CANON INC.

Dependence on specific suppliers may lead to quality issues, supply shortages, or price increases for parts and materials. In addition, geopolitical risks such as U.S.-China tensions, the conflict in Ukraine, and the situation in the Middle East, as well as logistics disruptions caused by port strikes, could interrupt production activities and result in lost sales opportunities. Furthermore, if human rights or environmental law violations occur within the supply chain, there is a risk that social trust and brand value could be damaged. In response, the Company is diversifying its supplier base by developing new suppliers, promoting in-house production of key parts, and conducting annual inspections of major suppliers based on the RBA Code of Conduct.

Prolonged inflation and monetary tightening in major markets leading to economic recession, worsening conditions in Ukraine and the Middle East, and changes in U.S. trade policy could cause corporate customers to curb investment and lead to weaker personal consumption, adversely affecting sales across a wide range of product groups including office multifunction devices, medical equipment, lithography equipment, and cameras. There is also a risk of unforeseen changes in policy and legal systems, and given that sales in the U.S. account for a certain proportion of the Company's business, the impact on performance is significant. The Company incorporates information gathered daily and business condition surveys from local subsidiaries into its management strategy, and adjusts production when demand declines.

Since a significant proportion of sales are earned overseas, a sharp appreciation of the yen could reduce the yen-equivalent value of foreign-currency-denominated sales, adversely affecting business results and financial position. The Company is also exposed to fluctuations in the foreign currency translation adjustment account arising from the foreign-currency-denominated financial statements of overseas subsidiaries, as well as interest rate fluctuation risk affecting the valuation of assets and liabilities. In response, the Company regularly conducts hedging transactions through short-term forward foreign exchange contracts, and works to minimize the impact of interest rate fluctuations by keeping external borrowings to a minimum, thereby maintaining a robust financial structure.

With headquarters, information systems, and core R&D facilities concentrated in the Tokyo metropolitan area, natural disasters such as earthquakes, floods, and forest fires, or infrastructure shutdowns caused by terrorism, could disrupt business operations and result in physical and human damage costs. In the event of an infectious disease outbreak, supply chains and production activities around the world could stall, and performance could deteriorate due to delayed recovery in office equipment print volumes resulting from the spread of remote work, as well as delays in installing lithography equipment due to travel restrictions. The Company addresses these risks by establishing backup production systems through parallel production of similar models at multiple sites, backing up core systems, and implementing emergency contact systems and drills.

If products or services are found to be non-compliant with AI-related regulations being developed in various countries and regions, they could become subject to sales bans or penalties. In addition, unintended discriminatory judgments, misinformation outputs, or unexpected behavior could adversely affect users and society, creating risks of brand value damage and liability for damages, as well as risks of copyright infringement and confidential information leaks in the use of generative AI. As a company-wide rule, the Company has established an AI risk assessment framework and applies its proprietary AI risk assessment sheet, which evaluates fairness, transparency, safety, and other factors, at each stage of the product development process, with a dedicated organization collaborating with the quality and legal departments to roll this out across the group.

The spread of smart devices, growing digitalization, the penetration of paperless practices, and the expansion of remote work are expected to reduce print opportunities across the overall print market in the future. Failure to adequately provide products, services, and solutions responsive to changes in the market environment could adversely affect business results. The Company is working to capture demand by offering off-office printing services utilizing a wide range of products and cloud services, linking multifunction devices with document management services, and introducing new products in the commercial and industrial printing fields.

The business cycle in the semiconductor and FPD industries is difficult to predict in terms of magnitude, timing, and duration, and during periods of oversupply, investment in semiconductor lithography equipment, FPD lithography equipment, and OLED deposition equipment declines significantly. During market downturns, declining sales and rising inventories could worsen cash flow, making it difficult to recover the R&D expenses that have been continuously invested. The Company addresses this through product development aimed at diversifying customers, applications, and sales regions, stabilizing the revenue base through after-sales services, and improving production capacity through the construction of new production facilities while utilizing existing equipment and building a flexible staffing system.

Because responding to medical device regulations in various countries and regions and obtaining certifications and approvals takes a long time, there is a risk that sufficient returns on investment may not be generated if the clinical effectiveness of new technologies and products cannot be fully assessed and they cannot be brought to market in a timely manner. Additional uncertainty in the business environment arises from cost increases due to U.S. trade policy, deteriorating hospital finances, and geopolitical risks, requiring prompt responses to needs for early detection of cancer and cardiovascular disease and to medical cybersecurity measures. The Company addresses this by collaborating with business partners and partner companies to provide timely products and services utilizing AI and core technologies, passing on cost increases through pricing, and improving sales productivity through the use of DX.

Increasingly sophisticated and complex cyberattacks could lead to leaks of confidential information related to manufacturing, R&D, sales, and accounting, as well as customer personal information, potentially causing disruption to critical operations, liability for damages, and a decline in brand value. As products and services increasingly connect to networks, the risk of security incidents such as information leaks is also growing. The Company has positioned the executive officer in charge of information security as the decision-maker, established CSIRT and PSIRT, and implements company-wide measures such as blocking suspicious emails, monitoring for unauthorized intrusions, conducting regular cyberattack response drills, and performing information security audits.

Intensifying competition for talent in advanced technology industries and accelerating technological progress may make it difficult to recruit and develop capable personnel, risking delays in development and production, the leakage of research results and technologies, and the discontinuation of the transmission of specialized skills such as lens processing. The departure of capable personnel could adversely affect business results. The Company addresses this through expanding job-matching-based recruitment, enhancing career matching programs and training-based career matching programs, systematically developing technical talent through CIST (Canon Institute of Software Technology), and promoting the transmission of specialized skills through the "Canon Meister Certification and Recognition" program.