NPSCY Nippon Steel Corporation (PK)

Risk Factors

Prior to making a decision on the Share Exchange, you should carefully consider, along with other matters set out in this prospectus, the following considerations.

Risks Relating to the Share Exchange

The exchange ratio for the Share Exchange has been fixed and will not be adjusted to reflect subsequent changes in the market prices of either Nisshin Steel’s common stock or our common stock. As a result, the value of the shares of our common stock that you receive in the Share Exchange may be less than the market price of our common stock when you vote on the Share Exchange.

Upon the completion of the Share Exchange, each share of Nisshin Steel’s common stock will be exchanged for 0.71 shares of our common stock. The ratio at which Nisshin Steel’s common stock will be exchanged for our common stock was fixed on May 16, 2018, the date the Share Exchange was publically announced, and will not be adjusted to reflect subsequent changes in the market prices of either Nisshin Steel’s common stock or our common stock. Therefore, even if the relative market prices of Nisshin Steel’s common stock or our common stock change, there will be no change in the number of shares of our common stock that shareholders of Nisshin Steel will receive in the Share Exchange.

Any change in the market price of our common stock that occurs prior to the effective date of the Share Exchange—which is expected to be approximately four months after Nisshin Steel’s extraordinary general meeting of shareholders—will affect the value that holders of Nisshin Steel’s common stock receive in the Share Exchange. Therefore, the value of the shares of our common stock that you receive in the Share Exchange may be higher or lower than the indicative value as of the date of this prospectus or as of the date of the extraordinary general meeting of Nisshin Steel shareholders, depending on the prevailing market price of our common stock. If (i) a material change in our financial condition or results of operations or in those of Nisshin Steel occurs or is identified, (ii) an event which may materially disrupt the execution of the Share Exchange occurs or is identified or (iii) it has become difficult to consummate the objectives of the Share Exchange, during the period from the date of the Share Exchange Agreement to the effective date of the Share Exchange, we and Nisshin Steel may amend the terms and conditions of the Share Exchange or terminate the Share Exchange Agreement in good-faith consultation with each other and by mutual agreement.

The market prices of Nisshin Steel’s common stock and our common stock are subject to general price fluctuations in the market for publicly traded equity securities and have experienced significant volatility in the past. Market price changes may result from a variety of factors, including factors that are beyond our control and the control of Nisshin Steel, including actual changes in, or investor perception of, our and Nisshin Steel’s respective businesses, operations and prospects. Regulatory developments, current or potential legal proceedings and changes in general market and economic conditions may also affect the market prices of Nisshin Steel’s common stock or our common stock.

You should obtain and review recent market quotations for Nisshin Steel’s common stock and our common stock before voting on the Share Exchange. However, there is no assurance as to (i) the market price of Nisshin Steel’s common stock or our common stock before the completion of the Share Exchange or (ii) the market price of our common stock at any time after the completion of the Share Exchange.

It will not be possible to trade shares of Nisshin Steel’s common stock during certain periods in connection with the Share Exchange.

In connection with the Share Exchange, Nisshin Steel’s common stock will be delisted from the TSE. Under the current schedule and assuming the Share Exchange is completed, the last day of trading in shares of Nisshin Steel’s common stock on the TSE is expected to be December 25, 2018, three trading days prior to the effective

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date of the Share Exchange. Holders of shares of Nisshin Steel’s common stock who will receive shares of our common stock in the Share Exchange are expected to be able to sell such shares beginning on January 4, 2019. As a result, holders of shares of Nisshin Steel’s common stock will not be able to trade their shares, or the shares of our common stock that they will be entitled to receive when the Share Exchange is completed, during the period between the delisting of Nisshin Steel’s common stock and January 3, 2019. Accordingly, holders of Nisshin Steel’s common stock will be subject to the risk of not being able to liquidate their shares at the timing they desire.

Turning Nisshin Steel into a wholly owned subsidiary may not produce the benefits we anticipate.

We aim to realize the maximum effects of synergies at an early stage by accelerating the mutual utilization of management resources and further promoting deeper alliance within our group. However, there can be no assurance that we will be able to achieve these benefits as planned. In order to do so, our and Nisshin Steel’s respective operations will need to be reorganized and our and Nisshin Steel’s resources will need to be combined in a timely, efficient and flexible manner. There can be no assurance that we will be able to implement these steps as planned. Furthermore, the costs and expenses that we incur in the course of the Share Exchange and the subsequent integration of Nisshin Steel’s operations, including systems integration costs, financial advisory, legal and accounting fees and expenses, arrangement fees to financial institutions, filing fees, printing expenses and other related charges—as well as costs incurred by Nisshin Steel in compensating dissenting shareholders who exercise their appraisal rights—may exceed our expectations. If we fail to integrate Nisshin Steel’s operations as currently planned, or at the level of cost we currently estimate, or if the synergies that we expect to result from turning Nisshin Steel into a wholly owned subsidiary fail to materialize, the Share Exchange may not produce the benefits we anticipate.

We anticipate that making Nisshin Steel a wholly owned subsidiary will result in a positive effect on our financial condition, including with respect to the tax consequences of the Share Exchange for us. However, there can be no assurance that the results that we anticipate will be realized.

Moreover, after making Nisshin Steel our wholly owned subsidiary through the Share Exchange, we aim to maximize synergies by integrating the stainless steel sheet businesses of us, Nisshin Steel and Nippon Steel & Sumikin Stainless Steel Corporation (“NSSC”). Although we plan to take advantage of each company’s management resources for the stainless steel sheet business as well as integrate business strategies and create further synergies by making organizational and operational systems more efficient and creating value for our customers through the provision of products and processing technology, there can be no assurance that our efforts will produce any of the anticipated benefits.

Risks Relating to Our Business

Our business is substantially affected by changes in macroeconomic conditions and recessions or prolonged periods of weak growth in the global economy, or the economies of our key markets have in the past had, and in the future would be likely to have, a material adverse effect on our business, results of operations and financial condition.

Our business, including our core steelmaking and steel fabrication segment, is substantially affected by changes in macroeconomic conditions and, in particular, the health of the steel industry. The steel industry has historically been highly volatile, largely due to the cyclical nature of the industries that are the principal consumers of steel, including the automotive, energy and resources, construction, appliance, machinery, equipment and transportation industries. Fluctuations in demand for steel products generally correlate to macroeconomic fluctuations in the global economy. For example, starting in late 2008 and lasting through early 2010, a steep downturn in the global economy, sparked by uncertainty in credit markets and deteriorating consumer confidence, adversely affected global demand for steel and steel products. As a result, many steel producers, including us, recorded sharply reduced revenues and operating losses. Subsequently, the strength of the economy, and therefore the demand for steel, as well as our other products and services, has varied among different markets globally.

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The global economy as a whole recovered moderately in the fiscal year ended March 31, 2016. The United States continued to record stable growth and the economies of Europe maintained a moderate economic recovery, while China’s economy appeared to improve because of the positive impact of government’s economic stimulus measures and other factors. The Japanese economy remained on a moderate recovery path, evidenced by some improvement in industrial production and other areas.

The global economy continued to recover during the fiscal year ended March 31, 2017. The United States maintained a steady economic recovery against the background of robust personal consumption and an improvement in labor market conditions, while Europe continued its upward trend. China experienced stable economic conditions, and emerging countries maintained a gradual economic recovery. The Japanese economy continued to improve moderately, sustained by steady private consumption and capital investment.

Many risks to the global outlook remain, including geopolitical tensions globally, threats to globalization by renewed protectionism, political tensions in Europe and the slowdown of economic growth in developing markets, especially in Asia. The materialization of any of these risks could depress demand for steel, or our other products and services, and have a material adverse effect on our business, results of operations and financial condition.

Japan is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Japan deteriorate.

We are incorporated in Japan and a substantial portion of our operations and assets are located in Japan. Japan is our most important market and accounted for 65.3% of our total revenue for the fiscal year ended March 31, 2018. Demand for our products and services in Japan is mainly affected by the health in Japan of the industries that are the principal consumers of steel, including the automotive, energy and resources, construction, appliance, machinery, equipment and transportation industries, as well as the strength of the Japanese economy in general. As a result, we are subject to political, economic, legal and regulatory risks specific to Japan. The outlook for the Japanese economy is uncertain and subject to many factors beyond our control. The deterioration of the Japanese economy could have a material adverse effect on our business, financial condition and results of operations.

Factors that could have an adverse impact on Japan’s economy include:

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Excess capacity, oversupply and the severely competitive environment in the steel industry may adversely affect our business.

The steel industry is affected by global and regional production capacity and fluctuations in steel imports and exports, as well as severe competition in the steel industry, including established producers expanding in new markets, smaller producers increasing production in anticipation of demand increases or amid recoveries, or exporters selling excess capacity from markets such as China. The steel industry globally has historically suffered from structural overcapacity and global steelmaking capacity currently exceeds global consumption of steel. This overcapacity is amplified during periods of global or regional economic weakness due to weaker global or regional demand. The overcapacity of steel production in some markets and in China in particular has weighed on global steel prices in recent years. For example, in 2015, decreased domestic demand for steel in China, the largest consumer of steel globally, led to massive increases in exports to both developing and developed markets by Chinese producers of steel, which placed significant price pressure on steel products. While capacity cuts and stronger domestic demand in China have led to a reduction in Chinese exports in recent years, should Chinese domestic demand weaken significantly, exports by Chinese steel producers would likely increase significantly again unless there is further rationalization of capacity.

A renewed phase of steel oversupply, if not counterbalanced by effective trade measures, increases in demand or both, could have a material adverse effect on our business, results of operations and financial condition.

Furthermore, for example, world leaders have, in connection with the 2016 G20 summit, urgently called for the removal of market-distorting subsidies and other types of support by governments and related entities in the steel industry, acknowledging that steel industries in some countries benefit from subsidies and related government supports. Such support may have had and may have in the future a distorting influence on the competitive environment in the steel industry.

We rely on export sales for a significant portion of our total revenue. Adverse economic and financial developments in markets to which we export, particularly Asia, may have an adverse effect on the demand for our products.

Our export sales and overseas sales to customers abroad accounted for 34.7% of our total revenue for the fiscal year ended March 31, 2018, with exports to Asia accounting for a significant portion of our total revenue from produced and exported steel products. In particular, Thailand, China and South Korea accounted for 5.1%, 4.8% and 3.4% of our total revenue, respectively, during the fiscal year ended March 31, 2018. We expect export sales and overseas sales to customers abroad to remain important to our business in the future. Accordingly, adverse economic and financial developments in the markets to which we export may have an adverse effect on the demand for our products.

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Unfavorable or uncertain economic and market conditions overseas—which can be caused by, among other factors, difficulties in the financial sector, corporate, political or other scandals that may reduce confidence in the markets, declines in business confidence, increases in inflation, natural disasters or pandemics, outbreaks of hostilities or other geopolitical instability—the deterioration in economic or diplomatic relations between Japan and its trading partners or allies or a combination of these or other factors may adversely affect the demand for our products outside of Japan. Economic weakness in Asia in particular may also adversely affect our sales to our Japanese customers that export to the region. Furthermore, weaker demand in Asia, combined with an increase in global production capacity, may also reduce the export prices in U.S. dollar terms of our principal products sold to customers in Asia.

Protracted low steel prices would be likely to have an adverse effect on our results of operations.

As a producer of steel, our results of operations are sensitive to the market prices of steel globally and in the markets we serve. Steel prices are affected by supply trends, demand trends and inventory cycles. In the past, substantial price decreases during periods of economic weakness have not always been offset by commensurate price increases during periods of economic strength. In addition, as indicated above, excess supply relative to demand in local markets generally results in increased exports and drives down global prices. In terms of inventory, steel stocking and destocking cycles affect apparent demand for steel and therefore steel prices and steel producers’ profitability. For example, steel distributors may accumulate substantial steel inventories in periods of low prices (stock) and, in periods of rising real demand for steel from end-users, steel distributors may sell steel from inventory (destock), thereby delaying the effective implementation of steel price increases. Conversely, steel price decreases can sometimes develop their own momentum, as distributors destock and end-users of steel delay purchases in the expectation of further price decreases.

As a result of such factors, steel prices have been under pressure in recent periods and particularly in 2015, when they reached their lowest levels in more than a decade. Such low steel prices had a pronounced negative effect on our results of operations in the form of significant declines in revenue and operating income for the fiscal year ended March 31, 2016. Steel prices improved in 2016, compared to 2015, but remained highly volatile, particularly in the last three months of 2016. The significant overall trend in steel prices saw an increase during the fourth quarter of 2016, which continued during the first quarter of 2017, followed by a decline during the second quarter of 2017 and a strong rebound in the second half of 2017. While the trend of steel prices, since the second half of 2016, has generally been positive, there can be no assurance that this trend will continue.

Significant increases in market prices of essential raw materials, energy or transportation, as well as supply disruptions, could adversely affect our results of operations.

Steel production requires substantial amounts of raw materials, including iron ore and coking coal, and we purchase substantially all of the principal raw materials we use from sources outside of Japan. We imported approximately 59 million dry metric tons of iron ore and 26 million wet metric tons of coking coal during the fiscal year ended March 31, 2018. We import iron ore primarily from Australia and Brazil and import coking coal primarily from Australia, Canada and the United States.

The prices of our key raw materials have fluctuated significantly in recent years. According to information published by the Ministry of Finance of Japan, the average import prices of iron ore per metric ton for the fiscal years ended March 31, 2014, 2015, 2016 and 2017 were ¥11,586, ¥7,663, ¥6,377 and ¥8,754, respectively; and the average import prices of coking coal per metric ton for the fiscal years ended March 31, 2014, 2015, 2016 and 2017 were ¥11,863, ¥10,557, ¥12,015 and ¥16,231, respectively. We are particularly exposed to increases in the prices of iron ore and coking coal, which represent the largest components of our cost of sales. A surge in coking coal prices from the second half of the fiscal year ended March 31, 2016 has led to a substantial rise in our costs.

Our long-term supply contracts for raw materials generally have terms of three to ten years with the volume fixed for the entire contract term but the necessity to agree on price on a quarterly basis. We typically maintain

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approximately one month’s worth of inventory of raw materials. Negotiations with respect to quarterly agreements on price are influenced by various factors, including the global economic outlook, global market prices of raw materials and steel products, supply and demand outlook of raw materials and production costs of raw materials. In the case of iron ore and coking coal, we and the relevant supplier typically agree on the purchase price primarily based on negotiations, making reference to the relevant market prices. Future increases in prices of our key raw materials and our inability to pass along such increases to our customers could adversely affect our margins and profits. Increased prices may also cause potential customers to defer purchase of steel products, while rapidly falling prices may increase loss on valuation of raw material inventory purchased when prices were higher, either of which could have an adverse effect on our business, financial condition and results of operations.

We are also exposed to fluctuations in the price of energy and transportation. Our manufacturing operations involve the use of significant amounts of energy, making us sensitive to energy prices. As a result, an increase in energy prices, especially in Japan, where many of our key production facilities are located, would increase our production costs. Also, transportation costs are an important component of our cost of sales. If increases in transportation costs are not offset by an increase in the prices of our products, it could have an adverse effect on our financial condition and results of operations.

In addition, disruptions in our supply of raw materials, which could be caused by political or other events in the countries from which we import these materials, could adversely affect our operations. For example, supply disruptions require us to cut back on our steel production, which would negatively impact our revenue from steel products, or result in an increase in raw material prices, which would negatively affect our financial condition and results of operations.

Fluctuations in foreign currency exchange rates may make our export products less competitive or negatively affect the principal consumers of steel, including the automotive, energy and resources, construction, appliance, machinery and equipment industries, reducing the demand for our products.

Appreciation of the Japanese yen against foreign currencies causes our export products, as well as the export products of the principal consumers of steel, including the automotive, energy and resources, construction, appliance, machinery and equipment industries, to be less competitive overseas by raising the prices of such products in foreign currencies. Any decline in the demand for our products and services directly or indirectly caused by the appreciation of the Japanese yen could have a material adverse effect on our business, financial condition and results of operations. Appreciation of the Japanese yen against foreign currencies may also negatively affect the value of the assets that we hold that are denominated in foreign currencies.

Competition from materials other than steel as well as advancements in the automobile industry could reduce the market price of, and demand for, steel products.

In many applications, steel competes with other materials that may be used as substitutes, such as aluminum, carbon fiber, concrete, composites, glass, plastic and wood. In particular, as a result of increasingly stringent regulatory requirements, as well as developments in alternative materials, designers, engineers and industrial manufacturers, especially those in the automotive industry, are increasing their use of lighter weight and alternative materials, such as aluminum, composites and plastics in their products. For example, automobile manufacturers are using more aluminum than in the past, particularly in premium vehicles and specific parts such as doors and hoods. Steel may lose market share to substitute materials, despite our efforts to make steel products that are attractive to our customers, due to factors such as increased government regulatory initiatives favoring the use of alternative materials or the development of additional new substitutes for steel. Furthermore, advancements in the automobile industry, including advancements in technology such as self-driving technology and the electrification of automobiles, may reduce the demand for steel products. For example, self-driving technology may render traffic accidents less rare, decreasing the need to use steel, due to its strength, in automobile frame and body components and the electrification of automobiles may reduce the need for engine

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components that are made out of steel, a common feature of gasoline-powered automobiles. For these or other reasons, competition from alternative materials or advancements in the automobile industry could significantly reduce the market prices of, and demand for, steel products and have a material adverse effect on our business, financial condition and results of operations.

We are highly dependent on our steelmaking and steel fabrication business.

We are highly dependent on our steelmaking and steel fabrication segment, which accounts for a significant majority of our total revenue and gross profit. While we intend to increase sales of our non-steel businesses, we may fail to do so. In addition, our strategy to expand our overseas steel production capabilities to capture the projected long-term growth in global steel demand, particularly in emerging markets, may increase our reliance on our steelmaking and steel fabrication segment. So long as we remain dependent on our steelmaking and steel fabrication segment, the realization of risks affecting the steel industry—such as regional and global macroeconomic conditions, excess capacity, oversupply, destocking cycles, the competitive environment, unfair trade practices, protracted low steel prices, significant increases in market prices of raw materials and competition from other materials—could have an especially material adverse effect on our business, financial condition and results of operations.

We may fail to reduce costs, improve profit margins and increase our global market share as planned.

Difficult operating conditions in recent years, due in particular to macroeconomic conditions and the balance of supply and demand, have reduced our profitability. Accordingly, in recent fiscal years we have focused energy on initiatives to reduce our costs and increase our operating efficiency. These initiatives include the introduction of advanced facilities, energy-saving measures, resource recycling and the streamlining of our production framework. We plan to continue to reduce costs by ¥50 billion or more per fiscal year, improve the branding of our products and roll out businesses that take advantage of such branding and provide new products, services and solutions to our supply and value chains that offer greater value and functionality. However, our efforts are subject to operational challenges and limitations, and we may fail to reduce costs, improve profit margins or increase our global market share as planned. If we are unable to achieve these targets as anticipated, it could have a material adverse effect on our financial condition and results of operations.

Our capital expenditures may require additional financing and adversely affect our financial condition and results of operations.

The steelmaking business is capital intensive and requires substantial ongoing maintenance capital expenditures. In addition, we have significant ongoing and planned capital expenditures, including the refurbishment of blast furnaces, coke ovens and other facilities and introduction of advanced equipment. Over the three fiscal years ending March 31, 2021, we plan to make ¥1,700 billion in capital expenditures. We expect to fund these capital expenditures primarily through internal resources. However, depending on the amount of internally generated cash flows and other uses of cash, we may have to choose between incurring additional indebtedness in order to complete such capital expenditures as planned or foregoing investments in projects targeted for profitable growth.

We have grown through acquisitions and may continue to do so. We may fail to manage external growth or face difficulties completing planned acquisitions or integrating acquired companies.

We were formed and have subsequently grown through mergers and acquisitions. For example, we were formed upon the merger of Nippon Steel and Sumitomo Metal in 2012. More recently, in March 2017, we acquired 43% of the outstanding shares of common stock of Nisshin Steel by way of a cash tender offer and, as a result, Nisshin Steel became our subsidiary, as we already held 8% of the outstanding shares of common stock of Nisshin Steel at the time. As of the date of this prospectus, we hold 51% of the outstanding shares of common stock of Nisshin Steel. In connection with further mergers and acquisitions, we may incur additional

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indebtedness, experience increased operating costs or be forced to allocate more of our management resources away from our day-to-day operations. Successfully managing mergers and acquisitions will require us to successfully continue to develop our financial and management information control systems, integrate acquired assets with our existing operations, handle any labor disruptions that may arise, attract, retain, train and supervise qualified management and personnel, including at more remote sites where there may be a shortage of such personnel and manage the risks and liabilities associated with businesses that we acquire. Our failure to successfully manage mergers and acquisitions could have a material adverse effect on our business, financial condition, results of operations or prospects. Furthermore, our failure to achieve the intended benefits of any such merger or acquisition, due to the businesses that we acquire significantly under-performing relative to our expectations, could lead to the impairment of any assets that we hold or goodwill that we record in connection with such acquisition.

Accidents or malfunctioning equipment at our facilities may disrupt our production and negatively impact our business.

Our production processes depend on certain critical equipment such as blast furnaces, coke ovens, steel converters, continuous casting machines, rolling mills and energy facilities. This equipment may be negatively affected in the case of electrical or mechanical accidents, malfunction or damage, including due to industrial accidents. A significant interruption in our production process due to the malfunction or damage of critical equipment could cause us to incur significant expenses in connection with the repair or reconstruction of the affected equipment or lead to lost profits, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our plans to invest in production bases in growing markets overseas are subject to financing, execution and completion risks.

As part of our growth strategy, we plan to continue to invest in production bases in growing markets overseas. Such projects could entail substantial capital expenditures, and their timely completion and successful operation may be affected by factors including our ability to obtain financing on reasonable terms, obtain or renew required regulatory approvals and licenses or secure and maintain adequate property rights to land and mineral resources, local opposition to land acquisition or project development, our ability to manage relationships with or obtain consents from other shareholders, the revision of economic viability projections, the demand for our products, local environmental or health-related conditions and general economic conditions. These or other factors may cause us to delay, modify or forego some or all aspects of our development projects. There can be no assurance that we will be able to successfully execute any such projects, that such projects will be completed on schedule or within budget or that we will achieve an adequate return on our investment. Conversely, should we decide to postpone or cancel investments in production bases in growing markets overseas, we could incur various negative consequences, such as litigation or impairment charges.

Product liability and other customer claims could have a material adverse financial impact on us and product quality issues involving our products, or the products of other steel manufacturers, particularly in Japan, could have a material adverse financial impact on our financial condition and reputation.

We sell products to major manufacturers engaged in the manufacture and sales of a wide range of end products and to other customers. Our customers may be dissatisfied with products we sell for various reasons including that our products had defects, including false data, or otherwise did not meet the customers’ expectations. Claims from such dissatisfied customers may adversely affect our business operations and financial results. Furthermore, there could be significant consequential damages resulting from defects in our products that are sold to, and used in, certain safety-critical applications, such as, for example, pipes used in gas or oil pipelines and in automotive applications.

In addition, product quality issues with any of our products, or the products of other steel manufacturers, particularly other steel manufactures in Japan, could result in additional costs and reputational harm. For

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example, in October 2017, a large Japanese steel and materials manufacturer admitted that it had falsified data about copper, aluminum and steel it supplied to makers of planes, cars and other end products. If our customers suspect, for example, that other steel companies in Japan, including us, have undertaken similar practices, we may incur increased expenses to assure quality of our products to our customers or experience a decrease in demand for our steel products, each of which could materially harm our financial condition and future operating results.

We face risks associated with our investments in joint ventures and associates.

We sometimes hold a majority interest in the projects among our joint venture partners, but in most cases we do not take a controlling interest in such projects. Therefore, we may not be able to require that our joint ventures sell assets or return invested capital, make additional capital contributions or take any other action without the agreement of our joint consortium partners. For example, it took us more than three years to resolve a dispute with our joint venture partner and agree upon new governance rules with respect to a Brazil-based equity-method associate. When there are disagreements between us and our joint venture partners, regarding the business and operations of the joint projects, we cannot assure you that we will be able to resolve them in a manner that will be in our best interests. Certain major decisions, such as selling a stake in the joint project, may require the consent of all other partners, while others may require an affirmative vote of joint venture partners holding a majority interest in the project. These limitations may adversely affect our ability to obtain the economic and other benefits we seek from participating in these projects.

In addition, joint ventures and associates may be controlled and managed by joint venture or controlling partners that may not fully comply with our standards, controls and procedures, including our health, safety, environment and community standards, which could lead to higher costs, reduced production or environmental, health and safety incidents or accidents, which could adversely affect our results and reputation.

Furthermore, certain of these joint ventures and associates are currently experiencing, or may in the future experience, difficult operating conditions, which may lead to them to incur losses. Difficult operating conditions in joint ventures and associates may expose us to loss of our investment, requirements for additional investments or calls on guarantees. Our failure to achieve the intended benefits of any such joint venture, due to the joint venture significantly under-performing relative to our expectations, could lead to the impairment of any assets that we hold or goodwill that we record in connection with such joint venture.

Our export products have been and may become subject to tariffs, anti-dumping or countervailing duty proceedings.

Countries to which we make export sales may take restrictive measures, such as trade tariffs, or anti-dumping duties and other non-tariff barriers, to protect their home markets. For example, in August 2016, the U.S. Department of Commerce imposed anti-dumping duties on us, in relation to hot-rolled coil steel, which had an adverse effect on our business. Also, on March 2, 2018, the president of the United States announced plans to impose a 25% tariff on all steel and steel products imported into the United States. This tariff would not only significantly undermine the competitiveness of our steel exports to the United States, but could also negatively impact our exports to other countries that impose or increase tariffs, or take other protectionist measures, in response to U.S. tariffs. It is not clear whether Japan will be subject to or exempt from this tariff as put in place. If Japan is not exempted, but some jurisdictions in which our competitors are located are, it could have a negative effect on our competitive position. Any increases in or new imposition of tariffs, anti-dumping duties, countervailing duties or quotas on our sales in major overseas markets could result in a material reduction in our export levels, which could have a material adverse effect on our business, operating results and financial condition.

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Changes in our assumptions underlying the carrying value of certain of our assets, including as a result of adverse market conditions, could result in the impairment of assets, including goodwill.

At each reporting date, we review the carrying amounts of our tangible assets and intangible assets (goodwill is reviewed annually or whenever changes in circumstances indicate that the carrying amount may not be recoverable) to determine whether there is any indication that the carrying amount of such assets may not be recoverable through continuing use. If any such indication exists, the recoverable amount of the asset is reviewed in order to determine the amount of the impairment, if any.

If certain of our management’s estimates change during a given period, such as the discount rate, capital expenditures, expected changes to average selling prices, growth rates, shipments and direct costs, our estimate of the recoverable amount of an asset or goodwill could fall significantly and result in the recording of an impairment charge, which could have a material adverse effect on our results of operations. For example, for the fiscal year ended March 31, 2018, we recognized impairment losses in our steelmaking and steel fabrication segment, our engineering and construction segment and our chemicals segment mainly due to unfavorable business environments, and we recognized impairment losses in our system solutions segment as a result of assessing the forecast of future earnings with respect to a portion of data center assets. No assurance can be given that we will not record significant impairment losses in future periods, particularly if market conditions deteriorate.

We may incur losses on our equity securities portfolio if domestic or foreign stock markets decline.

A decline in stock prices in Japan or in other markets where we invest in equity instruments could reduce the value of the equity instruments that we hold. As of March 31, 2018 we held ¥926,465 million in equity instruments, consisting mainly of publicly listed common stock of Japanese companies, for the purpose of sustainably developing strategic alliances as well as maintaining and strengthening our business and operational relationships with such companies. The market values of equity instruments are inherently volatile. For example, weakening or stagnant conditions in other countries or concerns over the impact of geopolitical tensions and conflicts in various parts of the world could not only affect stock prices abroad, but may also adversely affect stock prices in Japan. A significant decline in the market prices of equity instruments held by us would give rise to unrealized losses that would negatively affect our net assets, which would adversely affect our financial condition. In addition, equity instruments constitute a significant portion of our funded retirement benefit plan assets. If stock prices in Japan or in other markets decline significantly, our funded retirement benefit plans may require additional funding, which could have a material adverse effect on our business and financial condition.

We may suffer large losses in the event of a natural disaster such as an earthquake.

Our manufacturing operations and steel works in Japan and overseas are subject to the risk of earthquakes and other natural disasters, including typhoons, tsunamis, tidal waves, floods and volcanic eruptions. For example, we suffered a significant impact from the 2011 Great East Japan Earthquake and the following tsunami. Not only were our Kashima steel works and Kamaishi steel works directly damaged by the earthquake and tsunami, but the increase in raw material costs and drop in demand for steel products following the disaster, driven in part by disruption to the operations of steel consumers in Japan, had a significant impact on our business operations and financial results, causing our predecessor entities to incur over ¥100 billion in losses in the aggregate. In the event of another major natural disaster affecting our manufacturing facilities, we may experience catastrophic loss, operations at such production sites may be halted, shipments of products may be suspended or delayed, a significant reduction or loss of revenues may be experienced, or other problems may adversely affect our operations.

We may not be able to adequately protect our intellectual property rights in foreign countries and we may become involved in intellectual property disputes.

Patents and other forms of intellectual property rights are competitive factors in the markets in which we operate, which are characterized by constantly evolving technology. We rely on the technologies and know-how

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we have developed for our business, and seek to protect such technologies and know-how through a combination of patents, and other forms of intellectual property rights, as well as through the use of contractual confidentiality procedures, contract clauses and agreements. There can be no assurance, however, that we will always be successful in adequately protecting our technologies and know-how, including by securing patents or other intellectual property rights. While we have registered intellectual property (mainly patents and trademarks) in approximately 70 countries, because of the differences in foreign patent, trademark and other intellectual property or proprietary rights laws, we may not receive the same protection in foreign countries as we would in Japan.

It is also important for us to operate without infringing upon the patents or other intellectual property rights of others. There can be no assurance that third parties will not assert infringement claims against us or that such claims will not be successful. Such infringement claims could result in the payment of monetary damages, the suspension of our operations involving the subject technologies, the necessity to develop or acquire non-infringing technologies, a significant investment of time and effort on the part of our management, increased legal expenses, damage to our reputation and other costs which could negatively impact our results of operations.

We rely on trade secrets and other unpatented proprietary know-how to maintain our competitive position, and unauthorized disclosure of our trade secrets or other unpatented proprietary know-how could negatively affect our business.

We rely on trade secrets and unpatented proprietary know-how and information. In an effort to protect this information and prevent leakages, we have implemented internal policies and procedures that require our employees to adequately manage information, including trade secrets, obtained during the course of business and that also prohibit our employees from leaking confidential information. Under these policies and procedures, we may take disciplinary action, including dischargement, in the event of violations. Furthermore, when we outsource business to or engage in joint research and development with other companies, we require that such companies agree to maintain the confidentiality of the trade secrets and know-how that we share during the course of such engagement by refraining from disclosing such information to third parties, taking appropriate measures to prevent leakages of such information and prohibiting the use of such information outside of the agreed-upon purpose. We cannot assure the enforceability of these types of policies and procedures, or that they will not be breached. We also cannot be certain that we will have adequate remedies for any breach. The disclosure of our trade secrets or other know-how as a result of such a breach could adversely affect our business.

Fluctuations in the prevailing market interest rate for borrowings and debts, in the financial market as well as in the financing environment could harm our business, results of operations and financial condition.

As of the fiscal year ended March 31, 2018, the balance of our total consolidated interest-bearing debt was ¥2,157,755 million, and any fluctuations in the prevailing market interest rate and in other financial markets could adversely affect our results of operations. In addition, we finance a part of our operations through borrowings from banks and other financial institutions as well as the issuance of debt. If the financial market becomes unstable and deteriorates or credit rating agencies decide to downgrade our credit ratings, our methods of obtaining financing could be limited, resulting in an increase in financing costs, which may adversely affect our business, results of operations and financial condition.

We may face difficulties hiring and retaining qualified employees.

In order to maintain the sustainable growth of our business, we depend on the leadership of our key management personnel as well as our ability to attract, employ and retain skilled professionals, including management professionals, and highly qualified employees with relevant experience. Furthermore, we must be able to successfully recruit, train and develop new hires. If we are unable to successfully execute our human resource strategies and experience unforeseen increases in employee departures or are unable to successfully groom replacement candidates for our management personnel in a timely manner, we may lose valuable

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know-how or other organizational resources, which could harm our ability to compete effectively. Additionally, unforeseen costs in connection with increased competition for talented personnel, increased employee regulation, or issues related to workplace health and safety arising from improper labor management may negatively affect our financial condition and results of operations.

Our internal controls may not be effective in preventing misstatements of our financial condition and results of operations.

In accordance with the FIEA, as a public company in Japan, we are required to evaluate the effectiveness of our internal controls over financial reporting as of the end of our fiscal year and have our evaluation audited by our independent auditors. Although we found our internal controls over financial reporting to be effective as of March 31, 2018, if our internal controls over financial reporting are found to have material weaknesses as a result of our evaluation or the audits conducted by our independent auditors in the future, our ability to produce reliable financial reports on a timely basis could be adversely affected, resulting in a loss of confidence in our financial reporting by investors, which could materially and adversely affect the price of our shares. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met and thus are subject to inherent limitations.

We are subject to economic policy, political, social and legal risks and uncertainties in the emerging markets in which we operate or propose to operate.

We operate in emerging markets, such as the ASEAN countries and India, and intend to expand our operations in such markets. In recent years, many of these countries have implemented measures aimed at improving the business environment and providing a stable platform for economic development. Our business strategy has been developed partly on the assumption that this modernization, restructuring and upgrading of the business climate and physical infrastructure will continue, but this cannot be guaranteed. Any slowdown in the development of such economies could have a material adverse effect on our business, financial condition, results of operations or prospects, as could insufficient investment by government agencies or the private sector in physical infrastructure. For example, the failure of an emerging market to develop reliable electricity and natural gas supplies and networks, and any resulting shortages or rationing, could lead to disruptions in our production.

Certain emerging markets where we have operations have experienced or are experiencing particularly difficult operating conditions. Brazil, for example, is currently emerging from a severe recession, but its recovery has been marred by political uncertainty. Recession continues to loom in South Africa, where the steel and mining industries are subject to a challenging operating environment characterized by lower local demand, increased cheap imports and higher costs.

In addition, the legal systems in some of the countries in which we operate remain less than fully developed, particularly with respect to the independence of the judiciary, property rights, the protection of foreign investment and bankruptcy proceedings, which generally results in a lower level of legal certainty or security for foreign investment than in more developed countries. Furthermore, we may encounter difficulties in enforcing court judgments or arbitral awards in some countries in which we operate because, among other reasons, those countries may not be parties to treaties that recognize the mutual enforcement of court judgments. Assets in certain countries where we operate could also be at risk of expropriation or nationalization, and any compensation paid for such assets may be below fair value.

Our insurance policies provide limited coverage, potentially leaving us uninsured against some business risks.

The occurrence of an event that is uninsurable or not fully insured could have a material adverse effect on our business, financial condition, results of operations or prospects. We maintain fire insurance on property and equipment in amounts that we believe are commercially reasonable in consideration of possible risks, but we are

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not fully insured against all such risks. Our insurance policies cover physical loss or damage to our property and equipment on a reinstatement basis as arising from a number of specified risks and certain consequential losses, including business interruption arising from the occurrence of an insured event under the policies. However, we do not have significant insurance coverage with respect to product liability or certain other kinds of risks. Notwithstanding the insurance coverage that we do have, the occurrence of an event that causes losses in excess of limits specified under the relevant policy, or losses arising from events not covered by insurance policies, could materially harm our financial condition and results of operations.

Our income tax liability may substantially increase if the tax laws and regulations in countries in which we operate change or become subject to adverse interpretations or inconsistent enforcement.

Taxes payable by companies in many of the countries in which we operate are substantial and include value-added taxes, excise duties, profit taxes, payroll-related taxes, property taxes and other taxes. Tax laws and regulations in some of these countries may be subject to frequent change, varying interpretation and inconsistent enforcement. Ineffective tax collection systems and national or local government budget requirements may increase the likelihood of the imposition of arbitrary or onerous taxes and penalties, which could have a material adverse effect on our financial condition and results of operations. In addition to the usual tax burden imposed on taxpayers generally, these conditions create uncertainty as to the tax implications of various business decisions. This uncertainty could expose us to significant fines and penalties and to enforcement measures despite our best efforts at compliance, and could result in a greater than expected tax burden. Also, if tax rates increase in any of the jurisdictions in which we operate, or treaties between those jurisdictions are modified in an adverse manner, our cash flows, liquidity and ability to pay dividends could be negatively affected.

Our reputation and business could be materially harmed as a result of system failure, data breaches, data theft, unauthorized access or successful hacking. Furthermore, our business could be adversely affected as a result of the rising costs of maintaining sufficient cybersecurity in light of continuous technological advances.

Our operations depend on the secure and reliable performance of our information technology systems. An increasing number of companies have recently experienced intrusion attempts or breaches of their information technology security, some of which have involved sophisticated and highly targeted attacks on their computer networks. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement in a timely manner effective and efficient countermeasures.

While we have adopted procedures and controls to protect our information and operating technology, including sensitive proprietary information and confidential and personal data, there can be no assurance that a system or network failure, or security breach, will be prevented. If unauthorized parties attempt or manage to bring down our website or gain access into our information technology systems, they may be able to misappropriate confidential information, cause interruptions in our operations, damage our computers or process control systems or otherwise damage our reputation and business. Any compromise of the security of the our information technology systems could result in interruptions to our systems, a loss of confidence in our security measures, reputational damage and subject us to litigation, civil or criminal penalties and adverse publicity that could adversely affect our reputation, financial condition and results of operations. Furthermore, we expect that the costs of maintaining adequate cybersecurity to combat the leakage of information in this environment will continue to rise, and such costs could also adversely affect our financial condition and operations.

We are subject to regulatory and compliance risks, which may expose us to governmental investigations or penalties, including in connection with antitrust laws and regulations, and to private lawsuits.

We operate globally. Our business straddles multiple jurisdictions and complex regulatory frameworks at time of increased enforcement activity and enforcement initiatives worldwide. Such regulatory frameworks, including economic sanctions, are constantly evolving, and we may, as a result, become subject to increasing

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limitations on our business activities or the risk of penalties or other sanctions for non-compliance. In addition, our governance and compliance processes, which include the review of internal controls over financial reporting, may not prevent us from violating law or accounting or governance standards. Furthermore, we face various private lawsuits and other claims in connection with our business activities around the world.

We are one of the largest steel producers in the world. As a result, we may be subject to exacting scrutiny from regulatory authorities and private parties, particularly regarding our trade practices and dealings with customers and counterparties. As a result of our position in steel markets and our historically acquisitive growth strategy, we could be subject to governmental investigations and lawsuits based on antitrust laws.

Such governmental investigations or penalties or private lawsuits could require us to incur significant expenditures or result in liabilities or governmental orders that could have a material adverse effect on our business or reputation, which may negatively affect our operating results, financial condition and prospects.

We are subject to strict environmental, health and safety laws and regulations that could give rise to a significant increase in costs and liabilities.

We are subject to a broad range of environmental laws and regulations in each of the jurisdictions in which we operate. These laws and regulations impose increasingly stringent environmental protection standards regarding, among others, wastewater storage, treatment and discharges, the use and handling of hazardous or toxic materials, waste disposal practices and the remediation of environmental contamination. The costs of complying with, and the imposition of liabilities pursuant to, current and future environmental laws and regulations could potentially be significant, and compliance with new and more stringent obligations in the future may require us to make additional capital expenditures or modify our operating practices. Failure to comply can result in civil and or criminal penalties being imposed, the suspension of permits, requirements to curtail or suspend operations and lawsuits by third parties. Despite our efforts to comply with environmental laws and regulations, environmental incidents or accidents may occur that negatively affect our reputation or the operations of key facilities.

Integrated steel processing involves carbon and creates CO ₂ , which distinguishes integrated steel producers from mini-mills and many other industries, where CO ₂ generation is primarily linked to energy use. The European Union has established greenhouse gas regulations and is revising its emission trading system for the period after 2020 in a manner that may require steel producers, including us, to incur additional costs to acquire emissions allowances. In 2015, Japan set a target for reducing greenhouse gas emissions by 26% by 2030 and the United States has required reporting of greenhouse gas emissions from certain large sources since 2011, with emissions trading regimes and other initiatives being pursued at the state and regional level. See “Our Business—Business Overview—Regulation.”

We are also subject to a broad range of health and safety laws and regulations in each of the jurisdictions in which we operate. These laws and regulations, as interpreted by relevant agencies and the courts, have in recent years imposed increasingly stringent health and safety protection standards. The costs of complying with, and the imposition of liabilities pursuant to, health and safety laws and regulations could be significant, and failure to comply could result in the assessment of civil and criminal penalties, the suspension of permits or operations and lawsuits by third parties. In addition, under certain circumstances authorities could require our facilities to curtail or suspend operations based on health and safety concerns.

New or more stringent environmental, safety and health standards could require us to make increased capital expenditures or make modifications in operating practices or projects. As a result, the amount and timing of future environmental and related expenditures may vary substantially from those currently anticipated. These additional costs may also have a negative impact on the profitability of the projects we intend to implement or may make such projects economically unfeasible. We could also be exposed to civil liabilities, administrative penalties, criminal sanctions and closure orders for non-compliance with these regulations, as well as encounter delays in obtaining environmental or other operating licenses. Waste disposal and emission practices may result in the need for us to clean up or retrofit our facilities at substantial costs or substantial liabilities. Environmental regulatory restrictions imposed by foreign markets to which we export our products may also materially and adversely affect our export sales.

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Risks Relating to Owning Our Common Stock and American Depositary Shares (“ADSs”)

Further issuances of shares by us may have an adverse effect on the market value of our shares and may dilute existing shareholders.

We may issue additional shares within the unissued portion of our authorized share capital and sell shares held as treasury stock, generally without shareholder approval. Issuances of shares in the future may be at prices below prevailing market prices and may be dilutive. If additional shares are issued by us or if it is perceived that additional shares will be issued in the public market, the trading price of our shares could be materially and adversely affected. If we were to issue additional shares in the future, holders of shares of our common stock, including purchasers of our shares in the global offering, may experience dilution.

Our shareholders of record on a record date may not receive the dividends they anticipate.

Consistent with market practice in Japan, we regularly announce forecasts of year-end and interim dividends. However, any such forecasts will not be legally binding. The actual payment of any interim or yearend dividends will require a resolution of our board of directors or a resolution of the shareholders’ meeting. See “Description of Our Common Stock—Distribution of Surplus.” These actual payments may differ from any previously announced forecasts or payout ratio targets, and since resolutions to pay dividends are usually not adopted until after the relevant record date, currently specified as March 31 and September 30 by our articles of incorporation, our shareholders of record on a record date may not receive the dividends they anticipate.

Under the Companies Act, we will not be able to declare or pay dividends unless we meet specified financial criteria on an unconsolidated basis. Generally, we will be able to pay dividends only if we have certain surplus as calculated based on the aggregate of other capital surplus and other retained earnings on our unconsolidated balance sheet as of the end of the preceding fiscal year as determined in accordance with Japanese GAAP. For details of restrictions on the payment of dividends, see “Description of Our Common Stock—General—Distribution of Surplus—Restriction on Distributions of Surplus.”

Investors holding less than a unit of shares will have limited rights as shareholders.

Pursuant to the Companies Act and other related legislation, our articles of incorporation provide that 100 shares of common stock constitute one unit. If the Share Exchange is approved, 141 shares of Nisshin Steel’s common stock will be exchanged for 100 shares of our common stock, which constitute one unit, as well as cash in lieu of fractional shares. The Companies Act imposes significant restrictions and limitations on holdings of shares that do not constitute whole units. In general, holders of shares constituting less than one unit do not have the right to vote or to examine our accounting books and records. The transferability of shares of our common stock constituting less than one unit is significantly limited. For a more complete description of the unit share system and its effect on the rights of holders of our common stock, see “Description of Our Common Stock—General—Unit share system.”

Because of daily price range limitations under Japanese stock exchange rules, investors may not be able to sell their shares of our common stock at a particular price on any particular trading day, or at all.

Stock prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges are order-driven markets without specialists or market makers to guide price formation. To prevent excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his or her shares at such price on a particular trading day, or at all.

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Rights of shareholders under Japanese law may be more limited than under the laws of other jurisdictions.

Our articles of incorporation, the regulations of our board of directors and the Companies Act govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ fiduciary duties and liabilities, and shareholders’ rights may be different from those that would apply to a non-Japanese company. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of other countries or jurisdictions within the United States. You may have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a corporation organized in another jurisdiction. For example, under the Companies Act, only holders of 3% or more of our total voting rights or outstanding shares are entitled to examine our accounting books and records. Furthermore, there is a degree of uncertainty as to what duties the directors of a Japanese joint stock corporation may have in response to an unsolicited takeover bid and such uncertainty may be more pronounced than in other jurisdictions.

It may not be possible for investors to effect service of process within the United States upon us or our directors, executive officers or audit  & supervisory board members, or to enforce against us or those persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States.

We are a joint stock corporation incorporated under the laws of Japan. All of our directors, executive officers and audit & supervisory board members reside outside the United States. Many of our assets and the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to effect service of process within the United States upon us or these persons or to enforce against us or these persons judgments obtained in the U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States. We believe that there is doubt as to the enforceability in Japan, in original actions or in actions to enforce judgments of U.S. courts, of liabilities predicated solely upon the federal securities laws of the United States.

We plan to terminate our registration under the Exchange Act and cease to be an SEC reporting company as soon as practicable in accordance with applicable rules and regulations.

We plan to terminate our registration under the Exchange Act as soon as practicable in accordance with the rules that permit the deregistration of eligible foreign private issuers. Upon the termination of our registration, we will no longer be subject to the reporting provisions of the Exchange Act. As a result, U.S. shareholders will have access to less information about us and our business, operations and financial performance. Upon the termination of our registration under the Exchange Act, we will cease, among other things, to be subject to the liability provisions of the Exchange Act and the provisions of the Sarbanes-Oxley Act of 2002.

ADS holders must act through the depositary to exercise these rights and have fewer rights than shareholders.

The rights of shareholders under Japanese law to take actions, including exercising their voting rights, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records, and exercising appraisal rights, are available only to shareholders of record. Because the depositary, through its nominee, is the record holder of the shares underlying the ADSs, only the depositary can exercise those rights in connection with deposited shares. If shareholders choose to deposit shares allocated to them in the Share Exchange for ADS, the depositary will make efforts to exercise their voting rights underlying ADSs in accordance with the instructions of ADS holders, and will pay dividends and distributions collected from us. However, ADS holders will not be able to bring a derivative action, examine our accounting books and records, or exercise appraisal rights through the depositary.

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There are restrictions on the withdrawal of shares from our depositary receipt facility.

Our articles of incorporation provide that 100 shares constitute one unit. Under our ADS program, each ADS represents the right to receive one share. As a result of the unit share system, American Depositary Receipt (“ADR”) holders will only be permitted to surrender ADRs and withdraw underlying shares constituting whole units. If a holder surrenders an ADR representing shares that do not constitute an integral number of whole units, the depositary will deliver to that holder only those shares which constitute a whole unit. The depositary will then issue to the holder a new ADR representing the remaining shares. Holders of an ADR that represents less than a whole unit of underlying shares will be unable to withdraw the underlying shares. As a result, while holders of common stock whose shares constitute less than one whole unit may require us to purchase such shares under our articles of incorporation, those ADR holders will be unable to require us to purchase their underlying shares to the extent those shares constitute less than one whole unit.

Fluctuations in the exchange rate between the Japanese yen and the U.S. dollar could affect the market price of ADSs, as well as the dividends received by ADS holder.

Fluctuations in the exchange rate between the Japanese yen and U.S. dollar will also affect the U.S. dollar equivalent of the Japanese yen price of the shares of our common stock on the TSE and, as a result, will likely affect the market price of the ADSs. These fluctuations will also affect the U.S. dollar conversion by the depositary for the ADRs of cash dividends, if any, paid in Japanese yen on shares of common stock represented by the ADSs.

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