THK CO., LTD.

If manufacturing and sales sites around the world are damaged by natural disasters such as earthquakes, typhoons, and fires, or by terrorism, war, or infectious diseases, this could have a significant impact on overall corporate activities, including production activities. In addition to the Russia-Ukraine issue, new geopolitical risks are emerging, such as military tensions between the United States and Venezuela and the issue of sovereignty over Greenland, raising concerns about soaring energy and raw material prices, procurement delays, and interruptions to business activities. Although early recovery systems have been established through the formulation of BCPs and the introduction of crisis management services, it is difficult to completely avoid the risk if damage exceeding expectations occurs.

Price competition is intensifying on a global scale due to the rise of products from China and other emerging countries, and there is a risk that the Company Group could lose its position in the mechanical component parts and transportation equipment component parts markets due to delays in developing attractive new products or the emergence of groundbreaking products from competitors, resulting in reduced growth and profitability. In addition, changes and tightening of security trade control regulations in various countries stemming from the US-China conflict and the Russia-Ukraine issue may affect business activities through export controls and sanctions. The Company Group is taking measures such as strengthening customer-oriented sales activities, monitoring political and economic conditions, and reviewing transaction forms and supply chains.

If the declining labor population due to the falling birthrate and aging society, together with growing global demand for personnel with specific skills, makes it difficult to recruit and develop personnel as planned, this could hinder the transfer of technology and skills and constrain the execution of business. Overseas, differences in labor-management practices and rapid wage increases, particularly in emerging countries, could affect operating results and financial condition. The Company is addressing these issues through the active promotion of new graduate and career recruitment, promotion of diversity, and labor-saving and unmanned operations utilizing AI and digital technology.

The Company Group's performance is heavily dependent on demand trends in major customer industries such as machine tools, general machinery, semiconductor manufacturing equipment, and transportation equipment, and in particular, the Transportation Equipment business has a structure susceptible to trends in the automobile industry. If sudden demand fluctuations occur in specific industries, operating results and financial condition could be affected. Note that, as of February 2, 2026, the Company entered into a basic agreement with AP87 Co., Ltd. regarding the transfer of the Transportation Equipment business and the transfer of receivables, and a review of the business portfolio is currently underway.

If the supply chain is disrupted due to international conflicts, natural disasters, lockdowns caused by infectious diseases, or insufficient production capacity, bankruptcy, or compliance violations of suppliers, shortages of raw materials and parts may occur. In addition, unexpected surges in raw material prices due to soaring crude oil prices and expanding demand in emerging countries could affect operating results and financial condition. The Company strives to ensure stable procurement by maintaining a procurement system with multiple suppliers, distributing CSR procurement guidelines, and thoroughly managing costs.

Information security risks are increasing due to cyberattacks that are becoming more sophisticated and elaborate through the use of AI, as well as the expanded use of cloud services. If unauthorized access, computer virus infections, or system outages occur, information leaks and the destruction or falsification of important data could lead to a decline in social credibility, interruption of business activities, payment of substantial fines, and suspension of transactions. The Company is continuously strengthening its management system through the establishment and operation of an Information Security Committee chaired by the President, acquisition of ISO27001 certification, and employee training.

The Company supplies products to a wide range of fields, from machine tools, industrial robots, and semiconductor manufacturing equipment to automobiles, medical devices, and aircraft. If unexpected product defects occur that lead to large-scale recalls or product liability claims, this could result in substantial costs, a decline in social credibility, and suspension of transactions, thereby affecting operating results and financial condition. Although the Company has built a global quality assurance system through the acquisition of certifications for various quality sector standards, including ISO9001, it is impossible to completely reduce the risk of product defects to zero, and global product liability insurance does not cover the full amount of damages.

The Company Group, which operates globally, has numerous foreign currency-denominated transactions such as exports and imports, and if exchange rates fluctuate significantly, operating results and financial condition could be affected. In addition, when translating the financial statements of overseas subsidiaries into yen, even if the local currency amounts remain unchanged, there is a risk that amounts on the consolidated financial statements will fluctuate due to the exchange rate used at the time of translation. Although hedging measures such as forward exchange contracts are utilized, it is difficult to completely avoid the impact of significant fluctuations.

The Company Group raises funds through borrowings from financial institutions, and the issuance of corporate bonds and commercial paper, and procurement costs increase when interest rates rise. In addition, since the discount rate based on market interest rates is used to calculate the present value of investment assets, if interest rates rise significantly, the recoverable amount may decrease due to an increase in the discount rate used to calculate value in use, which could affect the valuation of the relevant assets. The Company seeks to mitigate this impact by utilizing derivative transactions such as interest rate swap contracts.

The Company Group, which operates globally, is subject to the laws and regulations of various countries, and if legal violations occur, the Company could bear criminal, civil, or administrative liability, and operating results and financial condition could be affected due to a decline in social credibility. In addition, if harassment or human rights issues occur in the workplace, this could manifest as human capital acquisition and development risk, significantly affecting business development. The Company strives to prevent compliance risks in advance through the establishment and operation of a Compliance Committee chaired by the President, the establishment and dissemination of the THK Group Charter of Corporate Behavior, and the establishment of three internal and external whistleblowing contact points.