FUTABA CORPORATION

Since responding to rapid market changes and technological innovation is key to determining the added value of products and services, insufficient response or failure to achieve investment recovery plans in growth areas may adversely affect business performance and growth. The Company coordinates the exploration of technology trends by the R&D department with the market and customer needs identification by the sales department, promotes measures based on the medium-term management plan, and conducts screening at the capital expenditure planning stage as well as periodic verification of recovery status.

Price competition, including new entrants from other industries, may intensify in each business field, and if price competition exceeds expectations, it could affect net sales, market share, profits, and other factors. The Company strengthens cost competitiveness through thorough cost reduction, differentiates itself through proprietary technology, quality, and reliability, and reviews its business portfolio in response to market trends and competitive conditions.

Since the Company relies on procurement from outside the Group, unexpected price surges in raw materials, parts, crude oil, and other inputs, as well as sluggish yield or productivity, may cause it to fall behind other companies in cost competitiveness. In addition, if inventory obsolescence occurs, valuation losses may arise and affect business performance. The Company works to reduce losses through VA/VE in product design, competitive procurement, cost reduction via automation and optimal production siting, and appropriate inventory management.

Since business partners and regions of transaction span the globe and foreign currency-denominated transactions are numerous, exchange rate fluctuations affect the cost and pricing of products and services. In addition, if financial market fluctuations, inflation, deflation, or other factors exceed expectations, they may affect business performance and financial condition. The Company implements some forward exchange contracts, primarily in US dollars, and takes risk mitigation measures such as periodic review and sale of foreign currency-denominated assets.

In a globally competitive environment, there is always a possibility of receiving rights claims based on intellectual property rights from third parties, and if competitiveness declines due to unexpected leakage of trade secrets, this may affect business performance. The Company promotes the securing of rights through patents and other means for its proprietary technology, thoroughly manages know-how through its trade secret management regulations, and focuses on developing competitive new products.

If cyberattacks or unauthorized external intrusions result in the leakage of customer information or confidential information, or in data loss or tampering, this could lead to disruption or suspension of production activities and affect business performance and operations. The Company implements network intrusion prevention, monitoring through external security operations, and software update management, establishes a communication system for incidents including affiliated companies, and conducts periodic IT security education and training.

In the course of global business activities, the Company may become subject to lawsuits or other legal action from third parties, and increased response costs and the difficulty of predicting litigation outcomes may affect business performance. In addition, if compliance issues arise, social trust and brand value may be damaged. The Company identifies risks of significant compliance violations, establishes a legal compliance system through legal education, inspections, and awareness-raising activities, and has built a cooperative framework with external attorneys.

In the event of a natural disaster such as a major earthquake, fire, wind or flood damage, or volcanic eruption, it is difficult to avoid all risks, including supply chain disruption and bankruptcy of business partners, and given the recent trend toward larger-scale disasters associated with climate change, this may affect business operations, performance, and financial condition. The Company has established a disaster response headquarters headed by the President, conducts various disaster response drills, and formulates and prepares a BCP (Business Continuity Plan) to minimize human and physical damage and ensure business continuity.

In the event of an outbreak of a new infectious disease, it is difficult to avoid all risks, including impacts from supply chain disruption and bankruptcy of business partners, and this may affect business operations, performance, and financial condition. The Company has established a system to set up an emergency response headquarters in the event of an infectious disease outbreak and to respond promptly based on information issued by the government.