TAIHEIYO KOUHATSU INCORPORATED

In the Real Estate Leasing business, which is a core business (Real Estate Segment), there is a possibility that increased supply from competitors and price competition could lead to declines in leasing unit prices and rising vacancy rates. In addition, a decline in land prices in the Hokkaido area (particularly the Kushiro area) could impair asset value and affect operating results and financial condition. At present, the impact is considered minor, as high occupancy rates are being maintained and the decline in land prices has bottomed out.

In the Imported Coal Sales business within the Trading Segment, if coal market prices decline significantly, there is a risk of recording an operating loss based on inventory valuation standards. The company states that coal market prices may continue to fluctuate significantly going forward, and is addressing this risk by optimizing imported coal inventory levels and procuring low-cost, high-quality coal.

If imported coal (merchandise and products) inventory increases, additional working capital financing will be required. The company addresses this through borrowings from financial institutions and adjustments to collection and payment terms with customers and suppliers, and judges that sufficient financing is possible given its good relationships with financial institutions.

In the Fee-Based Nursing Home Business within the Services Segment, the operating environment is highly competitive due to a marked increase in new market entrants and a trend toward lower entrance deposits. The company strives to maintain high occupancy rates and secure stable earnings by differentiating its service offerings and securing high-quality personnel through revisions to compensation.

In the Fee-Based Nursing Home Business, turnover of personnel such as helpers is extremely high, and securing personnel to maintain the provision of high-quality services is a major challenge. If the personnel shortage becomes severe, it could affect earnings through a decline in service quality and occupancy rates.

The Company provides guarantees for borrowings and accrued interest that Pacific Coal Mines Co., Ltd. has borrowed from the Japan Organization for Metals and Energy Security (JOGMEC) and the Development Bank of Japan Inc. If that company's real estate sale proceeds and rental income are insufficient to cover repayment amounts, the Company may incur losses or funding burdens from fulfilling the guarantee obligations. In addition, if the amount of that company's capital deficit increases due to a decline in the land prices of its owned real estate, additional provisions for loss on guarantee obligations may be required. In the fiscal year under review, the funding burden was minor, and no additional provision was made.

The Group is subject to numerous legal regulations, including the Act for Promotion of Proper Housing Quality Assurance, the Product Liability Act, the Building Lots and Buildings Transaction Business Act, the Mine Safety Act, and the Industrial Safety and Health Act. If changes in regulations significantly constrain business activities, this could affect business performance. In addition, there is litigation risk arising from the conduct of business, and depending on the course of any litigation, business performance could be affected.

The Group records deferred tax assets in connection with tax loss carryforwards and deductible temporary differences. If it is determined that these are not recoverable due to deteriorating performance at Group companies or significant changes in the business environment, deferred tax assets may be reduced, affecting business performance. Similar effects could also arise from revisions to accounting standards.