The following are significant risk factors relating to the financial position, operating results and stock price of the Hitachi Cable Group (the "Group"). The forward-looking statements in this text are based on information available to the Group's management as of March 31, 2010.
Fluctuations market demand affecting the social and industrial
infrastructure, energy, telecommunications, motor vehicles,
industrial and consumer electronics, construction and various other
sectors could have a significant impact on the Group's operating
results. The Group's business performance could also be affected
by political and economic fluctuations and other changes in Japan,
China, Asia, North and Central America, Europe and other regions.
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International commodity markets have a major influence on the
price of copper, which is the main raw material used by the Hitachi
Cable Group. The Group aims to reduce the impact of copper price
movements by reflecting changes in the prices of its products.
However, the Group's business performance could be impacted by
time lags between increases in the price of copper and adjustments
to the selling prices of finished products. Dramatic falls in the price of copper can also affect the Group's business performance because
of the resulting inventory revaluation losses and other factors.
There may also be sudden rises in the prices of other raw
materials, such as petrochemical products. The Group endeavors
to refl ect such increases in its product prices, but such adjustments
may not proceed according to plan. The financial performance of
the Group could be affected in such situations.
Rare metals are available only from a few locations and from
a limited range of suppliers. Problems with supply capacity and
other factors could prevent the Group from procuring the required
quantities of these materials.
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The Group uses currency hedging transactions to mitigate the
effects of short-term exchange rate fluctuations on its financial
performance. However, it is not possible to eliminate exchange
rate risk entirely, and exchange rate fluctuations could impact
on the financial performance of the Group. Overseas sales,
expenses, assets and other items denominated in local currencies
are converted into yen for inclusion in the consolidated financial
statements. Since the yen values of these items could be affected
by exchange rates on the date on which they are converted,
exchange rate fluctuations may impact on the Group's financial
situation and business performance.
The Group's business performance and financial position could
be affected by business reorganization, withdrawal from business
areas, asset liquidation, business restructuring or other changes.
Products and services supplied by the Group are subject to
stringent quality management procedures. However, serious
product incidents or quality-related complaints could result in
compensation payments, product recall costs and other expenses,
which have the potential to impact on the Group's business
performance and financial position.
The Group is involved in businesses characterized by rapid
technological progress, where it is essential to launch products
that are attractive to customers in a timely manner. However, the
relationship between product development and commercialization is
affected by uncertainties, and there is no guarantee that significant
expenditure of money and time on product development will always
result in the successful commercialization of new products. If
development projects are unsuccessful, the Group's future growth
and earning potential will be reduced, and the Group's business
performance could be affected.
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The Group is subject to laws and public regulations in Japan
and various countries and regions where it operates with regard
to various matters, including business and investment approval,
commerce, trade, fair competition, and environmental and recycling
activities. The Group has established its internal control system
to ensure compliance with those laws and regulations. However,
when it is judged that those laws and regulations are not being
observed, or in the event of a sudden and extreme tightening
or significant legal changes, various problems may arise, such
as a loss of investment opportunities, cancellation of production
and sales, an increase in various costs or receiving penalty and
administrative punishment, which in turn could affect the Group's
operating results. J-Power Systems Corporation*1 (JPS) on January
29, 2009 underwent an on-site inspection by the Japan Fair Trade
Commission (JFTC) on suspicion of forming a cartel relating to
domestic and overseas transactions of high-voltage power cables.
EU and U.S. trade authorities launched similar inspections around
the same time.
On January 27, 2010, the JFTC issued a cease and desist order
and surcharge payment order against J-Power Systems Corp.1,
which was found to have participated in a cartel relating to the supply
of high-voltage power cables ordered by electric power companies
in Japan. These actions could result in claims for compensation,
including civil litigation, against the company.
In January 2009, competition authorities in the EU, the United
States and elsewhere commenced investigations on suspicion
that cartels had also affected overseas transactions in high-voltage
power cables. If these investigations result in the discovery of illegal
activities, fines could be imposed on Hitachi Cable, Ltd. or JPS.
In June 2009, Hitachi Cable, Ltd. and Advanced Cable Systems
Corporation (ACS)*2 underwent on-site inspections by the JFTC on
suspicion of participation in a cartel concerning transactions in fiber
optic cables for telecommunications carriers. Ultimately, no action
was taken against either company. However, both companies
were found to have engaged in illegal actions relating to historical
transactions, and it is possible that claims for compensation will be
issued against Hitachi Cable, Ltd. or ACS through civil litigation or
other means.
On December 17 and 18, 2009, Sumiden Hitachi Cable
Ltd.*3 underwent on-site inspections by the JFTC on suspicion of
participation in a cartel concerning wire and cable transactions
with construction companies and electrical appliance retailers.
Depending on the outcome of this investigation, a surcharge order
may be issued against the company.
| *1 | Established in 2001 as a 50-50 joint venture between Hitachi Cable, Ltd.
and Sumitomo Electric Industries, Ltd. |
| *2 | Established in 2002 as a 50-50 joint venture between Hitachi Cable, Ltd.
and Corning Cable Systems LLC of the United States. |
| *3 | Established in 2002 as a joint venture among Hitachi Cable, Ltd.,
Sumitomo Electric Industries, Ltd., Tatsuta Electric Wire & Cable Co., Ltd.
and Tonichi Kyosan Cable, Ltd. |
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Intellectual property rights are used by the Group in its product
and manufacturing processes, etc. The Group owns and licenses
numerous intellectual property rights and acquires licenses from
other parties when the use of third-party intellectual property rights
is deemed necessary or useful. The operations and business
performance of the Group could be affected if it is unable to protect
or maintain these rights or to acquire rights as planned. The Group's
business performance could also be affected by costs incurred if it
becomes a party to litigation concerning intellectual property rights.
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The Group uses a shared, group-wide network infrastructure.
Various hardware and software measures are taken to prevent risks
related to information security, such as installation of firewalls and
antivirus software, data and system backups, and training sessions.
However, the Group's business performance could be affected if it
incurs costs resulting from data loss or leakage or system failures
caused by unforeseen situations, such as new computer viruses or
natural disasters, or as a result of temporary system shutdowns or
recovery work.
Information belonging to customers and other parties, including
personal information and confidential business information about
technology, marketing and other business activities, is held by
the Group as required for the conduct of its business operations.
The Group endeavors to protect and control such information
appropriately, but if information leaks occur as a consequence
of system failures, human factors or other causes, the Group's
reputation, business activities, financial position and business
performance could be affected.
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The Group's production bases in Japan are mostly located in Ibaraki
Prefecture, where the probability of large earthquake occurrence is
relatively low. However, in the event of a severe earthquake beyond
expectations or a wide-area and large-scale disaster, the Group's
production and other activities may be hindered, which could in turn
affect its operating results.
Similarly, in the event of pandemic of infectious disease, such
as new strains of influenza, the Group's operating results could be
affected by the suspension of operations, economic disruption or
other adverse business circumstances.
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Based on actuarial calculations, the Group is responsible for
substantial retirement and severance payments and obligations.
Important premises that must be taken into account when
estimating pension assets in order to assess these payments
and liabilities include mortality rates, withdrawal rates, retirement
rates, salary changes, discount rates and anticipated returns on
pension assets. When estimating these key premises, the Group
considers a wide range of factors, including the state of its work
force, current market conditions and future interest rate trends.
While management believes that key premises have been estimated
reasonably on the basis of underlying factors, there is no guarantee
that actual trends will conform to the estimates. A lower discount
rate will result in an increase in retirement and severance benefit
obligations based on actuarial calculations. Increases or decreases
in retirement and severance benefit obligations affect actuarial gains
and losses across employees' service periods. Changes in key
premises could affect the Group's financial position and business
performance.
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Hitachi, Ltd. is the parent company of Hitachi Cable, Ltd. As
of March 31, 2010, it held 51.4% of total shares issued by
Hitachi Cable, Ltd. and 53.1% of voting rights (including 0.1%
held indirectly). Hitachi, Ltd. has numerous affiliated companies
involved in 11 business segments, including information and
telecommunication systems, power systems, social infrastructure
and industrial systems, construction machinery, high-functional
materials and components, automotive systems, components
and devices, digital media and consumer products and financial
services. Its wide-ranging business activities include the
manufacture and sale of products and the provision of services.
The Hitachi Cable Group handles part of the sophisticated materials
segment. As of the conclusion of the 73rd Annual General Meeting
of Shareholders (June 24, 2010), two directors of Hitachi Cable, Ltd.
were serving concurrently as directors of Hitachi, Ltd. Hitachi Cable,
Ltd. also has business relationships with Hitachi, Ltd., including the
supply of goods. While maintaining management independence,
Hitachi Cable, Ltd. participates actively in the management of the
Hitachi Group and has a basic policy of maximizing the effective use
of the management resources of the Hitachi Group, including its
R&D resources and brands. However, the business strategies of the
Hitachi Group could affect the activities of the Hitachi Cable Group,
including the development of its business operations.
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