to the price adjustment clause on compensations for acquisition of the business, the purchase price was adjusted to $797 million from $850 million in the original agreement. In this regard, the amount equivalent to 80.1% of the total compensation for acquisition was paid by the submission date of the quarterly report before correction (June 25, 2013), and the final payment will be made by purchasing shares held by IBM Taiwan which are equivalent to 19.9% in January, 2016. Upon the final payment, the Holding Company will become a wholly owned subsidiary of TEC. After acquisition of the RSS business, TEC will become the foremost retail point of sale systems company that provides new value to customers, globally offering high-level products and solutions in the retail solution market which has been rapidly growing in the Americas, Europe, Japan, Asia, and worldwide. TOSHIBA Annual Report 2013 85 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 The Group allocated the purchase price to the assets acquired and liabilities assumed in accordance with ASC No.805. The following table summarizes the allocation of the purchase price and the fair value of noncontrolling interests to the identifiable assets acquired and liabilities assumed as of the acquisition date: As of the acquisition date Purchase price Noncontrolling interests Total Current assets Non-current assets Current liabilities Non-current liabilities Total identifiable net assets acquired Identifiable intangible assets acquired are as follows: Customer Relationships (Weighted-average estimated period: 17.0 years) Core and current technologies (Weighted-average estimated period: 15.7 years) Brand name (Weighted-average estimated period: – year) Millions of yen 49,903 12,398 62,301 3,953 47,164 9,511 147 41,459 ¥ ¥ ¥ ¥ Thousands of U.S. dollars $ 530,883 131,894 662,777 42,053 501,745 101,181 1,564 441,053 $ $ $ Millions of yen Thousands of U.S. dollars ¥ 27,684 $ 294,511 14,071 1,954 149,691 20,787 The excess of the purchase price and the fair value of the noncontrolling interests over the fair value of the identifiable assets acquired and liabilities assumed, amounted to ¥20,842 million ($221,724 thousand), which was recorded as goodwill and allocated to Digital Products. Operating results of IBM's Retail Store Solutions business are included in the Company's consolidated statement of income from the acquisition date. IBM's Retail Store Solutions business's net sales and net income included in the Company's consolidated statement of income for the year ended March 31, 2013 were ¥45,992 million ($489,277 thousand) and ¥541 million ($5,755 thousand), respectively. 86 TOSHIBA Annual Report 2013 NuFlare Technology, Inc. On December 26, 2012, the Company increased its ownership in NuFlare Technology Inc. (“NFT”) by acquiring an additional 8.8% stake to more than 50% totaling approximately ¥5,886 million in cash and consequently acquired a controlling financial interest of NFT. NFT manufactures and sells advanced semiconductor manufacturing equipment and has a close relationship with the Company in development of related technologies. The Company decided to acquire additional shares in consideration of the need to extend its support to NFT in technological and management operations and to retain its advanced technologies, so that NFT will continue its supply of technologically advanced equipment to the market. The Group allocated the purchase price to the assets acquired and liabilities assumed in accordance with ASC No.805. The following table summarizes the allocation of the purchase price, the fair value of previously held equity interest, and the fair value of noncontrolling interests to the identifiable assets acquired and liabilities assumed as of the acquisition date: As of the acquisition date Purchase price Previously held equity interest Noncontrolling interests Total Current assets Non-current assets Intangible assets subject to amortization Current liabilities Non-current liabilities Total identifiable net assets acquired Millions of yen 5,886 25,886 31,439 63,211 53,194 4,880 26,839 22,796 16,687 45,430 ¥ ¥ ¥ ¥ Thousands of U.S. dollars $ 62,617 275,383 334,457 672,457 565,894 51,915 285,521 242,511 177,521 483,298 $ $ $ Identifiable intangible assets acquired mainly consist of core and current technologies. The Group is amortizing the intangible assets over a weighted-average estimated life of 8.9 years. The excess of the purchase price, the fair value of previously held equity interest, and the fair value of noncontrolling interests over the fair value of the identifiable assets acquired and liabilities assumed, amounted to ¥17,781 million ($189,159 thousand), which was recorded as goodwill and allocated to Electronic Devices. The book value of equity interest that the Company held before acquiring the additional stake was ¥9,466 million ($100,702 thousand), and the difference between the book value and the fair value remeasured after acquiring the additional stake is included in the statement of income for the year ended March 31, 2013. Operating results of NFT are included in the Company's consolidated statement of income from the acquisition date. NFT's net sales and net income included in the Company's consolidated statement of income for the year ended March 31, 2013 were ¥7,089 million ($75,415 thousand) and ¥1,109 million ($11,798 thousand), respectively. The following table summarizes the unaudited pro-forma results of operations, as though the above business combinations had taken place on April 1, 2011. Year ended March 31 Net Sales Net income attributable to shareholders of the Company Billions of yen ¥ 2013 5,775.4 14.4 ¥ 2012 6,169.7 6.7 Millions of U.S. dollars 2013 $ 61,440 153 TOSHIBA Annual Report 2013 87 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 29. Variable Interest Entities The Group recognizes entities, in accordance with ASC No.810, as VIEs that have either (a) equity investors whose voting right is limited and not having an ability to control it effectively or (b) insufficient equity to permit the entity to finance its activities without additional subordinated financial support. The Group retains variable interests through equity investments, loans and guarantees. In evaluating whether the Group is the primary beneficiary of the VIE and consolidates it, the Group assesses if the Group has both (a) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Consolidated Variable Interest Entities VIEs, of which the Group is the primary beneficiary, are involved in Social Infrastructure, and most of those are entities involved in the Power and Social Infrastructure Systems. The Group has both the power to direct the activities that most significantly affect those VIEs' economic performance and the obligation to absorb losses or the right to receive benefits from the VIEs. The Group is also required to contribute capital to each VIE on an as needed basis based on percentage of ownership interest. As of March 31, 2013 and 2012, the total assets of VIEs on the consolidated balance sheet were ¥18,682 million ($198,745 thousand) and ¥9,544 million, and the total liabilities of VIEs on the consolidated balance sheet were ¥12,432 million ($132,255 thousand) and ¥5,599 million, respectively. The assets consisted primarily of property, plant and equipment. The liabilities consisted primarily of accounts payable. The assets are restricted for use only by those VIEs, and are not available for the Group's general operations. In addition, the creditors or beneficial interest holders of those VIEs do not have recourse to the general credit of the Group. Unconsolidated Variable Interest Entities VIEs, of which the Group is not the primary beneficiary but retains significant variable interests, are involved in Electronic Devices and Social Infrastructure. Unconsolidated VIEs involved in Electronic Devices are joint ventures established with SanDisk Corporation (“SanDisk”) for the purpose of strengthening the production of NAND flash memories. For those joint ventures, the Group and SanDisk share power equally. Unconsolidated VIEs involved in Social Infrastructure are established for the purpose of developing nuclear power plants, supplying stable electric power systems, and providing electric services and equipments to electric power operators. The principal VIE involved in Social Infrastructure is an entity which is seeking regulatory approval for the construction of a nuclear power plant. The Group is not the primary beneficiary of those VIEs because the Group does not have the power to direct the activities that most significantly affect those VIEs' economic performance. The Group accounts for those VIEs under the equity method. As of March 31, 2013 and 2012, the total assets of those VIEs, carrying amounts of assets and liabilities that relate to the Group's variable interests in the VIEs and the Group's maximum exposures to losses as a result of the Group's involvement with the VIEs are summarized as follows: March 31, 2013 Total assets of VIEs Carrying amounts of assets that relate to the Group's variable interests in the VIEs Carrying amounts of liabilities that relate to the Group's variable interests in the VIEs Maximum exposures to losses Millions of yen VIEs involved in Electronic Devices 290,182 ¥ 142,033 19,619 192,354 VIEs involved in Social Infrastructure 106,681 ¥ 65,655 − 65,655 88 TOSHIBA Annual Report 2013 March 31, 2012 Total assets of VIEs Carrying amounts of assets that relate to the Group's variable interests in the VIEs Carrying amounts of liabilities that relate to the Group's variable interests in the VIEs Maximum exposures to losses March 31, 2013 Total assets of VIEs Carrying amounts of assets that relate to the Group's variable interests in the VIEs Carrying amounts of liabilities that relate to the Group's variable interests in the VIEs Maximum exposures to losses Millions of yen VIEs involved in Electronic Devices 439,850 ¥ 176,242 24,902 211,922 VIEs involved in Social Infrastructure 91,591 ¥ 55,283 − 55,283 Thousands of U.S. dollars VIEs involved in Electronic Devices $ 3,087,043 1,510,989 208,713 2,046,319 VIEs involved in Social Infrastructure $ 1,134,904 698,457 − 698,457 Carrying amounts of assets that relate to the Group's variable interests in the VIEs consisted primarily of investment in and advances to affiliates. The Group's maximum exposures to losses, which include primarily equity investments, loans and guarantees, generally do not have relations to the losses anticipated to be incurred from the Group's involvement with the VIEs and are considered to exceed the anticipated losses. 30. SEGMENT INFORMATION The segments reported below are the components of the Group for which discrete financial information is available and whose results are regularly reviewed by the management of the Group to make decisions about allocation on resources and assess performance. The Group evaluates the performance of its business segments based on segment operating income (loss). The Group's segment operating income (loss) is derived by deducting the segment's cost of sales and selling, general and administrative expenses from net sales. Certain operating expenses such as restructuring charges and gains (losses) from the sales or disposal of fixed assets are not included in it. The Group has 5 business segments, (1)Digital Products, (2)Electronic Devices, (3)Social Infrastructure, (4)Home Appliances and (5)Others, identified in accordance with the similarities of the nature of the products, the production processes and markets, etc. Principal products that belong to each segment are as follows. (1) Digital Products: (2) Electronic Devices: (3) Social Infrastructure: Energy-related equipment, Medical equipment, IT solutions, Elevators, etc. (4) Home Appliances: (5) Others: Refrigerators, Washing drying machines, Light fixtures, Air-conditioners, etc. Logistics Service, etc. Personal computers, POS systems, Multi-function peripherals, Visual products, etc. Semiconductors, Hard disk drives, etc. TOSHIBA Annual Report 2013 89 Notes to Consolidated Financial Statements Toshiba Corporation and Subsidiaries March 31, 2013 BUSINESS SEGMENTS Financial information by segments as of and for the years ended March 31, 2013 and 2012 are as follows: As of and for the year ended March 31, 2013 Millions of yen Digital Products Electronic Devices Social Infrastructure Home Appliances Others Total Corporate and Eliminations Consolidated Net sales (1) Unaffiliated customers (2) Intersegment Total ¥ 1,388,988 41,668 ¥ 1,430,656 Segment operating income (loss) ¥ Identifiable assets Depreciation and amortization Capital expenditures ¥ 954,899 19,177 19,139 (55,721) ¥ ¥ 1,169,899 85,844 ¥ 1,255,743 41,413 ¥ 1,298,386 82,008 125,607 ¥ 2,498,112 69,707 ¥ 2,567,819 ¥ 115,227 ¥ 3,094,976 76,509 81,518 ¥ 569,705 21,762 ¥ 591,467 1,737 ¥ ¥ 369,276 14,246 34,534 ¥ 95,544 215,179 ¥ 310,723 ¥ ¥ 426,101 5,003 6,145 ¥ 5,722,248 434,160 ¥ 6,156,408 90,882 ¥ 6,143,638 196,943 266,943 ¥ (434,160) − ¥ 5,722,248 − ¥ (434,160) ¥ 5,722,248 92,053 ¥ ¥ (122,035) ¥ 6,021,603 196,943 266,943 1,171 − − ¥ (11,774) ¥ As of and for the year ended March 31, 2012 Millions of yen Digital Products Electronic Devices Social Infrastructure Home Appliances Others Total Corporate and Eliminations Consolidated Net sales (1) Unaffiliated customers (2) Intersegment Total ¥ 1,615,323 48,231 ¥ 1,663,554 Segment operating income (loss) ¥ Identifiable assets Depreciation and amortization Capital expenditures ¥ 816,867 13,697 21,819 (39,439) ¥ ¥ 1,241,317 89,580 ¥ 1,330,897 14,196 ¥ 1,286,067 122,363 173,531 ¥ 2,328,380 83,975 ¥ 2,412,355 ¥ 115,176 ¥ 2,852,713 77,326 93,912 ¥ 554,408 20,892 ¥ 575,300 ¥ 2,070 ¥ 327,776 14,489 15,912 ¥ 256,986 247,939 ¥ 504,925 ¥ 21,223 ¥ 428,279 14,242 33,359 ¥ 5,996,414 490,617 ¥ 6,487,031 ¥ 113,226 ¥ 5,711,702 242,117 338,533 ¥ (490,617) − ¥ 5,996,414 − ¥ (490,617) ¥ 5,996,414 ¥ ¥ 114,902 (38,638) ¥ 5,673,064 ¥ 242,117 338,533 1,676 − − As of and for the year ended March 31, 2013 Net sales (1) Unaffiliated customers (2) Intersegment Total Segment operating income (loss) $ Identifiable assets Depreciation and amortization Capital expenditures Digital Products Electronic Devices Social Infrastructure Home Appliances Others Total Thousands of U.S. dollars Corporate and Eliminations Consolidated 913,234 741,563 443,276 $ 14,776,469 $ 12,445,734 $ 26,575,660 $ 6,060,691 $ 1,016,425 $ 60,874,979 $ − $ 60,874,979 − $ 15,219,745 $ 13,358,968 $ 27,317,223 $ 6,292,202 $ 3,305,564 $ 65,493,702 $ (4,618,723) $ 60,874,979 979,287 $ 10,158,500 $ 13,812,617 $ 32,925,277 $ 3,928,468 $ 4,532,989 $ 65,357,851 $ (1,298,245) $ 64,059,606 2,095,138 2,839,819 2,095,138 2,839,819 440,564 $ 1,225,819 $ 872,425 1,336,245 813,926 867,213 151,553 367,383 204,011 203,606 53,223 65,372 (4,618,723) (592,777) $ (125,255) $ 966,830 $ 12,457 $ 18,479 $ 4,618,723 2,289,139 231,511 − − Notes: 1) Transfers between segments are made at arm's length prices. 2) Corporate assets, included in Corporate and Eliminations of Identifiable assets, are mainly marketable securities of the Company. 3) Prior-period data for the fiscal year ended March 31, 2012 has been reclassified to conform to the current classification, mainly due to changes of the structure of the Group's internal organization in the fiscal year ended March 31, 2013. 4) Some data relating to the discontinued operation has been reclassified following corrections to the consolidated financial statements. A reconciliation table between the total of the segment operating income (loss) and the income from continuing operations, before income taxes and noncontrolling interests for the years ended March 31, 2013 and 2012 are as follows: Year ended March 31 The total of the segment operating income (loss) Corporate and Eliminations Sub Total Interest and dividends Equity in earnings of affiliates Other income Interest Other expense Millions of yen ¥ ¥ 2013 90,882 1,171 92,053 12,139 21,560 100,755 (32,677) (118,904) ¥ ¥ 2012 113,226 1,676 114,902 10,195 17,035 78,997 (31,815) (127,887) $ $ Thousands of U.S. dollars 2013 966,830 12,457 979,287 129,138 229,362 1,071,862 (347,628) (1,264,936) Income from continuing operations, before income taxes and noncontrolling interests ¥ 74,926 ¥ 61,427 $ 797,085 90 TOSHIBA Annual Report 2013 GEOGRAPHIC INFORMATION Net Sales Net sales by region based on the location of the customer for the years ended March 31, 2013 and 2012 are as follows: Year ended March 31 Japan Overseas Asia North America Europe Others Total Millions of yen 2013 ¥ 2,625,098 ¥ 3,097,150 984,314 1,067,106 725,193 320,537 ¥ 5,722,248 2012 2,774,249 3,222,165 1,071,036 1,125,851 732,330 292,948 5,996,414 ¥ ¥ ¥ Property, plant and equipment Property, plant and equipment by region at March 31, 2013 and 2012 are as follows: March 31 Japan Overseas Asia North America Europe Others Total Millions of yen 2013 515,328 306,971 159,688 71,119 61,505 14,659 822,299 ¥ ¥ ¥ 2012 558,450 223,220 97,905 62,249 54,570 8,496 781,670 ¥ ¥ ¥ Notes: 1) There are no individually material countries which should be separately disclosed. 2) There are no material sales to a single unaffiliated customer. 3) Some prior-period data relating to the discontinued operation has been reclassified following corrections to the consolidated financial statements. Thousands of U.S. dollars 2013 $ 27,926,575 $ 32,948,404 10,471,426 11,352,191 7,714,819 3,409,968 $ 60,874,979 Thousands of U.S. dollars 2013 $ 5,482,213 $ 3,265,649 1,698,808 756,585 654,309 155,947 $ 8,747,862 TOSHIBA Annual Report 2013 91 Ernst & Young ShinNihon LLC Hibiya Kokusai Bldg. 2-2-3 Uchisaiwai-cho Chiyoda-ku, Tokyo, Japan 100-0011 TEL +813 3503 1100 FAX +813 3503 1197 The Board of Directors of Toshiba Corporation Independent Auditor’s Report We have audited the accompanying consolidated financial statements of Toshiba Corporation (the “Company”) and its consolidated subsidiaries, which comprise the consolidated balance sheet as at March 31, 2013, and the consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended and the related notes to the consolidated financial statements, all expressed in Japanese yen. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles, and for designing and operating such internal control as management determines is necessary to enable the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. The purpose of an audit of the consolidated financial statements is not to express an opinion on the effectiveness of the entity’s internal control, but in making these risk assessments the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Toshiba Corporation and its consolidated subsidiaries as at March 31, 2013, and their consolidated financial performance and cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. Emphasis of Matter As discussed in “Restatement of previously issued consolidated financial statements” in the consolidated financial statements, the Company has amended the consolidated financial statements. We issued the Independent Auditor’s Report before the restatement of the consolidated financial statements on June 25, 2013. Our opinion is not qualified in respect of this matter. Convenience Translation We have reviewed the translation of these consolidated financial statements into U.S. dollars, presented for the convenience of readers, and, in our opinion, the accompanying consolidated financial statements have been properly translated on the basis described in Note 3. September 7, 2015 92 TOSHIBA Annual Report 2013 The information contained in this facsimile message may be privileged and confidential and is intended only for the use of the individual entity named above. If the reader of this message is not the intended recipient, or an employee or agent responsible for delivering this message to the intended recipient, you are hereby notified that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please notify us immediately by telephone and return the original message to the above address via the postal service. Thank you. Ernst & Young TOSHIBA Annual Report 2013 93 94 TOSHIBA Annual Report 2013 TOSHIBA Annual Report 2013 95 Public Relations & Investor Relations Office Corporate Communications Division 

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