Business Risks

Business risks that could potentially impact the Ushio Group's operating results, and financial condition and cash flow are indicated below. Forward-looking statements reflect data available at the time of the release of the Group's financial results on June 29, 2006, however, all risks related to the Ushio Group are not included herein.

1. Risks in Demand for Semiconductors and Liquid Crystal Products
The Ushio Group's performance is impacted considerably by changes in demand in the semiconductor and LCD industries. Products handled for these industries include expendable lamps for manufacturing equipment, with stable demand provided by the various operating processes of factories. Nevertheless, the Group's performance and financial condition could be heavily impacted by medium- and long-term changes in demand in industries utilizing semiconductor and liquid crystal manufacturing equipment.

2. Risks in Demand for Illumination and Exposure Light Sources
The Ushio Group offers installable light sources for data projectors, as well as illumination and exposure light sources to markets outside the semiconductor and LCD industries. The Group's performance and financial condition could be heavily impacted by changes in technology, prices and demand for these light sources.

3. Risks from Developments in Semiconductor Manufacturing Photolithography Technologies
Amid ongoing miniaturization of circuits in semiconductors, while the Ushio Group's discharge lamp-based manufacturing equipment represents a large portion of equipment currently in operation, there is always the possibility that semiconductor manufacturing photolithography technologies will evolve away from currently existing systems. Exposure using excimer lasers is an example of such new trends, and is currently being developed by the Company's affiliate, Gigaphoton, Inc. The Company is also engaged in the development of an EUV extreme ultraviolet light source jointly with Xtreme Technologies GmbH, another Company affiliate. In this respect, the Group's performance and financial condition could be heavily impacted by any potential breakthroughs by Gigaphoton or Xtreme Technologies as well as by future developments in semiconductor manufacturing photolithography technologies.

4. Latent Risks from International Activities and Entry into Foreign Markets
The Ushio Group conducts manufacturing and marketing activities in such overseas locations as the United States, Europe and Asia. Recently, the majority of OA equipment has come to be produced in Asia, with the largest portion being produced in China. With its high market share, the Group is no exception in contributing to the increased production of OA equipment lamps, particularly in China. Therefore, the Group's performance and financial condition could be heavily impacted by any future alterations in policies or regulations in China.

5. Risks Regarding Foreign Exchange Fluctuations
The Ushio Group conducts general business transactions as well as loans and investments in both Japanese yen and foreign currencies. Accordingly, the Group's performance could be impacted from profits and losses stemming from fluctuations in foreign currencies as well as loans and investment in those currencies. While foreign exchange contracts are employed when necessary, the Group's performance and financial condition could be heavily impacted by fluctuations in foreign currencies whose effects are unavoidable.

6. Risks in Price Fluctuations for Marketable Securities
While the Ushio Group holds marketable securities as financial assets whose market value currently exceed their original purchase price, the Group is cognizant that future market value could decline for unforeseen reasons. As a result, the Group's performance and financial condition could be heavily impacted by the price fluctuation risks that it incurs in holding these marketable securities.

7. Risks Associated with Employee Retirement Benefit Obligations
The Company and its domestic consolidated subsidiaries have such defined benefit plans as welfare pension fund plans and lump-sum payment plans. The Ushio Group's performance and financial condition could be heavily impacted by revisions in basic accounting practices for retirement benefit obligations, a worsening portfolio management environment for pension equities as well as increases in retirement benefit expenses owing to revisions in retirement benefit systems.

8. Risks Associated with Environmental Regulations
Environmental and other legal restrictions targeting the electric industry entail a broad range of obligations ranging from safety to contaminants emitted from plants. Revisions of these regulations very often result in even stricter versions. Accordingly, the Group's performance and financial condition could be heavily impacted by expenses stemming from compliance with these regulations.