Epson 2006 Annual Report Download - page 46

Seiko Epson Annual Report 2006
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(15) Fluctuations in foreign currency exchanges create risks for Epson
A significant portion of Epson’s sales are denominated in U.S. dollars or the Euro. Because Epson is
striving to expand its overseas procurement and move its production bases overseas, thereby
attracting an increase in expenses in foreign currencies linked to the euro or U.S. dollar, although it
offsets a significant portion of its U.S. dollar-denominated sales, its euro-denominated sales have
become bigger than its euro-denominated expenses. Also, although Epson has executed currency
forwards and currency options to hedge against the risks inherent in foreign currency exchanges,
unfavorable movements in foreign currency exchange rates such as the U.S. dollar or euro against
the yen could adversely affect Epson’s results.
(16) There are risks inherent in pension systems
As of April 2006, the Company and some of its consolidated subsidiaries in Japan have integrated
the defined-benefit pension plan (contract-type) and the defined-benefit pension plan (fund-type)
into a unified defined-benefit pension plan (fund-type.) Consequently, Epson’s defined-benefit pension
system that it had established has now become the new tax qualified corporate defined-benefit
plans (fund-type), the tax qualified pension plans and the termination allowance plan.
If, with respect to the defined-benefit pension-type of retirement pension plan, there is a change in
the operating results of the pension assets or in the ratio used as the basis for calculating retirement
allowance liabilities, Epson’s results could consequently be adversely affected.
(17) Epson’s intellectual property rights activities expose Epson to certain risks
Patent rights and other intellectual property rights are extremely important to Epson for maintaining
its competitiveness. Epson has developed much of the technologies it needs itself, and it utilizes
them as intellectual property in the form of products or technologies by acquiring patent rights,
trademark rights, and other intellectual property rights for them or entering into agreements with
other companies for them. Epson carefully selects the personnel who manage its intellectual properties
and is constantly working to strengthen its intellectual property portfolio.
If, however, any of the following situations relating to intellectual properties occurs, Epson’s results
could consequently be affected.
1. An objection might be raised to, or an application to invalidate might be filed with respect to, an
intellectual property right of Epson.
2. A third party to whom Epson originally had not granted a license might come to possess a license
as a result of a merger with or acquisition by another third party, and Epson’s competitive advantage
that it had with that license might consequently be lost.
3. Epson might have new restrictions imposed on a business that were originally not imposed on it
as a result of a merger with or acquisition by a third party, and it might be forced to spend money
to find a solution to those restrictions.
4. Intellectual property rights that Epson has might not give it a competitive advantage or Epson
might not be able to use them effectively.
5. Epson might be subject to a third-party’s claim of an infringement of intellectual property rights
and have to spend a considerable amount of time and money to resolve the issue, or such a claim
might interfere with Epson’s management or focusing of managerial resources.
6. If a third-party’s claim of infringement of intellectual property right is upheld, Epson might incur
damage in the form of having to pay considerable royalties or stop using the applicable technology.
7. A suit might be brought against Epson for payment of remuneration to researchers or the like for
their inventions or the like, which would mean Epson might be forced to spend considerable
money to resolve the issue.