The Company considers the following risks that may adversely affect the Company’s results of operations and financial position. Forward‐looking statements contained in this section are made based on the assumptions and judgements of the Company as of the current fiscal year end.
- 1. Economic Conditions
Industrial and capital goods make up a substantial portion of the Company’s products. Accordingly, the Company may face reduced demand resulting from declines in general economic conditions, including private‐sector capital expenditures, construction investment, and domestic public investment. In addition, the agricultural policies set by the government may adversely affect the sales of agriculture‐related products. In the overseas markets, especially in North America and Europe, sales of the Company’s products, such as utility/compact tractors, may decrease due to declines in general economic conditions, including personal consumption and residential construction investment in those regions. As a result, there is a possibility that the Company’s results of operations and financial position may be adversely affected significantly.
- 2. Soaring Raw Materials Prices and Difficulties in Procurement of Raw Materials
The Company purchases substantial raw materials and parts from third‐party suppliers. With the globalization of the business, procurement at overseas production bases is increasing, and the Company is promoting procurement at the optimal locations by building a global procurement network. However, if the prices of raw materials and parts substantially increase due to the supply and demand gap and changes in the market conditions, and if such a rise is prolonged, they may have an adverse effect on the Company’s profitability. In addition, if the Company has difficulties in procuring adequate supplies of raw materials and parts, there may be a material adverse effect on the Company’s results of operations and financial position as production and sales activities may be disrupted.
- 3. The Risks Associated with International Operations
The Company’s operations that have substantial overseas operations are exposed to the risks inherent in conducting business in those markets. If such risks materialize, the Company may face difficulties in stable production and sales of products, and may decrease revenue and increase procurement and transport costs which affect the Company’s results of operations and financial position, and this may hinder growth of the Company. Material risks include followings:
- Risks associated with changes in government licensing and subsidy policies in key markets
- Risks associated with unexpected changes in tariffs and import/export quotas due to changes in international trade policies
- Risks associated with unforeseen changes in laws and regulations in various countries
- Political instability in developing countries, etc.
- Immature technology levels and unstable labor‐management relations in developing countries
- Difficulties in retaining qualified human resources
- Risks associated with supply chain and logistics disruptions
- Risks associated with unexpected changes in the taxation systems of countries
- Risks associated with unanticipated outcomes in the transfer pricing issues
- 4. Fluctuations in Foreign Currency Exchange Rates
The Company has a number of overseas manufacturing, sales, and financial leasing subsidiaries that contribute significantly to operating results and financial position of the Company. The financial statements of overseas subsidiaries denominated in its local currency are reflected in the consolidated financial statements of the Company after translation 14 into yen. In addition, Kubota Corporation exports to overseas subsidiaries or external customers that are generally denominated in their local currency, and the foreign currency earned is converted into yen. Therefore, fluctuations in the exchange rate between the local currency and the yen have an impact on the Company’s results of operations and financial position. In general, the appreciation of the yen against other currencies has a negative impact on the results of operations and financial results of the Company. In order to mitigate the negative impact of exchange rate fluctuations, the Company has been transferring its production bases to overseas in accordance with “local production for local consumption” principle. Also, the Company utilizes foreign exchange forward contracts and other derivative instruments. Despite the Company’s efforts to mitigate such risks, fluctuations in foreign currency exchange rates may adversely affect the Company’s results of operations and financial position.
- 5. Interest Rate Fluctuation Risk
The Company has interest‐bearing liabilities, which are subject to fixed or variable interest rates. If interest rates rise, interest expenses will increase along with incentive costs related to financial leasing business, especially in the United States. The Company utilizes swap contracts and other derivative instruments to mitigate the impact of fluctuations of interest rates. However, despite the Company’s efforts to mitigate such risks, fluctuations in interest rates may adversely affect the Company’s results of operations and financial position.
- 6. Stock Market Fluctuation Risk
The Company holds marketable securities, most of which are equity securities, and the fair value of these securities may fluctuate significantly depending on stock market. In addition, plan assets related to the retirement benefit plan may decrease due to a decline in stock market. The investment policy for plan assets is to achieve the best possible investment results under acceptable risk. In order to diversify risks, the Company balances its portfolio by carefully considering the industries, types of companies, and regions in which it invests, taking into consideration factors that affect investment returns, such as interest rate fluctuation risk, economic growth rates, and types of currencies. However, changes in the fair value of securities or a decrease in plan assets could have a significant impact on the Company’s results of operations and financial position.
- 7. Success or Failure of Strategic Alliances, Mergers, Acquisitions, etc., with Third Parties
The Company intends to use strategic alliances, mergers, and acquisitions to generate further growth. The success of these activities depends on factors such as business environment, the capabilities of its business counterparts, and whether the Company and its counterparts share common goals. If these activities are not successful and returns on investments are lower than expected, the Company’s profitability may be lower than anticipated and could have a significant impact on the Company’s results of operations and financial position.
- 8. Competition with Other Companies
The Company is exposed to significant competition in each of its businesses. Unless the Company achieves a competitive advantage in areas such as terms of trade conditions, R&D, and quality of goods and services, the Company’s revenues may decrease and could have a significant impact on the Company’s results of operations and financial position.
- 9. Products and Services
The Company strives to maintain and improve quality of products and services through education, efforts to prevent quality issues, and internal quality audits. However, if the Company’s products and services are alleged to have serious defects, the Company may incur significant costs related to liability. If such claims are asserted, the Company’s reputation and brand value may be damaged, which could cause a decline in demand for the Company’s products, resulting in decreased revenues, and could have a significant impact on the Company’s results of operations and financial position.
- 10. Environmental Pollution
In order to ensure compliance with environmental laws and regulations and prevent environmental accidents, the Company has established an environmental management system and is striving to continuously improve rule‐based operations and environmental conservation activities. However, despite the Company’s efforts to mitigate such risks, the 15 Company may incur significant costs and expenditures to take corrective measures or face litigation if the Company causes environmental contamination, including the emission of hazardous materials, air pollution, water pollution, and/or soil contamination. These factors may have a significant impact on the Company’s results of operations and financial position.
- 11. Asbestos‐Related Issues
The Company previously manufactured products containing asbestos from 1954 to 2001. The Company may be required to incur additional expenses, including payments to the individuals concerned and expenses arising from litigation of the asbestos‐related health hazards. If such expenses become substantial, they may result in a material adverse effect on the Company’s results of operations and financial position.
- 12. Compliance Risk
The Company has declared its intention to conduct its corporate activities in compliance with legal regulations and ethical principles and to make efforts to ensure that all management and staff of the Company comply with various legal regulations, ethical standards, and internal regulations. However, in the event that compliance issues arise, there is a possibility that the Company may be subject to disciplinary action by government ministries supervising its activities or to lawsuits, or may suffer a loss of public confidence, which may result in a material adverse effect on the Company’s results of operations and financial position.
- 13. IT System and Networks
The Company is exposed to certain IT security risks, including threats to the confidentiality, availability, and integrity of its data and systems. In order to manage such risks, the Company has implemented the information security system, an integrated set of policies, processes, methodologies, teams, and technologies aimed at ensuring appropriate protection of the data. Despite such efforts, if the Company’s IT system and networks are disrupted or experience a security breach, the Company may suffer from an opportunity loss due to production downtime, be subject to litigation or threat of litigation for information leakage, or the Company’s intellectual property may be infringed. All of which in turn may cause the Company to incur significant costs. If such security breaches and other disruptions occur, the Company’s reputation and brand value may also be damaged, and my lead to a decline in demand for its products and revenues. As a result, there is a possibility that the Company’s results of operations and financial position may be adversely affected significantly.
- 14. Environmental Laws and Regulations
The Company is subject to various environmental laws and regulations that apply to its products and activities. If these environmental laws and regulations, such as greenhouse gas emission controls, exhaust emission controls, and usage restrictions for certain materials used in the Company’s products, are strengthened or newly established, the Company may be required to incur considerable expenses in order to comply with such laws and regulations. Such expenses may have a material adverse effect on the Company’s results of operations and financial position.
- 15. Damages Caused by Natural Disasters and Other Unpredictable Events
The Company conducts business activities in Japan, North America, Europe, Asia, and other regions. If unpredictable events, such as earthquakes, tsunamis, floods, typhoons, pandemics, wars, terrorist attacks, fires, and information system or communication network breakdowns, occur in countries and regions in which the Company operates, the Company’s production, distribution, and sales activities may be disrupted. In particular, Japan is one of the most earthquake‐prone countries in the world and can be subject to severe earthquakes or tsunamis. While the COVID‐19 pandemic has been ongoing, the Company conducts the business activities in accordance with the policies of governments and regional administrative agencies, giving top priority to preventing the spread of infection and ensuring the safety of its customers and other related parties. In addition to using the Internet for sales and other business activities, the Company continues to promote and establish systems and environments to support telecommuting. However, the timing of the convergence of COVID‐19 and its future impact remain uncertain and difficult to envision at this time. If the situation of COVID‐19 deteriorates further in the future, it may cause a material adverse effect on the Company’s results of operations and financial position.