NGK Insulators : Summary of Consolidated Financial Results for the Three Months Ended June 30, 2017

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) : August 4, 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

July 28, 2017

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

1. Consolidated Financial Results for the Three Months Ended June 30, 2017 (from April 1, 2017 to June 30, 2017)

   (Note) Comprehensive income	: Three months ended June 30, 2017	21,173 million yen	-%
   : Three months ended June 30, 2016	(11,935) million yen	-%

2. Consolidated Operating Results (Percentage figures represent increase (decrease) from previous period.)

   Net sales		Operating income		Ordinary income		Profit attributable to owners of parent
   Three months ended June 30, 2017	Millions of yen	％	Millions of yen	％	Millions of yen	％	Millions of yen	％
   	110,044	11.2	18,807	(1.8)	18,126	(2.0)	11,279	(10.8)
   Three months ended June 30, 2016	98,975	(5.3)	19,151	(3.9)	18,500	(7.1)	12,646	(8.7)

   Profit per share	Diluted profit per share
   Three months ended June 30, 2017 Three months ended June 30, 2016	Yen 35.07 38.87	Yen 35.01 38.81

3. Consolidated Financial Position

4. Total assets	Total net assets	Ratio of net worth to total assets
   June 30, 2017	Millions of yen	Millions of yen	％
   	768,113	442,314	56.1
   March 31, 2017	759,434	427,593	54.9

   (Reference) Net worth : As of June 30, 2017 431,077 million yen

   : As of March 31, 2017 416,740 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, 2017	Yen	Yen	Yen	Yen	Yen
   	-	20.00	-	20.00	40.00
   Year ending March 31, 2018	-
   Year ending March 31, 2018 (forecast)	21.00	-	21.00	42.00

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

6. Forecasts of Consolidated Financial Results for the Fiscal Year Ending March 31, 2018

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

   Net sales		Operating income		Ordinary income		Profit attributable to owners of parent		Profit per share
   Six months ending September 30, 2017	Millions of yen	％	Millions of yen	％	Millions of yen	％	Millions of yen	％	Yen
   	205,000	5.5	33,000	(3.7)	31,500	(2.7)	20,000	(7.9)	62.18
   Year ending March 31, 2018	420,000	4.7	67,000	6.0	68,000	5.3	45,000	23.7	139.91

   (Note) Revision of forecasts of consolidated financial results during this period : None

   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

    June 30, 2017	327,560,196 shares	March 31, 2017	327,560,196 shares
    June 30, 2017	5,904,851 shares	March 31, 2017	5,915,570 shares
    June 30, 2017	321,652,770 shares	June 30, 2016	325,332,733 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. • These quarterly financial statements are not subject to the quarterly review procedure.

    • 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 and Notes ･･･････････････････････････････････････････････ 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

    (Note on the Assumption as a Going Concern) ･･････････････････････････････････････････････ 8

    (Significant Changes in Stockholder's Equity)････････････････････････････････････････････････ 8

    (Additional Information) ･････････････････････････････････････････････････････････････････ 8

    (Consolidated Balance Sheet) ･････････････････････････････････････････････････････････････ 8

    (Consolidated Statement of Income) ･･･････････････････････････････････････････････････････ 9

    (Segment Information)･････････････････････････････････････････････････････････････････････ 10
20. Qualitative Information on Quarterly Financial Statements
21. Explanation of Business Results

    During the three months ended June 30, 2017, the Japanese economy remained on a moderate recovery course, underpinned by improvements in the employment and income environment. Among overseas economies, developed economies, such as the U.S. and Europe, were robust, while emerging countries experienced a slowdown in economic growth.

    The NGK Group saw sluggish performance in NAS® (sodium-sulfur) batteries in the Power Business Segment, while overseas shipments of insulators increased. In the Ceramics Business Segment, the volume of automotive ceramics increased due to steady progress of passenger car sales in Europe and truck sales in China, despite a slowdown in passenger car sales in the Chinese and U.S. markets. In the Electronics Business Segment, the quantity of ceramic components for semiconductor manufacturing equipment increased as semiconductors became increasingly shrinking.

    As a result of the above, consolidated net sales for the three months ended June 30, 2017 increased by 11.2% year on year to ¥110,044 million. In terms of earnings, despite an increase in net sales, as a result of increased R&D and depreciation costs, among other factors, operating income decreased by 1.8% year on year to ¥18,807 million, ordinary income decreased by 2.0% to ¥18,126 million and profit attributable to owners of the parent decreased by 10.8% to ¥11,279 million.

    By segment, the Power Business Segment posted ¥14,586 million in net sales, an increase of 9.1% year on year, and an operating loss of ¥619 million, compared to an operating loss of ¥1,428 million in the same period of the previous year. In the Ceramics Business Segment, net sales increased by 7.8% year on year to ¥64,971 million and operating income decreased by 20.6% year on year to ¥15,332 million. In the Electronics Business Segment, net sales increased by 20.3% year on year to ¥30,509 million and operating income increased by 219.8% year on year to ¥4,091 million.

22. Explanation of Financial Position

    As of June 30, 2017, total assets were ¥768,113 million, an increase of ¥8,679 million from the previous fiscal year-end. This was mainly due to increases in tangible assets and cash and bank deposits despite a decrease of securities.

    Total liabilities decreased by ¥6,041 million from the previous fiscal year-end to ¥325,799 million. This was mainly due to a decrease in income taxes payable despite an increase of long-term borrowings.

    Total net assets stood at ¥442,314 million, or ¥14,721 million higher than the previous fiscal year-end, due to increases in foreign currency translation adjustments and retained earnings.

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

    With regard to the financial results forecasts for the full year ending March 31, 2018, no revisions have been made to those announced on April 28, 2017 and the previous forecasts remain unchanged. If there is any necessity to revise the full year forecasts, updated information will be disclosed immediately.

    Financial results forecasts are based on information that are currently available and actual results may differ materially from those in the forecasts due to various factors.

    2．Consolidated Financial Statements and Notes （１）Consolidated Balance Sheet

    (Millions of yen)

    As of June 30, 2017

    As of March 31, 2017

    Assets

    Current assets

    Cash and bank deposits 128,583 119,145

    Notes and accounts receivable trade 94,243 92,181

    Securities 62,602 71,659

    Inventories 117,575 119,081

    Other 31,723 37,062

    Allowance for doubtful accounts (720) (867)

    Total current assets 434,009 438,263 Non-current assets

    Tangible assets

    Buildings and structures	74,874	66,293
    Machinery and vehicles	98,018	97,018
    Other	67,714	65,795
    Total tangible assets	240,607	229,107
    Intangible assets	2,931	2,962
    Investments and other assets
    Investment securities	73,686	72,526
    Other	17,026	16,723
    Allowance for doubtful accounts	(147)	(148)
    Total investments and other assets	90,566	89,101
    Total non-current assets	334,104	321,170
    Total assets	768,113	759,434

    (Millions of yen)

    As of June 30, 2017

    As of March 31, 2017

    Current liabilities

    Liabilities

    Notes and accounts payable trade	39,529	38,898
    Short-term borrowings	6,046	6,016
    Current portion of long-term borrowings	7,443	6,973
    Income taxes payable	※１	9,378	21,056
    Provision for NAS battery safety measures	3,494	3,650
    Provision for loss related to competition law	9,167	9,167
    Other	36,786	42,676
    Total current liabilities	111,846	128,439
    Long-term liabilities
    Long-term borrowings	169,430		161,160
    Net defined benefit liability	21,165		20,926
    Other	23,357		21,314
    Total long-term liabilities	213,952		203,401
    Total liabilities	325,799		331,841
    Net assets
    Shareholders' equity
    Common stock	69,849	69,849
    Capital surplus	72,043	72,055
    Retained earnings	294,843	289,996
    Treasury stock	(12,385)	(12,407)
    Total shareholders' equity	424,349	419,492
    Accumulated other comprehensive income (loss)
    Unrealized gain on available -for-sale securities	24,912	23,458
    Deferred loss on derivatives under hedge accounting	(23)	(20)
    Foreign currency translation adjustments	(7,993)	(15,475)
    Defined retirement benefit plans	(10,168)	(10,713)
    Total accumulated other comprehensive income (loss)		6,727	(2,751)
    Stock acquisition rights	887		898
    Non-controlling interests	10,349		9,953
    Total net assets	442,314		427,593
    Total liabilities and net assets	768,113		759,434

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

    (Millions of yen)

    Three months ended

    June 30, 2017

    Three months ended

    June 30, 2016

    Net sales 110,044 98,975 Gross profit 35,413 35,240

    Cost of sales 74,631 63,734

    Operating income 18,807 19,151

    Interest income 141 106

    Selling, general and administrative expenses 16,605 16,088 Non-operating income

    Dividend income 644 638

    Equity in earnings of unconsolidated subsidiaries and associated companies

    - 16

    Gain on valuation of derivatives - 1,159

    Other 482 314

    Total non-operating income 1,268 2,235 Non-operating expenses

    Interest expense 553 490

    Equity in loss of unconsolidated subsidiaries

    and associated companies 531-

    Foreign exchange loss 176 2,285

    Loss on valuation of derivatives 354 -

    Other 333 111

    Total non-operating expense 1,949 2,887

    Ordinary income 18,126 18,500

    Extraordinary income

    Gain on sales of fixed assets 11 8

    Gain on sales of investment securities - 2

    Total extraordinary income 11 11

    Extraordinary loss

    Loss on sales and disposals of fixed assets 267 57

    Impairment loss - 1,157

    Provision of reserve for loss related to

    competition law -1,062

    Total extraordinary loss 267 2,277

    Income before income taxes and

    non-controlling interests
    Income taxes - current	※１	4,589	2,213
    Income taxes - deferred	1,813	1,382
    Income taxes - total	6,403	3,596
    Profit	11,466	12,637
    Profit (loss) attributable to non-controlling interests	186	(9)
    Profit attributable to owners of parent	11,279	12,646

    17,869 16,233 Consolidated Statement of Comprehensive Income

    (Millions of yen)

    Three months ended

    June 30, 2017

    Three months ended

    June 30, 2016

    Profit 11,466 12,637

    Other comprehensive income (loss)

    Unrealized gain (loss) on available-for-sale securities 1,466 (2,294)

    Deferred loss on derivatives under hedge accounting (4) (111) Foreign currency translation adjustments 7,812 (23,045)

    Defined retirement benefit plans 523 752

    accounted for by using the equity method	(90)	125
    Total other comprehensive income (loss)	9,707	(24,573)
    Comprehensive income (loss)	21,173	(11,935)
    Comprehensive income (loss) attributable to:
    Owners of parent	20,759	(11,516)
    Non-controlling interests	414	(418)

    Share of other comprehensive (loss) income of associates

    (3) Notes to Consolidated Financial Statements (Note on the Assumption as a Going Concern)

    Not applicable

    (Significant Changes in Stockholder's Equity)

    Not applicable

    (Additional Information)

    With respect to transactions between NGK and its Polish subsidiary from the fiscal year ended March 31, 2007 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. While NGK made a payment of approximately

    ¥6.2 billion in tax penalties including local taxes, it filed a complaint. NGK later requested the Nagoya National Tax Tribunal to carry out an administrative review, and on June 24, 2016, 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. Believing that cancellation should be made in the full amount, NGK filed an action for revocation of the correction with the Tokyo District Court on December 20, 2016.

    While NGK believes that it could still take a considerable amount of time before judgment is passed on the claim, on June 23, 2017 NGK received a correction notice based on transfer pricing taxation for the fiscal year ended March 31, 2011 through the fiscal year ended March 31, 2015. Accordingly, based on the premise that NGK would be subject to the said correction for the fiscal year ended March 31, 2016 and the fiscal year ended March 31, 2017 as well, ¥8.5 billion in tax penalties for fiscal years from March 31, 2011 through March 31, 2015, and estimated tax amounts for the fiscal year ended March 31, 2016 and the fiscal year ended March 31, 2017 were added and factored into the financial statements for the fiscal year ended March 31, 2017. In addition, estimated tax amounts for the three months ended June 30, 2017 were recognized under "Income taxes - current" for the fiscal year ending March 31, 2018.

    (Consolidated Balance Sheet) ※1. Income taxes payable

    With respect to transactions between NGK and its Polish subsidiary, NGK received a correction notice based on transfer pricing taxation on June 23, 2017. Therefore, the amount includes estimated tax amounts based on the premise that NGK would be subject to the said correction for the period from the fiscal year ended March 31, 2016, to June 30, 2017.

25. Contingent liabilities

26. 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 three months ended June 30, 2017, 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.

    (Consolidated Statement of Income) ※1. Income taxes - current

    With respect to transactions between NGK and its Polish subsidiary, NGK received a correction notice based on transfer pricing taxation on June 23, 2017. Therefore, the amount includes estimated tax amounts for the three months ended June 30, 2017 based on the premise that NGK would be subject to the said correction.

    (Segment Information)

27. Three months ended June 30, 2017 ( from April 1, 2017 to June 30, 2017 )

    (Millions of yen）

    Business Segment				Elimination or Adjustment	Consolidated
    Power	Ceramics	Electronics	Total
    Sales	14,579	64,956	30,509	110,044	-	110,044
    Sales to customers
    Intersegment sales	7	15	-	23	(23)	-
    Total sales	14,586	64,971	30,509	110,067	(23)	110,044
    Operating income（loss）	(619)	15,332	4,091	18,804	2	18,807

28. Three months ended June 30, 2016 ( from April 1, 2016 to June 30, 2016 )

(Millions of yen）

Business Segment				Elimination or Adjustment	Consolidated
Power	Ceramics	Electronics	Total
Sales	13,365	60,241	25,367	98,975	-	98,975
Sales to customers
Intersegment sales	2	13	-	15	(15)	-
Total sales	13,367	60,255	25,367	98,991	(15)	98,975
Operating income（loss）	(1,428)	19,300	1,279	19,151	-	19,151

(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 products, and molds