(4) Impact of natural disasters The production plants of the Group are located mostly in the Tokai Region of Japan, which is said to be particularly at risk of the occurrence of a major earthquake. If such an earthquake were to occur, substantial losses, including the suspension of operations, could result, and this would adversely affect the business performance and financial position of the Group. Furthermore, in the event of delay in the resumption of normal operations at raw materials suppliers and customers located in the areas hit by the Great East Japan Earthquake of March 11, 2011, or at logistics networks and power suppliers, the Group could suffer from significant impact on its production, shipment and other business activities. This in turn could adversely affect the business performance and financial position of the Group. (5) Major litigation In the event of a major lawsuit being brought against the Group in the future, there is a possibility that this will adversely affect its business performance and financial position. (6) Deferred tax assets The deferred tax assets of the Group are based on an amount that is recorded after judging the potential for collection based on forecasts of future taxable income. If such forecasts deviate significantly from actual results, there is a possibility that this will adversely affect the business performance and financial position of the Group. (7) Changes in foreign currency exchange rates For the reporting period, overseas sales of the Group accounted for 18.6% of total sales. The Group includes seven overseas consolidated subsidiaries and one overseas affiliated company subject to the equity method. There is therefore a possibility of a change in exchange rates adversely affecting the business performance and financial position of the Group. (8) Changes in interest rates The Group is committed to further reducing interest-bearing debt, to improve the overall financial balance. However, there is a possibility that a change in interest rates will influence the business performance and financial position of the Group. (9) Application of accounting for the impairment of fixed assets In line with accounting law in Japan, the Group has applied impairment accounting for fixed assets. As a result, in the event of a significant future decline in market prices of land, and/or a deterioration in the Group’s operating environment, there is a possibility of the posting of a substantial impairment loss, which would adversely affect the Group’s business performance and financial position. The Group is fully aware of the risks outlined above, and has measures in place to minimize their impact on operating results and financial position, at the Group and Group company level. Estimates or projections included in this report are based on facts known to the Company’s management as of the time of writing, and actual results may therefore differ substantially from such statements. 06 07 08 09 10 0 1,500 3,000 4,500 6,000 (Millions of yen) 5010 4794 4753 4472 4582 R&D expenditures 06 07 08 09 10 0 2,500 5,000 7,500 10,000 (Millions of yen) 7885 8563 8790 8327 8116 Depreciation and amortization expenditures Toagosei Co., Ltd. 25