TEAC CORPORATION

The Group has a high proportion of overseas production and sales, with sales, purchases, and expenses denominated in US dollars, euros, and pounds accounting for a large share. Since the US dollar involves a high proportion of purchases, yen appreciation has a favorable effect on operating income, while for the euro and pound, which are primarily sales-related, yen appreciation has an adverse effect, creating an asymmetric structure. The Group hedges using forward exchange contracts and currency options, but sudden fluctuations may result in foreign exchange losses, adversely affecting both operating income and net assets.

The Group's consumer products are not daily necessities, and demand is affected by consumers' disposable income and changing preferences. Industrial products depend on customers' capital expenditure trends, and economic downturns in Japan, the Americas, Europe, Asia, and elsewhere directly and adversely affect sales. There is also inherent risk of deterioration in business partners' financial condition; while credit management and receivables protection measures are implemented, complete elimination of this risk is difficult.

US tariff policies have already been implemented, and there are concerns that further strengthening or retaliatory measures may be taken in the future. The Group continuously monitors developments and is proceeding with countermeasures including appropriate pass-through to sales prices, but the high uncertainty of policy makes it difficult to predict the impact on business performance. As part of public regulations in general, there is also risk of additional costs and penalties associated with changes in regulations concerning investment, trade, the environment, export restrictions, and so forth.

The Group faces intense competition in each consumer and industrial product market and in each regional market, and further intensification of competition with competitors over quality, performance, and price is expected. Increasing price decline pressure may deteriorate sales revenue and profit margins, adversely affecting business results. The Group strives to enhance customer satisfaction through new product launches and the supply of high-quality products, but maintaining competitive advantage remains an ongoing challenge.

The Company has entered into syndicated loan and commitment line agreements that include certain financial covenants. If performance deterioration or other factors cause a breach of these financial covenants, the Company may lose the benefit of the term and be required to repay borrowings in a lump sum, which could have a material impact on liquidity and financial condition. Although these agreements are intended to secure stable financing, the risk of covenant breach is an important issue in financial management.

Tangible and intangible assets held by the Group may become subject to impairment if they fail to generate sufficient cash flow. In periods of deteriorating market conditions or business contraction, the recognition of impairment losses could be a factor worsening financial condition. No specific countermeasures are described, and continuous asset evaluation in response to changes in the business environment is required.

An increasing proportion of the Group's products utilize advanced and complex technologies, and quality control has become more complex due to significant procurement from external suppliers. If product defects occur, in addition to recall and compensation costs, damage to brand credibility may adversely affect sales activities and business results. The Group manufactures based on globally recognized quality control standards, but it is difficult to guarantee that all products will be free of defects.

The Group purchases key devices and components from other companies and outsources some design work externally, so unexpected events in the supply chain may delay the market launch of new products or cause shortages of components for production. If demand cannot be met, opportunity losses arise, adversely affecting business results. This is a structural risk dependent on external factors that are difficult to control alone, and securing alternative procurement sources is a challenge.

The Group holds customers' personal information as well as technical and business trade secrets, and faces the risk of information leakage due to information system failures or human causes. If an information leak occurs, it may result in business disruption, legal liability, and damage to corporate trust, adversely affecting business results and financial condition. While the Group states that it strives for appropriate protection and management, specific details of countermeasures are not disclosed.

Natural disasters such as earthquakes, man-made disasters such as war and terrorism, and the spread of infectious diseases including COVID-19 may affect the operations of the Group's facilities, information systems, employees, and business partners. Economic activity slowdowns caused by government requests in various countries could adversely affect business results both in terms of procurement of raw materials and products and in terms of sales. The Group acknowledges that it is difficult to completely eliminate the impact on its business and to have full recovery measures in place, recognizing the limitations of its BCP.