Nissan 2006 Annual Report Download - page 59

Due to changes in government regulations, information on risks
involved in business operations has been disclosed in the
Yukashoken-Houkokusho for the year ended March 31, 2006
as follows:
Economic Factors
The demand for products manufactured by Nissan is affected by the
economic conditions in each country or market in which they are offered
for sale. Nissan conducts its operations all over the world and, in particular,
in the major markets of North America, Europe, and Asia, to say nothing of
Japan. While Nissan strives to develop a comprehensive and integrated
projection of the global economic outlook, any greater-than-anticipated
downturn in one of these markets may have a significant effect on Nissan
financial position and results of operations.
International Activities and Overseas Expansion
Nissan’s manufacturing and marketing activities outside Japan are
conducted in the United States, in Europe, and in the developing and
emerging markets of Asia. Nissan forecasts and evaluates a wide variety of
risks inherent in doing business in such overseas markets including the
following factors, each of which entails a greater-than-anticipated level of
risk:
• Unfavorable political or economic factors
• Legal or regulatory changes
• Potentially adverse tax consequences
• Labor disputes including strikes
• Difficulties in recruiting and retaining personnel
• Social, political or economic turmoil due to terrorism, war, or other
destabilizing factors.
Research and Development
Nissan’s technology must be “real world”—useful, pragmatic and easy to
use. Nissan anticipates the nature and scope of the market demand, and
then prioritizes and invests in new technologies. Nonetheless, any sudden
and greater-than-anticipated changes in its business environment or in
customer preferences may impact negatively on customer satisfaction with
these new technologies.
Product Defects
Nissan places a high priority on safety and does its best to enhance safety
from the standpoint of research and development, manufacturing and
sales. Although Nissan takes out insurance policies to cover product
liability, this does not necessarily mean that all potential defects and the
related liabilities are fully covered. If Nissan were to implement strict
product recalls for its customers, Nissan would incur significant additional
expenses which could adversely affect its financial position and results of
operations.
Fluctuation in Foreign Currency Exchange Rates
Nissan’s Japanese operations export vehicles to various countries around
the world. In general, the appreciation of the yen against other currencies
adversely affects Nissan’s financial results of operations and, on the
contrary, the depreciation of the yen against other currencies favorably
affects Nissan’s financial results of operations. Any sharp appreciation of
the currencies of those countries against the yen could lead to increases in
both procurement and production costs which would adversely affect
Nissan’s competitiveness.
Derivatives
Nissan utilizes derivatives transactions for the purpose of hedging its
exposure to fluctuation in foreign exchange rates, interest rates and
commodity prices. While Nissan can hedge against these risks by using
derivatives transactions, Nissan, by so doing, may miss the potential gains
which could result from seizing the market opportunities to profit from such
fluctuation in exchange rates and interest rates.
In addition, Nissan manages its exposure to credit risk by limiting its
counterparties to financial institutions with high credit ratings. However, a
default by any one of these counterparties could have an adverse effect on
Nissan’s financial position and operating results.
Lawsuits and Claims
With respect to various lawsuits and claims which Nissan encounters, the
possibility exists that the position defended by Nissan will not be accepted
and that the outcome may be significantly different from that anticipated.
As a result, any such verdict or settlement could adversely affect Nissan’s
financial position and operating results.
Government Regulations
The automobile industry worldwide is influenced by a broad spectrum of
regulations governing the emission levels of exhaust fumes, fuel economy
guidelines, noise level limitations and safety standards, and Nissan expects
these regulations to become increasingly stringent. In order to ensure
compliance, it may be necessary for Nissan to make significant ongoing
investments in these areas which would have an impact on its financial
position and results of operations.
Intellectual Property Rights
Nissan owns a wide variety of proprietary technologies and has the
expertise to differentiate Nissan’s products making them unique from
those of its competitors. These assets have proven their value in the
growth of Nissan’s business and will, no doubt, continue to be of value in
the future. Nissan strives to protect its intellectual property assets;
however, in certain markets, Nissan may encounter difficulty in fully
protecting the proprietary rights to its own technologies. Cases may arise
where Nissan finds itself unable to prohibit others from infringing on its
intellectual property rights.
The Company has established Intellectual Property Rights Management
Department for the purpose of protecting intellectual property rights in
specific areas, strengthening activities to protect Nissan’s intellectual
property rights, and abstracting new intellectual property rights. And the
department has been performing various activities to protect and create
Nissan Brand.
Natural Disasters
Nissan’s corporate headquarters and many of its manufacturing facilities
are located in Japan, where the statistically proven probability of
earthquakes is higher than in many other countries. Nissan has developed
risk management guidelines relating to earthquake damage and the CEO
has organized a global task force to direct disaster prevention and recovery
activities. In addition, the Gruop has begun to strengthen its manufacturing
facilities with anti-seismic reinforcement. However, if a severe earthquake
were to hit one of Nissan’s key facilities causing a halt in production, this
would adversely affect Nissan’s financial position and results of operations.
Sales Financing Business Risk
Sales financing is an integral part of Nissan’s core business, providing
strong support to its automotive sales, while maintaining high profitability
and a sound and stable financial condition through strict risk management
policies. However, the sales financing companies have a high exposure to
interest-rate risk, residual value risk, and credit risk, any one of which may
adversely affect Nissan’s financial position and results of operations.
Counterparty Credit Risk
Nissan does business with a variety of counterparties and manages its
counterparty credit risk by conducting a comprehensive annual assessment of
its customers’ financial condition based on their financial information.
Nonetheless, any significant default by a counterparty would adversely
affect Nissan’s financial position and results of operations.
Employee Retirement Benefit Expenses and Obligations
The amount of retirement Nissan’s benefit obligation and related expenses
are calculated using various actuarial assumptions including the discount
rate applied, the projected rate of return on plan assets, and so forth. If
Nissan’s actual results differ from those assumptions or if the assumptions
are changed, the resulting effects will be accumulated and recognized
systematically over future periods. The cumulative effect could adversely
impact the recognition of expenses and liabilities recorded in future
periods.
Purchase of raw materials and parts
Nissan purchases raw materials and parts from many suppliers. Market
conditions that Nissan can’t control and whether or not the suppliers can
procure raw materials and parts continuously may adversely affect Nissan’s
financial position and results of operations.
BUSINESS AND OTHER RISKS
Nissan Annual Report 2005 57
FINANCIAL SECTION