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Risk Factors

Listed below are the principal business risks of Nippon Chemi-Con that may have a significant influence on operating results, stock price and financial status. All references to possible future developments in the following text were made by Nippon Chemi-Con Group as of June 27, 2019, the day we submitted financial statements.

1. Risks concerning economic conditions

Nippon Chemi-Con Group's principle business is manufacturing and sales of capacitors and other electronic components.
Our business has expanded globally, covering regions including Japan, Americas, Europe and Asia, and therefore, changes in the economic conditions of these regions and countries, where our products are sold, have the potential to impact the business results and financial position of Nippon Chemi-Con Group.

2. Risks concerning exchange rate fluctuations

Products of Nippon Chemi-Con Group are sold not only in Japan but also in Americas, Europe and Asia, and the proportion of consolidated net sales accounted for by overseas sales stood at 77.6% in the FY2017, and 77.8% in the FY2018. Although we forward exchange contracts to hedge the risk of exchange rate fluctuations, it is impossible to eliminate all such risk, and therefore such fluctuations may affect the business results of Nippon Chemi-Con Group. In preparing consolidated financial statements, those of our foreign affiliates are converted to JPY. Even if the values remain unchanged in local currencies, yen translations may fluctuate and thereby affect our business results.

3. Risks concerning price competition

Emerging manufacturers from China and Taiwan are increasing cost competition in aluminum electrolytic capacitors, which is the core product among electronic components manufactured and sold by Nippon Chemi-Con Group.
Although we deal with the intensified competition by reducing costs, developing high-value added products and reorganizing overseas production system, the increased competition at the lower end of the market may affect business results and financial position of Nippon Chemi-Con Group.

4. Risks concerning price volatility of raw materials

Increase in the purchase price of raw materials including aluminum foil and heavy oil may push up the cost of our products. Nippon Chemi-Con Group is taking risk avoidance measures such as continuously reducing costs by promoting local procurement at overseas manufacturers and improving productivity, however, rapid rise in the price of raw materials may influence the business results and financial position of Nippon Chemi-Con Group.

5. Risks concerning product defects

Nippon Chemi-Con Group manufactures products at world-wide production sites, in accordance with the internationally recognized quality control standard, however, we can not guarantee that all products will be totally free of defects. Although we are covered by product liability insurance, we can not guarantee that final compensation will be fully covered by insurance payouts. Nippon Chemi-Con Group is dedicated to strengthen the quality control, however, large-scale defects in its products may influence the business results and financial position of Nippon Chemi-Con Group.

6. Risks concerning laws and public regulations

Significant changes in laws and public regulations in regions both at home and overseas, where Nippon Chemi-Con Group operates its business, may influence the business results and financial position of Nippon Chemi-Con Group. Besides expenses to comply with such regulations, criminal penalties and administrative actions including governmental charges or payment of compensation in case of violation against laws and public regulations, may also influence the business results and financial position of Nippon Chemi-Con Group.
Nippon Chemi-Con Group's business is subject to environmental regulations, and introduction of new regulations or the significant changes in the existing ones may pose the risk of environmental responsibility to Nippon Chemi-Con Group.
Nippon Chemi-Con Group is using legal means to respond to some decisions by the competition law authorities of various countries to assess fines against our Group in relation to aluminum electrolytic capacitor transactions.
In September 2018, the Korea Fair Trade Commission reached a decision involving claims of a violation of Korea's Fair Trade act in relation to our electrolytic capacitor manufacturing and sales. Their decision includes a corrective action order, a fine, and criminal charges. In November 2018, we received the official resolution from the Korea Fair Trade Commission, which outlined a fine of 4,176 million won. Our recognition and understanding differs from those of the Korea Fair Trade Commission, and we cannot accept this ruling on the corrective action order and fine assessment. As such, we have filed an appeal with the Seoul High Court.
In May 2018, we decided to agree to a settlement with the U.S. Department of Justice involving a monetary settlement in response to a lawsuit claiming a violation of U.S. antitrust laws and alleging that Nippon Chemi-Con engaged in a price cartel and pricing collusion for electrolytic capacitors.In October 2018, the legal settlement was approved by the U.S. District Court for the Northern District of California, and the amount of the fine to be paid was set at US $60 million.
Separately from the above, civil lawsuits have been filled against Nippon Chemi-Con and our subsidiaries in relation to this case in the United States and Canada.
If these legal proceedings result in unfavorable verdicts, there is the possibility of an impact on the business results and financial position of Nippon Chemi-Con Group.

7. Risks concerning natural disaster and unpredictable events

Halt in production caused by destruction of facilities and lack of power and water supplies, attributed to natural disasters or unpredictable events, may influence the business results and financial position of Nippon Chemi-Con Group.