## Business Risks 

JS Group Corporation and Consolidated Subsidiaries 

This annual report contains the following information about business conditions, the financial situation and other factors that may influence investor decisions. 

Forward-looking statements are based on the judgments of the JS Group’s management as of June 2010. Statements concerning the future and assumptions are subject to uncertainty and risks, and actual results may vary significantly. 

(1) Economic Risk 

(2) Competitive Risk 

(3) New Product Development Risk 

(4) Procurement Risk 

(5) Overseas Market Risk 

(6) Foreign Exchange Risk 

(7) Acquisition/Merger Risk 

(8) Business Restructuring Risk 

(9) Regulatory Risk 

(10) Product Liability Risk 

(11) Disaster and Accident Risk 

(12) Environmental Preservation Risk 

(13) Risk of Default on Receivables 

(14) Risk of Fixed Asset Value Reduction 

(15) Retirement Benefit Risk 

(16) Risk of Personal Information Leaks 

## (1) Economic Risk 

Operating revenues of most companies in the JS Group are significantly affected by domestic demand in Japan. In particular, major fluctuations in the number of new housing starts or the level of construction orders received could have a negative effect on business performance and financial positions of the JS Group. 

## (2) Competitive Risk 

The JS Group faces severe competition in most of the markets in which it operates. For this reason, it is difficult to always set prices at levels that are advantageous to the JS Group. The Group takes pride in its status as a leading enterprise capable of bringing attractive, high-quality products to market. However, there is no guarantee that the Group will enjoy a competitive advantage in terms of pricing. The JS Group’s products and services are exposed to intense price competition, which could have a negative effect on business performance and financial posi- tions of the JS Group. 

## (3) New Product Development Risk 

In its operations, the JS Group is dedi- cated to comprehensive provision of agreeable residential and urban environ- ments for the 21st century. The Group creates high-quality living spaces that are healthy, comfortable and safe by continu- ally developing attractive products based on an accurate understanding of available technology and consumer needs. However, the Group’s business performance and financial positions could be adversely affected if a failure to respond appropri- ately to changes in market or industry needs were to result in a decline in growth and earning potential. 

## (4) Procurement Risk 

The JS Group procures materials, parts, services and other supplies as required for its production activities. There is a possibil- ity that the amounts paid for these sup- plies will rise because of increased industry demand or increasing raw material prices. There is also a possibility that the reliability or reputation of the JS Group’s products will be adversely affected by defects in materials, parts, services or other supplies. These factors could, in turn, adversely 

affect the Group’s business performance and financial positions. 

## (5) Overseas Market Risk 

The JS Group engages in production and sales activities overseas, mainly in certain Asian countries, including China and  Thailand. The following latent risks exist because of the rapid pace of development in these countries. 

1) Major exchange rate fluctuations caused by currency policies 

2) Changes in export or import regulations 

3) Dramatic increases in labor costs and prices, etc. 

4) Interruption of production activities due to strikes, etc. 

5) Unanticipated changes to legislation or financial regulation and international tax risks such as transfer pricing legislation 

6) Other economic, social and political risks 

These factors could have an adverse impact on the business performance and financial positions of the JS Group. 

## (6) Foreign Exchange Risk 

Exchange rate fluctuations have the potential to affect the yen equivalents of assets and liabilities resulting from the foreign currency denominated transactions of the JS Group. Where transactions are denominated in foreign currencies, the prices of goods and amounts of sales could also be affected. These factors could have an adverse impact on the business performance and financial positions of the JS Group. 

## (7) Acquisition/Merger Risk 

The JS Group plans to expand its business operations through financial activities, including corporate acquisitions and capi- tal participation. To maximize the benefits of these acquisitions, the JS Group seeks to integrate them into their corporate cul- tures and management strategies. How- ever, there is no guarantee that the anticipated returns and synergy benefits will be realized. It is possible that the busi- ness performance and financial positions of the JS Group will be adversely affected by these acquisitions and capital participa- tion activities. 

