NGK Insulators : Summary of Consolidated Financial Results for the Nine Months Ended December 31, 2016

Company Name : NGK INSULATORS, LTD. Stock Exchange Listings : Tokyo and Nagoya Listing Code : 5333

URL : http://www.ngk.co.jp/english/ Representative : President Taku Oshima (Mr.)

Contact : General Manager Finance & Accounting Department Hideaki Shindo (Mr.)

(TEL) +81-52-872-7230

Date of the Filing of Securities Report "Shihanki Hokokusho" (Scheduled) : February 3, 2017 Date of Dividend Payment (Scheduled) : ー

Availability of supplementary explanatory materials prepared for financial results : None Briefing session on financial results to be held : None

January 31, 2017

(All yen amounts are rounded down to the nearest million.)

1. Consolidated financial results for the nine months ended December 31, 2016 (from April 1, 2016 to December 31,2016)

   (Note) Comprehensive Income	: Nine months ended December 31, 2016	40,006million yen	11.0 %
   : Nine months ended December 31, 2015	36,054million yen	(47.0)%

2. Consolidated operating results (Percentage figures represent increase (decrease) from previous period.)

   Net Sales		Operating Income		Ordinary Income		Profit attributable to owners of parent
   Nine months ended December 31, 2016	Millions of yen	％	Millions of yen	％	Millions of yen	％	Millions of yen	％
   	293,345	(5.5)	49,834	(18.1)	49,544	(18.7)	34,754	(10.7)
   Nine months ended December 31, 2015	310,306	14.7	60,864	40.6	60,907	43.4	38,898	8.7

   Profit per share	Diluted profit per share
   Nine months ended December 31, 2016 Nine months ended December 31, 2015	Yen 107.56 119.13	Yen 107.38 118.90

3. Consolidated financial position

4. Total assets	Total net assets	Ratio of net worth to total assets
   December 31, 2016	Millions of yen	Millions of yen	％
   	735,118	433,742	57.5
   March 31, 2016	711,897	417,972	57.1

   (Reference) Net worth : As of December 31, 2016, 422,619million yen

   : As of March 31, 2016, 406,743 million yen

5. Dividend payment

   Cash dividends per share
   First quarter-end	Second quarter-end	Third quarter-end	Year-end	Total (Full-year)
   Year ended March 31, 2016	Yen	Yen	Yen	Yen	Yen
   	-	18.00	-	20.00	38.00
   Year ending March 31, 2017	-	20.00	-
   Year ending March 31, 2017 (forecast)	20.00	40.00

   (Note) Revision of cash dividend forecast during this period :None

6. Forecasts of consolidated financial results for the fiscal year ending March 31, 2017

7. (Percentage figures represent increase (decrease) from previous period.)

   Net Sales		Operating Income		Ordinary Income		Profit attributable to owners of parent		Profit per share
   Year ending March 31, 2017	Millions of yen 400,000	％ (8.2)	Millions of yen 63,000	％ (22.1)	Millions of yen 64,000	％ (21.5)	Millions of yen 35,000	％ (34.4)	Yen 108.44

   (Note) Revision of forecasts of consolidated financial results during this period :Yes

   Notes

8. Significant changes in subsidiaries during this period (changes in specified subsidiaries, "tokutei kogaisha" defined in the "Cabinet Office Ordinance on Disclosure of Corporate Information, etc.", involving a change of the scope of consolidation during this period) : None New ― company ( ) , Exclusion ― company ( )

9. Application of special accounting methods for preparing quarterly consolidated financial statements : None

10. Changes in accounting policies, accounting estimates or retrospective restatements

11. Changes due to revisions of accounting standards : None

12. Changes in accounting policies other than the above (i) : None

13. Changes in accounting estimates : None

14. Retrospective restatement : None

    December 31, 2016	327,560,196 shares	March 31, 2016	327,560,196 shares
    December 31, 2016	5,945,107 shares	March 31, 2016	981,389 shares
    December 31, 2016	323,100,875 shares	December 31, 2015	326,535,436 shares

15. Number of shares outstanding (Common Shares)

16. Number of shares outstanding at period end including treasury stocks

17. Number of treasury stocks at period end

18. Average number of shares outstanding over period

19. • Presentation regarding the implementation status of review procedures

      These financial statements are outside the scope of review procedures in accordance with the Financial Instruments and Exchange Law of Japan. At the time of disclosure of this report, the review procedures of the consolidated financial statements in accordance with the Financial Instruments and Exchange Law of Japan are in progress.

    • Explanation of appropriate use of results forecasts and other notes

    This document contains forward-looking statements that are based on information and certain assumption NGK INSULATORS, LTD. ("NGK") has acquired and deemed reasonable as of the time of the release and NGK does not guarantee the achievement of them. Actual future results and trends may differ materially from those in the forecasts due to a variety of factors.

    Contents of Appendix 1. Qualitative Information on Quarterly Financial Statements･･････････････････････････････････ 2

    (1) Explanation of Business Results ････････････････････････････････････････････････････････････ 2

    (2) Explanation of Financial Position ････････････････････････････････････････････････････････････ 2

    (3) Explanation of Forward-looking Statements including Forecasts for Consolidated Financial Statements････････････････････････････････････････････････････････････････････････････････ 3

    2. Consolidated Financial Statements ･･････････････････････････････････････････････････････････ 4

    (1) Consolidated Balance Sheet ･･･････････････････････････････････････････････････････････････ 4

    (2) Consolidated Statement of Income and Consolidated Statement of Comprehensive Income ･･ 6

    Consolidated Statement of Income ････････････････････････････････････････････････････････ 6

    Consolidated Statement of Comprehensive Income ･････････････････････････････････････････ 7

    (3) Notes to Consolidated Financial Statements ････････････････････････････････････････････････ 8

    (Changes in accounting policy) ････････････････････････････････････････････････････････････ 8

    (Additional information) ･････････････････････････････････････････････････････････････････ 8

    (Note on the assumption as a going concern) ･･････････････････････････････････････････････ 8

    (Significant changes in stockholder's equity)････････････････････････････････････････････････ 8

    (Consolidated Balance Sheet) ･････････････････････････････････････････････････････････････ 9

    (Segment information)･････････････････････････････････････････････････････････････････････ 9

    1. Qualitative Information on Quarterly Financial Statements
20. Explanation of Business Results

    During the nine months ended December 31, 2016, the Japanese economy remained on a moderate recovery course underpinned by improvements in the employment and income environment, despite some signs of weakness. Among overseas economies, developed economies, such as the U.S. and Europe, were robust, while China and other emerging countries experienced a slowdown in economic growth.

    The NGK Group saw sluggish performance in the Power Business Segment due to a decrease in overseas shipments of insulators and a lack of large shipments of NAS® (sodium-sulfur) batteries. In the Ceramics Business Segment, demand for automotive ceramics increased due to factors including favorable sales of passenger cars in the U.S. and European markets, in addition to an increase in small passenger car sales in response to tax reduction measures and an increase in truck sales in response to strict controls on overloaded vehicles in China. In the Electronics Business Segment, demand for ceramic components for semiconductor manufacturing equipment grew against the backdrop of increased capital investment by semiconductor manufacturers on 3D-NAND flash memories and semiconductor foundries, while demand for ceramic packages was sluggish with its recovery delayed.

    As a result of the above, combined with the impact of the stronger yen compared to the previous year, consolidated net sales for the nine months ended December 31, 2016 decreased by 5.5% year on year to

    ¥293,345 million. In terms of earnings, as a result of decreased net sales among other factors, operating income decreased by 18.1% year on year to ¥49,834 million and ordinary income decreased by 18.7% to

    ¥49,544 million. Profit attributable to owners of parent decreased by 10.7% to ¥34,754 million.

    By segment, the Power Business Segment posted ¥39,643 million in net sales, a decrease of 19.6% year on year, and an operating loss of ¥3,595 million, compared to an operating income of ¥694 million in the same period of the previous year. In the Ceramics Business Segment, net sales decreased by 2.6% year on year to

    ¥179,391 million and operating income decreased by 6.0% year on year to ¥49,916 million. In the Electronics Business Segment, net sales decreased by 3.2% year on year to ¥74,523 million and operating income decreased by 49.9% year on year to ¥3,541 million.

21. Explanation of Financial Position

    As of December 31, 2016, total assets were ¥735,118 million, a increase of ¥23,221 million from the previous fiscal year-end. This was mainly due to increases in cash and bank deposits, inventories and tangible assets despite decreases in notes and accounts receivable trade and securities.

    Total liabilities increased by ¥7,451 million from the previous fiscal year-end to ¥301,376 million.

    Total net assets stood at ¥433,742 million, or ¥15,769 million higher than the previous fiscal year-end, due to increases in retained earnings and unrealized gain on available-for-sale securities.

22. Explanation of Forward-looking Statements including Forecasts for Consolidated Financial Statements

Regarding forecasts related to consolidated financial statements, net sales, operating income, ordinary income, and profit attributable to owners of parent are all expected to exceed previous forecasts due to factors including a weak yen, as well as increased demand for automotive ceramics in the Ceramics Business Segment and ceramic components for semiconductor manufacturing equipment in the Electronics Business Segment. Accordingly, the financial results forecasts for the full year ending March 31, 2017 have been revised.

For details, please refer to " Notice Regarding Revisions to the financial results forecasts for the full year ending March 31, 2017" that has been released today, January 31, 2017.

2．Consolidated Financial Statements （１）Consolidated Balance Sheet

(Millions of yen)

As of December 31, 2016

As of March 31, 2016

Assets

Current assets

Cash and bank deposits 134,141 97,481

Notes and accounts receivable trade 82,062 102,575

Securities 51,642 72,503

Inventories 123,634 108,945

Other 28,169 31,654

Allowance for doubtful accounts (645) (826)

Total current assets 419,004 412,333 Non-current assets

Tangible assets

Buildings and structures	68,143	62,252
Machinery and vehicles	94,837	86,606
Other	60,017	56,135
Total tangible assets	222,999	204,993
Intangible assets	2,876	3,019
Investments and other assets
Investment securities	75,769	78,675
Other	14,624	13,049
Allowance for doubtful accounts	(154)	(174)
Total investments and other assets	90,238	91,550
Total non-current assets	316,114	299,563
Total assets	735,118	711,897

(Millions of yen)

As of December 31, 2016

As of March 31, 2016

Current liabilities

Liabilities

Notes and accounts payable trade	35,619	36,052
Short-term borrowings	5,453	4,549
Current portion of long-term borrowings	6,923	20,242
Income taxes payable	4,143	7,137
Provision for NAS battery safety measures	4,107	5,405
Provision for loss related to competition law	3,916	4,307
Other	36,383	34,767
Total current liabilities	96,548	112,463
Long-term liabilities
Long-term borrowings	158,676	139,180
Net defined benefit liability	22,131	21,418
Other	24,020	20,861
Total long-term liabilities	204,828	181,461
Total liabilities	301,376	293,924
Net assets
Shareholders' equity
Common stock	69,849	69,849
Capital surplus	72,082	72,092
Retained earnings	288,371	266,580
Treasury stock	(12,469)	(1,363)
Total shareholders' equity	417,832	407,158

Accumulated other comprehensive income

Unrealized gain on available -for-sale

securities 27,537 20,832

Deferred loss on derivatives under hedge

accounting
Foreign currency translation adjustments	(8,918)	(5,888)
Defined retirement benefits plans	(13,762)	(15,358)
Total accumulated other comprehensive income	4,786	(414)
Stock acquisition rights	934	875
Non-controlling interests	10,188	10,352
Total net assets	433,742	417,972
Total liabilities and net assets	735,118	711,897

(70) -

（２）Consolidated Statement of Income and Consolidated Statement of Comprehensive Income Consolidated Statement of Income

(Millions of yen)

Nine months ended

December 31, 2016

Nine months ended

December 31, 2015

Net sales 293,345 310,306

Cost of sales 195,835 200,750

Gross profit 97,510 109,555

Selling, general and administrative expenses 47,675 48,690

Operating income 49,834 60,864

Non-operating income

Interest income 344 517

Dividend income 1,274 1,487

Foreign exchange gain 882 ー

Other 913 2,490

Total non-operating income 3,415 4,495 Non-operating expenses

Interest expense 1,532 1,474

Equity in loss of unconsolidated subsidiaries

and associated companies 2281,094

Foreign exchange loss ー 1,508 Loss on valuation of derivatives 1,567 ー

Other 377 375

Total non-operating expense 3,705 4,452

Ordinary income 49,544 60,907

Extraordinary income

Gain on sales of fixed assets 185 38

Gain on sales of investment securities 1,793 453

Subsidy income ー 153

Total extraordinary income 1,979 644

Extraordinary loss

Loss on sales and disposals of fixed assets 192 174

Impairment loss 3,228 ー

Provision of reserve for loss related to

competition law 1,0626,097

Total extraordinary loss 4,483 6,271

Income before income taxes and non-controlling interests	47,041	55,280
Income taxes -current	10,791	13,961
Income taxes -deferred	1,407	2,167
Income taxes - total	12,199	16,129
Profit	34,841	39,151
Profit attributable to non-controlling interests	86	252
Profit attributable to owners of parent	34,754	38,898

Consolidated Statement of Comprehensive Income

(Millions of yen)

Nine months ended December 31,

2016

Nine months ended December 31,

2015

Profit 34,841 39,151

Other comprehensive income

Unrealized gain(loss) on available-for-sale securities 6,730 (66)

Deferred loss on derivatives under hedge accounting (71) (7)

Foreign currency translation adjustments (2,633) (3,521)

Defined retirement benefit plans 1,524 426

Share of other comprehensive (loss) income of associates

accounted for by using the equity method
Total other comprehensive income	5,165	(3,096)
Comprehensive Income	40,006	36,054
Comprehensive Income attributable to:
Owners of parent	39,955	35,896
Non-controlling interests	51	157

(383) 73

(3) Notes to Consolidated Financial Statements (Changes in accounting policy)

Not applicable

(Additional information)

（Adoption of "Implementation Guidance on Recoverability of Deferred Tax Assets"）

Effective from the first quarter of fiscal 2016, NGK adopted the "Implementation Guidance on Recoverability of Deferred Tax Assets" (ASBJ Guidance No. 26, March 28, 2016).

(Filing of action for the revocation of correction

and risk of receiving correction for the subsequent fiscal years based on transfer pricing taxation)

With respect to transactions between NGK and its two overseas subsidiaries from the fiscal year ended March 31, 2006 through the fiscal year ended March 31, 2010, NGK received a correction based on transfer pricing taxation issued by the Nagoya Regional Taxation Bureau in March 2012, and NGK made a payment of approximately ¥7.9 billion in tax penalties including local taxes, while filing a complaint. With respect to approximately ¥1.7 billion of the aforementioned tax penalties concerning the transactions with a U.S. subsidiary, NGK received approximately ¥1.4 billion refund in total in Japan and the U.S. upon agreement under a Japan-

U.S. Mutual Agreement, which has been reflected in the financial results for the year ended March 31, 2014.

On the other hand, with respect to the remaining tax penalties of approximately ¥6.2 billion concerning the transactions with a Polish subsidiary, NGK requested its cancellation and in August 2014 requested the Nagoya National Tax Tribunal to carry out an administrative review. On June 24, 2016, NGK received a written verdict, which partially rescinded the correction. However, it went only so far as to refund approximately ¥0.1 billion of corporation taxes and local taxes, etc., and NGK believes that cancellation should be made in the full amount. To reclaim the remaining tax penalties paid, NGK filed an action for revocation of correction to the Tokyo District Court on December 20, 2016.

NGK, however, believes that it could still take a considerable time for the judgement on the claim to be made. Meanwhile, there is a risk of receiving a correction on transactions arising from subsequent fiscal years after April 1, 2010 (fiscal year ended March 31, 2011) in whole or in part, as a difference of view with the tax authorities remains.

(Note on the assumption as a going concern)

Not applicable

(Significant changes in stockholder's equity)

NGK acquired 5,000,000 shares of treasury stock based on the resolution at the meeting of the board of directors held on April 28, 2016. With this acquisition, treasury stock increased ¥11,106 million in the nine months ended December 31, 2016, and treasury stock as of December 31, 2016 amounted to ¥12,469 million.

(Consolidated Balance Sheet)

Contingent liabilities

The NGK Group is subject to an international investigation on the situation of competition.

Since the receiving of a subpoena by a U.S. subsidiary of NGK from the U.S. Department of Justice (DOJ) in 2011, NGK has cooperated in the investigation concerning ceramic substrates for catalytic converters including establishing the Independent Committee in 2012. In September, 2015, NGK entered into a Plea Agreement with DOJ, agreeing to pay a fine of US$65.3 million based on charges that it violated U.S. laws including the antitrust law in connection with some transactions for ceramic substrates for catalytic converters, and paid the total amount in November 2015. We have entered into negotiations for compensation for damages with the relevant customers. In addition to some customers requiring monetary compensation, civil lawsuits (class action) have also been filed.

In consideration of such progresses, the NGK Group made an estimate of potential losses, and recognized the estimated amount as of the end of nine months ended December 31, 2016, as "provision for loss related to competition law," however, additional losses may arise with the emergence of new facts. Overall details of the investigation and negotiations are not disclosed because they may put the NGK Group at a disadvantage.

(Segment information)

1. Nine months ended December 31, 2016 ( from April 1, 2016 to December 31, 2016 )

   (Millions of yen）

   Business Segment				Elimination or Adjustment	Consolidated
   Power	Ceramics	Electronics	Total
   Sales	39,629	179,192	74,523	293,345	-	293,345
   Sales to customers
   Intersegment sales	14	198	-	212	(212)	-
   Total sales	39,643	179,391	74,523	293,558	(212)	293,345
   Operating income（loss）	(3,595)	49,916	3,541	49,862	(27)	49,834

2. Nine months ended December 31, 2015 ( from April 1, 2015 to December 31, 2015 )

(Millions of yen）

Business Segment				Elimination or Adjustment	Consolidated
Power	Ceramics	Electronics	Total
Sales	49,297	184,017	76,990	310,306	-	310,306
Sales to customers
Intersegment sales	26	196	-	223	(223)	-
Total sales	49,324	184,214	76,990	310,529	(223)	310,306
Operating income	694	53,094	7,075	60,864	-	60,864

(Notes) 1. Elimination or adjustment of operating income (loss) is an adjustment of intersegment transactions.

2. Main products by business segment

Business Segment	Main products
Power	Insulators, hardware for insulator assemblies, current limiting arching horns, bushing shells, fuse cut-outs, APM, line arrester and NAS® (sodium-sulfur) batteries
Ceramics	Automotive ceramics for exhaust gas purification, corrosion-resistant ceramic apparatuses for chemical industries, gas analyzers, industrial heating systems, refractory products and radioactive waste treatment systems
Electronics	Ceramic components for semiconductor manufacturing equipment, ceramic components for electronics, beryllium copper wrought products, and molds