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RYOYO ELECTRO
CORPORATION
RYOYO
ANNUAL REPORT 2001Year ended January 31, 2001
SOLUTIONS
NETWORK
TECHNOLOGY
CUSTOMER SATISFACTION
ENVIRONMENTAL CONSERVATION
SYSTEM INTEGRATION
SEMICONDUCTORS
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Founded in 1961, Ryoyo Electro has evolved from a semiconductordistributor by accurately responding to changing social and customer needs.Ryoyo Electro initially handled the semiconductors and informationequipment of Mitsubishi Electric, and then began marketing the products ofIntel Corporation of the United States.
The Company has gone on to diversify its product lineup to include value-added products from an array of domestic and overseas manufacturers.Embracing rapid change, Ryoyo Electro has integrated and strengthened itsmanagement and technological capabilities to become a leading technology-oriented distributor.
Looking forward, the importance of semiconductors to society willcontinue to grow, and digital networks will expand rapidly. Ryoyo Electrowill therefore deploy resources to support the Internet infrastructure inmanaging the Company to achieve continued growth.
Since its establishment, Ryoyo has embraced a corporate mission ofbuilding value in tune with the times. A commitment to fulfilling thismission supports our success at adapting to change and meeting theexpectations of shareholders, customers and society.
Financial Highlights ...................................................... 1Message from the Management................................. 2Ryoyo at a Glance....................................................... 5Review of Operations ................................................ 6Financial Review .......................................................... 8Consolidated Balance Sheets .....................................10Consolidated Statements of Income .........................12
Consolidated Statements of Shareholders’ Equity ...13Consolidated Statement of Cash Flows ....................14Notes to Consolidated Financial Statements............15Report of Independent Accountants ...........................19Corporate Data ..........................................................20Investor Information ...................................................21
PROFILE
CONTENTS
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Thousands ofMillions of yen U.S. dollars
2001 2000 % change 2001
For the year:Net sales ¥202,147 ¥143,304 41.1% $1,742,643Operating income 9,447 4,909 92.4 81,443Net income 5,044 2,914 73.1 43,482Per common share: (yen or U.S. dollars)
Net income 155.47 89.84 73.1 1.340Cash dividends 20.00 21.00 -4.8 0.172
At year-end:Total assets ¥ 97,034 ¥ 91,318 6.3% $ 836,497Total shareholders’ equity 66,556 61,726 7.8 573,757
Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥116.00 = U.S. $1, the approximate exchange rate prevailing on January 31, 2001.2. In 2000, the company issued a commemorative dividend of ¥2.00 per share, in addition to the regular dividend of ¥19.00 per share.
FINANCIAL HIGHLIGHTS
1
RYOYO ELECTRO CORPORATION AND CONSOLIDATED SUBSIDIARIESFor the years ended January 31, 2001 and 2000
Others 3%
Semiconductors 79%
Computer Systemsand Peripherals 18%�
MELCOSemiconductors 48%
Others 8%
Imports 37%
MELCO Others 7%
Sales by Product Sales by Vendor
97 98 99 00 01
122.8 126.8114.6
143.3
202.1
Net Sales(¥ Billion)
97 98 99 00 01
2.9 2.8
1.8
2.9
5.0
Net Income(¥ Billion)
97 98 99 00 01
86.4790.42
57.73
89.84
155.47
Net Income per Share(¥)
菱洋AR01PDF 01.10.3 5:39 PM ページ 4 (1,1)
Record Earnings for Fiscal 2000
Consolidated net sales for fiscal 2000 increased 41.1
percent year-on-year to ¥202,147 million, and
consolidated operating income rose 92.4 percent to a
record high of ¥9,447 million. A key factor driving
results was the sharp gain in sales of flash memory that
accompanied increasing demand for cellular phones.
Our shift to a more flexible organization for the sale of
semiconductors used in digital consumer appliances, a
product segment that ranks in importance with mobile
communications devices, also contributed to improved
results. In the computer systems and peripherals
business, we emphasized servers in expanding sales of
network solutions.
Strategies for boosting efficiency supported higher
earnings by reducing costs. We have oriented our
portfolio toward products that generate the highest
returns, while scaling back on headcount and reducing
the number of branches and sales offices from 16 to 12.
These measures offset a one-time charge of ¥421 million
to fund past service costs of the Company’s tax-
qualified pension benefit obligations and other issues.
Consequently, consolidated net income increased 73.1
percent to ¥5,044 million.
Unique Strengths Generate Value
Ryoyo’s unique role in the Japanese electronics market is
based on a lineup of products from leading international
electronics manufacturers and extensive technological
expertise. As a leading distributor, we leverage these
strengths to forge strong relationships with both
customers and suppliers that enable us to coordinate and
propose new ideas that offer value. Unlike many of our
competitors, which can handle only the products of their
parent companies, Ryoyo deals in the products of a broad
array of leading semiconductor manufacturers. Flash
memory used in cellular phones exemplifies our
approach, as our relationships with four overseas and
domestic manufacturers enable us to respond quickly
to customer needs with the products best suited
to them. The U.S. semiconductor manufacturers with
whom we have relationships are particularly strong in
MESSAGE FROM THE MANAGEMENT
The modern economy now revolves around
digital networks, and Ryoyo excels in
providing the products and ideas to meet
the needs that are emerging as a result.
We achieved record earnings during fiscal
2000, ended January 31, 2001, by focusing
on our role as a technology–oriented
distributor that is uniquely qualified to
propose comprehensive solutions to our
customers.
2
Motoyoshi Shimada, Chairman and
Chief Executive Officer
Yoshihisa Shimada, President and
Chief Operating Officer
菱洋AR01PDF 01.10.3 5:39 PM ページ 5 (1,1)
communication-related products, meaning Ryoyo can
propose and supply the optimum products to set
manufacturers building semiconductors into cellular
phones. Moreover, our success in remaining at the leading
edge of our markets and in diversifying our supplier
relationships and product portfolio expands our customer
base and enables us to deal flexibly with the semiconduc-
tor cycle.
Leading electronics manufacturers in Japan and
overseas trust Ryoyo to propose and coordinate
procurement. In recent years, our customers moved
to enhance their internal efficiency by outsourcing an
increasing proportion of the development process to
Ryoyo. We have responded to the advanced technical
needs of our customers by creating sales teams specializ-
ing in mobile communications products and digital
consumer appliances. These teams add value to Ryoyo’s
role as a technology-oriented distributor by providing
customers with effective product development support.
Our ability to provide support and our position as a
trusted intermediary between set manufacturers and
semiconductor manufacturers allow us to participate
from the critical initial stage of product development. Our
customers are now developing new cellular phones to
market in spring 2002 and digital consumer appliances to
market in 2003-2004. We are helping them achieve their
objectives by proposing the optimal components and
offering other development insights to set manufacturers.
We also evaluate set manufacturers’ quality control
programs, and provide feedback on their needs to
semiconductor manufacturers. Moreover, Ryoyo is well
respected for its ability to resolve complications to the
benefit of all parties involved.
Ryoyo focuses on highly profitable customized
products that match specific customer needs rather than
on standard products subject to price competition.
Ongoing investment in the technological capabilities of
our people has also allowed us to create a marketing
structure buttressed by highly qualified sales engineers.
The result is a sales force with the specialized capabilities
Direction of Products Handled by Ryoyo
System Integration
Network
Computer Systems
Peripherals
ICs LSIs VLSIs Multimedia LSIs/Ultra-LSIs/System LSIs (System-on-a-chip)
Computer Systems and Peripherals
Strengthen and Promote Growth Fields� Cellular phones and digital consumer appliances expand the internet market� Servers expand the IT market and other infrastructure� Strengthen technological capabilities
Expand Computer Systems and Peripherals Sales� Service (Maintenance, SI, Hosting)� Network management, Application� OS (UNIX, Linux, Windows)� Systems (Servers, PCs, Printers, Monitors, Routers, S/W Hubs)
SemiconductorsSemiconductors
Expand Semiconductor Sales� Storage (Flash Memory, DRAM)� Key parts (MPU, MCU, DSP, System LSIs)
Strengthening Capabilities in the Internet Age
3
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required to support customer implementation of the
sophisticated products we market.
Our financial structure is also sound. Our emphasis
since 1992 on using internal resources and avoiding debt
in managing our transaction structure with overseas
manufacturers has resulted in strong cash flow
unimpeded by interest expenses.
Challenges and Initiatives for Future Growth
Looking forward to fiscal 2001 and beyond, digital
consumer appliances and mobile communications will
remain a focus as we reinforce our strengths in the
Internet age. In the cellular phone segment, we will
emphasize flash memory in executing development with a
one- to two-year time frame.
An increasing number of Japanese set manufacturers
are expanding their operations into Southeast Asia and
conducting development there. We will therefore offer
the same services in Singapore that we provide in Japan,
with the goal of becoming a regional distributor in Asia. In
support of this drive, we will strengthen the sales
capabilities of our subsidiaries in Singapore, Hong Kong
and Taiwan by adding in-market personnel and supporting
them with people dispatched from the head office. This
effort will be complemented by computer system
upgrades to track consolidated sales in real time and
speed information exchange.
We will also enhance coordination between engineers
and salespeople, both domestically and overseas.
Concurrently, we will strengthen our technology
development and promotion operations by outsourcing
engineers who can help us respond to the latest techno-
logical trends. Server applications will be representative.
They require a high level of technical knowledge, and we
will enhance our ability to provide sophisticated solutions
by deploying our financial strength and technical capabili-
ties in flexible alliances with specialized, technologically
advanced firms. Our competitiveness and ability to offer
maximum value will improve as a result.
A socially responsible company, Ryoyo is dealing with
environmental issues. Currently, we are launching an
internal company project aimed at obtaining ISO 14001
certification in January 2002.
Semiconductors are essential to industry and have
become the foundation of the modern social
infrastructure. The semiconductor market therefore
continues to have solid medium-term growth potential.
Our unique role as a technology-oriented distributor that
goes beyond the traditional intermediary business model
by generating revenue from customer development
support will become increasingly important. We are
therefore committing the resources necessary to provide
solutions that completely satisfy customers. Confident
that our strategies will continue to build corporate value,
we are counting on the continued support of our
stakeholders. Ryoyo will work to earn it, every day.
Motoyoshi Shimada
Chairman and Chief Executive Officer
Yoshihisa Shimada
President and Chief Operating Officer
4
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Manufacturer Semiconductors Computer Systems and Peripherals Ryoyo's Position Main Applications (Products)Start of
Marketing
Mitsubishi
Intel
Agilent Technologies
Cypress Semiconductor
Atmel
Macronix
Cirrus Logic
G-Link
Seiko Epson
Hewlett Packard
Sun Microsystems
Microsoft
Enterasys Networks
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
Top domestic dealer
Top domestic dealer
Top Asian dealer
No. 2 domestic dealer
No. 2 domestic dealer
No. 2 domestic dealer
Top domestic dealer
Top domestic dealer
Top domestic dealerfor corporate users
Top domestic dealer
Domestic master dealer
Only dealer of both OEMlicense and retail products
Started marketing
Cellular phones, Digital consumer appliances
PCs, Cellular phones, PDAs, Servers
Cellular phones, FA, Digital information appliances
Cellular phones, Base station equipment
Cellular phones, Digital information appliances Digital information appliances, Optical storage devicesDigital broadcasting equipment, Portable audio
Audio, OA, Optical storage devices
Printers, LCD projectors , PCs
PCs, UNIX servers, PC servers, Plotters
Servers, W/S
PCs, Servers, Embedded systems
High-speed switch routers
1961
1976
1976
1991
1992
1994
1998
1999
1978
1986
1988
1994
2000
Main Vendors
Ryoyo’s Role as a Technology-Oriented Distributor
The FutureOffering solutions that include products other than those handled by Ryoyo
From a Sales Agent to a Solution Provider
Until PresentProposals corresponding to the products handled
15 Years AgoProposals based on each product
Solution 1System solution proposals that bring together application knowledge and semiconductor knowledge from other companies.Solution 2System solution proposals in cooperation with outsourcing partners and other companies in relation to the development and design of software and hardware, and mass production.
Solution 3Outsourcing of the development and design of software and hardware, and mass production. In addition to customer suppliedproducts, provide customers with finished products.
� Ryoyo is able to offer solution proposals that make use of the Company's wide range of products.
� As a further step, Ryoyo is promoting total solutions by not only making use of products handled by Ryoyo but also integrating products from other companies.
� Ryoyo is preparing a range of solutions from made-to-order to mass produced finished products (including the development of prototypes and manufacturing products).
Customers
RYOYO AT A GLANCE
5
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REVIEW OF OPERATIONS
COMPUTER SYSTEMS AND PERIPHERALS
OTHERS
Fiscal 2000In fiscal 2000, ended January 31, 2001, Ryoyoshifted its emphasis in the semiconductor marketfrom personal computers to mobile communica-tions and digital consumer appliances. TheCompany also restructured its marketing andtechnical departments.
Consolidated net sales of semiconductorsincreased 64.1 percent year-on-year to ¥159,216million, driven by significant expansion in demandfor flash memory for cellular phones and solidgrowth in sales of system-on-a-chip for digitalconsumer appliances.
OutlookThe expanding cellular phone market was aprimary factor in Ryoyo’s success at generating
strong growth during fiscal 2000. However, infiscal 2001, ending January 31, 2002, marketconditions are expected to become difficultbecause of a slowdown in the U.S. economy,lackluster consumer spending and slower growthin the semiconductor market.
Ryoyo’s strategy for fiscal 2001 is to continueincreasing sales to the leading manufacturers ofcellular phones and digital consumer appliances.In addition, Ryoyo will dispatch personnel fromthe head office to its overseas subsidiaries andincrease the number of in-market staff tostrengthen marketing to Japanese customersactive in Asia. Ryoyo will also upgrade computersystems to create a management system capableof tracking real-time consolidated sales.
Ryoyo supplements its semiconductor businessand its computer systems and peripherals businessby handling products such as surface acoustic wave
(SAW) filters, contact image sensors and powersupply devices. In fiscal 2000, these operationsgenerated sales of ¥5,830 million.
Fiscal 2000The computer systems and peripherals businessfocuses on servers for network solutions. Ryoyois promoting sales through a network ofcompanies and has formed a cooperative group,Agile Club, to expand business opportunities bycooperating with leading specialized firms thatexcel in specific technological areas.
In fiscal 2000, the computer systems andperipherals business grew 3.4 percent year-on-year to ¥37,101 million. Sales of monitors forpersonal computers, a large business in fiscal1999, were discontinued in fiscal 2000. However,
solid demand for high-end products centered onservers supported the overall year-on-yeargrowth in sales.
OutlookIn fiscal 2001, Ryoyo will work to increase salesand enhance profitability by emphasizing serversin expanding sales of network solutions. In thisbusiness, customers with medium-sized systemswill be a core focus. In addition, Ryoyo launchedits e-commerce web site (http://www.ro-nt.com) in April 2000, and intends to expand salesthrough this channel.
SEMICONDUCTORS
97 98 99 00 01
94.0 91.881.2
97.0
159.2
Semiconductor Net Sales(¥ Billion)
97 98 99 00 01
23.9
27.726.1
35.9 37.1
Computer Systems and Peripherals Net Sales (¥ Billion)
6
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HP Servers
EPSON Printers Intel Consumer ProductsNEC-Mitsubishi Electric Visual Systems
Display Monitors
Sun Servers HP Inkjet PlottersIntel Servers
7
Microsoft Software
Mitsubishi Flash Memory
Agilent TechnologiesOptical Devices Macronix Flash MemoryAtmel Flash Memory
Mitsubishi MCU Intel Flash MemoryIntel MPU
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FINANCIAL REVIEW
Sales, Expenses and Income
For the fiscal year ended January 31, 2001,
sales increased 41.1 percent to ¥202,147
million. Cost of sales increased 41.3 percent
to ¥185,210 million, resulting in a 38.4
percent increase in gross profit to ¥16,937
million. The gross margin was 8.4 percent,
compared to 8.5 percent for the previous
fiscal year. Selling, general and administrative
expenses increased 2.1 percent, a rate
substantially below the rate of increase in
sales due to the success of ongoing cost
reduction programs and Ryoyo Electro’s
success in increasing order volume. Operating
income therefore increased 92.4 percent to
¥9,447 million, and the operating margin rose
to 4.7 percent from 3.4 percent for the
previous fiscal year.
Other expenses totaled ¥769 million,
compared to other income of ¥1,029 million
for the previous fiscal year. Primary factors
influencing the year-on-year change included a
one-time charge of ¥268 million to fund past
service cost of pension plan and a foreign
exchange loss of ¥205 million, compared to a
foreign exchange gain of ¥184 million for the
previous fiscal year. The Company values
marketable securities at the lower of cost or
market, with cost being determined by the
moving-average method. This resulted in
unrealized losses on marketable securities and
investments totaling ¥591 million.
Income before income taxes increased 46.1
percent to ¥8,678 million, while income taxes
Five-Year SummaryRYOYO ELECTRO CORPORATION AND CONSOLIDATED SUBSIDIARIESFor the years ended January 31
Thousands ofU.S. dollars
Millions of yen (Note)
2001 2000 1999 1998 1997 2001
For the year:Net sales ¥ 202,147 ¥143,304 ¥114,562 ¥126,838 ¥122,811 $1,742,643Operating income 9,447 4,909 2,870 5,082 4,984 81,443Net income 5,044 2,914 1,873 2,805 2,934 43,482
At year-end:Total assets ¥ 97,034 ¥ 91,318 ¥ 76,367 ¥ 74,252 ¥ 72,866 $ 836,497Total shareholders’ equity 66,556 61,726 59,471 58,275 56,098 573,757
U.S. dollarsYen (Note)
Per common share:Net income ¥ 155.47 ¥ 89.84 ¥ 57.73 ¥ 86.47 ¥ 90.42 $ 1.340Total shareholders’ equity 2,051.45 1,902.63 1,833.10 1,796.24 1,729.13 17.685Cash dividends 20.00 21.00 19.00 19.00 18.00 0.172
Ratios:Operating margin (%) 4.7 3.4 2.5 4.0 4.0Return on assets (%) 5.4 3.5 2.5 3.8 4.1Return on equity (%) 7.9 4.8 3.2 4.9 5.3
Note: U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥116.00 = U.S. $1, the approximate exchange rate prevailing on January 31, 2001.
97 98 99 00 01
5.0 5.1
2.9
4.9
9.4
Operating Income(¥ Billion)
97 98 99 00 01
5.3 5.5
3.1
5.9
8.7
Income before Income Taxes(¥ Billion)
8
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increased 33.5 percent to ¥4,038 million. The
implementation of inter-period tax allocation
accounting standards in conformity with tax
regulations that came into effect during the
fiscal year resulted in deferred taxes of ¥404
million. Net income therefore increased 73.1
percent to ¥5,044 million. Net income per
share increased 73.1 percent to ¥155.47. The
year-end cash dividend per share rose to
¥20.00, from ¥19.00 for the previous fiscal
year when the Company also issued a
commemorative dividend of ¥2.00 per share.
Liquidity and Financial Position
Net cash used in operating activities totaled
¥13,624 million. Net changes in assets and
liabilities tend to represent a use of cash
during periods of revenue growth because
Ryoyo Electro generally expends cash for
accounts payable in advance of receiving cash
from its customers. In the past fiscal year,
increases in trade notes and accounts
receivable and in inventories were the
primary factors reducing net cash generated
by operating activities. Operating cash flow,
defined as the sum of net income and
depreciation, totaled ¥5,305 million.
Working capital increased 8.5 percent from
a year earlier to ¥63,342 million, and the
current ratio stood at 3.2 to 1, compared to
3.0 to 1 a year earlier.
Net cash provided by investing activities
totaled ¥1,122 million, mainly because sales of
marketable securities exceeded purchases
thereof. Ryoyo Electro funds its operating
capital needs internally, and typically employs
marketable securities as a short-term cash
management vehicle. Payment for properties
and intangibles totaled ¥130 million.
Net cash used in financing activities totaled
¥692 million, mainly because of payments of
cash dividends totaling ¥694 million. As a
matter of management policy in place since
1992, the Company does not employ external
financing to fund capital requirements.
Cash and cash equivalents at the end of
the year stood at ¥15,269 million. Net
decrease in cash and cash equivalents totaled
¥13,114 million as the Company used internal
cash resources to fund net cash used in
operating activities.
Total assets stood at ¥97,034 million as of
January 31, 2001, an increase of 6.3 percent
from a year earlier. Return on average total
assets was 5.4 percent, compared to 3.5
percent for the previous fiscal year.
Total shareholders’ equity increased 7.8
percent from a year earlier to ¥66,556 million,
due to an increase in retained earnings. Return
on average total shareholders’ equity was 7.9
percent, compared to 4.8 percent for the
previous fiscal year. The ratio of debt to
equity stood at 0.44 to 1 compared to 0.47 to
1 a year earlier. Debt is defined as current
liabilities because Ryoyo Electro has no
long-term debt, and total capital therefore
equals shareholders’ equity. The ratio of
shareholders’ equity to total assets stood at
68.6 percent, compared to 67.6 percent a
year earlier.
97 98 99 00 01
4.13.8
2.5
3.5
5.4
Return on Assets(%)
97 98 99 00 01
5.34.9
3.2
4.8
7.9
Return on Equity(%)
97 98 99 00 01
56.1
72.9
58.3
74.3
59.5
76.4
61.7
91.3
66.6
97.0
97 98 99 00 01
1,729.131,796.24
1,833.101,902.63
2,051.45
Total Shareholders’ Equity per Share(¥)
Total Assets/Total Shareholders’ Equity(¥ Billion)
� Total Assets� Total Shareholders’ Equity
9
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RYOYO ELECTRO CORPORATION AND CONSOLIDATED SUBSIDIARIESAt January 31, 2001 and 2000
CONSOLIDATED BALANCE SHEETS
Thousands ofU.S. dollars
Millions of yen (Note 1)
2001 2000 2001ASSETS
Current assets:Cash on hand and in banks ¥15,269 ¥28,383 $131,629Marketable securities (Note 3) 1,455 3,348 12,547Notes and accounts receivable – trade 61,212 46,696 527,692Inventories 13,891 8,399 119,751Deferred income taxes – current (Note 4) 522 – 4,500Other current assets 764 730 6,582Less: allowance for doubtful accounts (341) (335) (2,942)
Total current assets 92,772 87,221 799,759
Investments and advances:Investments in securities 1,928 1,666 16,616Other investments 996 1,793 8,589Less: allowance for doubtful accounts (1) (20) (9)
Total investments and advances 2,923 3,439 25,196
Property, plant and equipment:Furniture and equipment 545 988 4,696Land 5 5 49Other property and plant 544 549 4,688Less: accumulated depreciation (783) (1,141) (6,749)
Property, plant and equipment – net 311 401 2,684
Intangibles and deferred charges:Cost of software 480 – 4,133Deferred income taxes – non-current (Note 4) 412 – 3,549Other intangibles 14 14 123
Total intangibles and deferred charges 906 14 7,805
Foreign currency translation adjustment 122 243 1,053Total assets ¥97,034 ¥91,318 $836,497
The accompanying notes are an integral part of the consolidated financial statements.
10
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Thousands ofU.S. dollars
Millions of yen (Note 1)
2001 2000 2001LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:Notes and accounts payable – trade ¥25,985 ¥25,877 $224,004Income taxes payable 2,565 2,106 22,114Consumption tax payable 242 175 2,086Accrued bonuses 257 214 2,217Other 381 494 3,282
Total current liabilities 29,430 28,866 253,703
Long-term liabilities:Accrued retirement benefits to employees 565 541 4,868Accrued retirement benefits to directors and statutory auditors 183 166 1,579Other 300 19 2,590
Total long-term liabilities 1,048 726 9,037Total liabilities 30,478 29,592 262,740
Shareholders’ equity:Common stock, par value ¥50 per share (2001 and 2000):
Authorized: 120,000,000 sharesIssued: 32,443,598 shares 13,672 13,672 117,862
Additional paid-in capital 13,337 13,337 114,970Retained earnings 39,548 34,719 340,929Less: treasury stock (1) (2) (4)
Total shareholders’ equity 66,556 61,726 573,757Total liabilities and shareholders’ equity ¥97,034 ¥91,318 $836,497
11
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RYOYO ELECTRO CORPORATION AND CONSOLIDATED SUBSIDIARIESFor the years ended January 31, 2001 and 2000
CONSOLIDATED STATEMENTS OF INCOME
Thousands ofU.S. dollars
Millions of yen (Note 1)
2001 2000 2001
Sales ¥202,147 ¥143,304 $1,742,643Cost of sales 185,210 131,062 1,596,634
Gross profit 16,937 12,242 146,009
Selling, general and administrative expenses 7,490 7,333 64,566Operating income 9,447 4,909 81,443
Other income (expenses):Interest and dividend income 198 340 1,709Gains on sales of marketable securities 54 574 467Foreign exchange gain (loss) – net (205) 184 (1,767)Unrealized losses on marketable securities and investments (591) (103) (5,101)Past service cost of pension plan (268) – (2,309)Other – net 43 34 367
(769) 1,029 (6,634)Income before income taxes 8,678 5,938 74,809
Income taxes (Note 4):Current 4,038 3,024 34,807Deferred (404) – (3,480)
3,634 3,024 31,327Net income ¥ 5,044 ¥ 2,914 $ 43,482
U.S. dollarsYen (Note 1)
2001 2000 2001
Per share of common stock (Note 6):Net income ¥155.47 ¥89.84 $1.340Cash dividends applicable to the year 20.00 21.00 0.172
The accompanying notes are an integral part of the consolidated financial statements.
12
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RYOYO ELECTRO CORPORATION AND CONSOLIDATED SUBSIDIARIESFor the years ended January 31, 2001 and 2000
Thousands ofU.S. dollars
Millions of yen (Note 1)
2001 2000 2001Common stock:
Balance at beginning of year ¥13,672 ¥13,672 $117,862Balance at end of year 13,672 13,672 117,862
Additional paid-in capital:Balance at beginning of year 13,337 13,337 114,970Balance at end of year 13,337 13,337 114,970
Retained earnings:Balance at beginning of year 34,719 32,463 299,304Deferred tax effect at beginning of year (Note 4) 530 – 4,570Cash dividends (697) (616) (6,013)Bonuses to directors (48) (42) (414)Net income for year 5,044 2,914 43,482Balance at end of year 39,548 34,719 340,929
Treasury stock, at cost (1) (2) (4)(2001: 348 shares)Total shareholders’ equity at end of year ¥66,556 ¥61,726 $573,757The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
13
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RYOYO ELECTRO CORPORATION AND CONSOLIDATED SUBSIDIARIESFor the year ended January 31, 2001
Thousands ofU.S. dollars
Millions of yen (Note 1)
2001 2001Cash flows from operating activities:
Income before income taxes ¥ 8,678 $ 74,809Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 261 2,251Losses on disposal and sale of property, plant and equipment 46 396Unrealized losses on marketable securities 425 3,666Unrealized losses on investments in securities 36 310Foreign exchange (gain) loss – net (10) (88)Increase in allowances 71 614Interest and dividends income (198) (1,709)Gains on sales of marketable securities (54) (467)Gains on sales of investments in securities (15) (125)Increase in notes and accounts receivable – trade (14,402) (124,154)Increase in inventories (5,451) (46,994)Increase in notes and accounts payable – trade 8 67Increase in consumption taxes payable 67 576Increase in other long-term liabilities 282 2,429Other 15 131Sub-total (10,241) (88,288)
Interest and dividend income received 200 1,728Income taxes paid (3,583) (30,891)
Net cash used in operating activities (13,624) (117,451)
Cash flows from investing activities:Purchases of marketable securities (7,241) (62,426)Proceeds from marketable securities 8,762 75,533Payments for properties and intangibles (130) (1,120)Payments for investments in securities (310) (2,673)Proceeds from investments in securities 27 235Other 14 122
Net cash provided by investing activities 1,122 9,671
Cash flows from financing activities:Cash dividends paid (694) (5,986)Other 2 20
Net cash used in financing activities (692) (5,966)Effect of exchange rate changes on cash and cash equivalents 80 695Net decrease in cash and cash equivalents (13,114) (113,051)Cash and cash equivalents at beginning of year 28,383 244,680Cash and cash equivalents at end of year ¥15,269 $131,629The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
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1. Basis of Presenting the ConsolidatedFinancial StatementsThe accompanying consolidated financial statements ofRyoyo Electro Corporation (the "Company") and itssubsidiaries have been prepared in accordance with theprovisions set forth in the Japanese Commercial Code andthe Securities and Exchange Law, and in conformity withaccounting principles and practices generally accepted inJapan, which are different in certain respects from theapplication and disclosure requirements of internationalaccounting standards.
Certain items presented in the consolidated financialstatements filed with the Ministry of Finance in Japan havebeen reclassified for the convenience of readers outsideJapan.
The accompanying consolidated financial statements arenot intended to present the consolidated financial positionand the consolidated results of operations and cash flows inaccordance with accounting principles and practicesgenerally accepted in countries and jurisdictions other thanJapan.
Amounts in United States dollars are presented solely forthe convenience of readers outside Japan. The rate of JP¥116.00 = U.S. $ 1.00, the approximate rate of exchangeprevailing on January 31, 2001 has been used for thetranslation. The inclusion of such amounts is not intendedto imply that Japanese yen have been or could be readilyconverted, realized or settled in U.S. dollars at the aboveor any other rate.
2. Summary of Significant Accounting Policies
(a) Basis of consolidationAs at January 31, 2000 and 2001, the Company had fouroverseas subsidiaries. The consolidated financialstatements include the accounts of the Company and itstwo significant subsidiaries. The accounts of the remainingtwo subsidiaries whose combined assets, net sales, netincome and retained earnings are not significant in therelated consolidated totals have not been consolidated withthe Company’s results. Investments in these non-consoli-
dated subsidiaries are stated at cost. The financial year of the consolidated subsidiaries is the
calendar year, starting on January 1 and ending onDecember 31, while the consolidated financial statementsare prepared as at, and for years ended January 31. Allsignificant transactions which occurred during the periodfrom January 1 to January 31 have been adjusted inpreparing the consolidated financial statements.
(b) Consolidated statement of cash flows and cashand cash equivalentsThe presentation of consolidated statements of cash flowshas become mandatory with effect from the year endedJanuary 31, 2001, pursuant to the recent amendment indisclosure regulations in Japan. For the purpose of cashflow statements, cash and cash equivalents comprise cashon hand, bank deposits readily withdrawn on demand andother short-term investments which are highly liquid andrepresent insignificant risk of changes in value, generallywith original maturity of three months or less.
(c) InventoriesInventories primarily comprise merchandise and are statedat cost. During the year, the Company changed the basis ofdetermination of inventory costs from the first-in, first-outmethod to the moving average method to exclude theeffect of price fluctuations on the periodical income. Thischange was made in line with the restructuring of theCompany’s computer system to improve its operationalefficiency. While this change better allocates the cost ofinventories, it does not have a material impact on theCompany's results and financial condition. Costs of theconsolidated subsidiaries' inventories are determined onthe first-in, first-out method.
(d) Valuation of securitiesMarketable securities and certain investments in securitieswhich are listed on stock exchanges or traded on over-the-counter markets are stated at the lower of cost or market;cost being determined on the moving-average method.
Other securities are valued at cost; cost beingdetermined on the moving-average method.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(e) Property, plant and equipmentProperty, plant and equipment are stated at cost.Depreciation of the property, plant and equipment iscomputed on the declining-balance method for theCompany and on the straight-line method for the consolidated subsidiaries at rates based on the estimateduseful lives of the assets.
Finance leases other than those which are deemed totransfer the ownership of the leased assets to lessees areaccounted for using a method similar to that used foroperating leases.
(f) IntangiblesAmortization of intangibles is computed using the straight-line method.
Effective from the fiscal year ended January 31, 2001, theCompany has adopted the new accounting standard forresearch and development costs issued by the BusinessAccounting Deliberation Council of the Ministry of Financein March 1998.
As a result, software held for internal use has beenreclassified from other investments to costs of softwareincluded in intangibles. Costs of software purchased and/ordeveloped for internal use are amortized on a straight-linebasis over the expected useful lives of 5 years.
(g) Retirement plans and benefitsAccrued retirement benefits have been provided at theamount which would be required if all employeesterminated their employment voluntarily at the balancesheet date, less related benefits provided by a fundedpension plan.
Effective from the fiscal year ended January 31, 2001, thepast service cost of the pension plan is expensed whenincurred, whereas in prior years contributions correspond-ing to the amortization of the past service cost wereexpensed when paid. This change was made to improvethe Company’s financial health by amortizing the pastservice cost promptly, given the deteriorating investmentenvironment which has seen continuing declines in bothinterest rates and stock prices since the collapse of thebubble economy.
As a result of this change, the past service cost,amounting to ¥268 million, has been charged to income forthe year ended January 31, 2001.
The Company has also provided for retirement benefitsto its directors and statutory auditors based on theestimated amounts to be paid pursuant to the internalregulations.
(h) Income taxesThe provision for income taxes is computed based on thepretax income included in the consolidated statements ofincome. In accordance with the amended regulations forpreparation of consolidated financial statements, with effectfrom the year ended January 31, 2001, the Company hasadopted the deferred tax accounting method. As a result,the Company recognized deferred tax assets with anaggregate amount of ¥934 million (current: ¥522 million,non-current: ¥412 million, respectively) as at January 31,2001. This change has increased consolidated retainedearnings and net income for the year ended January 31,2001 by ¥934 million and ¥404 million, respectively.
(i) Consumption taxConsumption tax is imposed at a flat rate on all domesticconsumption of goods and services, with certainexemptions. The consumption tax imposed on sales tocustomers is withheld at the time of sale and is paid to thegovernment subsequently. The consumption taxes withheldon the sale, and paid on the purchase of goods andservices, are excluded from revenues and expenses in theaccompanying statements of income.
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3. Marketable SecuritiesAs at January 31, 2001, the aggregate cost, market valueand net unrealized gain on equity securities and othersecurities were as follows:
Millions of yen
Book value Market Unrealized value* gain
Equity securities ¥ 861 ¥ 875 ¥14Other 594 594 –Total ¥1,455 ¥1,469 ¥14
Thousands of U.S. dollars
Book value Market Unrealized value* gain
Equity securities $ 7,428 $ 7,546 $118Other 5,119 5,119 –Total $12,547 $12,665 $118
* Market value of listed securities primarily represents the closing prices on theTokyo Stock Exchange. Market value of unlisted investment trust beneficiarycertificates represents the standard price of the certificates.
4. Deferred TaxesThe Company adopted deferred tax accounting startingfrom the year ended January 31, 2001 in conformity withthe amended regulations for preparation of consolidatedfinancial statements in Japan.
As at January 31, 2001, the significant components ofdeferred tax assets were as follows:
Millions of Thousands of yen U.S. dollars
Deferred tax assets:Accrued enterprise taxes ¥215 $1,850Unrealized losses on marketable securities 173 1,490Accrued retirement benefits to employees 159 1,372Past service cost of pension plan 113 971Accrued retirement benefits to directors 77 664Other 197 1,702
Total ¥934 $8,049
The cumulative effect of deferred tax accounting at thebeginning of the year ended January 31, 2001 is reflected inretaining earnings at an aggregate amount of ¥530 million.
5. Finance LeasesCertain pro forma information on finance leases other thanthose which are deemed to transfer the ownership of theleased assets to lessees is summarized as follows:
(a) Acquisition cost, accumulated depreciationand remaining balance
Millions of yen
Cost Accumulated Balance depreciation
Furniture and equipment: As at January 31, 2001 ¥57 ¥43 ¥14
Thousands of U.S. dollars
Cost Accumulated Balance depreciation
Furniture and equipment: As at January 31, 2001 $493 $372 $121
(b) Future minimum lease payments underlease contracts
Millions of Thousands of yen U.S. dollars
Due within one year ¥ 9 $ 74Due after more than one year 5 47Total ¥14 $121
The amounts of costs and the future minimum leasepayments under finance lease contracts include the interestexpense portion.
The lease payment during the year ended January 31,2001 was ¥11 million.
6. Net Income and Dividends per ShareNet income per share of common stock is computed basedupon the weighted average number of shares of commonstock outstanding during each year. Cash dividends pershare shown for each period in the accompanying consoli-dated statements of income represent dividends declaredas applicable to the respective periods. Information ondiluted earnings per share is not disclosed, because therewere no warrants or convertible debts outstanding as atJanuary 31, 2001 and 2000.
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7. Information on Derivatives
(a) Company policy and objectives of derivativetransactionsThe Company uses foreign exchange forward contracts tohedge the exposure to unfavorable changes in foreigncurrency exchange rates associated with trade receivablesand payables denominated in foreign currencies.
The Company also enters into transactions with optionfeatures for certain short periods to earn investmentincome. However, the Company does not hold or issuederivative transactions for speculative purposes.
(b) Risks of transactions and management of such risksDerivative instruments that the Company uses have riskassociated with changes in market prices and/or foreignexchange rates. However, management believes that thecredit risk associated with the transactions that theCompany has entered into is minimal as the Companytrades such derivatives with creditworthy financial institutions.
The Company has established its own internal rules tomanage risks associated with derivative transactions. Propersegregation of duties has been established and derivativetransactions have been executed and monitored by thefinance and accounting departments. Key information,including notional amounts, performance of the transactions,and unrealized gains and losses, is reported to the monthlyBoard of Directors meetings and monitored regularly.
(c) Market value informationMarket value information on derivative transactions held asat January 31, 2001 is summarized as follows:
Millions of yen
Contract/ Market Unrealized notional value gain (loss)amount
Forward exchange contracts: Buy U.S. dollars ¥122 ¥121 ¥(1)
¥122 ¥121 ¥(1)
Thousands of U.S. dollars
Contract/ Market Unrealized notional value gain (loss)amount
Forward exchange contracts: Buy U.S. dollars $1,051 $1,044 $(7)
$1,051 $1,044 $(7)
The above contracts outstanding at January 31, 2001 weredue within one year.
8. Segment Information
(a) Business segmentsBusiness segment information is not disclosed for the yearsended January 31, 2001 and 2000, because the Companyand its subsidiaries are all engaged in the trading of semicon-ductors, computer systems and peripherals and others,which are considered by management to be a single businesssegment.
(b) Geographical segments and overseas salesInformation on geographical segments and overseas sales isnot disclosed for the years ended January 31, 2001 and2000, because neither sales nor assets held in countriesother than Japan are material.
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To the Board of Directors
Ryoyo Electro Corporation:
We have audited the accompanying consolidated balance sheets of Ryoyo Electro Corporation ("the Company") and itsconsolidated subsidiaries as of January 31, 2001 and 2000, the related consolidated statements of income and shareholders’equity for the years then ended, and the related consolidated statement of cash flows for the year ended January 31, 2001, allexpressed in Japanese yen. Our audits were made in accordance with auditing standards, procedures and practices generallyaccepted and applied in Japan and, accordingly, included such tests of the accounting records and such other auditingprocedures as we considered necessary in the circumstances.
In our opinion, the consolidated financial statements referred to above present fairly the consolidated financial position ofRyoyo Electro Corporation and its consolidated subsidiaries as of January 31, 2001 and 2000, the consolidated results of theiroperations for the years then ended, and the consolidated results of their cash flows for the year ended January 31, 2001 inconformity with accounting principles and practices generally accepted in Japan (see Note 1) applied on a consistent basis,except for the change, with which we concur, in the method of recognizing the past service cost of the pension plan asdescribed in Note 2 (g) to the accompanying consolidated financial statements.
As described in Note 2 (b), (f ) and (h), effective from the year ended January 31, 2001, the Company has adopted newJapanese accounting standards for the preparation of consolidated financial statements, research and development expensesand for income taxes.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, have been translated onthe basis set forth in Note 1 to the accompanying consolidated financial statements.
ChuoAoyama Audit Corporation
Tokyo, Japan
April 26, 2001
Notice to readers
The accompanying financial statements are not intended to present the financial position and results of operations and cash flows in accordancewith accounting principles and practices generally accepted in countries and jurisdictions other than Japan. The standards, procedures andpractices to audit such financial statements are those generally accepted and applied in Japan.
REPORT OF INDEPENDENT ACCOUNTANTS
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CORPORATE DATA
Board of Directors and Corporate Auditors (As at April 26, 2001)
Sales Network (As at January 31, 2001)
Chairman, C.E.O.Motoyoshi Shimada
President, C.O.O.Yoshihisa Shimada
Senior Managing DirectorKenhachiro Ogawa
Managing DirectorsYukio SatoTakeo SekiguchiShiro KitoToshiaki Mouri
DirectorFumio Yasunaga
Standing Statutory AuditorSusumu Morikawa
Statutory AuditorsHiroji OmiTsuyoshi ShionoiriAkio Tanaka
Executive General ManagersTakahiro KajiMunekazu HatsukawaYutaka HorikiriShunji MioShigeo InookaFukuo Kaneko
Ryoyo Electro Singapore Pte., Ltd.
396 Alexandra Road, #14-02
BP Tower, Singapore 119954
Phone: +65-276-9636
Fax: +65-276-9639
Ryoyo Electro Hong Kong Ltd.
Suite No.4, 11/F, Sino Plaza, 256-257
Gloucester Road, Causeway Bay,
Hong Kong
Phone: +852-2573-7418
Fax: +852-2834-6131
Ryoyo Electro Taiwan Co., Ltd.
Room 802, 8th Floor, No.96, Chung
Shan North Road, Section 2, Taipei,
Republic of China
Phone: +886-2-2511-8766
Fax: +886-2-2511-6202
Ryoyo Electro USA, Inc.
P.O. Box 15545
Fremont, CA 94539 U.S.A.
Taiwan
SendaiKoriyamaKumagaya
Tokyo Headquarters
Yokohama
ShizuokaNagoya
Osaka
Hachioji
Matsumoto
Fukuoka
Kyoto
Ueda
U.S.A.
Hong Kong
Singapore
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Corporate Name: Ryoyo Electro Corporation
Address: Konwa Building, 1-12-22 Tsukiji, Chuo-ku, Tokyo 104-8408Phone: +81-3-3543-7711
Fax: +81-3-3545-3507
Date of Incorporation: February 27, 1961
Paid-in Capital: ¥13,672 million
Authorized Shares: 120,000,000
Outstanding Shares: 32,443,598
Number of Shareholders: 5,461
Stock Listings: Tokyo Stock Exchange, First Section
Ticker Code: 8068
Transfer Agent: Nippon Trust Bank, Ltd.
Composition of ShareholdersThousands of
Shares %
Financial institutions 12,389 38.19
Individuals and other 11,085 34.17
Other corporations 5,812 17.91
Foreign corporations and other foreign investors 2,372 7.31
Securities companies 785 2.42
Major ShareholdersThousands of
Shares %
Japan Trustee Services Bank, Ltd. 3,063 9.44
Touri Corporation 2,300 7.09
The Mitsubishi Trust and Banking Corp. (money trust) 2,048 6.31
Motoyoshi Shimada 1,068 3.29
Mitsubishi Electric Corporation 936 2.89
SHC Corporation 918 2.83
The Toyo Trust and Banking Co., Ltd. (money trust A) 735 2.27
The Mizuho Trust and Banking Co., Ltd. (money trust A) 576 1.78
The Bank of Tokyo-Mitsubishi, Ltd. 534 1.65
Sheep Shokai Co., Ltd. 523 1.61
Stock Price Range and Trading Volume
INVESTOR INFORMATION (As at January 31, 2001)
1,000
1,500
2,000
2,500
00/2 3 4 5 6 7 8 9 10 11 12 01/1
00/2 3 4 5 6 7 8 9 10 11 12 01/1
0
1,000
2,000
3,000
4,000Monthly trading volume (thousands of shares)
Common stock price range (¥)
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