As described in the Company’s statutory annual financial report filed as stipulated by the Financial Instruments and Exchange Act, the following risks may impact its business and accounting conditions, and therefore could have a significant effect on investor decision making.
These risks include forward-looking statements that are based on judgments made by the Group at the end of fiscal year 2010. Further, the risks include items that will not necessarily affect investment decisions. However, based on an awareness of these risks, the Company maintains the necessary risk management structure and works to avoid risk occurrence as well as to minimize the impact of a risk should it occur.
1. Risks relating to the business environment
- Economic conditions
The Group’s main markets where it conducts its business activities are countries and regions including Japan, Asia, Europe, North America, and the Middle East. Economic trends in these markets could adversely affect the Group’s business results and financial condition.
- International factors
The Group’s sales and production operations are truly international in scope, as is indicated by the fact that sales generated in all markets other than Japan currently account for approximately 60% of consolidated sales. Therefore, factors in these markets such as economic trends; exchange rate fluctuations; changes to laws and regulations relating to investment, trade, competition, taxation, or foreign exchange; differences in commercial practices or labor standards that may have cultural or religious origins; terrorist attacks, wars, natural disasters, or other unanticipated incidents; or political, social, or other elements could adversely affect the Group’s business results and financial condition.
- Laws and regulations
The Group observes the laws and regulations of each country in which it operates. Changes in laws and regulations or the enactment of new laws that cannot be anticipated could adversely affect the Group’s business results and financial condition. In addition, any increase in costs required to achieve compliance with environmental protection-related legislation could adversely affect the Group’s business results and financial condition. Moreover, such legislation could impact the Group’s overall business activities, including its R&D and production activities.
- Fluctuations in currency exchange rates and interest rates
The Company carries out measures for ameliorating the risk of exchange rate fluctuations. However, due to their impact on the prices and costs of products and services with transactions denominated in foreign currencies, fluctuations in currency exchange rates may adversely affect the Group’s business results and financial condition. The Group also carries out measures for ameliorating the risk of interest rate fluctuations. However, fluctuations in interest rates could still adversely affect the Group’s business results and financial condition.
- Changes in the value of assets owned
Changes in the value of shares, etc., owned by the Group could adversely affect the Group’s business results and financial condition. In addition, regarding the fixed assets owned by the Group, a decrease in asset value accompanying a decline in their market value or a fall in profitability could adversely affect the Group’s business results and financial condition.
2. Risks relating to business activities
- Impact of the Great East Japan Earthquake
Uncertainties regarding the procurement of electronic parts and the supply of electricity as a result of the destruction from the March 2011 earthquake and tsunami have the potential of negatively impacting the Group’s business activities. Furthermore, this disaster may lead to a prolonged slowdown of the Japanese economy that could adversely affect the Group’s business results and financial condition.
- Industrial automation and control business
The industrial automation and control business is mainly expected to grow outside Japan in the medium to long term due to increased demand for energy and raw materials, particularly in newly industrialized nations. To increase its share of the global market and bolster sales and income, the Company has focused its resources on this business and strengthened systems related to R&D, production, sales, engineering, and service. As a result, the percentage of net sales on a consolidated basis accounted for by the industrial automation and control business has grown in recent years. Consequently, trends related to the demand for plant construction and upgrades, which affect orders and sales in this business, could adversely affect the Group’s business results and financial condition.
- Test and measurement business
In fiscal years 2009 and 2010, the Group’s management decided to downsize or withdraw from various unprofitable operations within the test and measurement business. This may have an impact on the Group’s business results and financial condition if the implementation of these decisions does not proceed as planned.
- Securing and training human resources
The Group’s growth is supported by its talented and capable human resources. In particular, the technicians who support its leading-edge technology in the fields of measurement, control, and information, as well as the technicians who support its high levels of product quality, are extremely important to the Group. Further, in the industrial automation and control business, the need to secure and train human resources with the project management and engineering capabilities required to work in the international market is an ongoing issue. If the Group is unable to address this issue satisfactorily, this could adversely affect the Group’s business results and financial condition.
- Product quality
The Group provides its customers with highly reliable products and services through the technologies and expertise that it has accumulated over many years as well as through its rigorous quality control system. If by any chance a defect should occur in a Group product or service, and if this defect causes any damage, then this could adversely affect the Group’s business results and financial condition, and could also impact the Group’s overall business activities.
- R&D activities
The Group has positioned the development of new technologies as one of its most important management issues, and is continuously carrying out R&D in its core technology areas of measurement, control, and information. However, if R&D investments do not match planned future market needs, this could adversely affect the Group’s business results and financial condition.
3. Other risks
- Intellectual property
In order to maintain its competitive advantages, the Group accumulates differentiated technologies and expertise relating to the products and services that it develops, and strives to protect these intellectual property assets. However, if the Group is unable to sufficiently protect its intellectual property, and if this is consequently infringed upon by a third party, it could adversely affect the Group’s business results and financial condition. Moreover, the Group has established systems and conducts training to ensure that it does not infringe upon the intellectual property rights of other companies. However, if due to a difference in viewpoint or some other reason the Group infringes on the intellectual property rights of another company, there is a risk that it will be subsequently disadvantaged by its inability to use important technology and/or may be held liable for compensation, which could adversely affect the Group’s business results and financial condition.
- Information security
Through its business activities, the Group acquires personal or otherwise confidential information on its customers and trading partners. The Group therefore establishes systems to manage this information and conducts employee training regarding information security. However, in the event that information is leaked due to some unforeseen circumstance, there is a risk the Group will be held liable for compensation, which could adversely affect the Group’s business results and financial condition.
- Disasters, new influenza, etc.
A natural disaster such as an earthquake, fire, or flood; the outbreak of war; a terrorist attack; an attack via a computer virus; or a disruption in the supply chain caused by any of the aforementioned factors that makes it difficult to procure electronic parts or other materials could impact the Company’s overall business activities, including the Group’s production activities. In addition, while the Group has appropriate measures in place for responding to the outbreak of diseases such as new influenza strains, these diseases could have an impact on the Group’s overall business results and financial condition.