RYOYO ELECTRO CORPORATION

Change, Challenge, Speed








Investor Relations

Business Risk

Risks that may affect the business performance, stock price, and financial condition of the Company include, however are not limited to, the following.

Forward-looking statements included herein are based on judgments made by the Ryoyo Group as of the end of the year under review (January 31, 2013).

(1) Abrupt Changes in Economic Conditions

Semiconductors, which comprise a significant portion of the Ryoyo Group’s net sales, are incorporated into finished products made by equipment manufacturers of such products as digital consumer electronics, cellular phones, PCs, and industrial machinery—products for which demand is affected by the economic conditions in countries or regions where they are sold. Consequently, an economic slowdown or decline in demand in such major markets as Japan, Asia, the United States, or Europe may affect the Ryoyo Group’s performance.

(2) Fall in the Price of Products

Price competition in the electronics industry to which the Company belongs is becoming increasingly severe. The decline in the prices of finished products has created downward pressure on the price of semiconductors and other electronic devices. The Ryoyo Group is working to avoid having to reduce its prices by maintaining a lineup of highly competitive products. However, the intensification of competition and product obsolescence accompanying technological innovation may have an impact on the Ryoyo Group’s business results.

(3) Contracts with Suppliers

The main business of the Ryoyo Group consists of the sales of semiconductors, computer systems and peripherals, embedded products, and other electronic devices. In principle, the term of distributor and principal distributor contracts signed with suppliers is one year. If such contracts are either not renewed or are cancelled mid-term in the event the supplier’s business performance worsens or its policies change, a corporate reorganization occurs, etc., or commercial rights are lost due to revisions to distribution channels, the Ryoyo Group’s performance may be affected.

(4) Fluctuation in Foreign Exchange Rates

The Ryoyo Group undertakes overseas sales activities. Items denominated in foreign currencies (including sales, costs, and assets for each region) are represented at yen value in the consolidated financial statements. As a result, fluctuations in exchange rates may affect the yen value of such items even when the value of the local currency remains unchanged.

(5) Customers Moving Operations Overseas

The Ryoyo Group primarily sells semiconductors and electronic devices to Japanese customers (equipment manufacturers). These equipment manufacturers have increasingly been moving their development and production operations to developing nations, where personnel costs are lower than in Japan. Accordingly, the Group has also begun moving its operations overseas. However, if our customers move their development and production operations to countries or regions in which the Ryoyo Group is not able to conduct sales activities, the Ryoyo Group’s performance may be affected.

(6) Country-Based Risks

There is the possibility that changes in the government, economy, or social environment of the countries or regions in which the Ryoyo Group operates may occur, or that there may be revisions to legislation or taxation laws. In the event that such changes occur, the Ryoyo Group’s performance and financial condition may be affected.

(7) Product Defects and Delivery Issues and Problems Related to Services

The Ryoyo Group is constantly striving to improve the quality of its products and services and earn a greater degree of trust from its customers. However, in the event that the Ryoyo Group is found responsible for supplying defective products or causing issues with deliveries or similar problems with relation to services it has provided, we may be liable to compensate entities with which contracts have been concluded or other third-party entities to an extent that is not covered by the Ryoyo Group’s product liability insurance. Were this to occur, the Ryoyo Group’s performance and financial condition may be affected.

(8) Natural Disasters and Other Acts of God

The Ryoyo Group conducts business operations in a number of different countries and regions. Should a natural disaster, such as an earthquake, typhoon, or flood; an epidemic of influenza or some other infectious disease; or some other act of God occur, it could cause the halting of operations or the disruption of supply chains. Were this to occur, the Ryoyo Group’s performance and financial condition may be affected.

(9) Collection of Accounts Receivable

The Ryoyo Group makes the utmost effort to manage exposure to credit risks by setting credit limits for individual business partners according to their public credibility and financial condition, and subsequently by undertaking business within those limits. However, should difficulties arise with respect to the collection of accounts receivable due to a rapid deterioration in management or bankruptcy on the part of business partners, the Ryoyo Group’s performance and financial condition may be affected.

(10) Retirement Benefit Obligations

The Ryoyo Group’s costs and obligations related to retirement benefits for employees are calculated on the basis of preconditions established by discount rates and other actuarial calculations as well as the expected rate of return on pension assets. As a consequence, declines in the level of interest rates and deterioration in the rate of return may increase the costs and obligations related to retirement benefits, which may affect the Ryoyo Group’s performance and financial condition.

(11) Impairment Losses on Write-Down of Investment Securities

To strengthen and maintain its relations with business partners, the Ryoyo Group purchases the shares of specific customers, suppliers, and financial institutions. In the future, a deterioration of conditions in the stock market or the poor business performance of the companies whose stocks the Ryoyo Group has purchased may have an impact on the Ryoyo Group’s business results and financial condition.
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