Canon Electronics Inc.

Sales to Canon Inc. account for 43.4% of net sales, meaning changes in Canon Inc.'s sales strategy or production system policies directly impact the Company's business performance. In addition, the Company is scheduled to become a wholly-owned subsidiary of Canon Inc. through a tender offer, which is expected to result in delisting. Changes in the competitive relationship within the group may also affect the Company's financial position and business results.

Economic downturns or diplomatic issues in major markets such as Japan, the United States, Europe, and Asia may affect business performance through significant fluctuations in product demand or a decline in private-sector capital investment. There is also a risk that elevated raw material prices and supply chain disruptions stemming from Russia's invasion of Ukraine may continue. As countermeasures, the Company shares information with local subsidiaries and adjusts production accordingly.

Sharp fluctuations in foreign exchange rates may adversely affect foreign-currency-denominated sales, the yen value of assets and liabilities, and the foreign currency translation adjustment account of overseas subsidiaries. The Company regularly conducts hedging transactions through short-term forward foreign exchange contracts and takes measures to reflect recent exchange rate levels in product pricing, but it is difficult to completely eliminate this risk.

The Company plans capital investment of ¥3.0 billion in FY2026 (ending December 2026), and the resulting increase in depreciation expenses will affect its financial position and business results. If asset values decline or business profitability deteriorates, there is a risk that impairment losses may occur. The Company seeks to minimize the impact through the utilization of existing facilities and flexible personnel allocation within the group.

Research and development expenses for the current consolidated fiscal year were ¥3,241 million (3.1% of net sales), and the Company plans to continue making active investments going forward. If newly developed technologies or products fail to gain market acceptance, or if changes in the business environment result in additional research and development expense burdens, it may become difficult to recoup upfront investments. The Company addresses this through ongoing information gathering and analysis in advance.

The Company is required to comply with various laws and regulations related to the environment, health, safety, and other matters, and unexpected violations of such laws and regulations may affect business performance. In particular, the Company is strengthening its response to international environmental regulations and tax system changes, and each responsible department thoroughly ensures compliance with fair competition, anti-corruption, personal information protection, security export control, and other requirements.

If the Company unknowingly infringes on third-party intellectual property rights (such as patent rights), or if the Company's own intellectual property rights are infringed upon by third parties, this may adversely affect business performance. The Company has established a dedicated intellectual property organization and strengthened its internal management system, but it is difficult to completely eliminate this risk.

There is a risk of becoming subject to litigation or other legal proceedings in connection with business activities in Japan and overseas. No litigation affecting the business was filed during the current consolidated fiscal year, but if material litigation is filed in the future, it may affect the Company's financial position and business results.

If production sites or facilities suffer catastrophic damage due to natural disasters such as earthquakes, accidents, or terrorism, there is concern that operational disruptions and delays in production and shipment could lead to reduced sales and the incurrence of recovery costs. The Company has established initial response procedures, role assignments, and emergency contact systems, as well as backup systems for core operating systems, but risks arising from uncontrollable events remain.

There is a risk of facing unexpected changes in policies, legal systems, and regulations in various countries and regions, which may adversely affect the Company's international business activities. The Company gathers relevant information through daily communication with local subsidiaries and periodic hearings on business conditions, and reflects this in its business forecasts, but it may be difficult to respond to sudden system changes.