Brother International 2010 Annual Report Download - page 14

M anagement’s Discussion and Analysis
Outlook for Fiscal 2010
Despite some signs of recovery, in fiscal 2010 the Brother Group expects the overall operating environment to
remain uncertain, as consumers continue to curtail spending and yen appreciation continues.
Exchange rate trends are likely to have a negative effect on Brother Group sales. Nevertheless, the Group
expects net sales to increase year on year and anticipates higher sales from the online karaoke business as a result
of the BMB Corp. acquisition, as well as stronger performance from the Machinery and Solution business, owing
to a market recovery. Regardless of the negative effect of exchange rates and rising materials costs, the Group
expects operating income to rise, thanks to higher revenue from the Machinery and Solution business.
Meanwhile, in fiscal 2010 the Group does not expect foreign exchange gains to provide the same level of contri-
bution to other income, nor does it expect to receive the same benefits to income taxes from tax-effect account-
ing as it enjoyed in fiscal 2009. Therefore, the Group forecasts a decrease in net income.
Note : The above forecast assumes exchange rates of $1 = ¥91 and €1 = ¥117.
Business and Other Risk
The following items may impact Group businesses, operating performance and financial conditions. Forward-
looking statements reflect the Group’s judgment as of March 31, 2010.
(1) Market Competition
In printing and other operations, the Brother Group cultivates business in many markets where it faces stiff com-
petition. Competitors could allocate more management resources to their business than the Group does, new
competitors could enter the market and competition could intensify as a result of alliances or collaboration
among competitors. As a result, the Group may be unable to maintain its current market share, adversely affecting
Group performance.
(2) Acquisition of Human Resources
The Brother Group places a special emphasis on research and development, aiming to differentiate its products
from its competitors’ through the accumulation of technology and expertise. However, competition for human
resources is rising. In the event that ongoing recruitment and employment of skilled human resources becomes
more difficult, the Group may become unable to deploy sufficient human resources in research and develop-
ment, which could lower the competitiveness of its products, adversely affecting Group performance.
(3) Intellectual Property Rights
Revenue derived from patent licenses and other intellectual property rights, as well as payments related to the
use of patents, could cause fluctuations in Group performance. There are limits to the degree to which proprietary
technology acquired through research and development can be protected, and the potential exists for third par-
ties to violate intellectual property rights and manufacture and sell counterfeit products. Other companies may
file lawsuits against the Group with regard to intellectual property rights, which could affect Group performance.
(4) Product Quality Control
To provide high-quality, attractive products, the Group has established a production management system
with rigorous product quality control standards. However, not all products are free from defects, and there is no
guarantee that no problems will arise as a result of product safety or quality issues. In the event that significant
problems arise, substantial costs may be incurred, brand image and reputation may deteriorate, and customer
willingness to purchase Group products may fall, adversely affecting Group performance.
(5) Exchange and Interest Rates
The Brother Group conducts a high percentage of its manufacturing and sales overseas, and exchange rate
fluctuations could affect foreign currency transactions. To reduce this risk and improve the link between foreign
currency transaction receipts and payments, the Group utilizes forward exchange contracts and other instru-
ments to reduce short-term risk. However, currency appreciation in China, Southeast Asia or other regions where
the Group operates major production facilities could cause procurement and production costs to rise, and medi-
um- to long-term exchange rate fluctuations could affect its financial condition. To reduce interest rate fluctuation
risk, the Group endeavors to raise funds at fixed interest rates, and employs interest rate swaps and other financial
instruments. Nevertheless, higher market interest rates could raise fund procurement costs.
12 Brother Annual Report 2010