We assess Toshiba's liquidity to be "adequate" under our criteria. As of Sept.
30, 2012, Toshiba had JPY170.3 billion in cash and cash equivalents (totaling
cash, deposits, and short-term securities)--below JPY507.4 billion in
outstanding short-term debt. However, the company had a commercial paper (CP)
program of up to JPY400 billion and unused committed credit facilities, and
Standard & Poor's expects FFO for fiscal 2012 to around JPY400 billion. As such,
we have no major concern about Toshiba's liquidity. The ratio of its long-term
funding to total funding is around 70%, and as of September 2012 its debt
maturities were well-diversified with no concentration of debt redemptions due
to mature over the next one to two years. Moreover, the company has stable
access to capital markets through CP issuances and its strong relationships
with creditor financial institutions, including its main banks--Sumitomo
Mitsui Banking Corp. (SMBC; A+/Negative/A-1) and Mizuho Corporate Bank Ltd.
The outlook on the ratings on Toshiba is stable. Standard & Poor's expects the
company's social infrastructure segment to continue to underpin the company's
overall profits and cash flow with stable profitability. Business risk in the
electronic devices segment is high, and earnings from NAND flash memory for
smartphones and tablets have downside risks and are dependent on demand, but
are unlikely to worsen materially.
However, we may consider lowering our ratings on Toshiba if we see lower
prospects for a recovery in its earnings in the next one to two years, because
Toshiba's cash flow adequacy and debt-to-capital structure are slightly weak
for its current ratings. The ratings may come under further pressure if we see
receding prospects of recovery in major financial indicators for Toshiba, due
to significant deterioration in earnings in fiscal 2012 or continued
implementation of large-scale M&A transactions--for example, if we see
receding prospects of improvement in debt (after adjustments for pension and
lease obligations) to EBITDA to 3.0x or less over the next one to two years,
due to projections that Toshiba's bottom line and free cash flow will fall
substantially below Standard & Poor's expectations in fiscal 2012.
Conversely, we may raise the ratings if earnings continue to improve
significantly compared with Toshiba's forecasts, and the ratio of its adjusted
FFO to total debt remains over 30%, or if we see heightened prospects of
adjusted debt to EBITDA easing to 2.5x or below over the next one to two years.