Toshiba Corp
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Toshiba Corp
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Ladies and gentlemen, it is now time to start Fiscal 2017 Third Quarter Consolidated Business Results briefing of Toshiba Corporation. Allow me to introduce the participants. Representative Executive Officer and Corporate Executive Vice President, Masayoshi Hirata; Hideya Takashima, Accounting Manager; Kohei Hayashi, Head of Investor Relations.
Without further ado, Hirata will start the presentation.
Good afternoon. I would like to start my presentation on the fiscal 2017 third quarter consolidated business results of Toshiba Corporation. Please turn to Page 4. Before getting into the results since there have been major changes in the assumptions, I would like to cover them first of all.
The first point concerns the Memory business. With the settlement with Western Digital Inc. and the progress in the approval procedures under the anti-monopoly laws in different jurisdictions, the possibility of the completion of the share transfer has increased. So we have decided to reclassify the Memory business as discontinued operation from the third quarter earnings based on the U.S. GAAP.
Accordingly, we will exclude the Memory business impact from each line of net sales operating profit and loss and pretax profit and loss, while posting the after-tax profit and loss of the Memory business in the noncontinuing profit and loss.
Having said that, in today's briefing, I will, from time to time, explain the past results based on the conventional framework, including the Memory business when necessary, so as to facilitate the ease of understanding. The second point is about the situation that raised substantial doubts about the company's ability to continue as a going concern, which has continued since the third quarter of fiscal 2016, exactly a year ago.
This time's situation's causing the significant doubts about the company's ability to continue as the going concern has been addressed due to reasons such as an increased possibility of completion of the sale of Memory business, expected dissolution of concerns about the cash flow and the negative shareholders equity due to new issuance to the third -- or through the third-party allocations and further selling of the Westinghouse-related claims and others. In addition, the Special Construction Business license has been awarded to the major group companies. These 2 points are assumptions that have been changed in the current earnings report.
Page 5. This is the cumulative third quarter results after the reclassification of the Memory business into the discontinued operations. Using the following pages, I'd like to go over the highlights.
As for sales. As a whole, declined by approximately JPY 35 billion or 1.2% compared to the same period of previous fiscal year despite the decline in sales compared to a year ago due to an influence of Landis+Gyr's consolidation, exclusion by IPO in the Energy System, sales increased in Storage & Devices Solutions. The impact of the foreign exchange to sales is estimated to be around JPY 57 billion -- positive JPY 57 billion, which means that on a constant currency basis, net sales were down by about JPY 90 billion year-on-year. However, most of this is in relation to the deconsolidation of Landis+Gyr. In terms of profit and loss in addition to operating income of JPY 49.6 billion due to the gain of JPY 38.3 billion in nonoperating income, mainly due to gains in sale of Landis+Gyr shares recorded in the second quarter, income before income taxes from continuing operations was a surplus of JPY 87.9 billion.
In terms of discontinued operations gains and loss, the amount was minus JPY 27.3 billion, reflecting the tax effect of the Memory company split as of April 1, although Memory achieved profits equivalent to an operating profit margin of 37%.
So altogether, a net loss of -- net operating loss of JPY 27.3 billion for the Memory business. As a result, net income for the fiscal year was a profit of JPY 27 billion. Free cash flow was negative JPY 442.6 billion. The operating cash flow was negative JPY 383.7 billion, mainly due to Westinghouse parent company guaranteed payment. Investing cash flow was negative JPY 62.5 billion between investment in Memory and revenue from the sale of Landis+Gyr shares.
Page 7. Shareholders' equity. The equity increased by JPY 549 billion from the end of the previous fiscal year as a result of third-party allotment increase of JPY 600 billion and increase in net income. Although we are still in negative shareholders' equity, the negative value is now standing at JPY 3.9 billion.
Page 8. The tax impact of the division of the Memory business is rather complicated. As the Memory business is discontinued, the calculation method of the tax amount is changed based on the U.S. GAAP. Since the Memory business was not discontinued, in the previous full year forecast made at the second quarter earnings announcement on November 9, we calculated estimated tax amount for fiscal 2017 including the tax amount on nonqualified division and estimated that effective tax rate based on the tax amount. And this was due to calculate the tax expense for each quarter. With the discontinuation of the Memory business, the amount of discontinued business tax is to be recognized individually each time it occurs under the U.S. GAAP. And the tax amount accompanying nonqualified split is fully recognized in the third quarter results. So there has been a change there.
The pretax income for discontinued operations, in other words, the Memory business, for the 9 months period was JPY 315.7 billion. For this profit, the tax amount corresponding to the normal tax rate of JPY 97.5 billion and nonqualified split valuation gains related to Memory business, including deferred tax assets of JPY 245.5 billion, would result in a total of JPY 343 billion. This is the amount recorded as taxes on discontinued operations for the third quarter.
At the time of the second quarter earnings, the tax amount associated with the nonqualified division was set at approximately JPY 340 billion. For the tax amount related to nonqualified split valuation gains in the Memory business, we have updated each time and this time, reflecting the tax effect as part of the deferred tax assets in the Memory business. So the tax amount related to the nonqualified split of valuation gains has changed over the last 3 months.
Now please turn to Page 9. This shows the year-over-year analysis of operating income or loss.
Let me explain based on the assumption that this is before the reclassification of the Memory business. As we -- I mentioned on Page 5, the 9-month operating income in fiscal 2016 was JPY 76.1 billion, which is shown on the left-hand side. And Memory's operating income was a little more than JPY 180 billion. So including the Memory business, the 9-month operating income was JPY 180 billion. But there was an impact of the sales price of the NAND flash memory and others, which pushed up the profit by JPY 100 billion and there was a process migration as well as higher percentage of the 3D NAND and cost improvements. This pushed up the profit by about JPY 120 billion and there was also a positive ForEx impact. These are offset by higher fixed cost, including the depreciation in R&D as well as continuing emergency measures, and operating income improved about JPY 180 billion to about JPY 360 billion. When we deduct the operating income of Memory business, which is JPY 310 billion, operating income after the reclassification is JPY 49.6 billion, as you see here.
Page 10. We're showing the nonoperating income and expenses. There was a higher financial expenses with about JPY 67 billion gained on the sale of Landis+Gyr shares through IPO. Non-operating number improved about JPY 50 billion to JPY 38.3 billion on the positive side.
Page 11 shows free cash flow. On the right-hand side, we are showing you the 9-month results, especially there was a cash flow from operating activities, which were negative due to the payment of the Westinghouse parent company guarantees. With the cash inflow from the Landis+Gyr IPO, cash flows from investing activities were about minus JPY 62 billion. So excluding this factor, we made investment of about JPY 210 billion. So this is mainly continuous investment for the Memory business. As a result, free cash flow total was minus JPY 446.2 billion.
Page 12 shows balance sheet. So there was a reclassification of the Memory business. So we include that and those are reflected on the asset side, the second from the bottom, the assets from the discontinued operation. The memory assets are included here. And as for the liabilities in a similar manner, the liabilities from the discontinued operations are shown.
Now the Memory business balance sheet at the end of December, this is on Page 33 of the appendix and this is for your reference.
Now going to Page 12. Other than the points that I mentioned, there was a part of the capital raised by the share issue, which was utilized for the early payment of the parent company guarantees. So cash and cash equivalents increased by about JPY 120 billion from the end of March 2017, total assets increased by about JPY 220 billion from the beginning of fiscal 2017. With the repayment of the borrowings, the interest-bearing debt declined, and also other liabilities also were decreased. Through the early payment of the parent company guarantees, the total liabilities came down by about JPY 280 billion from the beginning of 2017.
Page 13 and onwards shows the business results by segment. Page 14 is after the reclassification and Page 15 shows before the reclassification of the Memory business.
So in order to make the explanation easy to understand, I would explain the following based on the assumption that this is before the reclassification.
So Page 16 shows the Energy Systems & Solutions results by breakdown. Net sales, as you see at the top, was JPY 611.5 billion, especially there was a sales increase in the domestic Thermal & Hydro Power Systems. And the Landis+Gyr was deconsolidated in July, which led to the lower sales. As for the operating income number in Nuclear Power System, there was a reduction of the scale as well as there was a provision for the additional cost in Thermal & Hydro Power System and also, there was an impact of the deconsolidation of the Landis+Gyr. As a result, the operating loss worsened year-on-year. We booked operating loss in others, both in fiscal '16 and '17. This include R&D cost for the hydrogen-related business. Also in the table, you will find the Energy Systems & Solutions free cash flow, which is written as the FCF by segment mainly due to the payment of the parent company guarantee for the Westinghouse, 9-month free cash flow was minus JPY 490 billion.
Page 17 shows order backlog of Energy Systems & Solutions. Despite the major overseas projects in Thermal & Hydro Power Systems with higher construction project sales, order backlog slightly decreased. Overall, order backlog declined by about 4% year-on-year.
Next page shows the Infrastructure Systems & Solutions results breakdown. Orders in public infrastructure and buildings and facilities declined and sales decreased year-on-year. Operating income was lower due to the scaled-back emergency measures. Industrial Systems sales increased on higher order in industrial components, including the locomotive engine of the electronic -- electric components for the locomotive engine in China.
Next. Page 19, Storage & Electronic Devices Solutions results breakdown including the Memory businesses. Each business has secured profit especially for the Memory business, and thanks to very strong smartphones and SSC demand and strong selling prices, close to 37% ROS was secured. As for HDDs for enterprise, the larger hard disks enjoyed good business and grew. But with the shrinking of the PC market, year-on-year, lower sales and lower operating income during the 9 months period.
Devices & Others. Discrete was strong for industrial market and posted higher sales and operating income. But LSI -- System LSI income declined and so the profit was flat year-on-year. And then you can see the quarterly results on the next page.
Page 21. Retail & Printing Solutions and Industrial ICT Solutions, where you can see the profit being posted on a stable manner. And for the Industrial ICT Solutions shown in the lower half, with the reduced size of the emergency measures and the orders of profit -- nonprofitable businesses due to these reasons, we see a year-on-year decline.
Page 22. Other segments. Personal Computers & Visual Products. Unfortunately, we continued to post a red figure in the third quarter. As far the Visual Products, we have already received the approval from the anti-monopoly authorities in China, so by the end of this fiscal year, we expect to complete the transfer as early as by the end of this February should things proceed as scheduled. As for the PC business, for the last 9 months, JPY 6.6 billion loss was recorded. So we have to make sure that a profitable structure is well-established ASAP. And since PC business is a very important business for us, we have to accelerate various measures to solidify this business. So these are the results by segment for the third quarter.
Starting Page 23, I'd like to go over the forecast for fiscal 2017.
Page 24. The assumptions for this new forecast.
As in the past, gains on transfer of the Memory business are still underway and therefore, are not included in this forecast. As for the exchange rate for the fourth quarter, JPY 110 to the dollar is the assumption. And starting with this report, we have reclassified the Memory business. On the left-hand side, you can see the figures before the reclassification, and on the right-hand side, you can see after the reclassification. Second from the left, the yellow part, that is the forecast of business results for the fiscal 2017 before the reclassification.
Based on the pre-reclassification -- I can see the difference column next to the yellow one. This will be the difference from the forecast that we made as of November 9th and you can see the expected improvements. As for sales JPY 4,990 billion operating profit and profit before tax are expected to be JPY 440 billion and JPY 460 million, respectively. And net income, JPY 520 billion. So it is a prospect of improvement from the forecast we made last time.
Operating profit is expected to increase in Memory. And as we expect, a deterioration in the Energy Systems & Solutions. We expect an improvement of only about JPY 10 billion from the last forecast. As for the profit before tax, we anticipate an improvement of JPY 60 billion in the -- over the previous forecast. But in addition to operating income, we anticipate improvement of JPY 50 billion in nonoperating income. Nonoperating income, includes the gain on sale of the Visual Products of about JPY 25 billion, but due to the completion of the Westinghouse-related parent company guaranteed payment, we release currency fluctuations fix that we had been incorporating until the last time. So we anticipate improvements of JPY 50 billion. Previously, we were providing for the risk related to this parent company guarantee and luckily, we did not see these risks being materialized. So with this release, we were able to see the nonoperating income improve by JPY 50 billion from the previous forecast.
As for the net income, in addition to improvement in the income before income tax of JPY 60 billion, we expect the following: First, gain on sale of Westinghouse-related claim of JPY 180 billion; and two, impact of tax reduction due to the Westinghouse-related claim sales, JPY 240 billion. We have been talking about this figure for some time. And #3, as I said, earlier, there is a change in matters related to the GC notes. The substantial concern about the going concern ability and this amount will be around JPY 110 billion based on U.S. GAAP. And #4, impact of tax deduction due to the sale of the Visual Products business, totaling about JPY 40 billion. Accordingly, we expect net income to improve by JPY 630 billion over the previous forecast at JPY 520 billion.
With regards to the free cash flow, though there was an improvement of approximately JPY 250 billion due to the sale of Westinghouse-related claims, due to the additional payment of parent company guarantee, a lump-sum payment of JPY 530 billion, which is larger than we had expected in the past, the free cash flow is projected to worsen by JPY 170 billion over the previous forecast, at minus JPY 550 billion. We did have the new issuance through the third-party allotment. So there has been some income. But this is not included in the free cash flow. And therefore, it's included in the financial cash flow.
And the yellow part on the right-hand side is the forecast after excluding the discontinued Memory operations. And there is no impact on the net income. The impact of reclassification also includes amendments related to internal transactions between the Memory business and other ongoing businesses. And therefore, it will not completely match the forecasted results of the Memory business. We estimate the reclassification to be about JPY 1,090 billion for net sales. Shareholder's equity Is expected to return to positive at JPY 460 billion at the end of fiscal 2017.
As for the interest-bearing debt, with the parent company guarantee, the free cash flow worsened, but with higher cash through capital increase, the net interest-bearing debt is expected to be JPY 600 billion, JPY 340 billion lower than the previous forecast.
Please refer to the following page which shows the bar graph of what I have just explained. One thing I would like to add is the positive impact of the sales of the Visual Products is at JPY 65 billion, which is a sum of a JPY 25 billion impact on the pretax profit, which we disclosed the other day, and also there's a tax reduction of JPY 40 billion.
The following page shows the net interest-bearing debt against the previous forecast with the issuance of the new shares up JPY 600 billion and also, there was a parent company guarantee, and there was a cash-in of JPY 250 billion. And therefore, the net interest-bearing debt has declined by about JPY 600 billion. And after the sale of the Memory business, on the equity side, there will be an increase of about JPY 1 trillion and also net interest-bearing debt will also see -- expect to see some changes.
And the following page shows the fiscal 2017 forecast by segment. This shows the -- after the reclassification of the Memory business from -- therefore, the net sales and operating income numbers do not include the Memory business. Also, we are showing the forecast of the total net sales in fiscal 2017, which is expected to be JPY 3.9 billion, down JPY 140 billion year-on-year. In Energy Systems & Solutions, the major factor here is the deconsolidation of the Landis+Gyr. Therefore, the number is down by JPY 140 billion. And in others, we are currently going through the structural reform in the PC & TV business. So there has been some business withdraw from the part of the regions, which led to lower sales. The operating income is expected to worsen by JPY 82 billion year-on-year. The absolute number would be close to 0.
The eliminations include the restructuring cost of JPY 60 billion. In others, there is a red figures of the PC & TV businesses and onetime expenses in reorganizing those businesses are included at around JPY 40 billion. And also the pension assets of the overseas need to be handled and that is also included in this JPY 60 billion.
So that concludes the forecast, excluding the Memory business.
In Energy Systems & Solutions, we have a red figure. The operating loss of JPY 5 billion and also the profitability of others remain low. So currently, we're working on the structural reform and by making efforts, we'd like to improve the profitability and we continue to make efforts.
The following page shows before the reclassification of the Memory business and this is for your reference. Here, we are showing you the difference from our forecast of November the 9. Now the breakdown of our segment will be shown -- are shown, rather, in pages -- on Page 34 and onwards. Those are also for your reference.
Thank you for your attention.
[Operator Instructions] And we will take now questions. [Operator Instructions]
Moriyama from JP Morgan. I have 2 questions on semiconductor business and the other, on Page 28, by segment. The third quarter, fourth quarter and full year, the bit growth and the unit price movements as well as the market price of the Memory business as you see it. Could you comment on those, please?
First, the selling price. In the third quarter to the fourth quarter, due to usual seasonal factors, slight decline is our projection quarter-on-quarter. And in terms of shipments, which, I think, could be represented by bit growth from the third quarter to the fourth quarter, approximately middle double-digit percentage growth, we believe. And what else?
The third quarter results, please?
Results meaning changes from Q2 to Q3? I see. Selling price, single-digit -- middle single-digit percentage decline and distribution or growth, about 10% growth.
Well, how about on a full year basis? What's your projection as for the selling price?
On a full year basis, you mean FY '16 and '17, right? Maybe 10% growth in the selling price. And as for the bit growth, maybe middle 20 percentage -- or a 20% level, middle 20%.
And what's your view on the market? The market price?
Well, only 1 month is remaining, 3 months. So we don't expect much change. And what we hear from Memory company is that in the first half of next fiscal year, we are already receiving strong orders.
I see. The other question is on Page 28. The Energy Systems & Others. JPY 10 billion downward revision in terms of profit compared to the previous forecast. And after the Memory discontinuation, the new Toshiba operating profit is at 0. That's the starting point, it appears. So Energy Systems & Others, what's your forecast for the next fiscal year is the question. And also on Page 27, minus JPY 40 billion, minus JPY 67 billion in Others and Eliminations. How much of those figures are onetime nonrecurrent figures? I would like to hear so that I have a better understanding in making forecast for next fiscal year. I wonder if there are any factors that we can forget about next fiscal year?
Okay. Page 27. The absolute value. The operating profit is 0 except for Memory, now JPY 67 billion. JPY 60 billion is in relation to the restructuring cost. And others, JPY 40 billion. As I briefly mentioned, PC & TV, about JPY 20 billion loss is expected. And in addition, TV-related pension expenses should account for the difference. As for next fiscal year, basically, I think those elements would not be recurrent. And as for Energy Systems, minus JPY 5 billion. And of course, we're not proud of this. GE, Siemens, those normal players in the thermal power business. It is expected that it is going to be sluggish. That's how they view it and we will be equally affected. But more recently, both in Japan and overseas, they are large-scale plant projects. So we need to fulfill them. And we are going to see sales generated as they are executed. And we have to make sure that we would not incur further losses, and we have to make measures -- implement measures to improve on the marginal profit over a medium term. Medium term, each business of Energy Systems & Solutions will have the resources reassigned, reallocated.
Thank you very much. Any other questions? The person in the first row.
Miyamoto from Mitsubishi UFJ Morgan Stanley. Three questions. First is about NAND flash memory. The January to March ROS assumption, it seems that there is a worsening trend from Q3 to Q4. What is the background behind it? If you can talk about the factors behind that. That's my first question.
Well, you asked for kind of a breakdown of the factors. Seasonality will lead to lower volume and the impact from the lower selling prices. At the same time, the 3D NAND percentage goes up and the cost is likely to come down. Are those factors discounted for if it goes down by a certain percentage? The cost reduction would be also absorbed. The percentage of the 3D NAND is expected to increase. It is already incorporated. I shouldn't say this too much, but based on the actual numbers, we are hoping that further improvements can be made.
Is there a onetime or temporary factors?
No.
The second question is about the nuclear order. You mentioned that the 4% decline -- you mentioned Siemens, and others, in Q2, minus 1% and now it's minus 4. So if you look at the 2, 3 years, what are your views on the nuclear power trend based on the orders?
Well, actually, the orders are not very brisk or strong, that is based on our view up to Q3. And we expect the similar situation to continue in Thermal business. So accordingly, we are trying to allocate the resources due to a kind of a balance sheet-related issues. You might have lost some of the orders and also there's impact of the market trend. Well, Energy Systems & Solutions, the balance sheet issue leading to the loss of the order did not happen. But rather in the Thermal Power, the market situation is poorer than before.
The third question is the restructuring cost, JPY 60 billion. If you can talk about which business, how much toward the next year, what would be the reduction of the fixed cost and so forth. If you can comment on that.
Well, Energy System or in Infrastructure & ICT Solutions, in Japan, we announced that we will be making some restructuring efforts. The major ones, especially in Energy Systems, overseas sites, we intend to integrate. That probably is one of the major ones. Also, on the corporate side, with the spinoff of the companies, we are viewing the roles of the different departments. On the corporate side, for example, the affiliated companies, service companies, we have many companies, which could be integrated. So we are working on that. In Energy, we are currently considering this in a very accelerated manner and we are starting to implement them. But I cannot really talk about specifics. For example, the divestiture or sales. Of course, we have to consider our counterparties. So by the end of March, we intend to end or complete these efforts.
If you can talk about the impact on the next fiscal year?
Based on our calculation, as of now, about half of the JPY 60 billion will be impacting on the reduction of the fixed cost on the following year and onwards.
Next person? Yes. The person seated next to the early questioner.
Ezawa from Citigroup Global Markets Japan. My first question is on Slide 26 on the right-hand corner, you talk about what's going to happen when Memory business is sold. But cash held, it's still unknown, it says. So my first question is, what do you mean by that? When the amount is determined, it is going to be excluded from the amount of sale. Is that it?
Well, it's not the amount of sale, but we believe that there will be various adjustments made in the M&A. We don't know what that is going to be until we close this fiscal year. And since Memory business is a big business on the sides of the Bain Capital -- or with the Bain Capital, we have yet to talk about this. And this completion should start after March and that's why it says not yet determined.
So sale to JPY 1 trillion is the -- in the end, the equity value would be something that will be adjusted. Am I correct?
Yes.
So looking at balance sheet, as of the end of December, which I think you have disclosed, what you called cash here, JPY 378 billion loans. Is that included?
Yes. Around JPY 400 billion is the amount of cash held by the Memory business today. So the fluctuation of that amount needs to be determined. In the fourth quarter, there are payments on the CapEx where the orders have already been placed, and these payments will have to be made in the accelerated manner, and so that needs to be incorporated.
I see. My next question, about the Westinghouse. The sale of the shares of the Westinghouse, I don't think you have completed that part of the process yet. Now in this guidance, the shareholders' equity, cash, that portion is not included. Am I correct?
It is not.
And should the transaction be completed by end of March, how would that affect you?
In terms of cash, almost no impact. Again, before we close the deal, it'll be difficult to say exactly how much. But there's loss that has already been recorded accounting-wise. To what extent that could be recognized, in terms of taxation, I think would be critical. In terms of numbers, approximately JPY 200 billion should be the effect. But the timing of the closing, I think, would be a determinant.
So Slide 25, the expectation of the shareholders' equity, it's not included, but we can expect increment of JPY 200 billion on top of what's shown here. Am I correct?
Yes.
I see. My last question. Looking at the previous financial reports. I think it will depend on how you're looking at it. But the plan to be listed on section 1 of Tokyo Stock Exchange as a going concern, I think that's the next thing you should be looking at. So should you -- if we can expect the profit for this fiscal year -- I think the question is, when you will be able to go back to section 1 listing. What's your plan so far?
It's not really a plan on the part of TSE. They have their rules. So in accordance with those rules, we'll have to proceed.
Can you give us the details?
I think TSE documents would give you the details. The accounting issues -- within 5 years after the accounting issues, we cannot apply. That's the current interpretation of the rules today.
Hirakawa from Merrill Lynch Securities. I have 3 questions. First, is similar to what was asked already on Page 9. The operating income and loss, which might affect the next fiscal year. Now about the fixed cost, about JPY 30 billion is what you explained and we understand. But the emergency measures, this is about minus JPY 20 billion year-on-year, is that correct understanding -- year-on-year comparison.
Yes, you're right. About -- a little more than JPY 20 billion, that is an improvement in fiscal 2017 and that will be gone. So more than JPY 20 billion will be the worsening factor.
My second question, on slide -- or this is about the LNG. Page 32, I believe. There are multiple indicators, but the LNG price in Japan is increasing. And in 3 months, by taking advantage of this, I think that the 80% was the number you mentioned. And was there any progress? If not, how do you get the contract? Is it based upon the spot price? If you can talk about the medium to long-term.
More recently, as you rightly mentioned, the price is coming up, but with this price from the second of fiscal '19, we will start to ship. But whether the user will -- users will sign the contract based on the current price, we have not yet had that kind of discussion. 2.2 million tons per year is the volume. So actually, basically, we would go beyond that. That is the demand and there are customers. So on Toshiba side and also the customer side, probably, they will wait until the last moment in order to sign the medium-term contract.
What will be the timing of it? In order to sign the medium-term contract?
Well, depending on the customers, it could be 2-year contract, 5-year contract. There could be different formats of the contract. And also, the beginning of the contract from the second half of '19 is our plan. But beginning of the contract could be different. And customer side, building plants and using LNG is what they plan to do. So building plants, the completion of the construction will be different. So there could be many factors, which could fluctuate. So we have to wait and see and maybe based on all of those factors, they would conclude the contract.
My third question. There was a question on the change in the management structure and the share of the Westinghouse, when it is sold it could strengthen your capital base. So equity -- shareholders' equity probably would exceed 15% or so. And getting the external financing, that was something that was discussed for the Memory business on December 2016, before the scandal broke out, the delisting of the Memory business was one of the options. And I believe that's a very possible option. So why are you sticking with the sale of the Memory business because the equity status is quite different from 5 months ago.
Well, I talked about the shares about the Westinghouse earlier by the end of March. Unless we have a probability of closing that there will be an impact of JPY 200 billion on the shareholders' equity. Canadian company probably is hopeful, will close -- is likely to close the Westinghouse deal. So at least that deal will be closed by the time. But for this year, the sale of the Memory business will be done, and next year -- next fiscal year, the share of the Westinghouse will be sold and that will be recognized based on the tax. But there won't be a JPY 200 billion directly. So of course, there could be running profit, but in order to deduct the JPY 200 billion, based on the tax rules, it will be [ 10-month, 10-month ] each year so it is uncertain whether this will be -- can be recognized. So based upon the current situation, as shareholders' equity to promote the Memory business, it's still vulnerable or weak and anything can happen now. So if some problem happens in the Memory business, our shareholders' equity could come down to negative again. It's not just the Memory business, but that could also happen to other businesses. So we have to make sure that we have good overall operations. So in that sense, as Tsunakawa mentioned, when we announced our new Chairman announcement, we have not changed our plan to split the Memory business.
So 2 more questions before we close.
Yasui from UBS Securities. I have 3 questions. First, about the memory. With the Pangaea, 40% of Pangaea is the current holdings rate, but you do have the ordinary bond and the convertible bonds. Now at the second quarter earnings, I think you indicated that it's going to go down from the current 40%. And I think you now have different conditions. So what's your current view of where you are going to be ultimately?
At the time of closing, 40% would be our equity ratio. At the last earnings, maybe I said it's going to go down, by which, I meant the following: I think the question was do we intend to increase our shareholding and the answer was no we don't intend to increase it. If I remember correctly, that's what I said. So the minus -- or INCJ and DBJ, they have the control rights.
With them coming in, are you saying that, still, your share will not go down?
Well, that they have control or right to instruct, that fact and our equity holding does -- are not related at all.
I see. So after the IPO, eventually, it may go down. It may go down all the way to 0% but that's part of your strategy?
Yes. Basically, we believe that's the direction that we're going to proceed.
2017 guidance, nonoperating profit, I have a question on that. The cumulative turns nonoperating loss and profit, plus JPY 38.3 billion and I think minus JPY 40 billion was the forecast on the full year basis, meaning that about JPY 80 billion down. So what are the factors included for the fourth quarter that's going to bring down the full year amount that much? Sorry, I think it's minus JPY 20 billion so that means that for the fourth quarter, you're expecting a loss of around JPY 60 billion for the fourth quarter for the nonoperating loss?
If I remember correctly -- no, let me go back and check, and I'll get back to you later.
Understood.
Sorry, I can't answer that question here for a certain reason. We are looking for contingency, but the probability of that materializing is 50-50. So it may not materialize.
Okay. Again, on nonoperating gain and loss?
On a full year basis, JPY 67 billion profit and JPY 25 billion TV and then Toshiba factor and then Westinghouse claims sales, JPY 180 billion. When I add all these, I think the gain on sale is rather substantial. Well, actually Westinghouse-related, that will be included in the noncontinuing operation and the hospital is not included. So it's just TV and the Visual Products and Landis+Gyr. Yes.
My third question, about the price adjustments criteria. JPY 2 trillion, I understand, is the amount and the working capital to be used. I understand that it has to be decided at a certain timeframe. When was the valuation made? If it's based on the balance sheet as of the end of September, are you going to incorporate the upside over that? What's the criteria and what is the absolute value, if you could answer that as well?
As for the base states, I can't comment on that because of the agreement that we have Bain. So from that base states, we are then going to adjust the price, which I think is the normal course of the M&A negotiations.
Yoshida from Deutsche Securities. I have 2 questions. First, about the NAND flash memory Q4 margin. The volume, I believe, is at the middle of the double-digit, the bit growth and the unit price is declining a few percentage points. So cost improvements will be made and the profitability should improve. So those assumptions are correct or not? And also, the fiscal -- well, calendar year -- sorry, 2018 has started, so the unit price and the bit growth, the market trend in fiscal 2018, if you have any views?
Yes, Q4 prospect, I think you're correct. And I think I already explained and your interpretation is correct. As for the next fiscal year and onwards, this will be transferred to Bain Capital. So I cannot really talk about quantitative comments. But as I mentioned at the beginning, the orders are coming in at least in the first half. So that is the current status. So unit price decline, even with it, the good bit growth can be expected, is that what you mean? You mean the Q4? In the first half?
Yes.
Based on those conditions I talked about, yes, I think it's possible.
I see. It might be difficult for you to talk about this, but JPY 600 billion CapEx? And in Q4, there will be a cashout? But future investment level, if you can comment on that? And also Yokkaichi and Iwate, I believe, if you can talk about the investment plans.
The basic line remains unchanged. The JPY 6 billion will be built and that will be done based on our plan. And as for Iwate, I think, in 2 years, the operation will be starting and we are making investments for that. Nothing has changed.
So in terms of the amount of the CapEx, what will be the level of the CapEx?
For fiscal year, next year and onwards, I really cannot comment.
Thank you very much. That concludes our briefing of the earnings. Thank you very much for coming.