UNITIKA LTD.

In connection with the Naha Airport runway extension land reclamation works, Toa Corporation and two other companies have filed a damages lawsuit alleging strength deterioration and breakage of the high-elongation sand-protection sheet used in the project. The claimed amount is ¥1,835 million (reduced by a petition filed in January 2024) plus delay damages. A total of five companies, including the Company and its consolidated subsidiary Nippon Ester Co., Ltd., are named as defendants, and the case is currently in litigation. The Company intends to defend itself appropriately by demonstrating the errors in the plaintiffs' claims.

In connection with caisson fabrication works at Shimonoseki Port, Sumiyoshi Kogyo Co., Ltd. has filed a damages lawsuit alleging breakage and strength deterioration of the high-elongation sand-protection sheet used in the project. The claimed amount is ¥60 million plus delay damages. A total of five companies, including the Company and its consolidated subsidiary Nippon Ester Co., Ltd., are named as defendants, and the case is currently in litigation. The Company intends to defend itself appropriately by demonstrating the errors in the plaintiffs' claims.

There is a risk that appropriate financial reporting may not be achieved due to improper accounting practices or similar issues. Should this risk materialize, it could have a material impact on the Group's business results and financial condition through loss of credibility, decreased sales, and the incurrence of damages compensation costs. The Group strives to reduce this risk through the development and operation of internal controls.

If a serious product defect arising from an unforeseeable cause were to occur, the Group could incur recall costs, damage to its social credibility, and compensation and litigation expenses, which could affect its business results and financial condition. The Group addresses this risk through thorough quality control and by maintaining insurance coverage in preparation for product accidents.

If personal information or other important information were to be leaked externally due to unauthorized access by employees, outsourcing partners, or others, the Group could face damages claims, administrative investigations, guidance, or sanctions, and could incur response costs and reputational damage that affect its business results and financial condition. The Group has established information management regulations and strives for rigorous information management.

If a serious accident or disaster were to occur, particularly at factories handling chemical substances such as synthetic fiber raw materials, the Group could face a decline in social credibility, costs for compensation and other countermeasures, and opportunity losses from the suspension of production activities, which could affect its business results and financial condition. The Group addresses this risk through both preventive and post-incident risk management measures.

The major products of the Polymer Business and the Synthetic Fiber Business are processed from naphtha-derived chemical raw materials. If the Group is unable to absorb fluctuations in the purchase prices of petrochemical raw materials and fuel, including heavy oil and natural gas, through pass-through to product prices or productivity improvements, it may be unable to secure sufficient spreads, which could affect its business results and financial condition. The Group's basic policy is to pass through price changes in a timely manner and to absorb the remainder through internal efforts.

For items involving transactions denominated in local currencies in overseas businesses, fluctuations in exchange rates may affect sales and costs after conversion into yen, which could adversely affect the Group's business results and financial condition. Interest rate fluctuation risk may similarly affect business results and financial condition. The Group's basic policy is to conduct transactions in yen while striving to manage such risks.

As the Group conducts business in regions such as East Asia, Europe, and the Americas, the occurrence of unforeseeable political, economic, or social changes and other country risks could affect its business results and financial condition. The Group strives to avoid the occurrence of such risks and to minimize their impact.

With respect to tangible and intangible fixed assets, the Group may recognize impairment losses due to significant changes in the business environment or deterioration in profitability, which could affect its business results and financial condition. In accordance with accounting standards for impairment of fixed assets, the Group carefully examines indications of impairment, and recognizes and measures impairment based on calculations of estimated future cash flows and other factors.