Risk factors relating to the Toshiba Group (”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 May 7, 2010 (the date of this announcement of business results) and involve uncertainties. Therefore the actual impacts of such risks on the Group’s business may differ. The Group recognizes these risks and makes every effort to minimize any impact from them by maintaining the proper risk management.
1. Risks related to management policy
(1) Strategic concentrated investment
The Group makes strategic, concentrated investments in nuclear and other power and industrial systems businesses, in NAND Flash memories, and in new, strong and promising businesses, such as vital needs support and healthcare businesses; water system solutions; smart grids; storage devices; solar photovoltaic systems; new lighting systems, such as LED, SCiBTM, and smart facilities. In such areas as LCDs and System LSIs, the Group is also executing restructuring and selective allocations of resources. While it is essential to allocate limited management resources to strategic, high growth areas in which the Group enjoys competitiveness, in order to secure and maintain the Group’s advantages, the areas in which the Company 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 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 management of comprehensive 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, 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 the structure of poorly performing businesses including acceleration of strategic allocations of resources and development of a profit-making system that enables the Group to generate profit regardless of the market situation. These programs are well under way as a result of steady implementation of planned measures, and their progress is followed up in monthly meetings of management. As a result, the Group has achieved an improvement in profit earlier than initially planned. However, if, in future, such programs do not proceed as scheduled, or fail to produce the expected results, or otherwise result in unexpected adverse effects, the Group’s operating results or financial condition may be affected.
(4) Measure for defense against 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.
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 heavily affected by economic fluctuations and consumer spending trends, and decreases in demand may cause declines in product prices. On the other hand, in times of rapid increases in demand, the Group’s profit may be reduced due to the need to purchase costly parts and components, and a shortage of these parts and components may hinder the Group’s ability to supply products to the market in a timely manner. The Group makes every effort to implement this business, monitoring the latest market trends in order to flexibly meet changes in supply and demand conditions and to thoroughly control production, procurement, sales and inventory (PSI). At the same time, the Group makes every effort to avoid risks and reduce costs in connection with the procurement of parts and components by promoting package procurement and comprehensive procurement on a Group-wide basis. The Group also makes every effort to minimize any impact from changes in the market by undertaking regional strategies for the promotion of business expansion and similar purposes in developing nations, including China, where its growth rate remains comparatively high in a fast changing market, and by appropriately revising the composition of products, such as introducing commoditized products that deliver the required functionality and strong cost competitiveness. However, any rapid fluctuation in demand may result in price erosion or increases in prices of components, which may adversely affect the Group’s financial results with respect to this business.
The Mobile Phone business operates in a very severe business environment and faces many market circumstances, such as the proliferation of low-priced models. Toshiba Group is aiming to improve profitability by enhancing its focus on smartphones and by making maximum use of the advanced technologies in which Toshiba excels, such as making thinner platforms and supporting wireless connectivity.
(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. Although the Group has secured substantial cost reductions, including reductions in fixed costs, through the strong implementation of restructuring programs, unforeseen market changes and corresponding changes in demand may result in a mismatch between the 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 prices due to oversupply. In particular, the price for NAND Flash memories, the Group’s major product in this business, may undergo rapid change, and System LSIs and other semiconductor products also face uncertain future market trends, in spite of gradual recovery in the consumer market for digital products that use semiconductors. The movement of the consumer market may influence demand for semiconductors. 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, 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 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 invest at the optimum level, 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.
In addition, Toshiba Mobile Display Co., Ltd., which engages in the LCD business, remains in a situation in which its liabilities exceed its assets, and operates in a tight business environment in which it must deal with shifting exchange rates and price declines. The Group aims to regain profitability by implementing business structure reformation programs, with a primary emphasis on LCD displays for mobile equipment that requires leading-edge technologies.
(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, and also makes best efforts to cultivate new business and customers, in order to avoid undue impact from any fluctuations. 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, policy changes, changes to and stoppages of plans for various reasons, as well and 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 expected costs and profits and record previously accrued profits as a loss, in the event that the expected profits from such projects do not meet original expectations or projects are delayed or cancelled. 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 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.
(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 consumer spending, the emergence of new technologies and price declines in existing products for industrial light sources, and trends in building and housing construction starts relative to the lighting and air-conditioning businesses. Accordingly, the impact of the recession and price declines may lead to a deterioration in the results of this business Given this, the Group is making every effort to expand this business by developing it at the global level, including in developing nations that have a high growth rate, as well as developing new products that are environmentally friendly and that contribute to energy saving, such as new lighting systems.
(5) Financial covenants
Loan agreements entered into between the Company and financial institutions provide for financial covenants. Therefore, if the Company’s consolidated net assets or credit rating falls below the respective levels provided for in the financial covenants, the Company’s obligations with respect to relevant loan repayments may be accelerated upon request from the relevant lending financial institutions. Furthermore, any breach by the Company of such financial covenants may trigger acceleration of the bonds or other borrowings of the Company.
The Company aims to improve business performance by further promoting restructuring programs and implementing various programs to enhance the Company’s global position in major business areas and to achieve the transformation of its business structures, and intends to continue to take all measures necessary to avoid breaches of its financial covenants and any consequent acceleration by improving its earnings through implementation of the ”Action Programs to Improve Profitability.” The Company is making efforts to obtain understanding of this by the financial institutions with which it has agreements. However, any acceleration of the Company’s loan repayments may materially affect the Company’s business operations.
(6) Financial risk
Apart from being affected by the business operations of the Company or the Group, the Company’s consolidated and non-consolidated 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, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Recording of valuation allowances includes estimates and therefore involves 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.
(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. 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 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 obligations) of its pension plan in the consolidated statements of income with a corresponding adjustment, net of tax, included in ”accumulated other comprehensive income (loss)” reported as a component of shareholders’ equity. Such adjustment to ”accumulated other comprehensive income (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 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 and goodwill
If events or changes in circumstances indicate that the carrying amount of any long-lived asset will not be recovered by the future undiscounted cash flow, the loss is recognized as an impairment, and the impairment loss is recognized as the amount by which the carrying value of the asset exceeds its fair value. A substantial amount of goodwill has been recorded in the Company’s consolidated balance sheet in accordance with US 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 balance of 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.
(7) 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 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. 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 necessary amount in a timely manner, the Group’s financing may be adversely affected.
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 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. Any failure by the Group to procure such materials, components and other goods from key suppliers 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 promoting multi-vendor procurement by means of adopting standard products, developing and cultivating new suppliers, 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 workers, 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 vital needs support and healthcare businesses, water system solutions, smart grids, storage devices, solar photovoltaic systems, new lighting systems, such as LEDs and SCiBTM.
The Group is also seeking to expand its smart facilities business, which provides total building solutions for office and commercial facilities. The business delivers environmentally and user friendly systems that reduce power consumption by exploiting a synergy of technologies for new businesses in combination with existing technologies.
The Group is actively engaged in research and development to cultivate new business domains and fields based on next-generation technologies, such as silicon carbide (SiC) semiconductors and new memory devices, both of which are expected to become next generation growth areas.
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 business development process.
5. Risks related to trade practices
(1) Parent company’s guaranty
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 guaranties with respect to the subsidiary’s performance under the contract. Such guaranties 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 observing the subsidiaries’ fulfillment of the contract requirements and by providing cooperation where necessary.
6. Risks related to new products and new technology
(1) Development of new products
It is critically important for the Group to offer the market viable and innovative new products and services. The Group identifies strategic product areas, which include product areas that are expected to drive future profits, and the Group makes its best efforts to assure the timely introduction of new products in such areas. However, due to the rapid pace of technological innovation, the development of new technologies, the launch of products to replace current ones, 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 obtain sufficient funding and resources for continuous product development 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, it is possible that their functionality could 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 a possibility that the Group will unknowingly and unintentionally violate laws and regulations in future. Changes in laws and regulations or changes in 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 past, present or future business 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.
(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.
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 (the ”Commission”) adopted a decision imposing fines on 19 companies, including the Company, for violating EU competition laws in the gas insulated switchgear market. The Company was individually fined EUR86.25 million and was also fined EUR4.65 million jointly and severally with Mitsubishi Electric Corporation. The Company contends that it did not violate EU competition laws and appealed the decision to the European Court of First Instance in April 2007.
Furthermore, with regard to alleged anti-competitive behavior, the Group is under investigation by the US Department of Justice, the Commission, and other 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. Class action lawsuits with respect to alleged anti-competitive behavior have been brought against the Group in the United States and are currently pending.
9. Risks related to directors, employees, major shareholders and affiliates
(1) Alliance in NAND flash memories
The Group has a strategic alliance with a US company, SanDisk Corporation (”SanDisk”), for the production of NAND flash memories, 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 at book value. 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 venture, 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 company) is currently 67%. The remainder is held by three companies in Japan and overseas (the ”minority shareholders”).
While the shareholders’ agreements restrict the minority shareholders from transferring their respective ownership interests in Westinghouse’s holding company until October 1, 2012, the minority shareholders have been given an option to sell all or part of their ownership interests to the Company (”Put Options”). However, since exercising the Put Options held by some of the minority shareholders requires consent from a third party, such minority shareholders are not able to exercise their Put Options at their own discretion.
The Group also has an option to purchase from the minority shareholders all or part of their respective ownership interest in Westinghouse’s holding company under certain conditions. These options are in place for the purpose of protecting the interests of the minority shareholders and 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’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 substantial 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. As a result of the outcome of these rulings, 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) 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, in any of these areas could have a significant adverse effect on the Group’s results.
Additionally, while the Group takes precautionary measures, such as the construction of earthquake-resistant buildings at production facilities, large-scale disasters, such as earthquakes or typhoons, in regions where production sites are located may damage or destroy production capabilities and cause operational and transportation interruptions or other similar disruptions, which could affect production capabilities significantly.
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.
This Web site contains projections of business results, statements regarding business plans and other forward-looking statements. This information is based on certain assumptions, such as the economic environment, business policies and other factors, as of the date when each document was posted. Actual results may differ significantly from the estimates listed here.
