ASTI CORPORATION

The top three customers account for a high proportion of net sales, and changes in the sales conditions or trading terms of major customers could have a significant impact on the Group's business results and financial position. In addition to demand fluctuations from four-wheel vehicle, two-wheel vehicle, and home appliance manufacturers, global market instability, including difficulty in procuring materials such as petroleum-related products, may also affect sales. As a countermeasure, the Group is actively promoting the development of new customers and the development of proprietary brand products.

The Group operates businesses in India, Vietnam, China, and the Philippines, and there is a risk that expected sales volumes may not be secured due to order fluctuations caused by conditions in the Middle East or China's economic slowdown, as well as difficulty in obtaining raw materials. The political and economic conditions, legal and regulatory changes, foreign exchange trends, labor issues, infectious diseases, wars, terrorism, and other factors in the countries where factories are located may also affect business results and financial position. In response, the Group is strengthening its overseas business structure at headquarters to improve information-gathering capabilities and is diversifying risk by strengthening the production system at its Philippines plant.

Domestic production sites are concentrated in the western Shizuoka Prefecture region, and in the event of a natural disaster such as a Nankai Trough earthquake, operations could be interrupted and substantial restoration costs could be incurred, potentially affecting business results and financial position. Although necessary measures have already been taken, the impact cannot be completely avoided in the event of extensive damage. The Group has designated the Hamamatsu Plant, built in a location in northern Hamamatsu City that is not expected to flood, as an alternative headquarters function site, and is also developing backup systems at overseas sites.

In the event of unexpected quality problems, substantial recall and compensation costs could arise, potentially affecting business results and financial position. Quality control at overseas operations, which are increasingly becoming the main center of production, is a particularly important issue. The Group is working to maintain and improve quality both domestically and internationally as its top priority.

Commitment agreements have been concluded with financial institutions for certain borrowings, and these agreements include financial covenants related to net assets at the end of the interim and full fiscal periods. If these covenants are breached, the Group could lose the benefit of the term at the lender's request and be obligated to immediately repay the entire amount of the borrowings, which could have a material impact on business results and financial position. As a countermeasure, the Group continues to negotiate reductions in borrowings through changes in payment terms at the time of product orders, thereby reducing accounts receivable.

Deferred tax assets are recorded based on estimates of future taxable income and tax planning; however, if actual taxable income falls significantly short of estimates, a write-down to the recoverable amount would be required, which could affect business results and financial position. In addition, changes in the effective tax rate due to tax reforms or other factors could also necessitate revisions to the recorded amount. The estimates involve various assumptions and forecasts, which may differ from actual results.

If the market value of fixed assets declines significantly or business profitability deteriorates, an impairment test is conducted, and if the carrying amount is determined to exceed the recoverable amount, an impairment loss will be recognized. As capital investment expansion at overseas sites continues, there is a risk that fluctuations in orders or deterioration in market conditions could make it difficult to recover such investments. The recognition of impairment losses would have a direct impact on business results and financial position.

The Group is expanding factories and enhancing production facilities in various overseas countries to meet increasing demand; however, there is a risk that expected sales volumes may not be secured due to order fluctuations caused by conditions in the Middle East or China's economic slowdown, among other factors. Although investment decisions are made with consideration for investment efficiency, securing profitability may become difficult under an unstable external environment. The Group is addressing this by improving productivity through production rationalization and labor-saving measures utilizing IT.