Agile Competitive Advantage in Crystal Technology · Agile Competitive Advantage in Crystal Technology A LEADER IN THE FIELD OF QUARTZ CRYSTAL ELECTRONIC COMPONENTS ... in global

Agile Competitive Advantage in Crystal Technology

A LEADER IN THE FIELD OF QUARTZ CRYSTAL ELECTRONIC COMPONENTS

NIHON DEMPA KOGYO

AnnuAl RepoRt 2016Report for the Fiscal Year Ended March 31, 2016

Global sharein automotive products No. 1

Overseas sales ratio

80%

17sales bases

7manufacturing plants

ConTenTs 2 Business Overview 4 To Our Shareholders 8 Sales, Manufacturing, and Technologies Strategies10 Corporate Governance11 Messages from NDK’s Outside Directors12 Directors, Audit & Supervisory Board Members, and

Corporate Officers14 Corporate Social Responsibility15 Financial Section23 Corporate History/Guide to NDK’s Website24 Overview of the NDK Group/Directory25 Investor Information

Forward-Looking Statements

Statements made in this report with respect to our current plans, estimates,

strategies, and beliefs and other statements that are not historical facts are

forward-looking statements about our future performance. These statements

are based on management’s assumptions and beliefs in light of information

currently available to it. We caution that a number of important risks and uncer-

tainties could cause actual results to differ materially from those discussed in

the forward-looking statements, and therefore you should not place undue

reliance on them. You also should not rely on the belief that it is our obligation

to update or revise any forward-looking statements, whether as a result of new

information, future events, or otherwise. Risks and uncertainties that might

affect us include, but are not limited to, fluctuation of currency exchange rates,

overall supply and customer demand in the industry, product development and

production capacities, performance of affiliated companies, and other risks

and uncertainties.

No. 2in global market share of crystal devices

GLOBAL PRESENCE

Europe

3 sales basesJapan/Asia

11 sales bases

9 R&D centers and production facilities

Americas

3 sales bases

nihon Dempa Kogyo Co., ltd. (nDK) was established in 1948 as a company specializing in

the manufacturing of quartz crystal devices with a corporate philosophy of “contributing to

the prosperity of society and world peace through our service to customers.”

Since its establishment, nDK has provided support for the development of the electronics

industry. nDK has become the leading company in its industry by accumulating technologies

and meeting the diverse needs of its customers through integrated manufacturing, marketing,

and innovative technology development. today, in addition to crystal devices with a wide range

of applications, nDK applies its technologies in the development and marketing of new high-

value-added products, including SAW devices and sensors.

nDK constantly seeks to improve its management soundness and transparency. In 2010, it

became the first company in Japan to adopt the International Financial Reporting Standards,

and, in 2014, introduced an executive officer system to separate the management oversight

functions of the Board of Directors from the functions of the executive officers in charge of

the conduct of business activities. In 2015, nDK appointed two outside Directors to the Board

to provide an outside perspective in Board discussions and is making further progress in the

creation of a sound and transparent management system.

nDK will continue to actively address the challenges of creating new business value as a

comprehensive manufacturer of frequency-generating devices and, thereby, contribute to

the peace of mind, safety, and comfort of society.

FREquENcY cONtROL DEvIcES

Product Lineup

Synthetic Quartz Crystals

Crystal Units Crystal Oscillators

Frequency Synthesizers

Crystal Filters/SAW Devices Optical Devices

Ultrasonic Probes Biosensors

AnnuAl RepoRt 2016 1

BUSINESS OvERvIEW

Automotive products

Automotive Electronics Fixed Radio communications

SAW devices

Industrial productsprincipal Markets

percentage of total Sales

Mobile Communications

20%

Audiovisual/ Office Automation

18%

Medical and Healthcare Equipment

9%

Automotive Electronics

40%

Fixed Radio Communications

13%

number of Crystal Devices used • Ultralow-priced models: 10 to 20

• Economy models: 30 to 40• Luxury models: 70 to 100

• Mobile phone base stations: 10 to 100

• Optical communications devices (each device: 1 to 10 or more)

• IoT bases, Gateway: 2 to 4

• Smartphones (2 to 7 crystal units and oscillators + SAW devices using 4 to 30 or more)

• Tablet computers: 3 to 4• LCD Tvs: 2 to 3• Game consoles: 2 to 3• Digital single-lens reflex cam-

eras: 2 and 1 optical filter

outline of Business Results and outlook

• Annual sales have increased due to worldwide robust demand. Also, progress has been made in spreading usage of telecommuni-cations and audiovisual equipment aimed for the ADAS (advanced driver assistance system).

• Crystal oscillators (TCXOs, ICXOs) and SAW devices are required to meet stringent standards for auto-mounted telecommunica-tions and audiovisual equipment (including high temperature tolerance, durability, etc.), and NDK has pursued development and design of these devices based on the experience accumulated thus far.

• In the mobile phone base stations market, installation of compact base stations and spot base stations increased in order to process mass radio waves. NDK is promoting development and sales expansion of compact and high accuracy 9 x 7mm high-stability OCXOs to meet this demand.

• In the optical communications market, the speed increased to 100Gbps, 400Gbps where higher frequency is required for oscilla-tors. NDK is promoting develop-ment and sales expansion of new products (Multi-function vCXOs and high frequency XOs) to meet the demand.

• As prices had continued to decline, NDK emphasized profitability and refrained from accepting orders for some products. As a result, sales were below the level of the previous year, but prices have bottomed out and profitability improved.

• In the smartphone field, the shift from chip sets incorporating thermistors to chip sets using crystal oscillators (TCXOs) has progressed. As a result, the num-ber of crystal oscillators (TCXOs) per set has increased, and NDK is responding to the need for in-creased production.

• NDK developed 1612 size com-pact temperature compensated crystal oscillators (TCXOs) for this increased demand and began production for surface acoustic wave (SAW) module manufacturers to capitalize on the growing mobile communications market.

• As a result of the sales drop mainly for Tvs, PCs, home elec-tronics and games, and the decrease in demand for optical products due to the shrinkage of the digital camera market, sales in the Av/OA market decreased

• Crystal devices will assume the function of wireless communica-tion at IoT. In order to win this demand from IoT, NDK is develop-ing and expanding sales of com-pact products that are price competitive.

• Ultrasonic devices: NDK is devel-oping and selling portable simpli-fied ultrasonic devices looking forward to a demand increase in medical and nursing care.

• Biosensors: NDK makes efforts to commoditize products for food inspection that can test for specific substances in food products. The production and sales will be col-laborated with the partner client of this product.

used in • Automobiles • Mobile phone base stations• Optical communications devices• Broadband telecommunica-

tions equipment• Digital broadcasting equipment

• Smartphones • PCs, tablet computers• Flat-panel Tvs• Game consoles• Single-lens reflex cameras

• Ultrasonic probes• Biosensors

2 NihoN Dempa Kogyo

Mobile communications Audiovisual/Office Automation Medical and Healthcare Equipment

SAW devices

SensorsDevices for consumer products

number of Crystal Devices used • Ultralow-priced models: 10 to 20

• Economy models: 30 to 40• Luxury models: 70 to 100

• Mobile phone base stations: 10 to 100

• Optical communications devices (each device: 1 to 10 or more)

• IoT bases, Gateway: 2 to 4

• Smartphones (2 to 7 crystal units and oscillators + SAW devices using 4 to 30 or more)

• Tablet computers: 3 to 4• LCD Tvs: 2 to 3• Game consoles: 2 to 3• Digital single-lens reflex cam-

eras: 2 and 1 optical filter

outline of Business Results and outlook

• Annual sales have increased due to worldwide robust demand. Also, progress has been made in spreading usage of telecommuni-cations and audiovisual equipment aimed for the ADAS (advanced driver assistance system).

• Crystal oscillators (TCXOs, ICXOs) and SAW devices are required to meet stringent standards for auto-mounted telecommunica-tions and audiovisual equipment (including high temperature tolerance, durability, etc.), and NDK has pursued development and design of these devices based on the experience accumulated thus far.

• In the mobile phone base stations market, installation of compact base stations and spot base stations increased in order to process mass radio waves. NDK is promoting development and sales expansion of compact and high accuracy 9 x 7mm high-stability OCXOs to meet this demand.

• In the optical communications market, the speed increased to 100Gbps, 400Gbps where higher frequency is required for oscilla-tors. NDK is promoting develop-ment and sales expansion of new products (Multi-function vCXOs and high frequency XOs) to meet the demand.

• As prices had continued to decline, NDK emphasized profitability and refrained from accepting orders for some products. As a result, sales were below the level of the previous year, but prices have bottomed out and profitability improved.

• In the smartphone field, the shift from chip sets incorporating thermistors to chip sets using crystal oscillators (TCXOs) has progressed. As a result, the num-ber of crystal oscillators (TCXOs) per set has increased, and NDK is responding to the need for in-creased production.

• NDK developed 1612 size com-pact temperature compensated crystal oscillators (TCXOs) for this increased demand and began production for surface acoustic wave (SAW) module manufacturers to capitalize on the growing mobile communications market.

• As a result of the sales drop mainly for Tvs, PCs, home elec-tronics and games, and the decrease in demand for optical products due to the shrinkage of the digital camera market, sales in the Av/OA market decreased

• Crystal devices will assume the function of wireless communica-tion at IoT. In order to win this demand from IoT, NDK is develop-ing and expanding sales of com-pact products that are price competitive.

• Ultrasonic devices: NDK is devel-oping and selling portable simpli-fied ultrasonic devices looking forward to a demand increase in medical and nursing care.

• Biosensors: NDK makes efforts to commoditize products for food inspection that can test for specific substances in food products. The production and sales will be col-laborated with the partner client of this product.

used in • Automobiles • Mobile phone base stations• Optical communications devices• Broadband telecommunica-

tions equipment• Digital broadcasting equipment

• Smartphones • PCs, tablet computers• Flat-panel Tvs• Game consoles• Single-lens reflex cameras

• Ultrasonic probes• Biosensors


TO OUR SHAREHOLDERS

NDK is working to return to ¥50 billion in annual net sales through creation of strong products drawing on its capabilities for high quality, technology, and product development.

toshiaki takeuchi Representative Director & Chairman of the Board,President and CEO

4 NihoN Dempa Kogyo

Review of Fiscal 2016

During the year ended March 31, 2016,

although the U.S. economy continued

to recover gradually, the world econo-

my confronted the risk of a possible

downturn, as the economies of the

emerging countries in Asia, including

China, showed a slowdown in growth.

In Japan, despite a gradual upward

trend in capital investment against a

background of improvement in corpo-

rate performance, consumer spending

was weak, and the economy overall

continued to be at a standstill.

Amid this operating environment, the

NDK Group continued to focus on

launching and expanding sales of new,

highly reliable, high-value-added prod-

ucts and developing differentiated

products for the general mass-pro-

duced market segments. NDK also

worked to lower manufacturing costs

by increasing yields and increasing

productivity. However, in addition to

continued intense competition, sales

slowed in the smartphone market in the

latter half of the fiscal year. As a result,

although net sales reached the tar-

geted level, NDK was unable to secure

the targeted income level.

By market, demand for new uses,

such as an advanced driver assistance

system (ADAS) in the automotive

electronics market, continued to be

strong, and sales and income were

above the levels of the previous year.

However, sales and income in the

industrial products market declined as

a result of adjustments in output in the

first half of the fiscal year among cus-

tomers manufacturing parts for mobile

telephone bases for China. In the

mobile communications business, NDK

conducted sales activities with an

emphasis on profitability, and sales in

the smartphone market slowed. These

factors resulted in a decline in sales

compared with the previous year but

the profit structure improved. In the

optical devices business, the loss was

reduced through further efforts to lower

manufacturing costs.

As a consequence of these develop-

ments, consolidated net sales de-

creased 6.0%, to ¥44,850 million;

operating income expanded 134.3%,

to ¥410 million; income before income

tax declined 71.4%, to ¥102 million;

and net income amounted to ¥317

million (compared with a net loss of

¥569 million in the previous fiscal year).

Income before income tax on a

consolidated basis decreased because

of temporary factors, including the

reporting of a gain on the sale of secu-

rities of ¥360 million in the previous

year, and an evaluation loss on the sale

of securities of ¥342 million in the fiscal

year under review. In reality, NDK’s

profit structure is improving steadily

because of the increase in margins and

reductions in fixed costs.

Foreign currency translation differ-

ences for foreign operations were

minus ¥1,416 million, mainly because

of the impact of the weakening of the

Chinese yuan. As a result of this and

other factors, other comprehensive

income (loss) for the period, net of

income tax, amounted to a loss of

¥1,731 million. Thus, total comprehen-

sive income (loss) for the period was a

loss of ¥1,414 million (compared with

total comprehensive income of ¥1,319

million in the previous fiscal year).

Also, the operating ratio of operating

income to net sales was 0.9% and the

return on equity attributable to owners

of the Company was 1.2%.


Initiatives for Regaining Status as a Company with ¥50 Billion in Annual Sales

In each of the five product segments of

the NDK Group, NDK is responding

quickly to market trends and is

strengthening its capabilities for devel-

oping and launching new products.

(1) High-Value-Added Industrial

products

NDK develops and markets high-value-

added products for industrial use,

including OCXOs (oven controlled

crystal oscillators), high frequency

crystal oscillators, and ultra-low noise

crystal oscillators.

(2) Highly Reliable Automotive

products

The demand for crystal devices is

expected to rise along with demand for

an advanced driver assistance system

(ADAS) which uses car-mounted

cameras and radar systems, and other

telematics devices. To meet this de-

mand, NDK has developed and

launched highly reliable automotive

products, including temperature com-

pensated crystal oscillators (TCXOs),

crystal clock oscillators (ICXOs), and

surface acoustic wave (SAW) devices.

(3) SAW Devices

Along with the growing diversity of

telecommunications modes and use of

new wave frequencies, demand for SAW

devices is expected to expand. In the

mobile communications market, mass

production of SAW devices has begun,

and, based on the reputation for reliabil-

ity and experience that NDK has built in

the car-mounted device fields, NDK is

entering the SAW device business in the

automotive electronics market.

(4) General Mass products

In the mobile communications market,

NDK is moving forward with increases

in production and sales of TCXOs. In

the AV/OA market, NDK is developing

and growing sales of price-competitive

new standardized devices for the IoT

markets.

(5) Sensors

In view of rising needs in the medical,

nursing, and elderly care fields, NDK

has developed and is expanding sales

of simplified, portable ultrasonic

targets for Fiscal 2017

Regarding the business environment

surrounding the NDK Group, although

expansion in the smartphone market

has weakened, the spread of LTE

devices and growing requirements for

greater precision in GPS has changed

the mix of items required on-board. As

a result, demand for TCXOs (tempera-

ture compensated crystal oscillators)

and SAW (surface acoustic wave)

devices is rising rapidly. To capture this

strong demand, NDK is making capital

investments of ¥5.0 billion in fiscal

2017, mainly for TCXOs and SAW

device production (compared with

¥1.7 billion in fiscal 2016).

For fiscal 2017, ending March 31,

2017, NDK is forecasting net sales of

¥45,000 million (an increase of 0.3%

over the previous year), operating

income of ¥850 million (a gain of

106.9%), income before income tax of

¥750 million (an increase of ¥629.7%),

and net income of ¥650 million (a gain

of 104.8%). Forecast figures are based

on a foreign exchange rate of ¥110 to

the U.S. dollar.

6 NihoN Dempa Kogyo

enhancing Corporate Value through CSR Initiatives and providing Returns to Shareholders

NDK believes that to increase its

corporate value through generating

earnings and continue to increase

corporate value it is indispensable and

of the highest management priority for

the Company to maintain management

transparency, make sure that it is

accountable to stakeholders, and have

effective corporate governance sys-

tems. Japan’s Corporate Governance

Code was issued in June 2015, and

NDK elected two Outside Directors to

its Board of Directors. To increase the

effectiveness of the Board of Directors,

NDK formed its Outside Officers Meet-

ing including the two Outside Directors

and two Outside Audit & Supervisory

Board Members. Matters that are

discussed in this committee are re-

ported to the Board of Directors. As a

result, the level of discussion in the

Board of Directors meetings has been

enhanced and discussions are more

in-depth and enthusiastic. NDK’s

corporate governance initiatives have

strengthened the surveillance of man-

agement, promoted legal compliance,

helped to ensure accountability, pro-

moted timely and appropriate disclo-

sure of information, and provided

incentives for fulfilling corporate social

responsibilities, including activities for

protection of the natural environment.

Going forward through these activities,

NDK wants to work to maintain the

trust of all its stakeholders and continue

to be a respected corporate group.

Moreover, NDK positions returning

the benefits gained by increasing

corporate value to its shareholders as

one of the Company’s major manage-

ment policies. Accordingly, with a basic

policy of paying stable dividends, the

Company will set its dividends after

giving due consideration to its perfor-

mance, financial position, and other

matters.

As a manufacturer of devices that

emit a wide comprehensive range of

frequencies, NDK works to provide its

customers with highly reliable products

and pursues high levels of manufactur-

ing excellence. NDK believes that its

mission is to continue to carry out its

founding philosophy of “contributing to

the prosperity of society and world

peace through our service to custom-

ers.” Looking to the future, we will

continue to contribute to safety,

security, and comfort.

We appreciate your support and

request your continuing interest and

cooperation in the years to come.

sensors. In addition, NDK is expanding

sales of its quality control management

(QCM) sensor, primarily for inspection

of food products.

Due to changes in the demand for

TCXOs in devices for the general mass

products field, the NDK Group has

turned its policy toward refocusing its

products for the mass market, and,

therefore, is shifting from a strategy of

balance contraction in this market to a

growth strategy. In addition, in the

fields of industrial products, car-mount-

ed devices, and sensors, NDK is

drawing on its capabilities for produc-

ing high-quality products and its

technology to implement a medium-term

plan for generating earnings with strong

product offerings. By winning a favor-

able evaluation and the trust of its

customers, NDK is aiming for

sustainable growth and stable profit-

ability, along with a return to annual

sales of ¥50 billion.

60,000

50,000

40,000

30,000

20,000

10,000

Fiscal 2015(actual)

Fiscal 2016(actual)

Fiscal 2017(forecast)

Fiscal 2018(target)

0

Fiscal 2019(target)

General mass products

Sensors

SAW devices

Highly reliable automotive products

High-value-added industrial products

Composition of sales(Millions of yen)


SALES, MANUFACTURING, AND TECHNOLOGIES STRATEGIES

SALES

As a consequence of the spreading

usage of the “Internet of Things,” or IoT,

which has been called the fourth indus-

trial revolution, by the year 2020, more

than 20 billion machines and devices

will be “connected” by wireless com-

munications. Key parts used in wireless

communications are crystal oscillators,

surface acoustic wave (SAW) devices,

and real-time clocks. NDK is preparing

products in preparation for this new

era of “connectedness,” and actively

offering proposals and designs for our

customers. To prepare for this new

era, during the current fiscal year, NDK

is focusing on products for the smart-

phone market and their support sys-

tems as well as for the advanced driver

assistance system (ADAS) market.

NDK is responding to these devel-

opments as a crystal device manufac-

turer by adopting “connectedness” as

a key concept. For this reason, NDK

aims to be a company of salespeople

who are “always near their custom-

ers” and strive to create systems that

can respond to customers’ needs and

requests. Moreover, NDK engages in

various development activities in the

sensor market and offers proposals to

its customers. This fiscal year, NDK will

begin production of portable ultrasonic

diagnostic devices.

MANuFActuRINGSince the collapse of Lehman Brothers,

existing facilities were fully used while

introduction of new equipment was held

down. Beginning in 2016, with an eye to

the target of becoming a company with

¥50 billion in annual net sales, NDK is

focusing on making capital investments

in manufacturing equipment for growth

market products (TCXOs, SAW devices,

IoT-related products, ADAS products,

etc.). NDK’s aim is to secure sufficient

capacity and reach its goals for produc-

tion amounts, productivity, quality, and

manufacturing costs.

In the case of low-margin products,

NDK will rescale its operations to the

appropriate level and structure produc-

tion systems that emphasize profitabili-

ty. NDK will make production decisions

based on “4M+E (Man, Material, Ma-

chine, Method + Environment)”. NDK

will aim to nurture workers who take

pride in their work (Man), use materials

of good quality and low prices (Mate-

rial), use machines that perform well

(Machine), and aim for securing stan-

dardization of manufacturing method

(Method) and also meets prescribed

environmental standards (Environ-

ment). While adhering strictly to these

objectives, NDK will work to increase

customer satisfaction regarding quality,

manufacturing cost, and delivery.

Four of NDK’s corporate officers in overall charge of sales, manufacturing, and technology (crystal

oscillators, crystal units, and SAW filters) explain NDK’s corporate strategy in fiscal 2017. NDK’s man-

ufacturing, sales, and technology departments are working together to steadily implement strategies

aimed at returning net sales to the goal of ¥50 billion annually.

Portable ultrasonic diagnostic deviceNDK developed sensors for this simplified portable ultrasonic device to meet rising medical demand. The probe contains an ultrasonic imaging circuit and connects to a tablet computer USB to display ultra-sonic images.

Junichi NaruseSenior Corporate OfficerGeneral Manager of Sales & Customer Service Division

Yuko YokoteSenior Corporate OfficerGeneral Manager of Corporate Production Division

Our key areas of focus will include smartphones and their support systems, devices for the ADAS market, and responding nimbly to customers’ needs.

Junichi Naruse

Beginning in 2016, NDK

is working toward its target of becoming a company with ¥50 billion in annual net sales by actively focusing its capital invest-ments in growth markets and products.

Yuko Yokote

8 NihoN Dempa Kogyo

SALES, MANUFACTURING, AND TECHNOLOGIES STRATEGIES

tEcHNOLOGY crystal OscillatorsCrystal oscillators, which are installed

in smartphones, car-mounted naviga-

tion devices, IoT devices, and various

other types of electronic devices, etc.,

are standardized key components.

NDK’s products, including those in

strong demand, such as TCXOs,

ICXOs, 105˚C oscillators used in car-

mounted equipment, and other de-

vices, have won a high market share

because of their emphasis on reliability.

Going forward, NDK will continue to

expand its market share.

In addition, in the next-generation

5G and other systems using the TDD

method, accuracies of 1.5 μs/24 hours

will be required for base station oscil-

lators. NDK has commercialized com-

pact, high-precision oscillators of this

type applying its original methods, and

they have won high appraisals as the

No. 1 performing units from customers.

As the leader in major oscillator types,

NDK is continuing to develop new prod-

ucts and respond to customer needs.

crystal units and SAW FiltersAhead of other companies in the

quartz crystal industry worldwide, NDK

has developed a wafer level process

technology for crystal quartz wafers

utilizing semiconductors/micro-electro

mechanical systems (MEMS). A new

crystal unit named the ‘photolithography

crystal unit (PCU)’ has been success-

fully developed using our epoch-making

quartz wafer photolithography technol-

ogy. During the current fiscal year, NDK

will release the PCU products for the

smartphone crystal market widely and

expand its production.

In the smartphone SAW device

market, NDK will increase production

of the smallest wafer level-chip sized

packaging (WL-CSP) SAW filter that

applies the most up-to-date WL-CSP

technology we developed.

NDK is actively introducing the latest

device process technology in our new

products, and will further strengthen its

position as the leading company in the

quartz crystal industry in the world.

temperature compensated crystal oscillator (tcXO)Because of the trend toward more TCXOs on smartphones, NDK has strengthened its lineup for this market. Going forward, NDK will expand production of this ultra-compact unit (1612 size) using a photo-lithography process.

SAW filterSince about 30 SAW filters are used in high-end smartphones, NDK WL-CSP SAWs have been inserted in smartphone RF modules of major module makers. WL-CSP SAW volume production will begin for supplying the huge Asian-smartphone devices market.

Noritoshi Kimura, Ph.D.Corporate OfficerGeneral Manager of Devices Development Division

Kazuo AkaikeCorporate OfficerGeneral Manager of Oscillators & Modules Engineering Division

Looking ahead, NDK will

work to expand its market share in products where demand is strong and high reliability is re-quired, such as TCXOs, ICXOs, and 105˚C oscillators used in car-mounted equipment.

Kazuo Akaike

NDK will increase production

of new photolithography crystal units and ultra-compact SAW filters for the smartphone devices market developed through ap-plication of the latest wafer level process technology.

Noritoshi Kimura


CORPORATE GOvERNANCE

Reporting

Reporting

Reporting

Audit

Collaboration

Important Legislation

Collaboration

Collaboration

Internal Reporting

Business Audits

Supervision, Direction

Business Audits

Instruction

Appointment Appointment Appointment

Reporting

Accounting Audit

Counsel

Audit

General Meeting of Shareholders

Board of Executive Officers

Business Divisions

Executive Officers

Subsidiary Companies

Board of Auditors

Risk Management Committee

Compliance Committee Corporate

Lawyers

Acco

untin

g Au

dito

rs

Inte

rnal

Aud

iting

Offi

ce

Board of Directors

AppointmentReporting

Reporting

Representative Director

To continue to be a company that is “trusted and needed” for all its stakehold-ers, NDK positions corporate governance as its highest priority management issue. Accordingly, NDK is working to structure a corporate governance system that enhances the soundness, transparency, and efficiency of management.

NDK’s Governance StructureNDK adopts the corporate auditor form of corporate governance and elects six Directors and three Audit & Supervisory Board Members. To strengthen auditing and oversight functions, two of the Direc-tors are Outside Directors and two of the

Auditors are Outside Audit & Supervisory Board Members. All of these four Outside Directors and Outside Audit & Supervisory Board Members are independent, have no major conflicts of interest with the Com-pany, and have been officially reported to the Tokyo Stock Exchange, Inc. In addition, to accelerate management decision making and policy implementa-tion, NDK introduced an Executive Officer system in 2014.

Design and Operation of Internal controlsRegarding compliance, NDK has formed a Compliance Committee, and, by

conducting compliance training for Directors and employees, works to establish and improve systems for main-taining compliance with laws and regula-tions. In addition, NDK has introduced internal reporting systems and has provided systems that gather, analyze, and make use of internal information regarding any violations of laws and regulations. To manage risk, NDK has formed a Risk Management Committee, which is working to develop systems to prevent risks before they emerge and keep any losses that may occur to a minimum level.

corporate Governance Structure

Reasons for Selection of Outside Directors and Outside Audit & Supervisory Board Members and their Activities

Title Name

Independent Director/Audit & Supervisory Board Member

Reasons for Selection

Status of Corporate Officer Activities

Regular Directors’ meetings attended

Special Directors’ meetings attended

Audit & Supervisory Board meetings attended

Outs

ide

Dire

ctor

s Takehiko Tatsuko*1 Judged to be able to appropriately perform the duties of Outside Audit & Supervisory Board Member based on his abun-dant experience and broad knowledge as a corporate manager

10/10 3/3 —

Hirofumi Shimada*2 Judged to be able to appropriately perform the duties of Outside Director based on his abundant experience and broad knowledge as a corporate manager

10/10 3/3 —

Outs

ide

Audi

t & S

uper

visor

y Bo

ard

Mem

bers

Shoji Kenmochi Judged to be able to appropriately perform the duties of Outside Audit & Supervisory Board Member based on in-depth understanding of tax matters gained from his many years of experience as a licensed tax accountant

13/13 4/4 15/15

Yorihisa Suwa*3 Judged to be able to appropriately perform the duties of Outside Audit & Supervisory Board Member based on his abundant experience as a corporate manager gained from his experience as the representative director of a listed company

10/10 3/3 11/11

*1. Resigned as Outside Audit & Supervisory Board Member and appointed Outside Director in June 2015*2. Appointed Outside Director in June 2015*3. Appointed Outside Audit & Supervisory Board Member in June 2015

10 NihoN Dempa Kogyo

First, I would like to tell you a little about

my background. At the start of my career,

I joined Nippon Telegraph and Telephone

Public Corporation, which was the prede-

cessor of today’s NTT, Japan’s principal

telecommunications company, and

moved up the ranks to become a director

of that company. This experience in NTT

enabled me to see firsthand the differ-

ences between the way public companies

and private companies are managed.

Next, I moved on to become president of

Nippon Information and Communication

Corporation, which was a joint venture

between NTT and IBM Japan, Ltd. This

gave me the opportunity to see how

non-Japanese companies are managed

and gave me a good idea of the differ-

ences between Japanese and non-Japa-

nese management practices. After that,

I became president of Nippon COMSYS

Corporation, which had a relatively high

share of foreign ownership. At COMSYS,

I put a lot of emphasis on our IR program

for overseas investors and had the chance

to experience the differences between

Japanese management and global

management standards. During that

period, I set up COMSYS Holdings

Corporation, which was the first holding

company in Japan’s construction industry,

and concluded a number of M&A deals.

The founder of NDK was an engineer,

and he established NDK, a highly technol-

ogy-oriented company, because he saw

the future potential of crystal devices.

NDK constantly secures a steady budget

for the development of technology, and

pays respect to engineers. NDK is con-

stantly challenging the development of

new technology and is a leader in the

crystal device industry. Today is a difficult

time for manufacturing companies. But,

even amid this challenging environment,

NDK is driving forward toward major

reforms as it reads and understands the

course of development of society. I want

to contribute to NDK’s development as

it continues to innovate by drawing on

my experience and perspective in the

wide range of fields where I have worked.

I appreciate continuous support and

encouragement in this endeavor from our

stakeholders.

In 2016, there have been two major

developments involving outside directors.

One has been the formal application of

Japan’s Corporate Governance Code.

Along with this, expectations have risen

about the roles outside directors can play

in increasing corporate value and their

contributions to sustainable growth. The

second major development has been the

emergence of cases of fraudulent ac-

counting that are examples of the failure

of outside directors to contribute to good

corporate governance. As discussions

emerged again regarding what outside

directors should do, I became an Outside

Director of NDK.

The importance has increased of

creating a different sort of corporate board

meetings that are simpler and cover a

sufficiently wide selection of topics, along

with the need to discuss what Outside

Directors should do to perform their

supervisory functions effectively. For these

reasons, NDK appointed two Outside

Audit & Supervisory Board Members,

bringing the total members of its Outside

Officers Meeting to four. It was also

decided that the members of this meeting

discuss the agenda topics with one

another in advance and report the results

to the Chairman of the Board of Directors.

I was selected from among the Board

members to become the Lead Outside

Director and chair the Outside Officers

Meeting. I am responsible for calling the

meetings, preparing the minutes after the

meetings, and reporting to the Chairman

of the Board of Directors. We have held

meetings six times over the last eight

months, and, as a result, discussions at

the Board of Directors meeting are be-

coming livelier and more meaningful.

For NDK to grow, I hope it will make the

transformation to being a company with a

strong backbone that can face and deal

with changes in the market without

wavering. To make this possible, NDK’s

management and employees must work

as one and share information. For the

foreseeable future, I think NDK should

continue its policy of expanding sales.

MESSAGES FROM NDK’S OUTSIDE DIRECTORS

Hirofumi ShimadaOutside Director

takehiko tatsukoOutside Director


Directors and Audit & Supervisory Board Members

DIRECTORS, AUDIT & SUPERvISORY BOARD MEMBERS, AND CORPORATE OFFICERS(As of June 24, 2016)

Director & chairman of the Board, President and cEO

toshiaki takeuchi*Representative Director and CEO

professional careerApril 1965 Entered IBM Japan

May 1974 Director of NDK

December 1976 Resigned from IBM Japan

June 1977 Vice President and Director of NDK

June 1988 Vice President and Representative Director of NDK

July 1991 President and Representative Director of NDK

April 2005 Chairman and Representative Director of NDK

November 2014 Representative Director & Chairman of the Board, President and CEO of NDK (Present)

Directors

Hiromi Katoh*Executive Vice PresidentGeneral Manager of Administration Division

professional careerApril 1976 Entered NDK

June 2001 Director of NDK

June 2003 Assigned to be General Manager of General Affairs and Personnel Departments of NDK

October 2009 Assigned to be General Manager of Administration Division of NDK (Present)

April 2012 Assigned to be General Manager of Corporate Planning Office of NDK (Present)

June 2013 Managing Director of NDK

November 2014 Executive Vice President and Director of NDK (Present)

Masahiro tsuchiya*Senior Corporate OfficerPresident and Representative Director of Hakodate NDK

professional careerApril 1976 Entered Clarion Co., Ltd.

September 1984 Entered Nittodenkikoji Co., Ltd.

March 1989 Entered Hakodate NDK

April 2004 Entered NDK


July 2008 Assigned to be General Manager of Corporate Production Division of NDK

June 2013 Managing Director of NDK

November 2014 Senior Corporate Officer and Director of NDK (Present)

Junichi naruse*Senior Corporate OfficerGeneral Manager of Sales & Customer Service Division

professional careerApril 1981 Entered NDK

July 2004 General Manager of Sales Department 1 of NDK (Present)

July 2007 General Manager of Sales Integration Department 1 of NDK


July 2010 Assigned to be General Manager of Sales Integration Department 1 of NDK

November 2014 Senior Corporate Officer and Director of NDK (Present) Assigned to be General Manager of Sales & Customer Service Division of NDK (Present) Assigned to be General Manager of Industrial Business Division of NDK (Present)

takehiko tatsukoOutside Director

professional careerApril 1965 Entered Mitsubishi Electric Corporation

June 1998 Executive Vice President of Electronic Systems Group of Mitsubishi Electric Corporation

June 2000 Director of Mitsubishi Precision Co., Ltd.

October 2000 Resigned from Mitsubishi Electric Corporation Senior Managing Director of Mitsubishi Precision Co., Ltd.

April 2001 President and CEO of Mitsubishi Precision Co., Ltd.

June 2007 Chairman of Japan International Marine Science and Technology Federation

June 2008 Outside Audit & Supervisory Board Member of NDK

June 2015 Outside Director of NDK (Present)

Seated, from left: Masahiro Tsuchiya, Toshiaki Takeuchi, Hiromi Katoh, Junichi NaruseStanding, from left: Shoji Kenmochi, Hirofumi Shimada, Takehiko Tatsuko, Shigeo Handa, Yorihisa Suwa


corporate Officers (Excluding those who are concurrently appointed as Directors)

DIRECTORS, AUDIT & SUPERvISORY BOARD MEMBERS, AND CORPORATE OFFICERS

Front row, from left: Tadashi Ishii, Hiroyuki Shinada, Yuko Yokote, Akio Noheji, Reiji FukuharaBack row, from left: Noritoshi Kimura, Natsuhiko Sakairi, Nobumitsu Fujiwara, Kazuo Akaike, Koji Kubota

Hirofumi ShimadaOutside Director Advisor of Nippon COMSYS Corporation

professional careerApril 1967 Entered Nippon Telegraph and

Telephone Public Corporation

June 1994 Regional Director of Shin-etsu Branch and Director of Nippon Telegraph and Telephone Corporation

January 1999 Entered Nippon Information and Communication Corporation

June 1999 President and Representative Director of Nippon Information and Communication Corporation

June 2002 Entered Nippon COMSYS Corporation Vice President and Director of Nippon COMSYS Corporation

June 2003 President and Representative Director of Nippon COMSYS Corporation

September 2003 President and Representative Director of COMSYS Holdings Corporation

June 2007 Chairman and Representative Director of Nippon COMSYS Corporation

June 2008 Chairman and Representative Director of COMSYS Holdings Corporation

June 2013 Advisor of Nippon COMSYS Corporation (Present)

June 2015 Outside Director of NDK (Present)

Audit & Supervisory Board Members

Shigeo HandaStanding Audit & Supervisory Board Member

professional careerOctober 1979 Entered NDK

October 2006 General Manager of Treasury & Accounting Department of NDK

June 2012 Standing Audit & Supervisory Board Member of NDK (Present)

Shoji KenmochiOutside Audit & Supervisory Board Member

professional careerJune 1987 Head of Kumamoto Regional Taxation

Bureau

July 1988 Resigned from Head of Kumamoto Regional Taxation Bureau

August 1988 Registered as Certified Tax Accountant

September 1988 Opened Shoji Kenmochi Tax Accounting Office and became Representative of the office (Present)

June 2001 Outside Audit & Supervisory Board Member of NDK (Present)

Yorihisa SuwaOutside Audit & Supervisory Board Member

professional careerApril 1970 Entered Japan Radio Co., Ltd.

June 2004 Director of Product Development of Japan Radio Co., Ltd.

June 2005 President and Representative Director of Japan Radio Co., Ltd.

June 2011 Chairman and Representative Director of Japan Radio Co., Ltd. Vice President and Director of Nisshinbo Holdings Inc.

June 2015 Outside Audit & Supervisory Board Member of NDK (Present)

Senior corporate Officer

Yuko YokoteGeneral Manager of Corporate Production Division

corporate Officers

Hiroyuki ShinadaGeneral Manager of Industrial Engineering Division

Akio nohejiPresident and Representative Director of Furukawa NDK

tadashi IshiiIn charge of Automotive Products Market

Reiji FukuharaGeneral Manager of Consumer Business Division

nobumitsu FujiwaraPresident of Suzhou NDK Co., Ltd.

natsuhiko SakairiSayama Factory Manager

Kazuo AkaikeGeneral Manager of Oscillators & Modules Engineering Division

noritoshi Kimura, ph.D.General Manager of Devices Development Division

Koji KubotaGeneral Manager of Quality Assurance

* Concurrently as corporate officers


Environmental Policy and InitiativesNDK operates globally with the corporate

philosophy of “NDK takes its part in

protecting the environment and is fulfi lling

its social responsibilities.” To this end,

NDK has structured a Companywide

environmental management system and

is pursuing activities to protect the global

environment.

The Company does not select or use

parts or materials that contain substances

that are forbidden and/or place a burden

on the environment at any stage of its

activities. NDK is also compliant with

environment-related laws in all countries

where it operates as well as the requests

of its customers, and has established a

list of management standards for environ-

ment-related substances for responding

to ELV, RoHS, REACH, etc.

Initiatives based on various systems

include securing and operating under ISO

14001 certifi cations. Particularly regarding

reduction of CO2 greenhouse gas emis-

sions, the Company has prepared a

medium-term plan that includes targets

for reducing emissions and is working to

attain these goals. To respond to the

environmental needs of society and

reduce CO2 emissions, NDK has estab-

lished “Green Crystal

Technology” (Chart 1)

as the model concept

for its crystal device

development and

works to apply

cutting-edge technology to provide

even more compact, lighter, and

power-conserving devices.

Environmental Performance(The graphs at right show the environ-

mental data for the Sayama Plant, which

is NDK’s “mother” plant.)

Trends in NDK’s principal emissions

that place a burden on the environment,

as established under the medium-term

plan, are shown in items (i) to (iii). NDK

has earned a high appraisal for its envi-

ronmental initiatives, including receipt of

an environmental rating from the Develop-

ment Bank of Japan (DBJ), qualifying it to

receive fi nancing on preferential terms.

(i) Global warming prevention measures

To attain its CO2 emissions reduction

target of 15%, the Company continues to

install energy-saving equipment, carefully

controlling its process management, and

other activities.

(ii) Reduction of waste emissions

The Company has maintained zero

emissions (100% recycling of waste

products) since fi scal 2010.

(iii) Management of environmentally

hazardous chemical substances

Hydrogen fl uoride and its water-soluble

salts are the only substances NDK

employs that fall within the scope of

Japan’s Pollutant Release and Transfer

Register (PRTR) system. The Company

maintains a zero volume of waste from

sludge treatment processes through

detoxifi cation processing.

NDK Group Guidelines for ActionIn December 2015, the Company pre-

pared its NDK Group Code of Conduct

with the aim of setting the directions

necessary for NDK to contribute to

creating a sustainable society. This Code

of Conduct was prepared based on

NDK’s corporate philosophy and ethical

standards. The companies of the NDK

Group, which have responsibilities to

society for maintaining high ethical

standards, have declared that they will

follow this Code, and all members of NDK

Group management and staff understand

the Code and will abide by it. To put this

Code into practice, NDK conducts

training related to CSR and the Subcon-

tract Proceeds Law* as well as compli-

ance training for new employees.

* Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors

For more-detailed information, please read the CSR activities information at the following Internet address: http://www.ndk.com/en/environment/

For more-detailed information, please read the “NDK Group Code of Conduct” at the following Internet address: http://www.ndk.com/pdf/code_of_conducy_en.pdf

(i) CO2 Emissions Volume and Emissions per Unit of Production

(t-CO2) (tons/millions of yen)

’12FY ’14 ’15 ’160

20,000

15,000

10,000

5,000

0.0

2.0

1.5

1.0

0.5

’13 CO2 emissions volume Emissions per unit of production

(tons/millions of yen, right scale)

(ii) Waste Emissions and Recycling Ratio(t) (%)

0

400

300

200

100

0

100

75

50

25

’12FY ’14 ’15 ’16’13 Waste emission volume Recycling ratio (right scale)

(iii) Hydrogen Fluoride Used and Volume Transported

(t) (tons/millions of yen)

0

6.0

3.0

2.0

1.0

0.0000

0.0006

5.0 0.0005

0.0003

0.0002

0.0001

4.0 0.0004

’12FY ’14 ’15 ’16’13 Volume used Waste transported Sewage transported Amount used per unit of production

(tons/millions of yen, right scale)

CORPORATE SOCIAL RESPONSIBILITY

Chart 1

14 NIHON DEMPA KOGYO

http://www.ndk.com/en/environment/

http://www.ndk.com/pdf/code_of_conducy_en.pdf

Five-Year SummarYNihon Dempa Kogyo Co., Ltd. and Consolidated Subsidiaries For the years ended March 31

’12 ’13 ’14 ’15 ’160

40

20

60

80

100

’12 ’13 ’14 ’15 ’160

1,000

500

2,000

2,500

3,000

1,500

Cost of Sales/Net Sales(%)

R&D Expenses(Millions of yen)

’12 ’13 ’14 ’15 ’16–6

0

–3

3

9

6

ROE(%)

’12 ’13 ’14 ’15 ’16–2

0

–1

2

1

3

4

ROA(%)

Thousands of U.S. dollars

Millions of yen (Note)

2016 2015 2014 2013 2012 2016

Net sales ¥44,850 ¥47,730 ¥50,774 ¥50,623 ¥50,804 $398,029Cost of sales 36,137 38,801 40,978 40,752 38,744 320,704Selling, general and administrative expenses 6,718 7,713 7,496 7,186 7,417 59,620Research and development expenses 1,921 2,133 2,221 2,579 2,686 17,048Operating income 410 175 240 235 2,081 3,638Income/(loss) before income tax 102 359 191 (37) 1,615 905Net income/(loss) 317 (569) 181 (289) 1,759 2,813Net income/(loss) attributable to owners of the parent 317 (569) 181 (289) 1,759 2,813Total comprehensive (loss)/income for the period (1,414) 1,319 827 1,307 1,863 (12,548)Total assets 67,966 71,670 76,218 71,367 67,216 603,177Total equity 25,700 27,507 26,581 26,147 26,123 228,079Depreciation and amortisation 3,558 3,809 3,923 3,425 3,040 31,576Capital expenditures 2,099 2,024 2,733 4,736 4,873 18,627

U.S. dollars

Yen (Note)

Per Share Data:Net income/(loss): Basic ¥16.17 ¥(29.00) ¥ 9.25 ¥(14.75) ¥89.66 $0.14 Diluted — — — — 89.66 —Cash dividends applicable to the period 20.00 20.00 20.00 20.00 20.00 0.17

Notes: 1. Figures are presented in accordance with International Financial Reporting Standards. The U.S. dollar amounts represent translations of Japanese yen amounts at the rate of ¥112.68 to U.S.$1.00, which was the rate prevailing on March 31, 2016.

2. The results for the year of 2014 are retrospective in line with changes in accounting policies.


management’S DiScuSSion anD analYSiS

OutlookDuring the year ended March 31, 2016, although the U.S. econo-my continued to recover gradually, the world economy confronted the risk of a possible downturn, as the economies of the emerging countries in Asia, including China, showed a slowdown in growth. In Japan, despite a gradual upward trend in capital investment against a background of improvement in corporate performance, consumer spending was weak, and the economy overall contin-ued to be at a standstill. In NDK’s business environment, severe price competition continued, and, in the latter half of the fiscal year, the smartphone market experienced a slowdown. Amid these operating conditions, high-value-added industrial products showed declines in sales and income as a result of adjustments in output in the first half of the fiscal year among customers manufacturing parts for mobile telephone bases for China. On the other hand, firm demand for highly reliable automo-tive products, including the new application for use in an advanced driver assistance system (ADAS), resulted in increases in sales and income compared with the previous fiscal year. Among general mass-produced items, NDK conducted sales activities with an emphasis on profitability, mainly in the mobile communications area. In addition, as a result of the slowdown in the smartphone market, sales and income declined, but, as a result of improve-ment in the profit structure and efforts to reduce costs in the optical devices business, the operating loss decreased.

Results of OperationsIn the year ended March 31, 2016, orders on a consolidated basis decreased 2.9%, to ¥45,179 million, and consolidated net sales declined 6.0%, to ¥44,850 million. However, operating income rose 134.3%, to ¥410 million, and income before income tax decreased 71.4%, to ¥102 million. The Company reported net income of ¥317 million, compared with a net loss of ¥569 million in the previous fiscal year.

Sales by ProductSales by product were as follows.(1) Crystal UnitsSales of crystal units decreased. Although sales of highly reliable automotive products rose, as a result of conducting sales activities to mobile communications manufacturers with an emphasis on profit-ability and the adverse impact of the slowdown in the smartphone market in the fourth quarter, sales declined 7.0%, to ¥26,795 million.(2) Crystal DevicesCrystal device sales declined 7.3%, to ¥13,630 million. Sales of crystal oscillators expanded as demand remained firm for new uses, including highly reliable automotive products for use in ADAS. However, factors reducing sales of high-precision crystal oscillators included the impact of adjustments in output among customers manufacturing parts for mobile telephone bases for China in the first quarter and the conduct of sales activities to mobile communications manufacturers with an emphasis on profitability.

(3) OtherAmong other products, sales of optical devices decreased, but sales for ultrasonic devices expanded. For this reason, overall sales in this category increased 5.3%, to ¥4,424 million.

Performance by Customer-Based Geographic AreaPerformance by customer-based geographic area was as follows.

JapanSales in Japan were down 7.3% from the previous fiscal year, to ¥8,950 million. This was due to lower sales of optical devices for use in digital cameras and a drop in crystal oscillator sales for mobile telephone bases.

AsiaSales of crystal oscillators and crystal units expanded. However, in the first quarter, sales of crystal oscillators decreased because of adjustments in production among customers manufacturing parts for mobile telephone bases for China. In addition, as a conse-quence of the conduct of sales activities mainly to mobile commu-nications device manufacturers with an emphasis on profitability and the impact of the slowdown in the fourth quarter in the smart-phone market, sales of crystal units decreased. Moreover, sales of crystal units for use in PCs also declined. As a result of these factors, sales in China were down 8.4% year on year, to ¥17,096 million; sales in Singapore decreased 21.4%, to ¥1,176 million; sales in Thailand increased 95.1%, to ¥948 million; sales in Malay-sia declined 30.4%, to ¥774 million; and sales in other markets in Asia (excluding Japan) declined 35.9%, to ¥1,445 million.

Sales by Customer-Based Geographic Area

China38.1%

Japan20.0%

Others17.2%

Malaysia 1.7%

Thailand 2.1%Singapore 2.6%

Germany 9.7%

U.S.A. 8.6%

2016

China39.1%

Japan20.3%

Others17.8%

Thailand 1.0%

Malaysia 2.3%

Singapore 3.1%

Germany 9.1%

U.S.A. 7.3%

2015


EuropeSales of crystal units for use in automotive electronics expanded, but sales of crystal oscillators for use in mobile telephone bases decreased. As a result, sales in Germany expanded slightly more than 0.0%, to ¥4,334 million, and sales in other parts of Europe also grew by slightly more than 0.0%, to ¥4,892 million.

North AmericaSales of crystal units for automotive products increased. As a result, sales in the United States rose 10.6%, to ¥3,865 million, and sales to other parts of North America rose 840.5%, to ¥122 million.

R&D ExpensesThe NDK Group’s R&D units engage in programs aimed at estab-lishing new technologies and manufacturing methods that will be the foundation for future products in the medium and long terms. To better meet customer crystal device needs, the Group is strengthening its R&D systems, with the Sayama Plant as its hub, and is conducting R&D to develop next-generation frequency control, selection, and detection devices as well as enhancing its design and process technologies, which form the core for its R&D. R&D expenditures during the fiscal year under review totaled ¥1,921 million, compared with ¥2,133 million in the previous fiscal year.

Financial ConditionAt fiscal year-end, total assets amounted to ¥67,966 million, a decrease of ¥3,703 million from the previous fiscal year-end. Factors accounting for this included a ¥2,797 million increase in cash and cash equivalents, a decrease of ¥1,227 million in trade receivables, a decline of ¥1,919 million in inventories, and a decrease of ¥2,139 million in property, plant and equipment. Total liabilities amounted to ¥42,266 million, a decline of ¥1,895 million, from the end of the previous fiscal year, owing to factors that included a decrease of ¥701 million in loans and borrowings and a decline of ¥847 million in trade and other payables. Total equity attributable to owners of the Company amounted to ¥25,700 million, a decrease of ¥1,807 million from the previous fiscal year-end, primarily as a result of ¥1,414 million in total comprehen-sive loss for the period and ¥392 million in dividends from retained earnings. As a result, the ratio of equity attributable to owners of the Company was 37.8%, 0.6 percentage point lower than at the previous fiscal year-end.

Capital Financing and Cash Flow AnalysisThe Group obtains funds for working capital and capital invest-ments from internal sources and bank loans. Bank loans include short-term loans with periods of one year or less procured for working capital and longer-term loans for long-term funding, such as for production facilities. At March 31, 2016, the Group had outstanding balances of short-term loans and borrowings of ¥1,676 million and long-term loans and borrowings of ¥27,534 million.

The balance of cash and cash equivalents on a consolidated basis at the end of the fiscal year under review amounted to ¥17,161 million, an increase of ¥2,797 million. Factors subtracting from the balance included ¥10,586 million in repayments of long-term loans and borrowings and ¥1,709 million in purchases of property, plant and equipment. However, these factors were offset by proceeds from long-term loans and borrowings of ¥9,000 million, depreciation and amortisation of ¥3,558 million, and other factors. Free cash flow amounted to ¥4,463 million, an increase of ¥3,276 million from the previous fiscal year, which was the result of a ¥1,204 million decrease in cash flow from investing activities and a ¥5,667 million increase in cash flow from operating activities. Net cash provided by operating activities was negatively af-fected by a decline of ¥422 million in trade payables and a decline in accrued bonuses of ¥347 million. However, these negative factors were offset by depreciation and amortisation of ¥3,558 million, a decline in inventories of ¥1,487 million, proceeds from insurance claim income of ¥898 million, and other factors. As a result, net cash provided by operating activities was ¥5,667 million, ¥4,262 million higher than in the previous fiscal year. Net cash used in investing activities was positively affected by proceeds from the sales of investments and other assets of ¥1,978 million, but this inflow was more than offset by purchase of property, plant and equipment of ¥1,709 million, purchase of investments and other assets of ¥1,676 million, and other factors. As a result, net cash used in investing activities amounted to ¥1,204 million (¥985 million larger than the previous fiscal year). Net cash used in financing activities was ¥1,101 million, repre-senting a decrease of ¥4,138 million from the previous fiscal year. This was due to the repayment of long-term loans and borrowings of ¥10,586 million, which offset ¥9,000 million in proceeds from long-term loans and borrowings.

DividendsNDK regards returning profit to shareholders as a management priority and aims to maintain stable dividend payments while taking into account earnings, financial position, and other factors. NDK seeks to maintain a virtuous circle through a reasonable balance between levels of retained earnings and shareholder dividend payments, and we are committed to further improving earnings performance by conducting R&D and capital investments that enable NDK to manufacture high-value-added and high-quality products that will effectively strengthen the Company’s business structure. Based on a comprehensive consideration of the business performance during the year, the management environment, and other factors, the Company has set a year-end dividend of ¥10 per share for the year ended March 31, 2016. Combined with the ¥10 per share interim dividend, the total dividend payment for the year ended March 31, 2016, amounted to ¥20 per share. For the year ending March 31, 2017, the Company plans to pay an interim dividend of ¥10 per share and a year-end dividend of ¥10 per share for a total dividend payment of ¥20 per share.


conSoliDateD StatementS oF Financial PoSitionNihon Dempa Kogyo Co., Ltd. and Consolidated Subsidiaries As of March 31, 2016 and 2015

Millions of yenThousands of U.S. dollars

ASSETS 2016

2015 2016

Current assets: Cash and cash equivalents ¥17,161 ¥14,364 $152,298 Trade receivables 10,390 11,617 92,208 Inventories 10,621 12,540 94,258 Income taxes refundable 5 9 44 Derivative assets 373 34 3,310 Others 2,334 3,378 20,713

Total current assets 40,886 41,945 362,850

Non-current assets: Property, plant and equipment 23,504 25,643 208,590 Intangible assets 1,041 1,105 9,238 Investment securities 839 1,132 7,445 Deferred tax assets 1,101 894 9,771 Others 594 948 5,271

Total non-current assets 27,080 29,724 240,326

Total assets ¥67,966 ¥71,670 $603,177

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.



LIABILITIES AND EQUITY 2016

2015 2016

Current liabilities: Loans and borrowings ¥17,254 ¥10,593 $153,123 Trade and other payables 7,373 8,220 65,433 Derivative liabilities 83 174 736 Provisions 32 30 283 Income taxes payable 165 170 1,464 Others 570 627 5,058

Total current liabilities 25,478 19,816 226,109

Non-current liabilities: Loans and borrowings 12,008 19,370 106,567 Deferred tax liabilities 430 522 3,816 Employee benefits 3,827 3,666 33,963 Provisions 91 136 807 Deferred government grants 180 236 1,597 Others 249 412 2,209

Total non-current liabilities 16,788 24,346 148,988

Total liabilities 42,266 44,162 375,097

Equity: Share capital 10,649 10,649 94,506 Share premium 8,563 8,564 75,993 Other components of equity (174) 1,260 (1,544) Retained earnings 6,660 7,032 59,105

Total equity attributable to owners of the Company 25,700 27,507 228,079

Total equity 25,700 27,507 228,079

Total liabilities and equity ¥67,966 ¥71,670 $603,177


conSoliDateD StatementS oF comPrehenSive income


2016 2015 2016

Net sales ¥44,850 ¥47,730 $398,029Cost of sales (36,137) (38,801) (320,704)

Gross profit 8,713 8,928 77,325

Selling, general and administrative expenses (6,718) (7,713) (59,620)Research and development expenses (1,921) (2,133) (17,048)Other operating income 571 2,533 5,067Other operating expenses (234) (1,439) (2,076)

Operating income 410 175 3,638

Financial income 331 472 2,937Financial expenses (639) (288) (5,670)

Income before income tax 102 359 905

Income tax benefits/(expenses) 214 (928) 1,899

Net income/(loss) for the period 317 (569) 2,813

Other comprehensive income: Items that will not be reclassified to profit or loss: Remeasurement of defined benefit plan (296) 297 (2,626)

Subtotal (296) 297 (2,626)

Items that may be reclassified subsequently to profit or loss: Foreign currency translation differences for foreign operations (1,416) 1,717 (12,566) Change in fair value of available-for-sale financial assets (238) 170 (2,112) Change in fair value of available-for-sale financial assets transferred to profit or loss 210 (360) 1,863 Income tax relating to items that may be reclassified 8 62 70

Subtotal (1,434) 1,590 (12,726)

Other comprehensive (loss)/income for the period, net of income tax (1,731) 1,888 (15,362)

Total comprehensive (loss)/income for the period ¥ (1,414) ¥ 1,319 $ (12,548)

Net income attributable to: Owners of the Company ¥ 317 ¥ (569) $ 2,813

Total comprehensive income attributable to: Owners of the Company ¥ (1,414) ¥ 1,319 $ (12,548)

Yen U.S. dollars

Earnings per share: Basic earnings/(loss) per share ¥ 16.17 ¥ (29.00) $ 0.14

The accompanying notes to consolidated financial statements are an integral part of these statements.

Nihon Dempa Kogyo Co., Ltd. and Consolidated Subsidiaries For the years ended March 31, 2016 and 2015


conSoliDateD StatementS oF changeS in equitY

Millions of yen

Share capital

Additional paid-in capital*

Treasury shares*

Share premium*

Available- for-sale financial assets**

Translation differences for foreign

operations**

Other components of equity**

Retained earnings

Attributable to owners of the Company

Total equity

Balance at April 1, 2014 ¥10,649 ¥11,353 ¥(2,787) ¥8,565 ¥ 135 ¥ (465) ¥ (329) ¥7,696 ¥26,581 ¥26,581

Total comprehensive income for the period

Net loss — — (569) (569) (569)

Other comprehensive income, net of income tax

Remeasurement of defined benefit plan — — 297 297 297

Foreign currency translation differences for foreign operations — 1,717 1,717 1,717 1,717

Net change in fair value of available-for-sale financial assets — (127) (127) (127) (127)

Total comprehensive income for the period — — — — (127) 1,717 1,590 (271) 1,319 1,319

Transactions with owners, recorded directly in equity

Contributions by and distributions to owners

Changes in treasury shares, net (0) (0) (0) — (0) (0)

Dividends declared — — (392) (392) (392)

Total contributions by and distributions to owners — (0) (0) (0) — — — (392) (393) (393)

Total transactions with owners — (0) (0) (0) — — — (392) (393) (393)

Balance at March 31, 2015 ¥10,649 ¥11,353 ¥(2,788) ¥8,564 ¥ 8 ¥ 1,251 ¥ 1,260 ¥7,032 ¥27,507 ¥27,507


Net income — — 317 317 317

Other comprehensive loss, net of income tax

Remeasurement of defined benefit plan — — (296) (296) (296)

Foreign currency translation differences for foreign operations — (1,416) (1,416) (1,416) (1,416)


Total comprehensive loss for the period — — — — (18) (1,416) (1,434) 20 (1,414) (1,414)



Changes in treasury shares, net (0) (0) — (0) (0)

Dividends declared — — (392) (392) (392)

Total contributions by and distributions to owners — — (0) (0) — — — (392) (393) (393)

Total transactions with owners — — (0) (0) — — — (392) (393) (393)

Balance at March 31, 2016 ¥10,649 ¥11,353 ¥(2,789) ¥8,563 ¥ (10) ¥ (164) ¥ (174) ¥6,660 ¥25,700 ¥25,700

Thousands of U.S. dollars

Share capital

Additional paid-in capital*

Treasury shares*

Share premium*

Available- for-sale financial assets**

Translation differences for foreign

operations**

Other components of equity**

Retained earnings

Attributable to owners of the Company

Total equity

Balance at March 31, 2015 $94,506 $100,754 $(24,742) $76,002 $ 70 $ 11,102 $11,182 $62,406 $244,116 $244,116


Net income — — 2,813 2,813 2,813

Other comprehensive loss, net of income tax

Remeasurement of defined benefit plan — — (2,626) (2,626) (2,626)

Foreign currency translation differences for foreign operations — (12,566) (12,566) (12,566) (12,566)


Total comprehensive loss for the period — — — — (159) (12,566) (12,726) 177 (12,548) (12,548)



Changes in treasury shares, net (0) (0) — (0) (0)

Dividends declared — — (3,478) (3,478) (3,478)

Total contributions by and distributions to owners — — (0) (0) — — — (3,478) (3,487) (3,487)

Total transactions with owners — — (0) (0) — — — (3,478) (3,487) (3,487)

Balance at March 31, 2016 $94,506 $100,754 $(24,751) $75,993 $ (88) $ (1,455) $ (1,544) $59,105 $228,079 $228,079

* The figures in the share premium column are calculated by totalling additional paid-in capital and treasury shares. ** The figures in the other components of the equity column are calculated by totalling available-for-sale financial assets and translation differences for foreign operations.

The accompanying notes to consolidated financial statements are an integral part of these statements.

Nihon Dempa Kogyo Co., Ltd. and Consolidated Subsidiaries For the years ended March 31, 2016 and 2015


conSoliDateD StatementS oF caSh FlowSNihon Dempa Kogyo Co., Ltd. and Consolidated Subsidiaries For the years ended March 31, 2016 and 2015


2016 2015 2016

Operating activities: Income before income tax ¥ 102 ¥ 359 $ 905 Depreciation and amortisation 3,558 3,809 31,576 Gain on sales of land use right — (406) — Gain on sales of investment property — (867) — Gain on sales of property, plant and equipment (156) (304) (1,384) Loss on disposal of property, plant and equipment 5 7 44 Impairment losses of property, plant and equipment 20 1,149 177 Gain on sales of investment securities (102) (360) (905) Impairment losses of investment securities 342 — 3,035 Gain on receipt of subsidies (119) (150) (1,056) Insurance claim income (195) (645) (1,730) Decrease in trade receivables 853 1,364 7,570 Decrease/(increase) in inventories 1,487 (937) 13,196 Decrease in trade payables (422) (428) (3,745) (Decrease)/increase in accrued bonuses (347) 120 (3,079) Increase in derivative assets (340) (32) (3,017) (Decrease)/increase in derivative liabilities (89) 63 (789) Decrease in provisions (13) (10) (115) Interest and dividend income (83) (83) (736) Interest expense 224 270 1,987 Interest and dividends received 84 80 745 Interest paid (173) (186) (1,535) Proceeds from insurance claim income 898 — 7,969 Income tax paid, net (156) (109) (1,384) Other, net 288 (1,296) 2,555

Net cash provided by operating activities 5,667 1,405 50,292

Investing activities: Purchase of property, plant and equipment (1,709) (2,107) (15,166) Purchase of intangible assets (44) (147) (390) Purchase of investments and other assets (1,676) (2,678) (14,873) Proceeds from sales of land use right — 463 — Proceeds from sales of investment property — 1,124 — Proceeds from sales of property, plant and equipment 240 547 2,129 Proceeds from sales of investments and other assets 1,978 2,556 17,554 Other, net 6 22 53

Net cash used in investing activities (1,204) (218) (10,685)

Financing activities: Proceeds from long-term loans and borrowings 9,000 8,000 79,872 Repayment of long-term loans and borrowings (10,586) (13,070) (93,947) Net decrease in short-term loans and borrowings 879 220 7,800 Cash dividends paid (395) (389) (3,505) Purchase and sales of treasury shares, net (0) (0) (0)

Net cash used in financing activities (1,101) (5,240) (9,771)

Net increase/(decrease) in cash and cash equivalents 3,361 (4,054) 29,827

Cash and cash equivalents at beginning of year 14,364 17,727 127,476

Net effect of currency translation on cash and cash equivalents (564) 691 (5,005)

Cash and cash equivalents at end of year ¥17,161 ¥14,364 $152,298

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.


1948 • Founded as Nanbu Shoko Co., Ltd.1949 • Started crystal unit production and sales1950 • Changed the Company’s name to Nihon Dempa Kogyo Co., Ltd.1954 • Relocated to newly constructed Head Office and plant in

Shibuya-ku, Tokyo1959 • Started crystal filter production1960 • Started crystal oscillator production1962 • Started construction of Sayama Plant in Sayama, Saitama

Prefecture1963 • Started mass production of synthetic quartz crystals • Crystal cutting facility completed in the Sayama Plant • Began trading of NDK stock on the OTC market1964 • Assembly line completed in the Sayama Plant • Opened Kansai Sales Office for sales in Osaka1970 • Established production affiliate Hawk Denshi Co., Ltd., in Niigata

Prefecture (converted to a subsidiary in 1990 and renamed Niigata NDK Co., Ltd., in 2005)

1975 • Opened representative sales office in California, U.S.A.1976 • Established subsidiary Furukawa NDK Co., Ltd., in Miyagi

Prefecture1979 • Established subsidiary Asian NDK Crystal Sdn. Bhd. in Selangor,

Malaysia • Established NDK America, Inc., in California, U.S.A.,

and dissolved representative sales office1985 • Completed main building at Sayama Plant1986 • Opened Chubu Sales Office for sales in Aichi Prefecture • Established production subsidiary Malaysian Quartz Crystal Sdn.

Bhd. in Selangor, Malaysia (now NDK Quartz Malaysia Sdn. Bhd.) • Completed construction of new facilities at Sayama Plant1988 • Established sales subsidiary NDK Europe Ltd.

in the United Kingdom1989 • Established production subsidiary Hakodate NDK Co., Ltd., in

Hakodate, Hokkaido1990 • Relocated Head Office functions to Shinjuku-ku, Tokyo • Listed NDK stock on the Second Section of the Tokyo Stock

Exchange1994 • Established production subsidiary Suzhou NDK Co., Ltd.,

in Suzhou, China • Established sales subsidiary NDK Italy Srl as a subsidiary of NDK

Europe Ltd., which is a subsidiary of the parent company • ISO 9001 certification obtained

1995 • Established sales subsidiary NDK Electronics (HK) Limited in Hong Kong

1998 • QS-9000 certification obtained • Listed on the First Section of the Tokyo Stock Exchange1999 • ISO 14001 certification obtained2001 • Opened NDK Europe Ltd., German Office, for sales (functions

transferred to NDK Germany GmbH upon the establishment of that company as a subsidiary of the parent company in 2008, opened and transferred functions to the German Office in March 2014, commenced NDK Germany GmbH liquidation procedures in April 2014)

2002 • Established production subsidiary NDK Crystal, Inc., in Illinois, U.S.A.

• Established NDK Holdings USA, Inc., in Illinois, U.S.A. as an umbrella holding company holding 100% of the shares in NDK America, Inc., and NDK Crystal, Inc.

• Established NRS Technologies Inc. in Hakodate, Hokkaido, as a joint venture with NEC

• Established sales subsidiary NDK-Electronics Shanghai Co., Ltd.2003 • Established NDK Crystal Asia Pte. Ltd. in Singapore

as a sales subsidiary of Asian NDK Crystal Sdn. Bhd., which is a subsidiary of the parent company

2004 • Opened Chitose Technical Center in Chitose, Hokkaido2005 • NRS Technologies Inc. was merged into Hakodate NDK Co., Ltd. • Head Office functions relocated to Sasazuka, Shibuya-ku, Tokyo2006 • Registered Head Office moved from Nishihara, Shibuya-ku,

Tokyo, to Sasazuka, Shibuya-ku, Tokyo2008 • Quality Assurance Laboratory recognized by Japan Accreditation

Board for Conformity Assessment as meeting the ISO/IEC 17025: 2005 international laboratory management standard

• Obtained approval as a specified exporter from Tokyo Customs2009 • Completed Laboratory ATOM, a new research facility, within the

Sayama Plant • Established Suzhou NDK Trading Co., Ltd., in Suzhou, China as

a subsidiary of Suzhou NDK Co., Ltd., which is a subsidiary of the parent company

2010 • NDK became the first company in Japan to adopt IFRS2014 • Subsidiary NDK Italy Srl subsumed in a merger with subsidiary

NDK Europe Ltd. • ISO13485 certification obtained2015 • Head Office functions relocated to Sasazuka, Shibuya-ku, Tokyo

(within the same area before relocation)

corPorate hiStorY

guiDe to nDK’S webSitehttp://www.ndk.com/en/

NDK’s Website offers investor relations (IR) materials along with other diverse information—such as explanations of our unique technologies—that will enable you to gain a deeper understanding of NDK.

CSR ActivitiesThis section offers information about NDK’s broad range of CSR activities, including environmental protection activities, environmental information disclosure activities, safety promotion activities, etc.

Investor RelationsThis section offers such information as materials for explaining financial results, annual reports, etc.

Event InformationThis section offers information about NDK’s participation in exhibitions.


The NDK Group is currently comprised of 15 companies, including 4 in Japan and 11 overseas. The Group engages in the integrated manufacture as well as the marketing of crystal-related products, such as crystal devices (e.g., crystal units and crystal oscillators), ultrasonic probes, synthetic quartz crystals, and crystal blanks. The main companies of the NDK Group are organized as follows.

overview oF the nDK grouP

DirectorY

HEAD OFFICE

Nihon Dempa Kogyo Co., Ltd.Merkmal Keio Sasazuka Bldg., 1-47-1, Sasazuka, Shibuya-ku, Tokyo 151-8569, JapanPhone: 81-3-5453-6711E-Mail: [email protected]

• Osaka Sales Office (in Osaka)• Chubu Sales Office (in Aichi )• Sayama Plant (in Saitama)• Chitose Technical Center (in Hokkaido)

DOmEStIC PRODuCtION SuBSIDIARIESFurukawa NDK Co., Ltd. (in Miyagi )

Hakodate NDK Co., Ltd. (in Hokkaido)

Niigata NDK Co., Ltd. (in Niigata)

OvERSEAS PRODuCtION SuBSIDIARIES

Asian NDK Crystal Sdn. Bhd.NDK Quartz malaysia Sdn. Bhd. (in Malaysia)

Suzhou NDK Co., Ltd. (in Suzhou, China)

NDK Electronics Shanghai Co., Ltd. (in Shanghai, China) Phone: 86-21-6278-5115E-Mail: [email protected]• Shenzhen Branch

(in Shenzhen, China) Phone: 86-755-2218-2269 E-Mail: [email protected]

Suzhou NDK trading Co., Ltd. (in Suzhou, China) Phone: 86-5126-8252071E-Mail: [email protected]

NDK Crystal Asia Pte. Ltd. (in Singapore)Phone: 65-6298-9878E-Mail: [email protected]

OvERSEAS SALES OFFICES

Asian NDK Crystal Sdn. Bhd. (in Malaysia)• Sales Department

Phone: 60-3-5192-3360 E-Mail: [email protected]

Suzhou NDK Co., Ltd. (in Suzhou, China) • Sales Department

Phone: 86-5126-8252071

(As of July 1, 2016)

OvERSEAS SALES SuBSIDIARIES

NDK America, Inc. (in Illinois, U.S.A.)Phone: 1-847-852-4165E-Mail: [email protected]• Eastern U.S. Regional Office

(in Pennsylvania) Phone: 1-717-497-8353

• Silicon Valley Office (in California) Phone: 1-408-428-0800

NDK Europe Ltd. (in U.K.)Phone: 44-20-8547-0500E-Mail: [email protected]• French Office (in France)

Phone: 33-1-60-95-0000 E-Mail: [email protected]

• Italy Office (in Italy) Phone: 39-02-9670-2920 E-Mail: [email protected]

• German Office (in Germany) Phone: 49-7261-4027-0 E-Mail: [email protected]

NDK Electronics (HK) Limited (in Hong Kong, China) Phone: 852-2956-3181• Taipei Branch (in Taiwan)

Phone: 886-2-2555-0232 E-Mail: [email protected]

Furukawa NDK Co., Ltd.

Hakodate NDK Co., Ltd.

Niigata NDK Co., Ltd.

Japan Consolidated Subsidiaries

Customers

Production Companies Main Sales Companies and Offices

NDK America, Inc.

NDK Europe Ltd.

NDK Electronics (HK) Limited

NDK Electronics Shanghai Co., Ltd.

Asian NDK Crystal Sdn. Bhd.

NDK Crystal Asia Pte. Ltd.

Suzhou NDK Co., Ltd.

Overseas

Sales Offices

Consolidated Subsidiaries

Asian NDK Crystal Sdn. Bhd.

Suzhou NDK Co., Ltd.

Overseas Consolidated Subsidiaries

NDK Quartz Malaysia Sdn. Bhd.

Nihon Dempa Kogyo

Co., Ltd.(Parent

Company)


inveStor inFormation(As of March 31, 2016)

Date of Foundation: 1948

Share Capital: ¥10,649,469,744

Number of Shares of Common Stock: 20,757,905 shares (including 1,131,823 shares held in treasury)

Number of Shareholders: 10,839

Major Shareholders:

number of Shares held Shareholdingname (thousands) ratio

Japan Trustee Services Bank, Ltd. (Trust Account) 833 4.24%

Resona Bank, Ltd. 667 3.40%

Marusan Securities Co., Ltd. 653 3.32%

Toshiaki Takeuchi 622 3.17%

Saitama Resona Bank, Ltd. 610 3.10%

Hiroshi Takeuchi 528 2.69%

CBNY DFA INTL SMALL CAP VALUE PORTFOLIO 401 2.04%

The Master Trust Bank of Japan, Ltd. (Trust Account) 369 1.88%

The Bank of Tokyo-Mitsubishi UFJ, Ltd. 318 1.62%

Tokio Marine & Nichido Fire Insurance Co., Ltd. 315 1.60%

Notes: 1. The Company holds 1,131,218 shares of treasury stock but has excluded itself from the above list of major shareholders.Note: 2. Shareholding ratios are calculated based on the number of outstanding shares less the number of treasury stock shares,

and are stated here rounded down through the discarding of figures after the second decimal place.

For more detailed information, please contact:Nihon Dempa Kogyo Co., Ltd.

Head Office: Merkmal Keio Sasazuka Bldg., 1-47-1, Sasazuka,Shibuya-ku, Tokyo 151-8569, Japan

Phone: 81-3-5453-6711E-Mail: [email protected]

URL: http://www.ndk.com/en/

Stock Listing: First Section of the Tokyo Stock Exchange

Fiscal Year-End: March 31

General Meeting of Shareholders: June

Distribution of Ownership among Shareholders: (On a number of shares basis)

Treasury shares

5.45%Other corporations

3.03%

Foreign corporations, etc.

8.51% Individuals

53.37%Financial institutions

24.60%

Financial product vendors

5.03%


Merkmal Keio Sasazuka Bldg., 1-47-1, Sasazuka, Shibuya-ku, Tokyo 151-8569, JapanPhone: 81-3-5453-6711Facsimile: 81-3-5453-6733URL: http://www.ndk.com/en/

Printed in Japan

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A LEADER IN THE FIELD OF QUARTZ CRYSTAL ELECTRONIC COMPONENTS

NIHON DEMPA KOGYO

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