The Furukawa Electric Group's management performance is affected by the economic conditions of the various markets in which we sell our products and provide services.
The Furukawa Electric Group's management performance, stock price and financial condition may be affected by the following risks. Forward-looking statements contained in this report were judged by the Company Group as of the end of the consolidated fiscal year under review.
Infringement of third-party intellectual property rights and other rights
The Furukawa Electric Group carried out preliminary investigations and took steps to obtain the necessary licenses, etc., so that the intellectual property and other rights of third parties would not be violated through the development, manufacture, use and sale of products and software, etc., or through other business activities. However, if a third party brings a lawsuit on the basis of an alleged violation of intellectual property or others rights, or if a third party violates the intellectual property or other rights of the Furukawa Electric Group, a negotiation or dispute concerning these rights with the third party will arise. A dispute concerning intellectual property rights may entail the suspension of manufacture and sale, etc. and very substantial compensation for losses or money paid for a settlement. If the Furukawa Electric Group is subject to the suspension of manufacture and sale, etc. or is obliged to pay very substantial compensation for losses or a settlement, there is a possibility that its results and financial position will be adversely affected. In addition, while systems are established, if the manufacturing technologies (know-how) of the Furukawa Electric Group are divulged to a third party, there is a possibility that the Furukawa Electric Group's competitiveness will be weakened.
The Furukawa Electric Group manufactures products and services in accordance with prevailing domestic and international standards and specifications as well as its own quality control standards developed over the course of its extensive business experience. However, we cannot warrantee that all our products and services are free from defects or that we will not be liable for any future losses or damages. Any defects in products such as power cables, communication cables and automotive parts may incur significant additional costs.
While our product liability insurance policy covers risks associated with our products, it may not cover all the damages we might be required to pay. Product defects causing significant damage or product liability may incur major costs and tarnish the Group's reputation, adversely affecting the results of the Group's operations and financial position.
An automaker is currently recalling its products in which automotive parts manufactured by the Company's subsidiary are used. As a result, it is likely that the Company or its consolidated subsidiary will be required to pay part of the costs incurred by this recall made by the automaker.
Row material and fuel prices
Prices for our main raw materials, such as copper, aluminum and polyethylene, along with fuels such as heavy oil and LNG, may rise beyond expectations due to changes in international politics and market trends. In the event of substantial price increases, we may not be able to sufficiently raise sales prices to compensate for higher raw material costs, or we may unable to do so in a timely manner. This may adversely affect the results of our operations or financial position.
Fluctuations in exchange rates
The Company Group is engaged in procurement and sales activities using various currencies. Although it strives to minimize the impact of changes in the foreign exchange rate, if the exchange rate fluctuates rapidly, it may affect the Company Group's financial results.
Higher interest rates
If interest rates rise, our interest expenses will increase, which may adversely affect the results of operations.
Lowering of credit ratings
Should our performance stagnate, we may incur the risk of credit rating agencies downgrading our long-term bonds and commercial paper. In that case, our financing conditions may worsen, and interest expense may increase.
Impairment of assets
In the event of unfavorable conditions in the market or business environment, the market value of our assets may substantially decline, or the profit generated by our assets may decrease, leading us to incur impairment losses on such assets.
Soil pollution on land held for business purposes
The Company completed disposing of certain wastes stored on the land it owns in the Oyama area, and finished part of its work to remove soil contamination and improve the environment, but there still remain some wastes not disposed of and some work that has not started. There is a possibility that, in other areas, costs will be incurred to take action for soil decontamination, depending on the results of investigations made at the time of reusing or selling land used for business.
The Furukawa Electric Group manufactures and sells products not only in Japan but also in overseas markets, including markets in the U.S., Europe, Asia and South America, as well as emerging markets. We face various potential risks in these overseas markets, such as unexpected changes in laws and regulations, labor disputes caused by changes in the economic environment or sudden outbreaks of epidemics. Such risks may adversely affect the result of our operations.
In particular, the company has many facilities in the Guangzhou, Shanghai, Beijing and Tianjin regions of China, which has been growing sharply over the past several years. There is a possibility that difficulty in managing the business will arise should an unexpected event occur, such as the amendment of laws and regulations concerning investment, exchange, finance, and import and export, the suspension of electric power supply, or the outbreak of an epidemic within China.
Concretely, should the Chinese GDP growth rate sharply decline due to the adoption of a governmental policy to curb excessively rapid economic growth, or should the exchange rate of the yuan be adjusted, the results of our operations in China may significantly differ from our business plan forecast. In such cases, the cash flows of our subsidiaries in China may be adversely affected because the collection period for sales receivables from Chinese customers is relatively long.
In addition to this, the escalation of diplomatic tensions in East Asia may significantly affect the Company Group's business results and financial position, not only in terms of effects on public order and security but also through an impact on production and sales activities.
Fine, compensation and legal action
The Company was found guilty of violating the antitrust law relating to cartel activities for automotive wire harnesses, and paid a penalty in the U.S. in November 2011 and in Canada in April 2013. In addition, in July 2013, the Company along with Furukawa Automotive Systems Inc., its subsidiary, was fined by the Commission of European Communities for its violation of the Competition Law. In Japan, in January 2012, the Japan Fair Trade Commission (JFTC) issued an order relating to cartel activities pertaining to automotive wire harnesses but the Company requested the JFTC to apply a lenient policy and the JFTC approved and thus, the Company did not receive either a cease and desist order or an order for payment of a surcharge. In association with the above, some class actions were filed in the U.S. and Canada, alleging compensation for damage resulting from a series of cartel activities pertaining to automotive wire harnesses that were inspected by the authorities, and the Company and its subsidiary were named as defendants in such lawsuit relating to cartel activities for automotive wire harnesses and certain other automotive parts. Moreover, the Company is having negotiations with certain automakers about providing compensation for damages regarding cartel activities for automotive wire harnesses.
In addition to the above, the Company received a cease and desist order and an order to pay a surcharge by the JFTC, since it allegedly violated the Antimonopoly Act, with regard to a overhead transmission project ordered by Tokyo Electric Power Company (TEPCO) in December 2013 and a overhead transmission project ordered by Kansai Electric Power Company (KEPCO) in January 2014. In respect of the order subject to the overhead transmission project ordered by TEPCO, in April 2014, the Company received a penalty of business suspension for 30 days for certain sales activities related to private work in the electric business practices of the Company by the Ministry of Land, Infrastructure, Transport and Tourism in accordance with the Construction Industry Act. It is likely that the Company will also be subject to such administrative sanction about the overhead transmission project ordered by KEPCO. In addition, with regard to cartel activities for electric cables and related products, VISCAS Corporation (VISCAS), the Company's affiliate accounted for under the equity method, was ordered to pay a fine in Australia in April 2013, and in April 2014, VISCAS and the Company were fined by the Commission of European Communities. Furthermore, the Brazilian authorities are also investigating VISCAS. As a result of these investigations and examinations or judgments of violation, it is likely that civil actions claiming compensation for damages will be filed in future.
Impact of natural disasters
The Company Group has many operation bases for procurement, manufacturing, logistics, sales and R&D activities both in Japan and abroad. In the event of natural disasters such as large-scale earthquakes, tsunami, fires, typhoons or floods (including those arising from climate change), or other events such as global pandemics including super-flu, wars, terrorist acts or cyber-attacks, the Company Group's business results and financial position may be significantly affected.