Omron 2013 Annual Report Download - page 49

94 Omron Corporation Integrated Report 2013 95
Financial Section
Regarding a number of items described in the status of
business and the status of accounting of this report, some
items may pose risks and infl uence the Omron Group’s
management results and fi nancial condition (including share
price), and Omron believes these items may substantially
affect investor decisions. Note that items referring to the
future refl ect the Omron Group’s forecasts and assumptions
as of June 21, 2013, the release date of its Yukashoukenhou-
kokusho (Annual Securities Report fi led under the Financial
Instruments and Exchange Act of Japan).
(1) Economic Conditions
The Omron Group conducts business worldwide, and its
operations are affected by fl uctuations in the economy and
social conditions in Japan and overseas. Therefore, recessions
occurring in the Omron Group’s markets both within Japan and
overseas may have an adverse affect on the Group’s results
and fi nancial condition. Furthermore, we assume that the ratio
of overseas business will continue to increase as the Group
actively expands globally. The Group maintains a solid structure
resistant to changes in the external environment by, for
example, coping with foreign exchange risk by expanding
overseas production and increasing local procurement to
improve the balance of foreign currency denominated income
and expenditures. We also hedge foreign exchange risk through
short-term forward contracts executed with fi nancial institu-
tions. Nonetheless, rapid fl uctuations in the exchange rates of
currencies, such as the U.S. dollar and the euro, as well as a
protracted period of yen strength, could have an adverse
impact on the Group’s operating results and fi nancial condition.
(2) Legal and Regulatory Risks
The Omron Group operates worldwide and is therefore
subject to a wide variety of laws and regulations, including
investment rules, labor laws, personal data protection laws,
laws against bribery of public offi cials, and anti-monopoly
laws. Our compliance efforts include training and education
programs for our employees and others. Nonetheless,
instances in which additional expenses are incurred to ensure
compliance in the event of the enactment of new laws,
changes to existing laws, or the adoption of stricter interpre-
tations of laws and ordinances by regulators could have an
adverse impact on the Group’s operating results and fi nancial
condition.
(3) Natural Disasters
The Omron Group has established a business continuity plan
(BCP) that formulates necessary safety measures and steps
to facilitate business continuity and early restoration of opera-
tions in the event of fi re or natural disaster, including large-
scale earthquakes in the Nankai Trough or directly under the
Tokyo metropolitan area, as well as hypothetical events, such
as the outbreak of new infl uenza viruses that raise concerns
about a global pandemic. The Group and its business partners
maintain operating bases in Japan and around the world,
making it virtually impossible to completely avoid the risks
that would arise from an unforeseen natural disaster, fi re, or
other calamity. A major event of an unforeseen scale could
impact Group operations by, for example, causing a reduction
of business, which could have an impact on the Group’s
operating results and fi nancial condition.
(4) International Relations
The Omron Group actively conducts such business activi-
ties as production and sales in overseas markets. The
Group may be subject to operating diffi culties in countries
outside Japan related to possible social unrest due to
factors including differences in culture or religion; political
turmoil and uncertainty in economic trends; differences in
business customs in areas such as the structure of relation-
ships with local businesses and the collection of receiv-
ables, regulations governing confl ict minerals, specifi c legal
systems, and investment regulations; changes in tax
systems; diffi culty guaranteeing safety, labor shortages,
and problems in the labor management relationship; and
terrorism, wars, and other political circumstances. These
risks associated with overseas operations may have a
negative impact on the Omron Group’s operating results
and fi nancial condition.
(5) Human Resources
Cross-corporation personnel exchanges and opportunities for
employees of a variety of nationalities to work together are
expanding in line with increasing globalization. Therefore,
labor troubles may arise due to differences in culture, customs,
and treatment. Also, while the localization of management
must proceed amid accelerating business globalization, it
may not be possible to secure a suffi cient number of superior
candidates for management-level positions. Furthermore, the
Omron Group employs a large number of personnel in Asia,
where a rise in employee wages could have an impact on the
Group’s operating results and fi nancial condition.
(6) Management of Funds
The Omron Group raises funds by issuing commercial paper
and other means. Therefore, fi nancial market instability, rising
interest rates in Japan, or a rating agency downgrade could
result in restrictions on fund-raising and an increase in
fi nancing costs, which could affect the Group’s operating
results and fi nancial condition. In order to maintain fl exibility
in capital expenditures and M&A at the global level, as well as
to improve capital effi ciency, the Group pays close attention
to the level of cash reserves and the deployment of funds.
Cash reserves are held as working capital or as a source of
funds for business investment and are not employed for
investment purposes.
(7) Information Security
The Omron Group possesses operationally important infor-
mation and obtains confi dential personal information and
information on its business partners in the course of business.
The Omron Group is taking steps to reinforce control over the
information the Group handles and further improve employee
information literacy with the goal of preventing misappropria-
tion of that information by third parties due to theft or loss.
Nonetheless, leaks of such information due to unforeseen
circumstances could have an impact on the Group’s operating
results and fi nancial condition.
Moreover, although the Group is strengthening technolog-
ical measures in preparation for cyber-attacks against its infor-
mation systems, as well as damage, alteration, or leaks of
important data, information system stoppages or similar
incidents caused by cyber-attacks surpassing the assumed
system security level could have an impact on the Group’s
operating results and fi nancial condition.
(8) Risks Associated with Patent Rights and Other
Intellectual Property Rights
The Omron Group’s R&D and design consists of researching
technologies developed by other companies as well as those
in the public domain. The Group’s business and product lines
encompass an extremely large number of intellectual property
rights, with new intellectual property rights declared on a daily
basis. A third party could therefore present a claim regarding a
specifi c Group product or component, negatively impacting
the Group’s operating results and fi nancial condition. The
exercise of our rights as a means to resolve issues related to
Group intellectual property could result in disputes with third
parties, in the form of measures to oppose by the counter-
party. The Omron Group takes appropriate measures to recog-
nize and compensate employees for inventions, such as
through the Employee Invention Compensation Program and
the Invention Commendation Program. Disputes regarding the
value of an invention can arise among inventors, including
inventors who have retired from the Group.
The Omron Group has always focused on brand manage-
ment and, in recent years, has initiated prompt and appro-
priate countermeasures against the use of domain names
similar to “Omron” that have appeared overseas. Nonethe-
less, it is diffi cult to comprehend fully and take action against
all aspects of improper domain name registration, so the
danger exists that the fraudulent use of the “Omron” brand or
similar domain name could damage trust in the Group.
(9) Production
The Omron Group has manufacturing bases outside Japan,
including in China as well as in other Asian countries, and
supplies products to customers worldwide through its inter-
national sales offi ces. To ensure continued manufacturing
stability, the Group has established and is executing the
measures called for under its BCP, which covers the entire
supply chain from production through logistics, including IT.
Nonetheless, disaster, disease, labor disputes, deterioration
of public order, terrorism, and international relations issues
can cause a partial or full cessation of production, which could
have an impact on the Group’s operating results and fi nancial
condition if supplies to customers are disrupted.
(10) Purchasing and Procurement
Obtaining raw materials and parts of suffi cient quality in a
timely manner and in necessary quantities is absolutely
essential to the Group’s manufacturing. Therefore, we strin-
gently select suppliers for reliability. Nonetheless, limits on
supply or other supply issues could arise in cases such as
signifi cant supply chain disruption due to an accident or a
natural disaster, the imposition of supply limits or cessation
due to management issues at the supplier, or a broad increase
in market demand. In such cases, diffi culties in changing
suppliers, securing additional suppliers, or switching to
different parts under such conditions could have an impact on
the Group’s operating results and fi nancial condition.
While the Group contracts with suppliers to determine
prices, the market prices for materials such as petrochemi-
cals, steel, silver, copper, rare earths, and other raw materials
are linked to increased demand as well as the infl ux of capital
into emerging countries. The resulting price fl uctuations can
affect manufacturing costs and could have an impact on the
Group’s operating results and fi nancial condition.
(11) Quality Assurance
The Omron Group seeks to maximize customer satisfaction
by providing the best quality products and services based on
its “quality fi rst” principle. Regarding quality, the Group
develops and manufactures products in accordance with its
ISO-certifi ed quality control system. A Groupwide quality
check system is in place for the ongoing improvement of the
quality of the Group’s entire line of products and services.
While Omron takes every precaution against the occurrence
of defects, it has become diffi cult to guarantee that defects will
not occur (including defects that arise due to the changing
environments in which the products are used) or that recalls
will not occur. Changing conditions in Japan have necessitated
greater attention to consumer protection. Product quality is
also increasingly a major issue overseas. For these reasons,
product defects that require large-scale product recalls or that
carry damage beyond the scope of the Group’s liability insur-
ance could seriously damage trust in the Company and the
Omron brand, possibly leading to declining sales that could
have a negative impact on the Group’s fi nancial condition. The
Group also strives to provide Environmental Assurance
Products that do not include banned substances designated in
the Restriction of Hazardous Substances (RoHS) Directive
adopted by the European Union in July 2006. The Group is
investigating the status of regulated chemical substances in
components and materials and strives to use components and
materials that do not contain banned substances. Since 2009,
the Group has adhered to the European Union’s Registration,
Evaluation and Authorisation Chemicals (REACH) Regulation
concerning the identifi cation of contained substances. Despite
the Group’s efforts, frequent modifi cations of the regulations
on controlled substances that complicate supervisory efforts
could result in infractions, such as failure to comply with
modifi ed regulations.
(12) Environmental Conservation
The Group must comply with a wide variety of environmental
laws and regulations, including those related to climate
change, air and water pollution, hazardous substances, waste,
product recycling, and the contamination of soil and ground-
water. These laws and regulations apply not only to the
Omron Group’s current business, but may also be retroac-
tively applied to past business activities or the past activities
of businesses transferred from other companies through
acquisition or some other means. It is possible that compli-
ance with future environmental laws and regulations or efforts
to improve the environmental soundness of operations could
result in a rise in expenses related to the environment, which
in turn could have an impact on the Group’s operating results
and fi nancial condition.
Business and Other Risks