20-F 1 a16-8628_120f.htm 20-F

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

o         REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2016

OR

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o         SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 333-13896

 

Nihon Densan Kabushiki Kaisha

(Exact name of Registrant as specified in its charter)

 

NIDEC CORPORATION

(Translation of Registrant’s name into English)

 

Japan

 

338 Kuzetonoshiro-cho
Minami-ku, Kyoto 601-8205, Japan

(Jurisdiction of incorporation or organization)

 

(Address of principal executive offices)

 

Masahiro Nagayasu, +81-75-935-6140, ir@nidec.com, address is same as above

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

 

Name of each exchange on which registered

 

Common Stock*

 

 

New York Stock Exchange

(delisted on May 2, 2016)

 

American Depositary
Shares each representing
one-fourth of one share of
common stock

 

 

New York Stock Exchange

(delisted on May 2, 2016)

 

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

As of March 31, 2016, 298,142,234 shares of common stock were outstanding, including 2,737,296 shares represented by 10,949,184 American Depositary Shares and 1,541,210 shares held in treasury.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o   No x

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.   Yes x      No o

 

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x     No o

 



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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes x      No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      x

Accelerated filer      o

Non-accelerated filer      o

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP x

International Financial Reporting Standards as
issued by the International Accounting Standards Board
o

Other o

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.  Item 17 o   Item 18 o

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o     No x

 

* Not for trading, but only in connection with the listing of the American Depositary Shares, or ADSs.

 

 



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TABLE OF CONTENTS

 

Part I

 

 

Item 1. Identity of Directors, Senior Management and Advisers

5

Item 2. Offer Statistics and Expected Timetable

5

Item 3. Key Information

6

Item 4. Information on the Company

20

Item 4A. Unresolved Staff Comments

45

Item 5. Operating and Financial Review and Prospects

45

Item 6. Directors, Senior Management and Employees

84

Item 7. Major Shareholders and Related Party Transactions

95

Item 8. Financial Information

97

Item 9. The Offer and Listing

98

Item 10. Additional Information

100

Item 11. Quantitative and Qualitative Disclosures About Market Risk

118

Item 12. Description of Securities Other Than Equity Securities

122

Item 13. Defaults, Dividend Arrearages and Delinquencies

125

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

125

Item 15. Controls and Procedures

126

Item 16A. Audit Committee Financial Expert

127

Item 16B. Code of Ethics

127

Item 16C. Principal Accountant Fees and Services

127

Item 16D. Exemptions from the Listing Standards for Audit Committees

128

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

130

Item 16F. Change in Registrant’s Certifying Accountant

130

Item 16G. Corporate Governance

130

Item 16H. Mine Safety Disclosure

132

Item 17. Financial Statements

133

Item 18. Financial Statements

133

Item 19. Exhibits

134

Index to Consolidated Financial Statements and Information

F-1

 

As used in this annual report, unless otherwise specified, references to “Nidec” are to Nidec Corporation, and references to “we,” “our” and “us” are to Nidec Corporation and, except as the context otherwise requires, its consolidated subsidiaries.

 

As used in this annual report, “U.S. dollar” or “$” means the lawful currency of the United States of America, “yen” or “¥” means the lawful currency of Japan, “euro,” EUR” or “€” means the lawful currency of those member states of the European Union which are participating in the European Economic and Monetary Union pursuant to the Treaty of the European Union, “forint” or “HUF” means the lawful currency of Hungary, “peso” or “MXN” means the lawful currency of the United Mexican States, “rupiah” or “IDR” means the lawful currency of the Republic of Indonesia, “yuan” means the lawful currency of People’s Republic of China traded inside the mainland China, and “Chinese Hongkong” or “CNH” means the yuan traded outside of the mainland China.

 

As used in this annual report, “U.S. GAAP” means accounting principles generally accepted in the United States, and “Japanese GAAP” means accounting principles generally accepted in Japan.

 

As used in this annual report, “ADS” means an American Depositary Share, and “ADR” means an American Depositary Receipt.

 

In tables appearing in this annual report, figures may not add up to totals due to rounding.

 

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Special Note Regarding Forward-looking Statements

 

This annual report contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about our business, our industry and capital and financial markets around the world. These forward-looking statements are subject to various risks and uncertainties. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will” or similar words. These statements discuss future expectations, identify strategies, contain projections of results of operations or of our financial condition, or state other forward-looking information. Known and unknown risks, uncertainties and other factors could cause the actual results to differ materially from those contained in any forward-looking statement. We cannot promise that our expectations expressed in these forward-looking statements will turn out to be correct. Our actual results could be materially different from and worse than our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are set forth in “Item 3.D. Key Information—Risk Factors,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects” and elsewhere in this annual report and include, but are not limited to:

 

·                  general economic conditions in the computer, information storage and communication technology, home appliance, industrial and commercial machinery and equipment, automobile and related product markets, particularly levels of consumer spending and capital expenditures by companies;

 

·                  our ability to expand our business portfolio into new business areas in the highly competitive automotive, appliance, commercial and industrial product markets;

 

·                  our ability to design, develop, mass produce and win acceptance of our products, including those that use the hard disk spindle motor technology, which are offered in highly competitive markets characterized by continual new product introductions, rapid technological development and shifts in use;

 

·                  alleged or actual product defects and malfunctions of any end-product in which our products are incorporated;

 

·                  the effectiveness of our measures designed to reduce costs and improve profitability;

 

·                  our ability to acquire and successfully integrate companies with complementary technologies, product lines, and marketing and sales networks;

 

·                  our ability to match production and inventory levels with actual demand;

 

·                  any negative impact on our businesses of natural or human-caused disasters and other incidents beyond our control in the countries where our manufacturing and research and development operations are concentrated, including Japan, Thailand and China;

 

·                  our ability to procure raw materials and attract and retain qualified personnel at satisfactory cost levels;

 

·                  exchange rate fluctuations, particularly between the Japanese yen and the U.S. dollar and other currencies in which we make significant sales or in which our assets and liabilities are denominated;

 

·                  fluctuations in interest rates; and

 

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·                  any failure to comply with applicable laws and regulations, including due to adverse changes in laws, regulations or economic policies in any of the countries where we have manufacturing or other operations.

 

Forward looking statements represent our estimates and assumptions only as of the date that they were made. We do not undertake any duty to update the forward-looking statements, and the estimates and assumptions associated with them, after the date of this annual report, except to the extent required by law.

 

Voluntary Delisting of American Depositary Shares from the New York Stock Exchange (“NYSE”)

 

On April 21, 2016, we filed a Form 25 with the U.S. Securities and Exchange Commission (the “SEC”) for the voluntary delisting of our American Depositary Shares from the NYSE and the related deregistration with the SEC. In addition, on May 2, 2016, we also filed a Form 15F with the SEC to terminate our reporting obligations under the U.S. Securities Exchange Act of 1934, as amended (“Exchange Act”).

 

While we are thus no longer subject to ongoing reporting obligations under the Exchange Act, we have been making periodic Exchange Act filings on a voluntary basis, including this annual report. Upon the filing of this annual report, we are discontinuing such voluntary filings.

 

We continue to maintain our American Depositary Receipt Program after the delisting, and holders of our American Depositary Shares are generally able to trade in the United States on the over-the-counter market. In connection with the delisting and deregistration, we entered into amendments to the Deposit Agreement with J.P. Morgan Chase Bank, N.A., the depositary. See “Item 12.D. Description of Securities Other Than Equity Securities—American Depositary Shares.”

 

PART I

 

Item 1. Identity of Directors, Senior Management and Advisers.

 

Not applicable.

 

Item 2. Offer Statistics and Expected Timetable.

 

Not applicable.

 

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Item 3. Key Information.

 

A. Selected Financial Data.

 

The following table includes selected historical financial data for the fiscal years ended March 31, 2012 through 2016 derived from our audited consolidated financial statements prepared in accordance with U.S. GAAP. You should read the selected financial data below in conjunction with Item 5 of this annual report and our audited consolidated financial statements which are included elsewhere in this annual report.

 

Selected Financial Data

 

 

 

Year ended March 31,

 

 

 

2012(1)

 

2013

 

2014

 

2015

 

2016

 

 

 

(Yen in millions, except number of shares outstanding and per share amounts)

 

Income statement data:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

¥

682,320

 

¥

709,270

 

¥

875,109

 

¥

1,028,385

 

¥

1,178,290

 

Cost of products sold

 

523,729

 

572,634

 

674,903

 

786,486

 

908,311

 

Selling, general and administrative expenses

 

55,471

 

84,760

 

77,534

 

85,781

 

93,463

 

Operating income

 

73,070

 

17,598

 

84,864

 

110,939

 

124,538

 

Income from continuing operations before income taxes

 

70,856

 

13,398

 

84,460

 

107,092

 

119,328

 

Net income attributable to Nidec Corporation

 

40,731

 

7,986

 

56,272

 

76,015

 

91,810

 

Balance sheet data (period end):

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

¥

800,401

 

¥

1,005,417

 

¥

1,166,938

 

¥

1,357,340

 

¥

1,384,472

 

Short-term borrowings

 

86,608

 

32,798

 

22,600

 

52,401

 

81,092

 

Current portion of long-term debt

 

674

 

133,628

 

29,245

 

45,485

 

82,796

 

Long-term debt

 

101,236

 

146,271

 

299,411

 

184,612

 

136,894

 

Total Nidec Corporation shareholders’ equity

 

370,182

 

415,653

 

517,971

 

744,972

 

764,221

 

Common stock

 

66,551

 

66,551

 

66,551

 

77,071

 

87,784

 

Number of shares outstanding(3)

 

290,150,160

 

290,150,160

 

290,150,160

 

294,108,416

 

298,142,234

 

Per share data: (3)

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations per share-basic

 

¥

168.16

 

¥

29.64

 

¥

206.82

 

¥

271.61

 

¥

309.32

 

Loss on discontinued operations per share-basic

 

(20.04

)

 

 

 

 

Net income attributable to Nidec Corporation per share-basic

 

148.12

 

29.64

 

206.82

 

271.61

 

309.32

 

Income from continuing operations per share-diluted

 

157.20

 

27.49

 

193.50

 

256.05

 

308.19

 

Loss on discontinued operations per share-diluted

 

(18.76

)

 

 

 

 

Net income attributable to Nidec Corporation per share-diluted

 

138.45

 

27.49

 

193.50

 

256.05

 

308.19

 

Cash dividends declared per share

 

¥

45.00

 

¥

42.50

 

¥

50.00

 

¥

70.00

 

¥

80.00

 

Cash dividends declared per share(4)

 

$

0.55

 

$

0.45

 

$

0.49

 

$

0.58

 

$

0.71

 

 

 

 

Notes:

(1)         As of March 31, 2012, we discontinued our lens actuator, or LAC, business, which had previously been included in the “other small precision brushless DC motors” product category. As of the same date, we also discontinued our tape drive and disk drive mechanism, or PGN, business, and our compact digital camera lens unit, CLU, business, both of which had previously been included in the “electronic and optical components” product category. The operating results of the LAC, PGN and CLU businesses and exit costs with related taxes were recorded as “net loss on discontinued operations” in our audited consolidated statements of income in accordance with ASC 205-20 “Presentation of Financial Statements-Discontinued Operations” (formerly SFAS No.144, “Accounting for the impairment or disposal of Long-Lived Assets”). All prior period LAC, PGN and CLU amounts in the above table, except for the balance sheet data, have also been so reclassified as to enable comparisons between the relevant amounts for the fiscal years ended March 31, 2012 through 2016.

 

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(2)         Pursuant to ASC 805 “Business Combinations,” previous year’s consolidated financial statements have been retrospectively adjusted to reflect the valuation of the fair values of the assets acquired and the liabilities assumed upon the acquisitions of Geräte- und Pumpenbau GmbH Dr. Eugen Schmidt (currently, Nidec GPM GmbH) in the fiscal year ended March 31, 2015. Nidec completed its valuation of such assets and liabilities of Nidec GPM GmbH during the three months ended September 30, 2015. The effect of the adjustments for each consolidated financial statement is disclosed in note 3 of our consolidated financial statements included elsewhere in this report.

(3)         We implemented a two-for-one stock split of our common stock effective April 1, 2014. The number of shares outstanding and per share amounts have been adjusted to reflect the effect of the stock split.

(4)         U.S. dollar amounts for dividends are translated from the respective Japanese yen amounts for convenience at the exchange rate as of the end of each period.

 

Fluctuations in exchange rates between the Japanese yen and the U.S. dollar and other currencies will affect the U.S. dollar and other currency equivalents of the yen price of our shares and ADSs and the U.S. dollar amounts received on conversion of cash dividends. Fluctuations in foreign currency exchange rates also affect our results of operations and shareholders’ equity. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Introduction—Effects of Foreign Currency Fluctuations.”

 

The following table presents the noon buying rates for Japanese yen per $1.00 in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York for and as of the end of each period indicated.

 

 

 

High

 

Low

 

Average(1)

 

Period-end

 

Year ended March 31,

 

 

 

 

 

 

 

 

 

2012

 

¥

85.26

 

¥

75.72

 

¥

78.82

 

¥

82.41

 

2013

 

96.16

 

77.41

 

83.26

 

94.16

 

2014

 

105.25

 

92.96

 

100.46

 

102.98

 

2015

 

121.50

 

101.26

 

109.75

 

119.96

 

2016

 

125.58

 

111.30

 

120.04

 

112.42

 

2015

 

 

 

 

 

 

 

 

 

December

 

¥

123.52

 

¥

120.27

 

¥

121.64

 

¥

120.27

 

2016

 

 

 

 

 

 

 

 

 

January

 

¥

121.05

 

¥

116.38

 

¥

118.23

 

¥

121.05

 

February

 

121.06

 

111.36

 

114.62

 

112.90

 

March

 

113.94

 

111.30

 

112.93

 

112.42

 

April

 

112.06

 

106.90

 

109.55

 

106.90

 

May

 

110.75

 

106.34

 

108.85

 

110.75

 

 

 

 

Note:

(1)         The average exchange rate for each yearly period represents the average of the exchange rates on the last day of each month during the period, and the average exchange rate for each monthly period represents the average of the daily exchange rates during the period.

 

As of June 3, 2016, the noon buying rate was ¥106.88 per $1.00.

 

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B. Capitalization and Indebtedness.

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds.

 

Not applicable

 

D. Risk Factors.

 

If any of the risks described below actually occurs, our business, financial condition or results of operations could be adversely affected.

 

Economic downturns may lead to reduced demand for our products.

 

Demand for our products may be adversely affected by unexpected economic trends in the countries or regions in which our products, and the end-products in which they are used, are sold. In particular, our products are often used in end-products that are subject to discretionary spending, such as personal computers, consumer electronic goods and automobiles, and thus a decline in general consumption levels could adversely affect our sales. Similarly, capital investment levels in the manufacturing sector can be particularly sensitive to economic trends, and a decline in capital investment could adversely affect sales of our products that are used in industrial applications. For example, our results of operations for the fiscal year ended March 31, 2013 were adversely affected by the deterioration in the global economic environment due to the credit and financial crises in Europe as well as weakened consumer spending. Our results of operations and financial condition may be materially and adversely affected by negative economic trends in future periods.

 

We are subject to risks associated with the expansion of our business portfolio into new business areas.

 

While our business has traditionally been centered on motors and their derivative products, equipment and components used in the information technology sector, we are currently endeavoring to expand our business portfolio in other business areas from the viewpoint of risk diversification and future growth. However, there can be no assurance that we will be able to secure the necessary information, business resources, customer relationships, business expertise and brand recognition in a timely manner. For example, the success of our acquisition and investment activities which is a key factor in our ability to succeed in our business portfolio expansion is constantly subject to uncertainty. In addition, the automotive, appliance, commercial and industrial product markets in which we are endeavoring to expand are subject to various risks such as those stemming from vast supply chains that increase the risk of manufacturing disruptions and labor problems of third parties having an adverse effect on our business and increased compliance costs related to more stringent environmental and safety regulations. Furthermore, our overall operating margin could be adversely affected if, in the course of our business portfolio expansion, our product mix changes in a manner that increases the proportion of sales related to less profitable products and businesses.

 

Because of our dependence on the information storage and communication industry, our business may be adversely affected by a decline in the market.

 

While we are endeavoring to expand our business portfolio into new business areas, a substantial portion of our net sales continues to depend on sales of products used in information storage and communication equipment and peripherals, including small precision motors. In particular, the hard disk drive, or HDD, market is particularly important to us, and declines in demand and price of HDDs may have a material adverse effect on our results of operations and financial condition due to a decline in our sales of spindle motors for use in HDDs. In recent years, demand for existing HDDs-mounted personal computers, or PCs, has been declining due to a gradual shift in demand to solid state drives-mounted, or SSDs-mounted, devices such as tablet computers and smartphones. Although SSDs are still more expensive on a bit-by-bit basis than HDDs, SSDs have advantages in terms of data reading/writing speed that is important for use of tablet computers and smartphones. SSD price levels on a bit-by-bit basis gradually tend to decrease. Therefore, demand for existing HDDs-mounted PCs would decline significantly, and our sales of spindle motors for use in HDDs would be materially and adversely affected. Furthermore, we rely on our major customers for spindle motors for use in HDDs for a higher percentage of our net sales compared to our other customers, and a significant decline in orders from such customers could have a materially adverse effect on our business, results of operations and financial condition.

 

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We face aggressive competition both in the markets where we supply our main products and in the markets into which we are attempting to expand our business, which could have a material adverse effect on our business and results of operations.

 

We generally face aggressive competition in the markets in which we conduct business. In the HDD market, where we supply our main products, we are under constant pricing pressure as the market is characterized by declining selling prices over the life of a product. In the markets in which we are attempting to expand our market share, including the automotive, appliance, commercial and industrial product markets, we compete with competitors that may have larger financial, research and development, manufacturing, sales, marketing and service capabilities and sources of support than we do, and that may also have more established market recognition and long-standing customer relationships. In emerging markets, including those for electric and hybrid vehicle control systems, we also face severe competition with other new market entrants as they seek to expand their market share.

 

To maintain our competitiveness in the markets where we supply our main products and to enhance our competitiveness in the markets into which we are attempting to expand our business, we believe that we should maintain, or may need to increase, our substantial level of investment in research and development, expand our production, sales and marketing capabilities, enhance services and support, timely develop new products, and further improve our existing products. We will also need to continue our cost reduction efforts in order to maintain our profitability.

 

Our competitiveness may decline and/or our profitability may be adversely affected if:

 

·                      any of our markets develops faster than our expectations due to rapidly increasing demand or otherwise, causing our market share to decline relative to our competitors that are able to better meet increasing demand or otherwise cope with developing markets;

 

·                      our cost reduction efforts are insufficient to offset declines in market price levels or increases in raw material costs;

 

·                      our competitors’ competitive efforts result in technological innovations, improved manufacturing efficiencies or enhanced research and developmental capabilities, rendering our products and technologies obsolete or uncompetitive;

 

·                      mergers or consolidations among our competitors result in a relative decline in our competitive position; or

 

·                      we are unable to obtain financial, technological, human or other resources necessary to maintain or enhance our investments.

 

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If our research and development activities are not successful, our business and results of operations could be materially and adversely affected.

 

We engage in continuous research and development activities, including those related to basic technologies, new products, product improvements and manufacturing processes. The markets for our products are characterized by continual and fast-paced technological development, and our customers’ requirements regarding the performance of our products are expected to continue to heighten. In such markets, our success will depend upon our ability to continue to develop superior technologies, products and processes in a timely manner in order to meet our customers’ needs effectively. If third parties succeed in developing new technologies, products or processes that are more attractive to our customers than ours due to our inability to accurately anticipate the direction of the market, our inability to conduct research and development in an effective or timely manner or otherwise, our products could be rendered obsolete or the competitiveness of our products could decline. Anticipating such shifts accurately and developing appropriate technologies, products and processes in a timely manner present a significant challenge. Determining the direction of our research activities related to basic technologies is particularly difficult, and the risk of our being unable to recoup the costs related to such activities can be significant. If we are unsuccessful in our research and development activities, our business and results of operations could be materially and adversely affected.

 

In addition, our customers generally require us to provide customized products that meet specific performance requirements within a set delivery timetable. Our customers are increasingly demanding that we provide them with more complex products on a shorter timetable. Any future failure to design, manufacture and deliver customized products that meet customer requirements could damage our relationship with the customer, harm our reputation and negatively affect our market share, as well as impede the business development of these new products and the expansion of the products’ markets. Furthermore, if a customer fails to successfully commercialize or sell products that incorporate in them any customized product in which we invested significant resources to develop, we may be unable to recoup the relevant development costs. As a result, our business and results of operations could be materially and adversely affected.

 

If any defect is discovered in our products, or if any of the end-products in which our products are incorporated malfunctions, our reputation and results of operations may suffer by lost sales or costs associated with recalls, legal proceedings or management distraction.

 

We manufacture complex, state-of-the-art motors and other electronic products and, as a result, are exposed to potential warranty and product liability claims arising from alleged or actual defects in our products in the normal course of business. In particular, widespread malfunction of any end-product in which our products are incorporated may lead to consumer dissatisfaction, recalls and lawsuits. In the automotive, appliance, commercial and industrial motors and other parts markets, where we seek to expand our business, strict safety standards are imposed by applicable regulations and demanded by the public, as malfunctioning vehicles, equipment or machinery could result in serious property damage, personal injuries and even death. If such malfunction is caused by or attributed or alleged to be attributed to defects in our products, our brand image could be damaged, we may be subject to adverse regulatory action and significant legal claims or drawn into disputes with our customers, and our results of operations may be adversely affected by lost sales or costs associated with recalls. In addition, significant financial and human resources may be incurred, and management’s attention may be diverted, if we are required to defend ourselves against legal claims.

 

We generally maintain insurance against product liability claims, but our insurance coverage may not be adequate for any potential liability ultimately incurred. In addition, insurance could become unavailable in the future on terms acceptable to us. A successful claim that exceeds our available insurance coverage or a significant product recall could have a material adverse impact on our financial condition and results of operations.

 

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If raw materials or components for our products are not available in quantities or at prices that we expect, our production could be significantly harmed.

 

We rely on third party suppliers for raw materials, such as aluminum and rare earth materials, and components, such as connectors, electric circuits, magnets and other unit assemblies, used in our manufacturing processes. Our production capacity will be limited if one or more of these materials or components become unavailable or available only in reduced quantities or at increased prices. Financial or operational disruptions or slowdowns suffered by our principal suppliers or shippers may negatively affect the availability of raw materials or components. Governmental actions that add conditions to the use of raw materials or components or impose additional disclosure or other regulatory compliance requirements relating to such materials or components may also affect their availability. For example, regulatory developments imposing due diligence and disclosure requirements regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries may limit the pool of suppliers that can provide us with materials and components that do not contain any such materials or may result in reputational challenges with our customers and other stakeholders if we are unable to sufficiently verify the origins of the minerals used in our products. In addition, the availability of components may be adversely affected by a supplier’s decision to cease to manufacture or allocate adequate resources to develop products that we require.

 

If the sources or availability of materials or components necessary for our products become limited, we may have to devote significant resources to secure alternative suppliers or shippers, find substitutes for such materials or components, or develop designs and technologies that reduce or eliminate the need for such materials or components. If our sources of materials and supplies are unavailable for a significant period of time without any such substitute, design or technology, our results of operations will be adversely affected.

 

We rely to a large extent on production and sales in developing countries which may become politically or economically unstable and face risks resulting from unanticipated developments in those countries.

 

We manufacture and sell a large percentage of our products in developing countries such as China, Thailand, the Philippines, Vietnam, Malaysia, Mexico and Indonesia in order to take advantage of more competitive production and sales costs and to develop new markets for our products. We also seek to expand our operations into other developing markets, including India and Brazil, where we have little or no prior experience. These countries and markets are still in the process of developing their economic, social and other infrastructures and are susceptible to various uncertainties. The political, social and economic situations of these countries may not continue to provide an environment in which we can continue to manufacture our products cost-efficiently in proximity to our customers. The governmental authorities of those countries may impose regulations or restrictions that would make it difficult, impractical or impossible, whether economically, legally or otherwise, for us to conduct our business there.

 

Furthermore, business activities overseas expose us to the following various risks related to foreign business transactions, and these risks may adversely affect our business, results of operations and financial condition:

 

·                      economic slowdown or downturn in the relevant industries in foreign markets;

 

·                      international currency fluctuations;

 

·                      general strikes or other disruptions in working conditions;

 

·                      labor shortages and labor cost increases, especially in China and Thailand;

 

·                      political instability;

 

·                      changes in trade restrictions and tariffs;

 

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·                      difficulties associated with staffing and managing international operations;

 

·                      generally longer receivables collection periods;

 

·                      unexpected changes in or imposition of new legislative or regulatory requirements;

 

·                      relatively limited protection for intellectual property rights in some countries;

 

·                      potentially adverse taxes;

 

·                      cultural and trade differences;

 

·                      additional cost of products exported overseas, including tariffs, shipping costs, and other duties and impositions, which may make our products less price competitive, and

 

·                      significant time and capital required for expanding overseas businesses before achieving a return on capital.

 

Our quarterly results of operations do not necessarily indicate a trend of our future results of operations.

 

We have experienced, and expect to continue to experience, fluctuations in sales and results of operations from one quarter to the next. As a result, we believe that quarter-to-quarter comparisons of our results of operations are not necessarily meaningful, and that such comparisons cannot be relied upon as indicators of future performance. Our results of operations may be subject to significant quarterly fluctuations as a result of the various factors, including:

 

·                      fluctuations in product demand as a result of the cyclical and seasonal nature of the markets in which our products are sold and used, including the information storage and communication, appliance, commercial and industrial products markets;

 

·                      translation effect of exchange rate fluctuations on the results of our overseas subsidiaries and monetary assets and liabilities denominated in foreign currencies;

 

·                      the availability and extent of utilization of our manufacturing capacity;

 

·                      changes in our product, customer or competitor mix, which can occur on short notice;

 

·                      cancellation or rescheduling of significant orders, which can occur on short notice;

 

·                      deferrals of customer orders for our new products; and

 

·                      component and raw material costs and availability, particularly with respect to those obtained from sole or limited sources, which can occur on short notice.

 

Because our production and inventory are planned in advance of anticipated customer demand, if actual demand is significantly different from our projections, we may suffer losses or lose market share.

 

We typically plan our production and inventory levels based on customers’ advance orders, commitments or forecasts, as well as our internal assessment and forecasts of customer demand, which are highly unpredictable and can fluctuate substantially, especially if competition becomes more intense or the demand is reduced due to seasonality or other factors. In order to secure sufficient production scale and productivity, we may make capital investments in advance of anticipated customer demand. For example, we plan to make additional capital investments to expand our manufacturing capabilities particularly in emerging economic regions. If our manufacturing capabilities are under-utilized due to lower demand for our products, unavailability of raw materials or components, or for any other reason, such under-utilization could result in a decline in our profit margins due to our operating expenses being relatively fixed as well as impairment losses or could otherwise have a material adverse impact on our results of operations and financial condition. On the other hand, if we underestimate our customers’ needs and fail to make the necessary capital investments, we may lose market share due to our inability to meet customers’ demands.

 

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In addition, in anticipation of long lead times to obtain inventory and materials from our suppliers, we may also from time to time order materials in advance of anticipated customer demand. This advance investment and ordering may result in excess inventory levels, resulting in unanticipated inventory write-downs if expected orders fail to materialize. As of March 31, 2016, our inventory, including both products and materials, was ¥171.0 billion.

 

In addition, our operating expenses are relatively fixed, and we thus have limited ability to reduce expenses quickly in response to any revenue shortfalls resulting from a decrease in demand. Consequently, our results of operations will be harmed if our revenues do not meet our revenue projections.

 

Our growth has been based in part on acquisitions of, or investments in, other companies, and our future growth could be adversely affected if we make acquisitions or investments that fail to achieve their intended benefits or if we are unable to find suitable acquisition or investment targets.

 

We have achieved much of our growth by acquiring and otherwise investing in other companies that have provided us with complementary technologies, product lines, marketing and sales networks, and customer base. The continued success of our acquisition and investment activities constitutes a key factor in achieving our current business strategy. To the extent that we are unable to make successful acquisitions or investments, we may not be able to continue to expand our product range, marketing or sales networks or customer base, and our growth rates could be adversely affected.

 

Critical to the success of our acquisitions is the ordered and efficient integration of acquired businesses into our organization, which has in the past required, and may continue to require, significant resources. Our acquisitions may not generate the operational and financial returns we expect. The success of our future acquisitions will depend upon factors such as:

 

·                      our ability to manufacture and sell the products of the businesses acquired and to integrate the technologies of the acquired businesses with our own to develop new products;

 

·                      continued demand for such products by our customers;

 

·                      our ability to integrate the acquired businesses’ operations, products and personnel;

 

·                      our ability to retain key personnel of the acquired businesses;

 

·                      our ability to extend our financial and management controls as well as our reporting and compliance systems and procedures to acquired businesses;

 

·                      accuracy of financial and legal due diligence; and

 

·                      our ability to identify possible liabilities that could negatively affect our business, operations or reputation during the due diligence process.

 

Our new and additional investments in other companies are subject to other uncertainties that may have a material adverse impact on our business. For example, the fair value of our investments in other companies may be impaired if their business results deteriorate or as a result of a decline in the fair value of their securities that is other than temporary. Changes in economic policies of local governments, laws and regulations, and accounting rules applicable to companies in which we invest may also have a significant adverse effect on our financial results. In addition, in cases where we have a non-controlling interest in an investee, we typically cannot control the operations and the assets of the investee or make major decisions without the consent of other shareholders or participants, or at all, unless we acquire a controlling interest by increasing our shareholding interest.

 

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Failure to succeed in acquisitions or investments, or an inability to find suitable acquisition or investment targets, could have a material adverse effect on our business, results of operations and financial condition.

 

Our growth places significant burdens on our management and operational and financial resources.

 

Our future success depends to a large extent on our ability to integrate and manage our group of companies as we seek to continue expanding our business and operations organically or through acquisitions of or investments in businesses in accordance with our growth strategy. However, our growth has placed, and is expected to continue to place, significant burdens on our management and operational and financial resources. As we pursue our growth strategy, we may face increasing burdens on management and our resources and, as a result, fail to timely and appropriately enhance our group-wide administrative, operational, information technology, and financial and compliance management systems. Any such failure may have a material adverse impact on our business, results of operations and financial condition.

 

We rely on our founder, Chairman of the Board, President and CEO, Mr. Shigenobu Nagamori, the loss of whom could have a material adverse effect on our business.

 

Our continued success will depend to a significant extent on the efforts and abilities of our founder and current Chairman of the Board, President and CEO, Mr. Shigenobu Nagamori. Mr. Nagamori is actively engaged in our management and determines our strategic direction, especially with regard to acquisition activities. While we are in the process of establishing a management structure designed to reduce our dependence on Mr. Nagamori, his sudden departure or reduced attention to us could have a material adverse effect on our business, financial condition and results of operations.

 

For our business to continue effectively, we will need to attract and retain qualified personnel.

 

Our business depends on the continued employment of our senior management, engineers and other technical personnel, many of whom would be extremely difficult to replace. To maintain our current market position and support future growth, we will need to hire, train, integrate and retain significant numbers of additional highly skilled managerial, engineering, manufacturing, sales, marketing, support and administrative personnel. Competition worldwide for such personnel is intense, and we and our affiliates may be unable to attract and retain such additional personnel.

 

We are subject to various laws and regulations, and our failure to comply may harm our business.

 

We conduct our business subject to ongoing regulation and associated regulatory compliance risks, including the effects of changes in laws, regulations, policies, voluntary codes of practice, accounting standards and interpretations in Japan and other countries in which we conduct our business. As we expand the range of our products and the geographical scope of our business, we will be exposed to risks that are unique to particular industries, markets or jurisdictions. Our compliance risk management systems and programs may not be fully effective in preventing all violations of laws, regulations and rules.

 

Our business activities are subject to a wide range of environmental laws and regulations in Japan, Asia, the Americas, Europe and other areas. These laws and regulations include those relating to discharge of chemicals into the air and water, management, treatment and disposal of hazardous substances and wastes, product recycling, prevention of global warming and the obligation to investigate and remediate soil and groundwater contamination. Many of our operations require environmental permits, the terms of which may impose limits on our manufacturing activities and require the incurrence of costs to achieve compliance and which may be subject to modification, renewal and revocation by the issuing authorities. We may be held responsible for payments or other sanctions for noncompliance with, or otherwise pursuant to, applicable environmental laws, regulations and permits, in which case our reputation as well as our results of operations could be adversely affected. Moreover, if these laws, regulations and permits become more stringent in the future, the amount of capital expenditures and other expenses which may be required to complete remedial actions and to continue to comply with applicable environmental laws, regulations and permits could increase and be significant, which would materially and adversely affect our business, financial condition and results of operations.

 

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Our business activities are also subject to various other governmental regulations, both local and international, including antitrust, anti-bribery, anti-terrorism, intellectual property, consumer protection, taxation, export regulations, tariffs, foreign trade and exchange controls. Because a significant portion of our sales are derived from small precision motor sales and because we have a leading market share globally for small precision motors, any regulatory development or measure that affects sales or manufacturing of small precision motors in particular could reduce our sales or otherwise negatively affect our business. Moreover, as we expand our operations into new products and geographical markets, we may be required to further enhance our compliance policies and procedures. Our failure or inability to comply fully with applicable laws, regulations, standards and rules could lead to fines, public reprimands, damage to reputation, enforced suspension of operations or, in extreme cases, withdrawal of authorization to operate, adversely affecting our business and results of operations.

 

In addition, future developments or changes in laws, regulations, rules, policies, voluntary codes of practice, accounting standards, fiscal or other policies and their effects are unpredictable and beyond our control. Such developments and changes may require additional financial, administrative and human resources or a significant adjustment to our business operations.

 

We may experience difficulties implementing effective internal controls over financial reporting.

 

As a public company, we are subject to the requirements regarding internal controls over financial reporting under the Financial Instruments and Exchange Act of Japan, and it is essential for us to have effective internal controls, corporate compliance functions and accounting systems to manage our assets and operations. Designing and implementing an effective system of internal controls capable of monitoring and managing our business and operations requires significant management, human and other resources. Once we identify any significant deficiencies or material weaknesses in our internal control systems, we may require additional resources and incur additional costs to remediate such deficiencies or weaknesses.

 

Furthermore, if management determines that our internal control over financial reporting is not effective for any period, we may be unable to timely file financial reports or such internal control may interrupt stakeholders and management’s effective decision making, and as a result, our market perception could be negatively affected. Depending on the severity of, and causes and other factors relating to, a material weakness in internal control over financial reporting, we could be subject to liabilities or sanctions of applicable laws and regulations. In addition, we could be restricted in our ability to access financial markets for capital raising.

 

We are subject to risks related to intellectual property rights.

 

Our business is dependent on our ability to protect the proprietary rights to our technologies and products and other intellectual property, which we seek to protect through patent, trade secret, trademark, copyright and other legal protection afforded to intellectual property rights as well as contractual provisions and our internal information control system. Despite these efforts, we face the following risks:

 

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·                      we could incur substantial costs in defending against claims of infringement of the intellectual property of others, and such claims could result in damage awards against us, orders to pay for the use of previously unrecognized third-party intellectual property or injunctions preventing us from continuing aspects of our business, which could in turn have a material adverse effect on our business, financial condition and results of operations;

 

·                      our protective measures may not be adequate to protect our proprietary rights;

 

·                      other parties, including competitors with substantially greater resources, may independently develop or otherwise acquire equivalent or superior technology, and we may be required to pay royalties to license the intellectual property of those parties;

 

·                      patents may not be issued pursuant to our current or future patent applications, and patents issued pursuant to such applications, or any patents we own or have licenses to use, may be invalidated, circumvented or challenged;

 

·                      the rights granted under any such patents may not provide competitive advantages to us or adequately safeguard and maintain our technology;

 

·                      we could incur substantial costs in seeking enforcement of our patents against infringement or the unauthorized use of our trade secrets, proprietary know-how or other intellectual property by others; and

 

·                      the laws of foreign countries in which our products are manufactured and sold may not protect our products and intellectual property rights to the same extent as the laws of Japan, and such laws may not be enforced in an effective manner.

 

For information relating to our intellectual properties disputes, see “Item 4.B. Information on the Company—Business Overview—Legal Proceedings.”

 

Leaks of confidential information may adversely affect our business.

 

In the normal course of business, we possess personal and other confidential information on our customers, other companies and other third parties with whom we do business as well as our own confidential information and personal information of our employees. Although we have security measures in place to protect such information, we may be subject to liability or regulatory action if any of such information is leaked due to human or technical error, unauthorized access, other illegal conduct or otherwise. Failure to protect confidential information could also lead to a loss of our competitive advantage and customer and market confidence in us, adversely affecting our business, financial condition and results of operations.

 

In addition, there is a risk that our confidential information may be leaked due to human or technical error or illegal conduct by a third party or other causes that are beyond our control. In such cases, including where our competitive advantage is lost because of the leak, our business, financial condition or results of operations may be adversely affected.

 

Losses relating to our pension plans and a decline in returns on our plan assets may negatively affect our results of operations and financial condition.

 

We have defined benefit pension plans covering employees who meet eligibility requirements. We may incur losses if the fair value of our pension plans’ assets declines, if the rate of return on our pension assets declines, or if there is a change in the actuarial assumptions on which the calculations of the projected benefit obligations are based. We may also experience unrecognized service costs in the future due to amendments to existing pension plans. Changes in the interest rate environment and other factors may also adversely affect the amount of unfunded pension obligations and the resulting annual amortization expense. In addition, the assumptions used in the computation of future pension expenses may not remain constant.

 

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If our goodwill and tangible assets become impaired, we may be required to record impairment charges, which would adversely affect our financial results.

 

We have significant goodwill and tangible assets, including plants, property and equipment. As of March 31, 2016, we had ¥163.0 billion of goodwill and ¥347.7 billion of plants, property and equipment. In connection with any acquisition we make in the future, we may record additional goodwill depending on the terms of the acquisition. According to declines in the profitability of our assets, we may be required to record an impairment loss. Any significant amount of such impairment losses will adversely affect our results of operations and financial condition.

 

Our results of operations will be negatively affected if we are required to reduce our deferred tax assets.

 

We must assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we are required to reduce our deferred tax assets. In the event of a deterioration in market conditions or results of operations in which we determine that there is additional uncertainty regarding realization of all or part of our net deferred tax assets, the resulting adjustment to our deferred tax assets would decrease our income during the period in which such determination is made.

 

Because our sales to overseas customers are denominated predominantly in U.S. dollars and other foreign currencies, we are exposed to exchange rate risks that could harm our results of operations and shareholders’ equity.

 

Sales to customers outside Japan accounted for 81.9%, 82.1% and 84.7% of our consolidated net sales during the fiscal years ended March 31, 2014, 2015 and 2016, respectively. A significant portion of our overseas sales is denominated in currencies other than the Japanese yen, primarily the U.S. dollar, Euro, the Chinese yuan and Thai baht. As a result, the appreciation of the Japanese yen against the U.S. dollar, Euro and other currencies will generally have a negative effect on our sales, operating income and net income. In order to mitigate against this risk, in recent years we have been attempting to offset a portion of our foreign currency revenue by matching the currency of revenue with the currency of expense. For example, if revenue for a particular product is in U.S. dollars, we attempt to purchase the supplies and resources used to produce that product in U.S. dollars. Nevertheless, we remain exposed to the effects of foreign exchange fluctuations. We may also experience volatility in our shareholders’ equity as a result of foreign currency exchange rate fluctuations when the results of operations of subsidiaries operating in currencies other than the yen are consolidated into our financial statements, which are reported in Japanese yen.

 

Interest rate fluctuations may adversely affect our financial condition.

 

We have long-term receivables and debt, with fixed and variable rates, and we enter into interest rate swaps and other contracts in order to stabilize the fair values and cash flows of those receivables and debts. We enter into interest rate swaps and other contracts to reduce our market risk exposure from changes in interest rates. To the extent that their effects are not hedged, we are exposed to interest rate fluctuation risks which may affect our operational costs, interest expenses, interest income and the value of our financial assets and liabilities.

 

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If our access to liquidity and capital is restricted, our business could be harmed.

 

We rely to a large extent on debt and equity financing to finance our operations, capital expenditures and acquisitions of other companies. If, due to changes in financial market conditions or other factors, financial institutions reduce, terminate or otherwise modify the amounts or terms of their lending or credit lines to us, and if we are unable to find alternative financing sources on equally or more favorable terms, our business may be materially adversely affected. In addition, if there is a significant downgrade of our credit ratings by one or more credit rating agencies as a result of any deterioration of our financial condition or if investor demand significantly decreases due to economic downturns or otherwise, we may not be able to access funds when we need them on acceptable terms, our access to capital markets may become more restricted, or the cost of financing our operations through indebtedness may significantly increase. This could adversely affect our results of operations and financial condition.

 

Natural disasters, public health issues, armed hostilities, terrorism, cyber security breaches and other causes over which we have little or no control could harm our business.

 

Natural disasters, including earthquakes and floods, fires, the spread of infectious diseases and other public health issues, armed hostilities, terrorism and other incidents, whether in Japan or any other country in which we, our suppliers or customers operate, could cause damage or disruption to us, our suppliers or customers, or could create political or economic instability, any of which could harm our business. For example, natural disasters could adversely affect our operations by damaging industrial and other infrastructures, causing power outages, rendering our employees unable to work, reducing customer demand or disrupting our suppliers’ operations. If any such disaster occurs in any region in which any of our major customers or production or development bases are concentrated, such as Thailand or China, or in Japan where our headquarters and key research and development facilities are located, the adverse effect on our results of operations and financial condition could be particularly pronounced. Our network and information systems are important for normal operations, but such systems are vulnerable to shutdowns caused by unforeseen events such as power outages or natural disasters or terrorism, hardware or software defects, or computer viruses and computer hacking. Any such events, over which we have little or no control, could cause a decrease in demand for our products or services, make it difficult or impossible for us to deliver products, for our suppliers to deliver components or for our customers to manufacture products, require large expenditures to repair or replace our facilities, or create delays and inefficiencies in our supply chain.

 

We maintain third-party insurance coverage for various types of property, casualty and other risks. The types and amounts of insurance that we obtain vary from time to time and from location to location, depending on availability and cost and our decisions as to risk retention. Our insurance policies are subject to deductibles, policy limits and exclusions that result in our retention of a level of risk on a self-insured basis. While we believe our insurance coverage is comparable to the coverage maintained by similar companies in our industry, losses not covered by insurance could be significant, adversely affecting our financial condition and results of operations.

 

Large shareholders may sell their shares of our common stock at any time, and such sale may cause our stock price to decline, even if our business is doing well.

 

As of March 31, 2016, there were 296,601,024 outstanding shares of our common stock (excluding treasury stock), of which 42,050,256 shares, or 14.2%, of the outstanding shares are beneficially owned by our Chairman of the Board, President and CEO, Mr. Shigenobu Nagamori. These shares and, generally, the shares owned by other shareholders can be sold on the Tokyo Stock Exchange and otherwise in Japan at any time. Additional sales of a substantial amount of our common stock in the public market by a large shareholder, or the perception that such sales may occur, could cause the market price of our common stock to decline. This could also impair our ability to raise additional capital through the issuance or sale of our securities. Also, in the future, we may issue or sell securities to raise cash for additional capital expenditures, working capital, research and development or acquisitions. We may also pay for interests in additional subsidiaries or affiliated companies by using common stock. We may also issue securities convertible into our common stock. Any of these events may dilute your ownership interest in us and have an adverse impact on the price of our common stock.

 

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Japan’s unit share system imposes restrictions in holdings of our common stock that do not constitute whole units.

 

Our Articles of Incorporation provide that 100 shares of our stock constitute one “unit.” The Company Law of Japan imposes significant restrictions and limitations on holdings of shares that constitute less than a whole unit. Holders of shares constituting less than a unit do not have the right to vote. A shareholder who owns shares representing less than one unit will not be able to exercise any rights relating to voting rights, such as the right to participate in a demand for the resignation of a director, the right to participate in a demand for the convocation of a general meeting of shareholders and the right to join with other shareholders to propose an agenda item to be addressed at a general meeting of shareholders. Under the unit share system, holders of shares constituting less than a unit have the right to require us to purchase their shares. However, holders of ADSs that represent other than multiples of whole units cannot withdraw the underlying shares representing less than one unit and, therefore, they will be unable to exercise the right to require us to purchase the underlying shares. As a result, holders of ADSs representing shares in lots of less than one unit may not have access to the Japanese markets to sell their shares through the withdrawal mechanism.

 

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

 

Our Articles of Incorporation, Regulations of the Board of Directors, Share Trading Regulations and the other related regulations, as well as the Company Law govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ and officers’ fiduciary duties and shareholders’ rights may be different from those that would apply if we were a non-Japanese company. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of other countries or jurisdictions within the United States. You may have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a corporation organized in another jurisdiction. In addition, Japanese courts may not be willing to enforce liabilities against us in actions brought in Japan that are based upon the securities laws of the United States or any U.S. state.

 

A holder of our ADSs will have fewer rights than a shareholder has and will need to act through the depositary to exercise those rights.

 

The rights of the shareholders under Japanese law to take actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights are available only to holders of record. Because the depositary, through its custodian agent, is the record holder of the shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited shares. The depositary will make efforts to vote the shares underlying ADSs as instructed by the ADS holder and will pay to ADS holders the dividends and distributions collected from us. However, as an ADS holder, you will not be able to bring a derivative action, examine our accounting books and records or exercise appraisal rights in your capacity as ADS holder.

 

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

 

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

 

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Foreign exchange fluctuations may affect the dollar value of our ADSs and dividends payable to holders of our ADSs.

 

Market prices for our ADSs may fall if the value of the yen declines against the U.S. dollar. In addition, the U.S. dollar amount of cash dividends and other cash payments made to holders of our ADSs would be reduced if the value of the yen declines against the U.S. dollar.

 

It may not be possible for investors to effect service of process within the United States upon us or our directors or Audit and Supervisory Board members or to enforce against us or these persons judgments obtained in United States courts predicated upon the civil liability provisions of the federal securities laws of the United States.

 

We are a limited liability, joint-stock corporation incorporated under the laws of Japan. Most of our directors and Audit and Supervisory Board members reside in Japan. A substantial portion of our assets and all or substantially all of the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for investors to effect service of process within the United States upon us or these persons or to enforce against us or these persons judgment obtained in United States courts predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Japan, in original actions for enforcement of judgments of United States courts, of liabilities predicated solely upon the federal securities laws of the United States.

 

Item 4. Information on the Company.

 

A. History and Development of the Company.

 

Nidec Corporation is a joint stock corporation that was incorporated and registered under the Japanese Commercial Code (which was replaced by the Company Law in May 2006) of Japan on July 23, 1973 under the name of Nihon Densan Kabushiki Kaisha. Our corporate headquarters are located at 338 Kuzetonoshiro-cho, Minami-ku, Kyoto 601-8205, Japan. Our main telephone number is +81-75-922-1111. As of March 31, 2016, we had 225 subsidiaries located in 32 countries, and four affiliated companies located in three countries. We had 96,602 employees worldwide, 91.4% of which were employed outside Japan, as of March 31, 2016.

 

We are one of the leading global manufacturers of electric motors and related components and equipment. We aim to achieve sustainable business growth by solidifying our leadership position in motor drive technology and expanding our product portfolio into a broader spectrum of the global electric motor market. With a particular focus on brushless direct current motors, or brushless DC motors, we have constantly explored new ways to serve the global market through the introduction of energy-efficient, environment-conscious motor drives. Our growth as a manufacturer of electric motors to our current size and status has largely been the result of the acquisition and integration of businesses that have enabled us to build a strong product offering. We regard our ability to identify, purchase and integrate acquisition targets as an essential part of our core strategy and strength.

 

Our recent acquisition and intra-group realignment transactions include the following:

 

·                  In May 2015, we acquired from its founding family all of the voting rights in Motortecnica s.r.l., an Italian company, which engages in design, manufacturing, repair, maintenance and servicing of electrical rotating machinery, with focus areas of remanufacturing and refurbishment, in order to strengthen our service business.

 

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·                  In July 2015, we acquired certain operating assets of China Tex Mechanical & Electrical Engineering Co., Ltd. (“China Tex MEE”), a Chinese manufacturer of switched reluctance motors and drives, with China Tex MEE to create a foothold for our industrial solutions business in China. The company was subsequently renamed “Nidec (Beijing) Drive Technologies Co., Ltd.”

 

·                  In August 2015, we acquired from its founding families all of the voting rights in Arisa, S.A., an Spanish company, which engages in development, manufacturing, sales and aftermarket services of large-sized servo press machines.

 

·                  In August 2015, we acquired from its founding members all of the voting rights in KB Electronics, Inc., an United States company, which engages in design, manufacture and sales of AC and DC electric motor drives and controls.

 

·                  In September 2015, we acquired business of E.M.G. Elettromeccanica S.r.l., an Italian company, which engages in development, production and sales of motors for commercial facilities such as swimming pool and spa, air and smoke ventilation, and household appliances and industrial equipment (brake motors, etc.).

 

·                  In September 2015, we acquired from its founding members all of the voting rights in PT. NAGATA OPTO INDONESIA, an Indonesian company, which engages in production of glass lens processing.

 

·                  In May 2016, we acquired from its major shareholder approximately 94.8% of the shares of ANA IMEP S.A., a Romanian company, which engages in development, production and sales of washing machine and drying machine motors.

 

·                  In May 2016, we acquired from its shareholders 100% of the ownership interest in E.C.E. S.r.l., an Italian company, which engages in development, manufacturing and sales of hoists for building constructions.

 

The following list presents a selected history of our major acquisition activities relating to the expansion of our businesses involving small precision motors, automotive, appliance, commercial and industrial products, machinery, electronic and optical components and other products:

 

During 
Fiscal 
Year 
Ended 
March 31,

 

Event

1989

 

We acquired Shinano Tokki Co., Ltd., a Japanese manufacturer of spindle motors for hard disk drives, from Teac Corporation in March 1989. As a result, we gained the largest market share of spindle motors in the world.

 

 

 

1995

 

We acquired newly-issued shares of Shimpo Industries Co., Ltd., currently Nidec-Shimpo Corporation, in February 1995 constituting 36.7% of its then outstanding shares.

 

 

 

1998

 

We acquired 17.7% of the outstanding shares of Copal Co., Ltd., currently Nidec Copal Corporation, from Fujitsu Limited in February 1998.

 

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During 
Fiscal 
Year 
Ended 
March 31,

 

Event

 

 

In connection with our acquisition of Nidec Copal’s shares, we acquired 32.3% of the outstanding shares of Copal Electronics Corporation, currently Nidec Copal Electronics Corporation, from Nidec Copal in February 1998.

 

 

 

 

 

We acquired the assets relating to the motor division of Shibaura Engineering Works Co., Ltd. and established a joint venture, Nidec Shibaura Corporation, with Toshiba Corporation and Shibaura Engineering in October 1998. We initially owned 40.0% of the joint venture.

 

 

 

2000

 

We acquired 67.0% of the outstanding shares of Y-E Drive Corporation, subsequently renamed Nidec Power Motor Corporation, from Yasukawa Electric Corporation in March 2000.

 

 

 

2001

 

We dissolved the Nidec Shibaura joint venture and purchased the remaining 60.0% interest from our former joint venture partners, and Nidec Shibaura became our wholly-owned subsidiary in September 2000.

 

 

 

2002

 

We increased our ownership of Nidec-Shimpo to 51% in February 2002. As a result, Read Corporation, currently Nidec-Read Corporation, a subsidiary of Nidec-Shimpo, became our majority-owned subsidiary.

 

 

 

2004

 

We acquired approximately 40% of the outstanding shares of Sankyo Seiki Mfg. Co., Ltd., currently Nidec Sankyo Corporation, in October 2003. We increased our ownership of Nidec Sankyo to 51.0% in February 2004.

 

 

 

 

 

We increased our ownership of Nidec Copal Electronics to 51.0% in January 2004.

 

 

 

 

 

We increased our ownership of Nidec Copal to 51.3% in February 2004.

 

 

 

2007

 

We acquired 98.9% of the outstanding shares of Fujisoku Corporation, a Japanese manufacturer of industrial switches, memory cards, panel switches and electronic measuring instruments, in November 2006.

 

 

 

 

 

We acquired all of the voting interests in the motors and actuators business of Valeo S.A., France, currently Nidec Motors & Actuators, in December 2006.

 

 

 

 

 

We acquired 87.1% of the outstanding shares of Brilliant Manufacturing Limited, currently Nidec Component Technology Co., Ltd., a Singaporean manufacturer of base plate die-casting and top covers used in hard disk drives, in February 2007.

 

 

 

2008

 

We acquired 51.7% of the common stock of Japan Servo Co., Ltd., currently Nidec Servo Corporation, a Japanese manufacturer of motors and motor-applied products, in April 2007.

 

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During 
Fiscal 
Year 
Ended 
March 31,

 

Event

2009

 

We made Copal Yamada Corporation, a Japanese manufacturer of precision molds, a consolidated subsidiary by increasing our ownership interest in Copal Yamada to 68.4% in August 2008.

 

 

 

2010

 

We acquired all of the voting interests in the household motor business of Appliances Components Companies S.p.A. in Italy, currently Nidec Sole Motor Corporation S.R.L., in January 2010.

 

 

 

 

 

We acquired 90.0% of the outstanding shares of SC WADO Co., Ltd., a base plate manufacturer in Thailand, in February 2010.

 

 

 

2011

 

We acquired all of the assets, the liabilities and the voting rights of Emerson Electric Co.’s motors and controls business, currently Nidec Motor Corporation, a U.S. manufacturer of industrial, air conditioning and home appliance motors, in September 2010.

 

 

 

 

 

We acquired the remaining shares of Nidec-Servo in October 2010.

 

 

 

 

 

We acquired the remaining shares of Nidec Power Motor, and Nidec Power Motor was merged by absorption into Nidec Techno Motor Corporation, in March 2011.

 

 

 

2012

 

Nidec Shibaura was merged by absorption into Nidec Techno Motor Corporation in April 2011.

 

 

 

 

 

We acquired all of the outstanding shares in Sanyo Electric Co., Ltd., currently Nidec Seimitsu Corporation, a Japanese manufacturer of small precision DC motors (vibration and general purpose motors), in July 2011.

 

 

 

 

 

We increased our ownership of Nidec Sankyo Corporation to 77.1% in March 2012.

 

 

 

2013

 

We acquired The Minster Machine Company, currently Nidec Minster Corporation, a U.S. manufacturer of mid-sized and large-sized high-speed, high rigidity press machines and large-sized press machines for dies for motor parts, in April 2012.

 

We acquired Ansaldo Sistemi Industriali S.p.A., currently Nidec ASI S.p.A., an Italian manufacturer of industrial motors, generators and drives, in May 2012.

 

 

 

 

 

We acquired Avtron Industrial Automation, Inc., a U.S. provider of control, automation and drive-systems solutions and manufacturer of encoders, in September 2012.

 

We acquired SCD Co., Ltd., a South Korean company which develops, manufactures and sells motor drive units for refrigerators and motors for air conditioners, in October 2012.

 

 

 

 

 

We acquired the remaining shares of Nidec-Sankyo in October 2012.

 

 

 

 

 

We acquired Kinetek Group Inc., a U.S. manufacturer of commercial motors, in November 2012.

 

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During 
Fiscal 
Year 
Ended 
March 31,

 

Event

 

 

We acquired Jiangsu Kaiyu Auto Appliance Co., Ltd., currently Nidec Kaiyu Auto Electric (Jiangsu) Co., Ltd., a Chinese manufacturer of brush motors for electric power steering systems and automotive fans, in December 2012.

 

 

 

2014

 

We acquired the remaining shares of Nidec Seimitsu in September 2013.

 

 

 

 

 

We acquired the remaining shares of Nidec-Tosok in October 2013.

 

 

 

 

 

We acquired the remaining shares of Nidec-Copal in October 2013.

 

 

 

 

 

Fujisoku was merged by absorption into Nidec Copal Electronics in October 2013.

 

 

 

 

 

We acquired Mitsubishi Materials C.M.I. Corporation, currently Nidec Sankyo CMI Corporation, a Japanese manufacturer of small motors, electric contact products and other products, in January 2014.

 

 

 

 

 

We acquired Honda Elesys Co., Ltd., currently Nidec Elesys Corporation, a Japanese manufacturer of automobile electronic control units for automobiles, in March 2014.

 

 

 

2015

 

We acquired the remaining shares of Nidec Copal Electronics in October 2014.

 

 

 

 

 

We acquired the remaining shares of Nidec-Read in October 2014.

 

 

 

 

 

We acquired Geräte- und Pumpenbau GmbH Dr. Eugen Schmidt, currently Nidec GPM GmbH, a Germany manufacture of oil pumps and modules for passenger cars and commercial vehicles, in February 2015.

 

 

 

2016

 

We acquired Motortecnica s.r.l., a Italian manufacture of electrical rotating machinery, in May 2015.

 

 

 

 

 

We acquired SR Drive business of China Tex Mechanical & Electrical Engineering Ltd, currently Nidec (Beijing) Drive Technologies Co., Ltd., a Chinese manufacturer of switched reluctance motors and drives, in July 2015.

 

 

 

 

 

We acquired Arisa, S.A., currently Nidec Arisa S.L.U., a Spanish manufacturer of large-sized servo press machines, in August 2015.

 

 

 

 

 

We acquired KB Electronics, Inc., an United States company, which engages in design, manufacture and sales of AC and DC electric motor drives and controls, in August 2015.

 

 

 

 

 

We acquired business of E.M.G. Elettromeccanica S.r.l., an Italian company, which engages in development, production and sales of motors for commercial facilities such as swimming pool and spa, air and smoke ventilation, and household appliances and industrial equipment (brake motors, etc.) in September 2015.

 

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During 
Fiscal 
Year 
Ended 
March 31,

 

Event

 

 

We acquired PT. NAGATA OPTO INDONESIA, currently P.T. Nidec Sankyo Opto Indonesia, an Indonesian company, which engages in production of glass lens processing in September 2015.

 

For a further discussion of our recent significant acquisitions and dispositions, see Note 3 to our audited consolidated financial statements included elsewhere in this annual report.

 

For the fiscal years ended March 31, 2014, 2015 and 2016, our capital expenditures, as shown in our consolidated statements of cash flows for those fiscal years, were ¥40,297 million, ¥58,042 million and ¥81,918 million, respectively. Major capital expenditures in the last three fiscal years included investments in equipment used to manufacture small precision motors in Thailand, the Philippines and China. In addition, in the last three years, our major capital expenditures also included investments in equipment used to manufacture automotive, appliance, commercial and industrial products in the United States.

 

Our capital expenditures for the fiscal year ending March 31, 2017 are planned to include investments of approximately ¥40,371 million in manufacturing plants and facilities, mainly in Asia and Germany, and other investments for the following purposes:

 

·               to establish a basic research facility in Kyoto Prefecture, Japan;

 

·               to renew production-line equipment in our Asian and German factories manufacturing motors and modules for automotive products;

 

·               to renew production-line equipment in our Japanese factories manufacturing electronic and optical components and machinery; and

 

·               to establish a learning center in Kyoto Prefecture, Japan.

 

For more information on our capital expenditures, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”

 

On April 21, 2016, we filed a Form 25 with the SEC for the voluntary delisting of our American Depositary Shares from the NYSE and the related deregistration with the SEC. In addition, on May 2, 2016, we also filed a Form 15F with the SEC to terminate our reporting obligations under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

Our Basic Strategy

 

Our corporate aim is to contribute to the development of society and well-being of people by providing excellent products and services through sincere and enthusiastic dedication to the fusion of science, technology and manufacturing engineering in a manner that best serves the interests of society, our company and all our employees.

 

In order to achieve our corporate aim, our basic strategy is to be a world-leading electronics manufacturer to keep creating employment and supplying indispensable products and services to the global community, which we believe will keep us growing sustainably for many decades to come. We tirelessly strive to fulfill our basic strategy through the following three elements: business portfolio transformation; M&A; and utilization of our production engineering.

 

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Business Portfolio Transformation

 

We have grown to date by providing energy-saving, durable, low-noise, compact, light-weight and environmentally-friendly brushless DC motors primarily for the information technology (IT) industry. We derive a significant portion of our sales and profit streams from the market for hard disk drive (HDD) spindle motors and optical disk drive motors for data storage devices in personal computers, servers and consumer electronics. We have enjoyed the world’s largest market share of hard disk drives spindle motors since the 1980s. However in the early 2000s, Solid State Drives (SSD) emerged as an alternative device to HDD. SSD, storage devices using semiconductor memory, started competing with HDD in the market with its lighter, less power-consuming, less heat-generating and quieter features.

 

Furthermore, since around 2010, the cloud computing environment with faster networking speeds led to the proliferation of multifunctional mobile devices, such as smartphones and tablets, whose data storage spaces are virtually located in remote data centers rather than being built within the devices. The proliferation of these cloud-oriented digital devices placed the personal computer market under constant competitive pressure, consequently resulting in a slowdown in the small-form-factor HDD market. While serving as a strong catalyst for high-capacity HDD for data center servers, the cloud computing environment is generally considered to be a constraint on unit volume growth in the HDD market.

 

With these changes in the market orientation, we have been advancing a business portfolio transformation, a focus shift from the IT market to the automotive, appliance, commercial and industrial markets to achieve two key objectives. First, we seek to reduce our dependence on the IT market and diversify our business risks. Second, we seek opportunities to grow further through providing our high efficiency motor and motor drive systems. We strongly believe the demands for environmentally superior motors and associated equipment will increase in these markets.

 

The automobile industry has been making a full-scale effort to improve vehicle energy efficiency through electrification, reduce CO2 emissions and enhance vehicle safety. In response, we have been taking such actions as converting our HDD and other IT product factories into automotive motor production bases and shifting our R&D engineers of hard disk drives spindle motors to the area of automotive product development, moving our resources to the demand-growing automotive business, and endeavoring to utilize our technological advantages nurtured through hard disk drives spindle motor development, i.e. the technologies to make light, thin, short and compact products, in order to develop and manufacture automotive products.

 

In the appliance, industrial, commercial and application, many countries are making it mandatory to use motors with high energy efficiency, particularly where large motors are used in industrial applications.  Also expectations are growing for industrial robots for factory automation systems to realize better productivity and lower labor cost and for service robots for aging societies with a declining birth rate. Motors play essential roles in driving the machines and products used in these areas. We will continue to focus on supplying high-efficiency motors and related products and seeking growth in these markets.

 

M&A

 

Business acquisitions have enabled us to obtain technologies, human resources, customers and production facilities necessary to expand into our target markets in a short period of time. We are convinced that this growth approach is effective especially in automotive, appliance, industrial and commercial product markets, which are vastly diversified and prone to exhibit distinct regional variations in consumer preferences. In other words, business acquisitions help swiftly globalize our production and supply networks in a manner that matches each regional need.

 

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In terms of post-merger integration, we utilize the production bases and facilities acquired across the world to facilitate synergies among our group companies, organize a global supply system, and accommodate the needs that are growing especially in emerging economies. Also, we integrate our motors with related technologies of the companies acquired and offer them as system products. As an example, we have been working on the integration of our automotive motors and automotive electronic control units (ECU) produced by Nidec Elesys with expertise in ECU manufacturing that we acquired in 2014, as well as the creation of electronic pump systems by integrating the automotive water and oil pumps produced by Nidec GPM, which we acquired in 2015, with our motors and ECUs. Developing motors and controllers together and integrating them as system products enable optimum combination, downsizing and cost reduction, which allows us to offer compelling value to our customers.

 

Production Engineering

 

We have business divisions per product area that controls and manages the whole process from product development to production. Business divisions are comprised of departments of product development, production engineering, product procurement, production and production control. All these departments are directly interconnected with one chain of command. Product development department focuses on designing products to cast customers’ requests into shape by reflecting their needs and making new suggestions based on its cumulated experiences as a motor development expert. Production engineering and product procurement departments prepare necessary equipment, machinery and materials, laying out a framework to start production most efficiently and speedily. Production department then commences the actual production under supervision of production control departments. Our strength lies in the customer-oriented product manufacturing supported by these departments’ collaborative efforts.

 

With an aim to generate new and novel applications that anticipate evolving global trends in demand, we established two R&D centers; Nidec Research and Development Center and Nidec Center for Industrial Science.

 

One of the Nidec Research and Development Center’s major roles is to adopt new future technologies and trends through conducting basic research for motors and the related products. This R&D center provides new ideas and casts them into shape through the incorporation of motors and associated technologies.

 

Nidec Center for Industrial Science primarily focuses on conducting production engineering research for efficient manufacturing, including turning the product models designed by product development departments and Nidec Research and Development Center into products that would be widely used in society. Nidec Center for Industrial Science realizes a low-cost and efficient manufacturing process that aims to maximize profitability in collaboration with the business divisions of the relevant product area.

 

Another role that these two R&D centers play is to bring forward a synergy of technologies as well as applications between small motors that we held from our foundation and mid- to large-sized motors that we gained from mergers and acquisitions. We grew to date primarily from small precision motors for the IT industry, which enabled us to develop unique technologies for making motor products smaller, thinner and shorter. In recent years, companies we acquired have been bringing larger size motors used for broader applications into the group. By merging the advantages of these different motors, these R&D centers endeavor to optimize the whole group’s product development and production activities.

 

These two R&D centers also strive to build a network of research resources from industry, government and universities through which researchers from different fields gather to exchange their diverse range of information. This way, we believe we will be able to select optimum research themes from numerous ideas. As we placed Nidec Motor Research and Development Center’s main office in the city of Kawasaki in Japan, with two other facilities in Singapore and Taiwan, and Nidec Center for Industrial Science in Kyoto in Japan, we expect each facility to connect with locally unique talent and form clusters of research capabilities to facilitate our R&D activities.

 

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Our Business Model

 

We pursue sustainable enhancement of corporate value by leveraging our core competencies in electric motor drive technology and associated manufacturing and marketing, which are designed flexibly to align with future changes and developments in the relevant markets.

 

Our business model is to provide specialized motor drive solutions to global customers and seek to build and maintain a top tier product portfolio in terms of efficiency, differentiation, price competitiveness and speed to market. The business model has evolved over time in alignment with the customers’ changing value priorities and based on our strategic foresight in identifying potential growth areas which to concentrate our resources. We constantly assess our visions and strategies in light of the evolving business environment and, if necessary, seek to reposition ourselves by proactively taking measures, including investments, mergers and acquisitions, and divestiture or transformation of operations.

 

As an independent participant in multiple supply chains in multiple product markets, we supply products to higher-tier suppliers and ODM and OEM customers. We provide our specialized capabilities in motor-drive solutions that customers otherwise do not have direct access to, or cannot cost-effectively create or manage internally. We seek to maintain and further develop these capabilities to compete with our current and potential competitor suppliers worldwide. The customers in the supply chains we currently serve generally have the following attributes:

 

·                      they expect highly innovative products with an increasing focus on energy-saving, environment-conscious features;

 

·                      they require large quantities at a low price; and

 

·                      they purchase on short notice and expect quick delivery, service and support.

 

We aim for the highest market share in our chosen areas of operations and believe that we have developed a flexible and agile manufacturing framework to ensure rapid responses to changes in customer demand, timely resolution of quality problems and fast implementation of new product features.

 

We believe our key strengths and capabilities can be summarized as follows:

 

·                      strategic foresight to identify future growth opportunities and challenges, and agility in responding to the accompanying changes in technologies, markets and trends;

 

·                      rich pool of specialized proprietary technologies and related expertise in customization and processing;

 

·                      short time to market enabled by highly specialized, focused operations;

 

·                      cost advantages generated by effectively spreading the costs of specialized capabilities over significantly large production volumes for serving multiple customers;

 

·                      ability to build long-term, close relationships with customers based on an in-depth understanding of their challenges and goals;

 

·                      corporate culture that prioritizes employees’ creativity, labor enthusiasm and swiftness in decision-making; and

 

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·                      extensive experience in successful mergers and acquisitions and post-merger integration.

 

Our competitive advantages, particularly from a perspective of responsiveness to customers, reflect, and are primarily driven by, the following operational elements:

 

Technology

 

Continuing improvement in product design, manufacturing and process technologies is critical to differentiate ourselves from our competitors and, from time to time, to ease pricing pressure. We aim to have all of our design activities focus on future growth markets and potential applications well-matched with the context of the times.

 

From a technical perspective, our business model first demonstrated its validity in establishing our leadership in the global market for spindle motors for hard disk drives. In the 1980s, the computer industry was seeking innovative solutions that would enable smaller-footprint computer for home and office uses (personal computers, or PCs) without compromising performance. The manufacturers of the hard disk drive, a storage device used to store digitally encoded data in the computer and server, were also looking for innovative ways to dramatically reduce the size and improve the performance of their hard disk drives. They needed a new platter, new read and write head, and among all things, a new type of electric motor. We had anticipated the need for smaller yet higher-performing motors early on and successfully developed our proprietary brushless DC motor technology and associated mass-production expertise ahead of our competitors. Our brushless DC motor quickly replaced the traditional brush-commutated DC motor, or brush DC motor, to become the mainstream motor solution for hard disk drives, and subsequently, optical disk drives.

 

Our motor drive technology has since evolved through waves of innovation and modification to fulfill a role fine-tuned to the needs of the times. Exhibiting enhanced rotation accuracy, controllability, lightness, quietness and operating life, coupled with significantly improved energy-efficiency and environmental advantages, our motor portfolio has extended its reach beyond the information technology field into many other market segments where we find new demand. Our current focus is on new applications arising from consumers’ preference toward an energy-saving lifestyle, greater comfort and safety. Among the prospective application areas, we place particular emphasis on electric and hybrid automobiles, home electric appliances and industrial equipment, for which we believe highly controllable, energy-saving and environmentally motors are increasingly sought after.

 

Production

 

Our customers, to a greater or lesser degree, serve various electronics markets which typically require large quantities of high-quality precision components, including electric motors, on short notice and at competitively low prices. Attaining a sustainable leadership position in these markets is essentially synonymous with having industry-leading manufacturing capacities and flexible manufacturing techniques that enable competitive quantity, quality, speed and price. For this reason, we constantly explore new application areas with high growth potential to continue securing sufficient production volume for better economies of scale and scope. Our manufacturing initiatives towards the leading market position basically begin with establishing significantly large manufacturing capacities in close proximity to major groups of customers so that we can meet quality and quantity demands better and make delivery times shorter than our competitors. Further, we carefully measure the value added along the production lines over the course of time and, at a scale deemed appropriate, standardize and automate production lines for lower cost manufacturing operations.

 

Inventory and Delivery

 

Our major revenue streams currently come from customers that adopt either a just-in-time system (JIT) or vender-managed inventory (VMI) under which the customers produce only what is required in the correct quantity and at the correct time to keep their stock levels to a minimum. Accordingly, we are expected to deliver our products to the customers’ loading bays within a narrow time slot.

 

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Both JIT and VMI are very responsive manufacturing methods and yet very reliant on suppliers. If stock is not delivered on time, the customer’s entire production schedule would most likely be delayed. Customers without inventory must avoid such a supply system problem that creates a shortage of parts. This makes supplier relationships extremely important for our customers, and our responsiveness here is primarily measured by our ability to keep sufficient levels of inventory readily available to the customers at many locations worldwide. To fulfill these customer needs, our global manufacturing network is flexibly coordinated to ensure geographical proximity to the factories and warehouses of our customers. At the same time, we pay significant attention to demand conditions in downstream markets in order to mitigate the risk of overstocking on our side.

 

Quality

 

Our quality initiatives revolve around continuous improvement and optimization of all processes—from product development, purchasing, production and sales to delivery—in order to provide maximum value for our customers. We adopt quality as a competitive strategy and implement techniques, such as ISO 9001 certification and statistical process controls, to meet customer demands and improve overall business performance.

 

As an internationally operating company, our quality responsibility involves reducing the environment burdens of our products and operations beyond national borders. In addition to compliance with international environmental standards, such as ISO14001, REACH (Registration, Evaluation, Authorization and Restriction of Chemical substances) and RoHS (Restriction of Hazardous Substances Directive), we seek to address environmental considerations and work on the reduction of raw materials used per unit of product.

 

Strategic Investments and Business Acquisitions

 

Strategic investments and business acquisitions in potentially higher value areas are essential to our success in terms of broadening our technological horizons, enriching our products and customer portfolio, and eventually developing an optimal mix of revenue and profit streams. Specifically, our core investment efforts are currently being directed to the following areas:

 

·                      research and development of energy-efficient, environment-conscious electric motors;

 

·                      expansion of selling and manufacturing capacities in emerging countries; and

 

·                      mergers and acquisitions of electric motor businesses in the household appliance, automotive, commercial and industrial motor industries.

 

B. Business Overview.

 

We classify our products into five business groups based primarily on the similarity of products in type and use. The business groups and major categories of products offered in each business group as of March 31, 2015 are as follows:

 

·                      Small Precision Motors: Hard disk drives spindle motors and other small precision motors for optical disk drives, vibration mechanism for smartphone tactile feedback and silent mode features, electronic cooling fans, refrigerators, DVD recorders, laser printers, copiers, polygon scanners, automobiles and other applications;

 

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·                      Automotive, Appliance, Commercial and Industrial Products: Automotive motors, power-train components, sensors and electronic controls (for power steering systems, dual-clutch transmission systems, engine cooling systems, seat adjusters, window lifts, vehicle traction systems, collision avoidance and mitigation systems, and other products), home appliances motors (for air purification systems, washing machines, refrigerators, dish washers and other products), commercial and industrial motors and systems solutions (for processing lines, rolling mills, mining equipment, heat pump and water heater systems, elevators, escalators, air conditioning systems, commercial food refrigerators, floor care equipment, utility vehicles, material handling vehicles, aerial lifts, monitoring systems, barrier-free facilities, electric tools, air compressors, marine propulsion systems, wind power generation systems, photovoltaic power generation systems and other products);

 

·                      Machinery: Transfer robots (for liquid-crystal-display panels, semiconductor wafers and other products), card readers, mechanical pressing machines, food packaging machines and power transmission systems;

 

·                      Electronic and Optical Components: Shutters and lens units (for digital still cameras, mobile phones), switches, trimmer potentiometers, precision plastic moldings and plastic metal casings; and

 

·                      Others: Services and music box products.

 

Sales by Business Group and Product Category

 

The table below summarizes a breakdown of our consolidated net sales by business group and product category for each of the periods indicated:

 

 

 

Year ended March 31,

 

 

 

2014

 

2015

 

2016

 

 

 

(in millions, except percentage data)

 

Small precision motors:

 

 

 

 

 

 

 

 

 

 

 

 

 

Hard disk drives spindle motors

 

¥

185,506

 

21.2

%

¥

204,141

 

19.9

%

¥

207,974

 

17.7

%

Other small precision motors

 

177,007

 

20.2

%

193,858

 

18.9

%

240,014

 

20.4

%

Sub-total

 

362,513

 

41.4

%

397,999

 

38.8

%

447,988

 

38.1

%

Automotive, appliance, commercial and industrial products

 

345,236

 

39.5

%

460,007

 

44.7

%

554,713

 

47.1

%

Machinery

 

86,955

 

9.9

%

98,800

 

9.6

%

106,462

 

9.0

%

Electronic and optical components

 

72,845

 

8.3

%

65,050

 

6.3

%

64,112

 

5.4

%

Others

 

7,560

 

0.9

%

6,529

 

0.6

%

5,015

 

0.4

%

Consolidated total

 

¥

875,109

 

100.0

%

¥

1,028,385

 

100.0

%

¥

1,178,290

 

100.0

%

 

Small Precision Motors

 

The small precision motors business mainly covers a broad array of direct-current, or DC, electric motors that operate in the output between 0.2W and 100W. This business group constitutes the core of our consolidated operations and accounted for 38.8% of our consolidated net sales for the fiscal year ended March 31, 2016. More than a majority of small precision motor sales are represented by brushless DC motors used in the computer, home electronics and office equipment industries.

 

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This business group represented 38.1% of our consolidated net sales for the fiscal year ended March 31, 2016.

 

This business group is divided into two product categories according to application: (1) hard disk drives spindle motors and (2) other small precision motors. The details of each product category are as follows:

 

(1) Hard Disk Drives Spindle Motors

 

The products grouped into this category include brushless DC motors for hard disk drives used in personal computers, computer servers and a range of digital consumer electronics. This product category represented 46.4% of our small precision motors sales for the fiscal year ended March 31, 2016.

 

Our hard disk drives spindle motors fall into two types based on their hard disk drive form factors, or disk platter diameters, as follows:

 

·                  3.5-inch form factor—for servers, desktop PCs, personal video recorders (PVRs), digital flat TVs and portable external storage;

 

·                  2.5-inch form factor—for notebook PCs, PVRs, game machine consoles, digital flat TVs, servers and external hard disk drives; and

 

A significant portion of the operations relating to this product category is conducted by Nidec Corporation.

 

The hard disk drive market is highly concentrated and characterized by product homogeneity, short innovation cycle and significant entry barriers. We currently supply spindle motors to all three hard disk drive manufacturers: Seagate Technology LLC., Western Digital Corporation, and Toshiba Corporation as their primary motor supplier.

 

In this market, we currently compete with Minebea Technology Co., Ltd.

 

Demand for hard disk drives spindle motors typically peaks in the autumn-winter season, driven by corporate IT spending and consumer spending in the back-to-school and holiday shopping seasons.

 

Substantially all of our sales of hard disk drives spindle motor are denominated in U.S. dollars.

 

The following are some of the recent general market trends we consider significant to our hard disk drives spindle motor business:

 

·                  Global demand for electronic data storage is expected to maintain constant growth, reflecting continued proliferation of personal and enterprise digital content that is stored, shared, protected and distributed in increasingly high volume. These data are stored in data centers rather than individual electronic devices.

 

·                  The hard disk drive industry’s focus is shifting further to cloud storage, a model of networked online storage where data is stored on multiple third-party servers at data centers. Increased-capacity, low electricity-consuming helium-filled HDDs are gaining popularity for this application.

 

·                  Demand in conventional PCs installed with HDDs is shifting to handheld devices (e.g., smartphones and tablet PCs) installed with solid-state-drives (SSDs). Demand for PCs installed with SSDs is increasing as well.

 

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·                  SSD-based handheld devices and PCs will remain major competitors to conventional HDD-based PCs. Operating in the cloud storage environment and using SSDs as their only built-in storage media, these devices are, on the one hand, serving as a catalyst for the high-capacity, server-oriented hard disk drives market but, on the other hand, posing a constraint on the low-capacity hard disk drives market.

 

(2) Other Small Precision Motors

 

The products within this category are primarily used in the following application areas:

 

·                      optical disk drives for PCs, car navigation systems, and home electronics such as digital video recorders, flat-screen TVs and game machines;

 

·                      office equipment (e.g., laser printers and hybrid copiers);

 

·                      cooling fans for PCs, servers, smartphones, tablets, game machine consoles, telecom base stations and other products;

 

·                      home appliances (e.g., refrigerators, stand mixers, juicers, hair dryers, food processors and other products);

 

·                      vibration mechanism for smartphones and mobile phones;

 

·                      position or motion control mechanism for industrial control equipment and home electronics (e.g., camcorders, digital single-lens-reflex cameras and car navigation systems); and

 

·                      factory automation control units;

 

·                      actuators for tactile devices.

 

This product category represented 53.6% of our small precision motors sales for the fiscal year ended March 31, 2016.

 

The types of electric motors we manufacture for these applications range from brush and brushless DC motors to stepping motors, coreless motors, servo motors and silent geared motors. A significant portion of the operations relating to this product category is conducted by Nidec Corporation, Nidec Sankyo Corporation, Nidec Copal Corporation, Nidec Copal Electronics Corporation, Nidec Servo Corporation and Nidec Seimitsu Corporation. In this product category, our major customers are Japanese, Korean, Taiwanese and Chinese electronics companies. Our primary competitors are Asian component manufacturers, including our customers’ motor manufacturing divisions.

 

The tactile devices business was added to this business category in the year ended March 31, 2016, and sales from this business increased significantly compared to the prior year. Tactile devices are used for touch panels of electronic devices such as smartphones and PCs. The sensor on tactile devices detects touch pressure exerted on a touch panel, and the actuator we manufacturer creates and provides a tactile feedback. Tactile devices are expected to be used in more applications such as automotive, wearable and robotics products.

 

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Automotive, Appliance, Commercial and Industrial Products

 

This business group is mainly composed of mid- to large-sized motors and related control electronics for use in diverse applications, including:

 

·                        automobiles;

 

·                        home appliances;

 

·                        commercial elevators and escalators;

 

·                        industrial automation systems; and

 

·                        renewable energy management systems.

 

In general, electric motors for these applications are designed to operate across a wide range of voltages and power ratings to match light- to heavy-load conditions. Demand patterns vary depending on the nature of their end uses but indicate similar sensitivity to corporate capital expenditure and regulatory trends in the context of energy conservation and environmental protection. A rapid emergence of the Chinese and Indian markets and the resulting shift of production and sales to Asian regions are becoming increasingly evident in these industries.

 

This business group represented 47.1% of our consolidated net sales for the fiscal year ended March 31, 2016.

 

(1) Automotive Products

 

Our automotive products mainly consist of four product groups: 1) automotive motors for such devices as electric power steering (EPS) and dual clutch transmissions managed by Nidec Corporation, Nidec Motors & Actuators and Nidec Automotive Motors Americas; 2) automotive components such as control valves, oil pumps and water pumps managed by Nidec Tosok Corporation and Nidec GPM GmbH; 3) electronic control unit (ECU) for products such as electric power steering units and electronic stability control units; and 4) sensor products such as millimeter-wave radar devices and sensing cameras. Both 3) and 4) are managed by Nidec Elesys Corporation.

 

Our largest customers include automobile manufacturers such as Honda Motor Co., Ltd. and Fuji Heavy Industries Ltd., EPS manufacturers such as NSK Ltd, Robert Bosch Automotive Steering GmbH, ZF Friedrichshafen AG and Showa Corporation, and automotive component manufacturers such as JATCO Ltd., Nissin Kogyo Co., Ltd., Valeo S.A. and Continental AG. In the automotive motors business, we compete with independent Tier-2 automotive component manufacturers and Tier-1 automotive component manufacturers’ own motor manufacturing units worldwide. In the automotive components business, electronic control unit business and sensor products business, we compete with Tier-1 automotive component manufacturers.

 

The following are some of the recent general market trends we consider significant to our automotive products businesses.

 

Automobile electrification

 

Running automobiles burn fossil fuels such as gasoline and light gas oil, generating greenhouse gases (or GHG, including CO2, CFC, methane and carbon monoxide, etc.) that are believed to cause global warming. In order to depart from current overdependence on fossil fuels that have a depletion concern and reduce GHG emissions, governments around the world are enforcing tighter fuel economy regulations.

 

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Supported by such policies of these countries, there are growing needs for automobiles that minimize the use of fossil fuels and curb the generation of GHG. One way to realize such automobiles is to replace engines, which have so far been used to drive vehicles, with motors, not by fossil fuel but electricity. With automobile electrification, an engine can be completely replaced or its burden can be reduced. The best examples of this notion are electric vehicles which run on motors rotated by the power accumulated in batteries installed in the vehicles, plug-in hybrid and hybrid vehicles which run by using a battery and an engine in combination. Another example is motor-assisted electric power steering that replaces the hydraulic assisted steering systems that use engine power. Also, electric oil pumps and electric water pumps replace conventional pumps driven by engines. These applications are spreading backed by the enforcement of tighter regulations for environmental protection.

 

Vehicle safety

 

A second trend is the diffusion of the Advanced Driving Assistant Systems, or ADAS, developed to automate and enhance vehicle safety. Most traffic accidents occur due to driver-attributable errors (e.g. recognition error, decision error, and performance error, etc.), which are prompting the needs for automobile safety in society. The automobile safety technologies are shifting from seatbelts, airbags and other technologies that weaken the impact of a crash to those that actively prevent accidents by alleviating and averting collisions. ADAS is a major system that enables such prevention of accidents, primary examples of which are automatic emergency braking, adaptive cruise control and lane keeping system. These function when mainly sensors, Electronic Control Unit (ECU) and motors operate in conjunction. The core of this ADAS is the automatic braking system, which applies the brakes to a vehicle as soon as its camera or radar detects a hazard. This function comprises a sensor, including a camera and radar; a controller called ECU, which sends motors commands based on information from the sensor; and motors which apply the brakes to the vehicle. In many countries, automatic braking system is coming to be installed as a standard function. In the United States, major OEM automobile manufacturers agreed to make automatic breaking a standard feature in new vehicles. The EU has been making the installation of such systems in large trucks and buses obligatory. In light of these circumstances, more and more vehicles are expected to be installed with ADAS functions, and their demand is expected to continue to grow.

 

Also, while automation functions are becoming more sophisticated, IT companies and automobile manufacturers are now trying to realize autonomous driving vehicles. Some of the key component technologies currently used in ADAS are expected to equally underpin significant autonomous vehicle development into the future, resulting in the further advancement of existing ADAS technology.

 

(2) Appliance, Commercial and Industrial Products

 

The products within the appliance, commercial and industrial product category include mid- to large-size electric motors and control systems for:

 

·                  household applications, including washing machines, dryers and dishwashers; and

 

·                  commercial and industrial applications, including air-conditioners, commercial refrigeration, elevators, escalators, mining equipment, heat pumps and water heater systems, material handling equipment, compressors, marine propulsion systems, and wind and solar power generation systems.

 

The operations relating to this product category are mainly conducted by Nidec Motor Corporation, Nidec ASI S.p.A., Nidec Kinetek Corporation, Nidec Sole Motor Corporation S.R.L, Nidec Techno Motor Corporation, Nidec Avtron Automation Corporation and Nidec Corporation. We compete with independent electric motor and system suppliers and our customers’ own motor manufacturing units worldwide. Our largest customers include Whirlpool Corporation, AB Electrolux and Haier Group.

 

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Air-conditioners business

 

Approximately half of appliance, commercial and industrial products revenue derives from air-conditioners, with Nidec Techno Motor Corporation selling room air-conditioner motors mainly for Asia, and Nidec Motor Corporation selling centralized air-conditioner motors for households and commercial facilities in the United States. The primary target of the room air-conditioner motors that Nidec Techno Motor Corporation sells is the Chinese market, which is growing rapidly especially in recent years. With the Chinese government introducing energy-saving measures in full scale and obliging the use of energy-saving air conditioners, the number of inverter air conditioners, the most energy-efficient product of its kind, is increasing in the market.

 

An inverter air conditioner is able to provide a precise temperature without fluctuations as an inverter controls the speed of compressor motor frequency. The compressor motor slows down when the room temperature reaches the set condition. By contrast, conventional air conditioners without inverters are constantly switched on and off without its compressor motor being controlled. It runs either at maximum speed or stops running completely. For consumers, inverter air conditioners cost more to buy, but are more efficient on running, which saves them on the total cost.

 

Demand for inverter-air-conditioners is exhibiting a notable increase particularly in emerging countries in which electricity shortage are of vital concern. Our current strategic emphasis is on capturing new demand opportunities arising from the ongoing technological shift in regional air-conditioning markets by expanding sales of energy-efficient brushless DC motors for inverter air-conditioning systems.

 

Industrial solution business

 

In the industrial solution business, we are focusing on the sales of motors and motor drives (low- and medium-voltage) for oil- and gas-related and other types of energy infrastructure. We also offer a comprehensive solution, including designing, construction, operation, maintenance and others, of wind and photovoltaic power generation systems. A significant portion of this business is related to public investments mainly in the North American, European and Asian countries.

 

It is estimated that motors and motor systems account for approximately one half of all electricity consumed around the world, of which industrial motors account for about 60%. With such massive amounts of power consumed in the industrial field, a global energy-conservation standard has been established to address environmental issues, and regulations have been made effective in various nations accordingly. The AC induction motor, which is an inexpensive and cost-effective motor that converts electrical energy to rotational mechanical power, is used as a standard product by manufacturing companies. This motor, which users can obtain easily, is used most commonly in industrial applications, for pumps, compressors and blowers, and used in great quantities in the world. Amid environmental concerns, worldwide efforts are being made to regulate the efficiency of mass-produced, high power-consuming AC induction motors. In 2010, the United States obligated the use of motors that are IE3 (Premium Efficiency) or higher level of the International Electrotechnical Commission (IEC), while, in 2015, the use of IE3-level motors was made obligatory in Europe and Japan as well.

 

Machinery

 

The machinery business group consists of various equipment and machinery mainly for industrial use. A significant portion of the operations of this business group is conducted by Nidec Sankyo Corporation in the transfer robot and card reader industry, Nidec-Shimpo Corporation and Nidec Minster Corporation in the power transmission equipment and mechanical pressing machine industries, and Nidec-Read Corporation in the semiconductor package inspection equipment and other industries. The remaining operations are managed by Nidec Copal Corporation in the factory automation system industry. Our customers and competitors are primarily Japanese and Asian manufacturers. For a discussion of our recent acquisition of business and intra-group realignment of subsidiaries engaged in the machinery business, see “—A. History and Development of the Company.”

 

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This business group generally exhibits a marked sensitivity to capital spending fluctuations, owing to its high exposure to the factory automation systems market. This business group represented 9.0% of our consolidated net sales for the fiscal year ended March 31, 2016.

 

Electronic and Optical Components

 

The electronic and optical components business is conducted primarily by Nidec Copal Corporation in the camera shutter and lens unit, metal casing and other industries, Nidec Sankyo Corporation in the precision plastic molding and other industries, and Nidec Copal Electronics Corporation in the switch, trimmer potentiometer, actuator and other industries. Our primary customers are the world’s major manufacturers of digital cameras, mobile phones and various control devices. We mainly compete with Japanese and other Asian component manufacturers, which are either independent or our customers’ own manufacturing units.

 

This business group covers a broad spectrum of component markets and is particularly influenced by trends in the digital camera market and private-sector equipment investment. The product range is diverse, and manufacturing operations are frequently performed in small lots or on order.

 

In recent years, our digital camera shutter and lens unit business has been shrinking as smartphone popularity grew dramatically replacing digital cameras as the primary photo taking device. Under this trend, we have been strategically shifting the focus from digital camera shutters to mobile phones lens units, including autofocus and optical image stabilizers, automotive cameras and surveillance cameras, utilizing our nurtured fundamental technologies in electronic and optical components. Especially, demand for automotive cameras is growing to meet growing vehicle safety needs.

 

This business group represented 5.4% of our consolidated net sales for the fiscal year ended March 31, 2016.

 

Others

 

The Others business consists of services and music box products, and is primarily conducted by Nidec Corporation and Nidec Sankyo Corporation. This business group represented 0.4% of our consolidated net sales for the fiscal year ended March 31, 2016.

 

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Sales by Geographic Market

 

The following tables present a breakdown of our geographic revenues based on the locations of business entities generating sales and the locations of customers for each of the periods indicated. In the following tables, inter-group transactions have been eliminated in consolidation.

 

Geographic revenues based on the locations of business entities generating sales

 

 

 

Year ended March 31,

 

 

 

2014

 

2015

 

2016

 

 

 

(in millions, except percentage data)

 

Japan

 

¥

238,278

 

27.2

%

¥

268,416

 

26.1

%

¥

271,571

 

23.1

%

United States

 

132,117

 

15.1

%

174,521

 

17.0

%

197,235

 

16.7

%

Singapore

 

63,950

 

7.3

%

70,956

 

6.9

%

72,727

 

6.2

%

Thailand

 

85,435

 

9.8

%

90,813

 

8.8

%

106,998

 

9.1

%

Germany

 

38,043

 

4.3

%

44,756

 

4.3

%

87,502

 

7.4

%

China

 

197,134

 

22.5

%

235,409

 

22.9

%

293,353

 

24.9

%

Other

 

120,152

 

13.8

%

143,514

 

14.0

%

148,904

 

12.6

%

Consolidated total

 

¥

875,109

 

100.0

%

¥

1,028,385

 

100.0

%

¥

1,178,290

 

100.0

%

 

Geographic revenues based on the locations of customers

 

 

 

Year ended March 31,

 

 

 

2014

 

2015

 

2016

 

 

 

(in millions, except percentage data)

 

North America

 

¥

155,802

 

17.8

%

¥

197,559

 

19.2

%

¥

230,698

 

19.6

%

Asia

 

447,667

 

51.2

%

528,176

 

51.4

%

600,840

 

51.0

%

Europe

 

103,940

 

11.9

%

108,186

 

10.5

%

152,412

 

12.9

%

Other

 

8,904

 

1.0

%

10,775

 

1.0

%

14,452

 

1.2

%

Overseas sales total

 

716,313

 

81.9

%

844,696

 

82.1

%

998,402

 

84.7

%

Japan

 

158,796

 

18.1

%

183,689

 

17.9

%

179,888

 

15.3

%

Consolidated total

 

¥

875,109

 

100.0

%

¥

1,028,385

 

100.0

%

¥

1,178,290

 

100.0

%

 

Supply Sources

 

Our major requirements for basic raw materials include aluminum, steel, copper, electronics, and to a lesser extent, rare earth minerals, plastics and other petroleum-based chemicals. We have multiple supply sources for each of our major requirements, and we seek to avoid being significantly dependent on any one or a few suppliers. All of the raw materials and various purchased components required for our products have generally been available in sufficient quantities.

 

Government Regulation and Environmental Standards

 

Our business activities are subject to various governmental regulations in the jurisdictions in which we operate, including those relating to customs, import and export control, foreign exchange controls, competition or antitrust, intellectual property, protection of the environment, product safety and labor.

 

In Japan, we are subject to environmental regulation under the Air Pollution Control Law, the Water Pollution Control Law, the Wastes Disposal and Public Cleaning Law, the Law for the Promotion of Effective Utilization of Resources, the Basic Law for Establishing a Recycling-based Society and other laws. We are also subject to local regulations which in some cases impose requirements more stringent than the national requirements. However, we currently do not believe that these regulations have a significant impact on our operations since we do not use large volumes of hazardous or toxic chemicals to manufacture our products or dispose of large amounts of waste into the environment.

 

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Our overseas operations are also subject to environmental regulations. Our operations in the United States, for example, are subject to extensive federal and state environmental laws and regulations. Our operations in the European Union (“EU”) are also subject to EU and national environmental laws and regulations. Any electronic or electrical equipment sold in the EU are subject to the Restriction of Hazardous Substances Directive (RoHS) 2002/95/EC. This Directive indicates that any products entering the EU must comply with its limits on the content of certain hazardous substances.

 

In addition, as part of a concerted effort worldwide to reduce energy consumption, CO2 emissions and the impact of industrial operations on the environment, various regulatory authorities in many jurisdictions have introduced or are planning legislation to encourage the manufacture and use of higher efficiency motors. The United States and Canada are international leaders in terms of setting electric motor energy efficiency standards, as they introduced regulations for motors in the late 1990s, followed by China in 2002. The European Union passed minimum energy performance standards legislation for electric motors in 2009 as an implementing measure under the Eco-design Directive. Australia, Korea, Brazil, Mexico, Taiwan and several other countries with large electricity consumption from electric motors have already adopted minimum energy performance standards. At the international level, the International Electrotechnical Commission (IEC), which is responsible for international standardization, defines and harmonizes the worldwide efficiency classes as IE1 (Standard efficiency), IE2 (High efficiency) and IE3 (Premium efficiency) for low-voltage three-phase induction motors mainly used in applications such as compressors, pumps, fans and industrial handling systems. Starting in 2015, mid-size AC induction motors that are rated from 7.5 to 375 kW and sold in the EU will be required to be IE3, or IE2 with a variable-speed drive. In the United States, the standards were introduced in 2010 for larger motors and are expected to become applicable to smaller motors in 2017. In Japan, the IE3-equivallent standards are scheduled to take effect in April 2015.

 

See “Item 3.D. Key Information—Risk Factors—We are subject to various laws and regulations, and our failure to comply may harm our business.”

 

Intellectual Property

 

In the ordinary course of business, we submit patent applications in Japan, the United States, China and other countries. We also seek patent protection in various foreign countries where our patented technologies are used. While, from time to time, we seek to enforce our patents in patent infringement lawsuits or otherwise, we do not believe that there is any single patent or group of patents which are critical to our principal business segments.

 

Legal Proceedings

 

We are involved in several actions and proceedings in the world in the ordinary course of our business. Based upon the information currently available to us and our domestic and overseas legal counsel, we believe that the ultimate resolution of such actions and proceedings will not, in the aggregate, have a material adverse effect on our financial conditions or result of operations.

 

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C. Organizational Structure.

 

The following table presents summary information on our major consolidated subsidiaries as of March 31, 2016:

 

Name

 

Country

 

Principal business

 

Percentage 
owned by us 
as of March 
31, 2016

 

 

 

 

 

 

 

(%)

 

Consolidated subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nidec Electronics (Thailand) Co., Ltd.

 

Thailand

 

Manufacture and sales of spindle motors for hard disk drives

 

99.9

%

 

 

 

 

 

 

 

 

Nidec Singapore Pte. Ltd.

 

Singapore

 

Sales of spindle motors for hard disk drives, and other small precision motors

 

100.0

%

 

 

 

 

 

 

 

 

Nidec (H.K.) Co., Ltd.

 

China

 

Sales of spindle motors for hard disk drives, and other small precision motors

 

100.0

%

 

 

 

 

 

 

 

 

Nidec Sankyo Corporation

 

Japan

 

Manufacture and sales of machinery, automotive products, electronic parts and other small precision motors

 

100.0

%

 

 

 

 

 

 

 

 

Nidec Copal Corporation

 

Japan

 

Manufacture and sales of optical and electronic parts, machinery and other small precision motors

 

100.0

%

 

 

 

 

 

 

 

 

Nidec Techno Motor Corporation

 

Japan

 

Manufacture and sales of commercial and industrial products

 

100.0

%

 

 

 

 

 

 

 

 

Nidec Motor Corporation

 

United States

 

Manufacture and sales of home appliance, commercial and industrial products

 

100.0

%

 

 

 

 

 

 

 

 

Nidec Motors & Actuators (Germany) GmbH

 

Germany

 

Manufacture and sales of automotive products

 

100.0

%

 

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D. Property, Plants and Equipment.

 

Our principal executive offices are located in Kyoto, Japan and occupy approximately 36,119 square meters of office space. At March 31, 2016, we operated manufacturing and sales facilities through 25 Japanese subsidiaries and 200 foreign subsidiaries. These facilities are located in Japan, China, Europe, the United States, Mexico, Thailand, Vietnam, Indonesia, the Philippines, Singapore, South Korea, Taiwan, Malaysia, Canada, India, Brazil, Cambodia, Colombia, Turkey, Federated States of Micronesia, United Arab Emirates and Venezuela.

 

The following table sets forth information, as of March 31, 2016, with respect to our principal manufacturing facilities and other facilities:

 

Facility name

 

Location

 

Floor space 
(square meters)

 

Principal products and function

In Japan:

 

 

 

 

 

 

 

 

 

 

 

 

 

Shiga Technical Center(1)

 

Shiga

 

39,576

 

Development and manufacture of small high-precision motors and mid-size motors, production engineering, and manufacturing base support

 

 

 

 

 

 

 

Nidec Copal Corporation Koriyama Technical Center(1)

 

Fukushima

 

37,188

 

Manufacture of electric and optical components

 

 

 

 

 

 

 

Corporate Headquarters and Central Technical Laboratories(1)

 

Kyoto

 

36,119

 

Basic research and fluid dynamic bearing technology development

 

 

 

 

 

 

 

Nidec Servo Corporation(1)

 

Gunma

 

34,128

 

Development and manufacture of other small precision motors

 

 

 

 

 

 

 

Nidec Techno Motor Corporation Fukui Technical Center(2)

 

Fukui

 

31,156

 

Manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Nidec-Shimpo Corporation(1)

 

Kyoto

 

29,322

 

Development and manufacture of machinery

 

 

 

 

 

 

 

Nidec Techno Motor Corporation Kyushu Technical Center(5)

 

Fukuoka

 

27,459

 

Development and manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Nidec Copal Corporation Niigata Factory(1)

 

Niigata

 

24,189

 

Manufacture of electronic and optical components

 

 

 

 

 

 

 

Nidec Tosok Corporation Head Office and Technical Center(1)

 

Kanagawa

 

23,471

 

Development and manufacture of automotive products

 

 

 

 

 

 

 

Nidec Sankyo Corporation Ina Facility(1)

 

Nagano

 

19,953

 

Manufacture of machinery

 

 

 

 

 

 

 

Tammy Corporation(1)

 

Akita

 

17,524

 

Manufacture of electronic and optical components

 

 

 

 

 

 

 

Nidec Research And Development Center(1)

 

Kanagawa

 

17,346

 

Enhancement of basic and elemental technologies and establishment of motor-applied technologies, research and development hub for the Nidec group, and education and training of high-level researchers and engineers

 

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Facility name

 

Location

 

Floor space 
(square meters)

 

Principal products and function

 

 

 

 

 

 

 

Nagano Technical Center(1)

 

Nagano

 

16,784

 

Development and manufacture of spindle motors for hard disk drives, and manufacturing base support, and development of pivot assemblies

 

 

 

 

 

 

 

Nidec Copal Corporation Shiojiri Factory(1)

 

Nagano

 

16,452

 

Manufacture of machinery

 

 

 

 

 

 

 

Nidec Tosok Corporation Yamanashi Factory(1)

 

Yamanashi

 

16,320

 

Manufacture of automotive products

 

Facility name

 

Location

 

Floor space
(square meters)

 

Principal products and function

Outside Japan:

 

 

 

 

 

 

 

 

 

 

 

 

 

Nidec Philippines Corporation(3)

 

Philippines

 

85,302

 

Manufacture of spindle motors for hard disk drives

 

 

 

 

 

 

 

Nidec (Dalian) Limited(5)

 

China

 

67,950

 

Manufacture of other small precision motors and automotive products

 

 

 

 

 

 

 

Kinetek De Sheng (Foshan) Motor Co., Ltd.(1)

 

China

 

59,005

 

Development and manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Nidec ASI S.p.A.(5)

 

Italy

 

58,381

 

Development and manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Avtron Industrial Automation Inc.(1)

 

United States

 

58,000

 

Development and manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Nidec Sankyo Vietnam Corporation(2)

 

Vietnam

 

57,450

 

Manufacture of other small precision motors

 

 

 

 

 

 

 

Nidec Tosok (Vietnam) Co., Ltd.(2)

 

Vietnam

 

55,572

 

Manufacture of automotive products

 

 

 

 

 

 

 

Nidec Shibaura (Zhejiang) Co., Ltd.(5)

 

China

 

52,097

 

Manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Nidec Copal Precision (Vietnam) Corporation(2)

 

Vietnam

 

48,000

 

Manufacture of electronic and optical components and other small precision motors

 

 

 

 

 

 

 

Nidec Motors & Actuators Mexico S. de R.L. de C.V.(1)

 

Mexico

 

46,769

 

Manufacture of automotive products

 

 

 

 

 

 

 

Nidec Electronics (Thailand) Co., Ltd.
Rojana Factory
(1)

 

Thailand

 

43,230

 

Manufacture of spindle motors for hard disk drives

 

 

 

 

 

 

 

Nidec Sankyo (Zhejiang) Corporation(5)

 

China

 

43,128

 

Manufacture of machinery

 

 

 

 

 

 

 

Nidec Electronics (Thailand) Co., Ltd.
Rangsit Factory
(1)

 

Thailand

 

43,110

 

Manufacture of spindle motors for hard disk drives

 

 

 

 

 

 

 

Nidec (Zhejiang) Corporation(5)

 

China

 

41,000

 

Manufacture of spindle motors for hard disk drives

 

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Facility name

 

Location

 

Floor space
(square meters)

 

Principal products and function

Nidec GPM GmbH(1)

 

Germany

 

40,708

 

Manufacture of automotive products

 

 

 

 

 

 

 

Nidec Component Technology (Thailand) Co.Ltd(1)

 

Thailand

 

40,000

 

Manufacture of spindle motors for hard disk drives

 

 

 

 

 

 

 

Nidec (Dongguan) Limited(4)

 

China

 

39,880

 

Manufacture of other small precision motors

 

 

 

 

 

 

 

Nidec Copal (Thailand) Co., Ltd.(1)

 

Thailand

 

39,771

 

Manufacture of electronic and optical components

 

 

 

 

 

 

 

Nidec-Shimpo (Zhejiang) Corporation(5)

 

China

 

39,287

 

Manufacture of machinery

 

 

 

 

 

 

 

Nidec Subic Philippines Corporation(2)

 

Philippines

 

38,750

 

Manufacture of spindle motors for hard disk drives

 

 

 

 

 

 

 

Nidec Minster Corporation(1)

 

United States

 

38,000

 

Manufacture of machinery

 

 

 

 

 

 

 

Nidec Sankyo Electronics (Shaoguan) Co., Ltd.(2)

 

China

 

38,000

 

Manufacture of other small precision motors

 

 

 

 

 

 

 

Nidec Vietnam Corporation(2)

 

Vietnam

 

36,314

 

Manufacture of other small precision motors

 

 

 

 

 

 

 

Nidec Motor Corporation
Mena, AR
(1)

 

United States

 

32,000

 

Manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Nidec Motors & Actuators (Germany) GmbH(1)

 

Germany

 

31,120

 

Manufacture of automotive products

 

 

 

 

 

 

 

Compania de Motores Domesticos, S.A. de C.V. (1)

 

Mexico

 

31,000

 

Manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Nidec Seimitsu Motor Technology (Dongguan) Co., Ltd.(4)

 

China

 

30,970

 

Development and manufacture of other small precision motors

 

 

 

 

 

 

 

Nidec Automobile Motor (Zhejiang) Corporation(4)

 

China

 

30,438

 

Manufacture of automotive products

 

 

 

 

 

 

 

FIR Electromeccanica S.r.l(5)

 

Italy

 

30,300

 

Development and manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Nidec Shibaura Electronics (Thailand) Co., Ltd.(1)

 

Thailand

 

28,476

 

Manufacture and sales of appliance, commercial and industrial products

 

 

 

 

 

 

 

Nidec Sankyo (Dongguan) Precision Corporation(4)

 

China

 

28,307

 

Manufacture of electronic and optical components

 

 

 

 

 

 

 

Nidec Motor Corporation
Paragould, AR
(1)

 

United States

 

28,000

 

Manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Nidec Sole Motor Corporation S.R.L.(1)

 

Italy

 

27,918

 

Development and manufacture of automotive products

 

 

 

 

 

 

 

Nidec Copal (Zhejiang) Co., Ltd.(5)

 

China

 

27,145

 

Manufacture of machinery and electronic and optical components

 

 

 

 

 

 

 

Nidec Tosok System Engineering (Zhejiang) Corporation(4)

 

China

 

26,480

 

Manufacture of automotive products

 

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Facility name

 

Location

 

Floor space
(square meters)

 

Principal products and function

Nidec Copal Electronics (Zhejiang) Co., Ltd.(5)

 

China

 

26,000

 

Manufacture of electronic and optical components

 

 

 

 

 

 

 

Nidec Sankyo Electronics (Dongguan) Corporation(4)

 

China

 

25,600

 

Manufacture of electronic and optical components

 

 

 

 

 

 

 

Motores U.S. de Mexico S.A. de C.V.(1)

 

Mexico

 

25,000

 

Manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

The Imperial Electric Company(5)

 

United States

 

23,300

 

Development and manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Higashifuji Shanghai Co., Ltd.(4)

 

China

 

22,895

 

Manufacture of automotive products

 

 

 

 

 

 

 

Nidec Seimitsu Vietnam Corporation(1)

 

Vietnam

 

22,291

 

Manufacture of other small precision motors

 

 

 

 

 

 

 

Nidec Component Technology (Suzhou) Co., Ltd.(1)

 

China

 

20,254

 

Manufacture of small precision motors

 

 

 

 

 

 

 

Emerson (China) Motor Co., Ltd.(4)

 

China

 

20,000

 

Manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Nidec Sole Motor Hungary K.F.T.(1)

 

Hungary

 

19,489

 

Manufacture of automotive products

 

 

 

 

 

 

 

Nidec (Shaoguan) Limited(4)

 

China

 

19,307

 

Manufacture of other small precision motors

 

 

 

 

 

 

 

PT. Higashifuji Indonesia(1)

 

Indonesia

 

18,005

 

Manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Nidec Servo Vietnam Corporation(2)

 

Vietnam

 

18,000

 

Manufacture of other small precision motors

 

 

 

 

 

 

 

Nidec Laminaciones de Acero SA de CV(1)

 

Mexico

 

17,600

 

Manufacture of appliance, commercial and industrial products

 

 

 

 

 

 

 

Nidec Kaiyu Auto Electric (Jiangsu) Co., Ltd.(4)

 

China

 

17,400

 

Manufacture of machinery

 

 

 

 

 

 

 

Nidec India Pte. Ltd(2)

 

India

 

15,413

 

Manufacture of automotive products

 

 

 

 

 

 

 

Nidec Tosok Precision Vietnam Co., Ltd.(2)

 

Vietnam

 

15,000

 

Manufacture of automotive products

 

 

Notes:

(1)         We own both the property and the facilities.

(2)         We lease the property and own the facilities.

(3)         Nidec Philippines Corporation leases the property from Nidec Development Philippines Corporation, a joint venture company with Prudential BK established for the purpose of purchasing land in the Philippines. We own the facilities.

(4)         We lease both the property and the facilities.

(5)         Facilities are partially owned and partially leased by us.

 

In addition to the above facilities, we have a number of other smaller factories located worldwide. In Japan, we also have sales and service offices which are located primarily in Tokyo, Nagoya, Osaka, Fukuoka and Kyoto.

 

As of March 31, 2016, the aggregate book value of the land and buildings we owned was ¥144 billion, and the aggregate book value of machinery and equipment we owned was ¥171 billion. In addition to the property we own, we lease other equipment used in our operations.

 

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For information on our plans for investments in manufacturing plants and facilities, see “—A. History and Development of the Company.” and “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”

 

Item 4A. Unresolved Staff Comments.

 

None.

 

Item 5. Operating and Financial Review and Prospects.

 

A. Operating Results.

 

You should read the following discussion of our financial condition and results of operations together with our audited consolidated financial statements and related notes and other information included elsewhere in this annual report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth in “Item 3.D. Key Information—Risk Factors” and elsewhere in this annual report.

 

Introduction

 

We are one of the leading global manufacturers of electric motors and related components and equipment, particularly in the global market for spindle motors for hard disk drives. We manufacture and sell spindle motors for hard disk drives and various other small precision brushless direct current electricity, or DC, motors, as well as electric motors for the automotive, appliance, commercial and industrial products markets through 25 subsidiaries in Japan and 200 subsidiaries in other countries, including China, the United States, Mexico, Thailand, Vietnam, Germany, Indonesia, Italy, the Philippines, Singapore, South Korea, Taiwan, France, Malaysia, Spain, the United Kingdom, Brazil, Canada, India, Cambodia, Colombia, Federated States of Micronesia, Hungary, Luxembourg, the Netherlands, Poland, Romania, Russia, Turkey, the United Arab Emirates and Venezuela, as of March 31, 2016.

 

Adoption of International Financial Reporting Standards (“IFRS”) and Voluntary Delisting of American Depositary Shares from the New York Stock Exchange (“NYSE”)

 

On April 11, 2016, we decided to adopt IFRS for our consolidated financial statements in lieu of the current U.S. GAAP following a resolution at a meeting of the Board of Directors on April 9, 2016 to further strengthen and improve the efficiency of our financial reporting. We plan to begin disclosing our consolidated financial statements according to IFRS from the first quarter of the fiscal year ending March 31, 2017.

 

On April 21, 2016, we filed a Form 25 with the SEC for the voluntary delisting of our American Depositary Shares from the NYSE and the related deregistration with the SEC. In addition, on May 2, 2016, we also filed a Form 15F with the SEC to terminate our reporting obligations under Exchange Act.

 

Our Recent Acquisition Activities

 

As discussed in “Item 4.A. Information on the CompanyHistory and Development of the Company,” we have sought growth by acquiring or investing in companies with motors, drives and other related products and technologies. Depending on the circumstances, we acquire a majority interest or a substantial minority interest in the target companies. Our approach has been to identify underperforming companies with advanced products and technologies. We have recently entered into the following transactions:

 

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·                  In May 2015, we acquired all of the voting rights in Motortecnica s.r.l., an Italian company, which consists of design, manufacturing, repair, maintenance and servicing of electrical rotating machinery for ¥1,897 million in cash in order to strengthen our service business and expand in the generators market.

 

·                  In June 2015, we additionally acquired a certain amount of the voting rights in Sejin Electron (Hong Kong) Co., Limited, a Chinese company, which consists of manufacture and marketing of automotive parts and appliance motors for ¥424 million in cash in order to strengthen our manufacturing capacity and expand in the automotive and appliance market.

 

·                  In July 2015, we acquired the switched reluctance (SR) motor and drive business of China Tex Mechanical & Electrical Engineering Ltd., a Chinese company, which consists of design, development, manufacture and marketing of SR motors and drives for ¥407 million in cash in order to start manufacturing and developing SR motors and drives in China.

 

·                  In August 2015, we acquired all of the voting rights in Arisa, S.A., a Spanish company, which consists of development, manufacturing, sales and aftermarket services of large-sized servo press machines for ¥3,878 million in cash in order to effectively supplement our overall press machine business and enhance our brand exposure to the European automotive industry.

 

·                  In August 2015, we acquired all of the voting rights in KB Electronics, Inc., a U.S. company, which consists of design, manufacture and sales of AC and DC electric motor drives and controls for ¥3,672 million in cash in order to add KB drives and controls into our product portfolio and expand our ability to provide packaged solutions to customers.

 

·                  In September 2015, we acquired the business of E.M.G. Elettromeccanica S.r.l., an Italian company, which consists of development, production and sales of motors for commercial facilities for ¥931 million in cash in order to draw on its core strengths and gain a strong foothold in the world market for commercial and residential solutions.

 

·                  On September 2015, we acquired all of the voting rights in PT. NAGATA OPTO INDONESIA, an Indonesian company, which consists of processing of glass lenses for ¥212 million in cash in order to grow our automotive lens unit business.

 

For more information, see Note 3 to our audited consolidated financial statements included elsewhere in this annual report, “Item 3.D. Key InformationRisk FactorsOur growth has been based in part on acquisitions of, or investments in, other companies, and our future growth could be adversely affected if we make acquisitions or investments that fail to achieve their intended benefits, or if we are unable to find suitable acquisition or investment targets” and “Item 4.A. Information on the Company—History and Development of the Company.”

 

Effects of Changes in the Business Environment and Our Business Portfolio Transformation Strategy

 

Historically, our business relied heavily on demand for brushless DC motors for the IT industry, primarily hard disk drives spindle motors for which we continue to enjoy the world’s largest market share. However, due to the emergence of SSDs as an alternative device to HDDs in the 2000s and the proliferation beginning around 2010 of multifunctional mobile devices, such as smartphones and tablets, that utilize cloud-based data storage, demand for our products from the hard disk drive market has been stagnant during the past several years, and we do not anticipate significant improvements going forward. Based on the foregoing, in the year ended March 31, 2011 we announced our business portfolio transformation strategy, which is a shift in our business focus from the IT market to the automotive, appliance, commercial and industrial markets. See “Item 4.A. Information on the Company—History and Development of the Company.” Our results of operations in recent years reflect this strategy, and the percentage of net sales that is attributable to hard disk drives spindle motors and other small precision motors has been decreasing while net sales attributable to automotive, appliance, commercial and industrial products has been increasing.

 

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Effects of Foreign Currency Fluctuations

 

A significant portion of our business is conducted in currencies other than the yen, most significantly, the U.S. dollar. Our business is thus sensitive to fluctuations in foreign currency exchange rates, especially the yen-U.S. dollar exchange rate. As of March 31, 2014, 2015 and 2016, the exchange rate of the yen against the U.S. dollar was ¥102.92, ¥120.17 and ¥112.68 to the U.S. dollar, respectively. As of June 3, 2016, the yen-U.S. dollar exchange rate was ¥108.91 to the U.S. dollar.

 

Our consolidated financial statements are subject to both translation risk and transaction risk. Translation risk is the risk that our consolidated financial statements for a particular period or for a particular date are affected by changes in the prevailing exchange rates of the currencies in those countries in which we conduct business against the yen. The translation effect, even if it is substantial, is a reporting consideration and does not reflect our underlying results of operations.

 

Transaction risk arises when the currency structure of our costs and liabilities deviates from the currency structure of our sales proceeds and assets. A substantial portion of our overseas sales are made in U.S. dollars. While sales denominated in U.S. dollars are, to a significant extent, offset by U.S. dollar denominated costs, we generally have had a significant net long U.S. dollar position. With respect to costs not denominated in U.S. dollars, we believe that we have been able to reduce the level of transaction risk to the extent that our overseas subsidiaries incur costs in currencies that generally follow the U.S. dollar. Transaction risk remains for products sold in U.S. dollars to the extent that we must purchase parts for our products from Japan, the costs for which are denominated in yen.

 

Any future depreciation of the yen against the U.S. dollar and Euro is generally expected to have a positive impact on our results of operations and financial condition although the impact may be limited due to various factors. Such factors include an increase in costs and expenses incurred in U.S. dollars or Euro, as well as the recent shift in our financing strategy from short-term borrowings to long-term debt denominated in U.S. dollars, Euro and yen, as a result of which we may be more susceptible to market changes, including interest rate fluctuations. Conversely, any appreciation of the yen particularly against the U.S. dollar and Euro generally has an adverse impact on our results of operations and financial condition, particularly our net sales and income from continuing operations before income taxes as well as our shareholders’ equity, as we have a substantial amount of sales of products and purchases of inventory denominated in these foreign currencies, and we have expanded, and continue to seek opportunities to expand, our overseas operations.

 

Because of various subsidiary operations outside of Japan, we are also exposed to the risk of fluctuations in the Mexican peso and the Thai baht.

 

Changes in the fair values of our foreign currency forward contracts and changes in option prices under our currency option contracts are recognized as gains or losses on derivative instruments in our consolidated statement of income. For a more detailed discussion of these instruments, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk.” and Note 19 to our audited consolidated financial statements included elsewhere in this annual report.

 

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Other Recent Developments

 

Two-for-One Stock Split

 

Effective April 1, 2014, we implemented a two-for-one stock split of our common stock. The stock split did not result in any change in the ratio of shares of our common stock per ADS, which has remained unchanged at one-fourth of one share of our common stock per ADS.

 

Issuance of Straight Bonds

 

In December 2013, we issued ¥50.0 billion aggregate principal amount of corporate bonds due 2016. The net proceeds from the issuance of the bonds were primarily used to repay short-term borrowings. These bonds were issued pursuant to a shelf registration statement we filed with the Director General of the Kanto Local Finance Bureau of the Ministry of Finance of Japan in March 2012 for the issuance from time to time of up to ¥200 billion aggregate principal amount of bonds in Japan between April 5, 2012 and April 4, 2014.

 

In March 2014, we filed a shelf registration statement with the Director General of the Kanto Local Finance Bureau of the Ministry of Finance of Japan for the issuance from time to time of up to ¥200 billion aggregate principal amount of bonds in Japan between April 5, 2014 and April 4, 2016. The shelf registration was intended to further enhance our flexibility and agility in obtaining funding from the capital markets as an alternative source of funding in addition to financing through financial institutions and other sources and, through the further diversification of funding sources, improve our financial stability. We plan to use the net proceeds from any future issuances of such bonds for equipment and machinery, investments, repayment and redemption of short-term borrowings, bonds and other long-term debt, and general corporate purposes, including working capital and other operating expenses.

 

For further information, see Note 11 to our audited consolidated financial statements included elsewhere in this annual report.

 

Partial Early Redemption of Convertible Bonds

 

On September 20, 2013, the early redemption right attached to the aggregate principal amount of ¥100,000 million of euro yen convertible bonds due 2015, which we issued in September 2010, expired. Prior to the expiration of the early redemption right, holders of approximately ¥4,250 million aggregate principal amount of such convertible bonds exercised their right to redeem the bonds at 100% of their principal amount. As of March 31, 2015, the conversion price per share was ¥5,313, and the aggregate number of shares of our common stock into which the outstanding bonds would be converted, assuming that all of the outstanding stock acquisition rights were exercised, was 4,036,325.

 

For further information, see Note 11 to our audited consolidated financial statements included elsewhere in this annual report.

 

Principal Items in Our Statement of Operations

 

Net Sales

 

Net sales are determined by the prices and sales volumes of our products. Our product pricing varies depending on the type of product, the sales contracts we negotiate with our customers, market conditions in the markets for our products, as well as the markets for the end products that use our products. The sales contracts for our core products are highly negotiated and reflect general market supply and demand as well as with our relationships with particular customers and various other factors. The price at which we can sell our goods is also affected by the level of competition we face in each market. Our core products are subject to pricing pressure from our customers, which may affect our ability to maintain and improve our margins.

 

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Table of Contents

 

Our motor products are primarily used in two groups of industries: in the information technology (IT) industry for hard disk drives (HDD) and optical disk drives used in personal computers, servers and consumer electronics, and in the automotive, appliance, industrial, machinery and optical industries for various products used in automobiles, air-conditioning systems, commercial elevators and escalators, and industrial automation systems. We sell our products to higher-tier suppliers and original design manufacturer (ODM) and original equipment manufacturer (OEM) customers in multiple products markets. As such, our sales volume is dependent upon the global demand for the end products that use our products. Worldwide demand for such products is generally sensitive to the state of the global economy, and especially for products used in consumer-facing applications, the level of household incomes.

 

Maximum sales volume is dependent on our total production capacity, including the number, size and output capability of production facilities available to us. We are planning to renew production-line equipment in our Asian factories for spindle motors and motors for automotive, appliances, commercial and industrial products to streamline production in a manner that meets customer and end market needs.

 

Operating Expenses

 

Cost of products sold

 

Due to the investments in manufacturing equipment and facilities required for producing our products and the relatively low cost of raw materials and other variable costs, an increase in net sales within existing production capacity limits during a given period will, all else being equal, generally result in a lower percentage increase in cost of sales and an improvement in operating margin. Conversely, a decrease in net sales will, all else being equal, generally result in a lower percentage decrease in cost of sales and a decline in operating margin.

 

Our cost of sales, including both fixed costs and variable costs, during the fiscal years ended March 31, 2015 and March 31, 2016, consisted principally of:

 

·                  costs of materials and parts;

 

·                  personnel costs;

 

·                  depreciation and amortization;

 

·                  electricity and facility maintenance expenses; and

 

·                  manufacturing expenses.

 

Selling, general and administrative expenses

 

Our selling, general and administrative expenses consist primarily of salaries, commissions, and other expenses relating to our selling, general and administrative activities.

 

Research and development expenses

 

Research and development expenses primarily relate to personnel costs and depreciation of equipment relating to our research and development activities. For more information, see “—C. Research and Development, Patents and Licenses, etc.”

 

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Table of Contents

 

Results of Operations

 

The following table sets forth selected information relating to our income and expense items for each of the three years ended March 31, 2016:

 

 

 

Yen in millions

 

 

 

For the year ended
March 31,

 

 

 

2014

 

2015

 

2016

 

Net sales

 

¥

875,109

 

¥

1,028,385

 

¥

1,178,290

 

Operating expenses:

 

 

 

 

 

 

 

Cost of products sold

 

674,903

 

786,486

 

908,311

 

Selling, general and administrative expenses

 

77,534

 

85,781

 

93,463

 

Research and development expenses

 

37,808

 

45,179

 

51,978

 

 

 

790,245

 

917,446

 

1,053,752

 

Operating income

 

84,864

 

110,939

 

124,538

 

Other income (expense):

 

 

 

 

 

 

 

Interest and dividend income

 

2,376

 

2,359

 

1,913

 

Interest expense

 

(1,526

)

(1,487

)

(2,228

)

Foreign exchange (loss) gain, net

 

(56

)

804

 

(153

)

Gain on marketable securities, net

 

245

 

70

 

946

 

Other, net

 

(1,443

)

(5,593

)

(5,688

)

 

 

(404

)

(3,847

)

(5,210

)

Income before income taxes

 

84,460

 

107,092

 

119,328

 

Income taxes

 

(25,658

)

(29,033

)

(26,466

)

Equity in net (loss) income of affiliated companies

 

(25

)

29

 

1

 

Consolidated net income

 

58,777

 

78,088

 

92,863

 

Less: Net income attributable to noncontrolling interests

 

(2,505

)

(2,073

)

(1,053

)

Net income attributable to Nidec Corporation

 

¥

56,272

 

¥

76,015

 

¥

91,810

 

 

 

 

 

 

 

 

 

 

 

Yen

 

Per share data:(1)

 

 

 

 

 

 

 

Net income attributable to Nidec Corporation:

 

 

 

 

 

 

 

Basic

 

¥

206.82

 

¥

271.61

 

¥

309.32

 

Diluted

 

193.50

 

256.05

 

308.19

 

Cash dividends paid

 

42.50

 

57.50

 

80.00

 

 

 

Note:

(1) Effective April 1, 2014, we implemented a two-for-one stock split of our common stock. All prior per share amounts in this table have been retroactively adjusted to reflect the effect of the stock split.

 

Pursuant to ASC 805 “Business Combinations,” previous year’s consolidated financial statements have been retrospectively adjusted to reflect the valuation of the fair values of the assets acquired and the liabilities assumed upon the acquisitions of Geräte- und Pumpenbau GmbH Dr. Eugen Schmidt (currently, Nidec GPM GmbH) in the fiscal year ended March 31, 2015. Nidec completed its valuation of such assets and liabilities of Nidec GPM GmbH during the three months ended September 30, 2015. The effect of the adjustments for each consolidated financial statement is disclosed in note 3 of our consolidated financial statements included elsewhere in this report.

 

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Year Ended March 31, 2016 Compared to Year Ended March 31, 2015

 

Net Sales

 

The following table is a summary of our net sales for the years ended March 31, 2015 and 2016 by product category. For a detailed discussion of our product categories, see “Item 4.B. Information on the Company—Business Overview.”

 

 

 

Yen in millions

 

 

 

 

 

For the year ended March 31,

 

 

 

 

 

2015

 

2016

 

Inc/Dec

 

%

 

Net sales:

 

 

 

 

 

 

 

 

 

Small precision motors:

 

 

 

 

 

 

 

 

 

Hard disk drives spindle motors

 

¥

204,141

 

¥

207,974

 

¥

3,833

 

1.9

%

Other small precision motors

 

193,858

 

240,014

 

46,156

 

23.8

%

Sub-total

 

397,999

 

447,988

 

49,989

 

12.6

%

Automotive, appliance, commercial and industrial products

 

460,007

 

554,713

 

94,706

 

20.6

%

Machinery

 

98,800

 

106,462

 

7,662

 

7.8

%

Electronic and optical components

 

65,050

 

64,112

 

(938

)

(1.4

)%

Others

 

6,529

 

5,015

 

(1,514

)

(23.2

)%

Consolidated total

 

¥

1,028,385

 

¥

1,178,290

 

¥

149,905

 

14.6

%

 

Our net sales increased ¥149,905 million, or 14.6%, from ¥1,028,385 million for the year ended March 31, 2015 to ¥1,178,290 million for the year ended March 31, 2016. This increase was due to the net sales at newly consolidated subsidiaries (the “Newly Consolidated Subsidiaries”), and the positive effects of the fluctuations of the foreign currency exchange rates as described below. The Newly Consolidated Subsidiaries consist of:

 

·                      Nidec GPM GmbH and its subsidiaries (“Nidec GPM”), a German manufacturer of pumps and modules for passenger cars and commercial vehicles, which we acquired in February 2015.

 

Excluding the impact of the contributions of the Newly Consolidated Subsidiaries, our net sales increased ¥105,053 million, or 10.2%, from ¥1,025,118 million for the year ended March 31, 2015 to ¥1,130,171 million for the year ended March 31, 2016.

 

The average exchange rate between the Japanese yen and the U.S. dollar for the year ended March 31, 2016 was ¥120.14 to the dollar, which represented a depreciation of the Japanese yen against the U.S. dollar of approximately 9% compared to the year ended March 31, 2015. The average exchange rate between the Japanese yen and the Euro for the year ended March 31, 2016 was ¥132.58 to the Euro, which represented an appreciation of the Japanese yen against the Euro of approximately 4% compared to the year ended March 31, 2015. The fluctuations of the foreign currency exchange rates had a positive effect on our net sales of approximately ¥62,100 million for the year ended March 31, 2016 compared to the year ended March 31, 2015.

 

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(Small precision motors)

 

Net sales of small precision motors increased ¥49,989 million, or 12.6%, from ¥397,999 million for the year ended March 31, 2015 to ¥447,988 million for the year ended March 31, 2016. The fluctuations of the foreign currency exchange rates had a positive effect on our net sales of small precision motors of approximately ¥34,200 million for the year ended March 31, 2016 compared to the year ended March 31, 2015. Net sales of each product category included in “small precision motors” are as discussed below.

 

Hard disk drives spindle motors

 

Net sales of hard disk drives spindle motors increased ¥3,833 million, or 1.9%, from ¥204,141 million for the year ended March 31, 2015 to ¥207,974 million for the year ended March 31, 2016. The increase in net sales of hard disk drives spindle motors was attributable to the positive effects of the fluctuations of the foreign currency exchange rates. The number of units sold of small precision motors for hard disk drives for the year ended March 31, 2016 decreased approximately 10% compared to the year ended March 31, 2015. The decline in unit sales reflects the continuing decline of the hard disk drive market.

 

Net sales of hard disk drives spindle motors accounted for 19.8% of total net sales for the year ended March 31, 2015 and 17.7% of total net sales for the year ended March 31, 2016.

 

Other small precision motors

 

Net sales of other small precision motors increased ¥46,156 million, or 23.8%, from ¥193,858 million for the year ended March 31, 2015 to ¥240,014 million for the year ended March 31, 2016. This increase was mainly due to increases in sales of fan motors and other small motors.

 

Net sales of other small precision motors accounted for 18.9% of total net sales for the year ended March 31, 2015 and 20.4% of total net sales for the year ended March 31, 2016.

 

(Automotive, appliance, commercial and industrial products)

 

Net sales of our automotive, appliance, commercial and industrial products increased ¥94,706 million, or 20.6%, from ¥460,007 million for the year ended March 31, 2015 to ¥554,713 million for the year ended March 31, 2016. The fluctuations of the foreign currency exchange rates had a positive effect on net sales of automotive, appliance, commercial and industrial products of approximately ¥20,900 million for the year ended March 31, 2016 compared to the year ended March 31, 2015.

 

Net sales of appliance, commercial and industrial products increased ¥20,377 million, or 7.7%, from ¥263,005 million for the year ended March 31, 2015 to ¥283,382 million for the year ended March 31, 2016. This increase was primarily due to the increase in sales through our “Three-new Strategy” (new products, new markets and new clients) and the positive effect of the foreign currency exchange rate fluctuations.

 

Net sales of automotive products increased ¥74,329 million, or 37.7%, from ¥197,002 million for the year ended March 31, 2015 to ¥271,331 million for the year ended March 31, 2016. This was primarily due to the contribution of the Newly Consolidated Subsidiaries as well as the positive effect of the foreign currency exchange rate fluctuations, in addition to the increase in sales for automotive motors such as electric power steering motors and products relating to advanced driver assistance systems at the Nidec Elesys group.

 

Net sales of our automotive, appliance, commercial and industrial products accounted for 44.8% of our total net sales for the year ended March 31, 2015 and 47.1% of total net sales for the year ended March 31, 2016.

 

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(Machinery)

 

Net sales of our machinery increased ¥7,662 million, or 7.8%, from ¥98,800 million for the year ended March 31, 2015 to ¥106,462 million for the year ended March 31, 2016. The increase was mainly due to increases in sales of LCD panel handling robots and card readers at the Nidec Sankyo group.

 

Net sales of our machinery accounted for 9.6% of our total net sales for the year ended March 31, 2015 and 9.0% of total net sales for the year ended March 31, 2016.

 

(Electronic and optical components)

 

Net sales of our electronic and optical components decreased ¥938 million, or 1.4%, from ¥65,050 million for the year ended March 31, 2015 to ¥64,112 million for the year ended March 31, 2016. This decrease was primarily attributable to a decrease in sales of components for digital cameras.

 

Net sales of electronic and optical components accounted for 6.3% of our total net sales for the year ended March 31, 2015 and 5.4% of total net sales for the year ended March 31, 2016.

 

(Others)

 

Net sales of our other products decreased ¥1,514 million, or 23.2%, from ¥6,529 million for the year ended March 31, 2015 to ¥5,015 million for the year ended March 31, 2016.

 

Net sales of other products accounted for 0.6% of total net sales for the year ended March 31, 2015 and 0.4% of total net sales for the year ended March 31, 2016.

 

Cost of Products Sold

 

Our cost of products sold increased ¥121,825 million, or 15.5%, from ¥786,486 million for the year ended March 31, 2015 to ¥908,311 million for the year ended March 31, 2016. Excluding the impact of the Newly Consolidated Subsidiaries, our cost of products sold increased ¥84,170 million, or 10.7%, from ¥783,451 million for the year ended March 31, 2015 to ¥867,621 million for the year ended March 31, 2016. This increase was mainly due to the impact of the depreciation of the Japanese yen against other currencies and the overall increase in sales.

 

As a percentage of net sales, our cost of products sold increased from 76.5% for the year ended March 31, 2015 to 77.1% for the year ended March 31, 2016. Excluding the impact of the Newly Consolidated Subsidiaries, as a percentage of net sales, cost of products sold increased from 76.4% for the year ended March 31, 2015 to 76.8% for the year ended March 31, 2016.

 

Selling, General and Administrative Expenses

 

Our selling, general and administrative expenses increased ¥7,682 million, or 9.0%, from ¥85,781 million for the year ended March 31, 2015 to ¥93,463 million for the year ended March 31, 2016. Excluding the impact of the Newly Consolidated Subsidiaries, our selling, general and administrative expenses increased ¥5,350 million, or 6.2%, from ¥85,621 million for the year ended March 31, 2015 to ¥90,971 million for the year ended March 31, 2016. This increase was mainly due to the depreciation of the Japanese yen against other currencies and higher personnel expenses.

 

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As a percentage of net sales, selling, general and administrative expenses decreased from 8.3% for the year ended March 31, 2015 to 7.9% for the year ended March 31, 2016. Excluding the impact of the Newly Consolidated Subsidiaries, as a percentage of net sales, our selling, general and administrative expenses decreased from 8.4% for the year ended March 31, 2015 to 8.0% for the year ended March 31, 2016.

 

Research and Development Expenses

 

Our research and development expenses increased ¥6,799 million, or 15.0%, from ¥45,179 million for the year ended March 31, 2015 to ¥51,978 million for the year ended March 31, 2016. Excluding the impact of the Newly Consolidated Subsidiaries, our research and development expenses increased ¥5,482 million, or 12.2%, from ¥45,087 million for the year ended March 31, 2015 to ¥50,569 million for the year ended March 31, 2016. This increase was mainly due to our increased spending in research and development activities relating to products in the small precision motors category and automotive, appliance, commercial and industrial products category.

 

For further information on our research and development expenses, including a discussion on an operating segment basis, see “—C. Research and Development, Patents and Licenses, etc.”

 

As a percentage of net sales, both of research and development expenses for the year ended March 31, 2015 and 2016, were 4.4%. Excluding the impact of the Newly Consolidated Subsidiaries, as a percentage of net sales, our research and development expenses increased from 4.4% for the year ended March 31, 2015 to 4.5% for the year ended March 31, 2016.

 

Operating Income

 

As a result of the foregoing, our operating income increased ¥13,599 million from ¥110,939 million for the year ended March 31, 2015 to ¥124,538 million for the year ended March 31, 2016.

 

As a percentage of net sales, operating income decreased from 10.8% for the year ended March 31, 2015 to 10.6% for the year ended March 31, 2016.

 

Other Income (Expense)

 

Our other expenses increased ¥1,363 million from ¥3,847 million for the year ended March 31, 2015 to ¥5,210 million for the year ended March 31, 2016. Excluding the impact of the Newly Consolidated Subsidiaries, our other expenses increased ¥1,102 million from ¥3,849 million for the year ended March 31, 2015 to ¥4,951 million for the year ended March 31, 2016. This increase was mainly due to an increase in interest expense and a decrease in foreign exchange gain, despite an increase in gain from marketable securities.

 

We recorded net foreign exchange loss of ¥153 million for the year ended March 31, 2016, compared to net foreign exchange gain of ¥804 million for the year ended March 31, 2015. Excluding the impact of the Newly Consolidated Subsidiaries, our foreign exchange gain decreased ¥657 million from ¥804 million for the year ended March 31, 2015 to ¥147 million for the year ended March 31, 2016. This decrease was mainly due to the negative impact of depreciation in the value of Japanese yen against the U.S. dollar, despite the positive impact of the depreciation in the value of the Thai baht against the U.S. dollar.

 

The following table sets forth the exchange rates between the Japanese yen and the U.S. dollar, between the Japanese yen and the Euro and between the Japanese yen and the Thai baht as of the dates indicated:

 

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Currency

 

March 31,
2014

 

March
31, 2015

 

Fluctuation
from March
31, 2014 to
March 31,
2015

 

March
31, 2016

 

Fluctuation
from March
31, 2015 to
March 31,
2016

 

U.S. Dollar ($1.00)

 

¥

102.92

 

¥

120.17

 

¥

17.25

 

¥

112.68

 

¥

(7.49

)

Euro (€1.00)

 

¥

141.65

 

¥

130.32

 

¥

(11.33

)

¥

127.70

 

¥

(2.62

)

Thai baht (฿1.00)

 

¥

3.17

 

¥

3.70

 

¥

0.53

 

¥

3.19

 

¥

(0.51

)

 

Income before Income Taxes

 

As a result of the foregoing, our income before income taxes increased ¥12,236 million from ¥107,092 million for the year ended March 31, 2015 to ¥119,328 million for the year ended March 31, 2016.

 

As a percentage of net sales, our income before income taxes decreased from 10.4% for the year ended March 31, 2015 to 10.1% for the year ended March 31, 2016.

 

Income Taxes

 

Our income taxes decreased ¥2,567 million from ¥29,033 million for the year ended March 31, 2015 to ¥26,466 million for the year ended March 31, 2016. This decrease was primarily due to the decrease in the effective income tax rate.

 

The effective income tax rate decreased approximately 4.9 percentage points from 27.1% for the year ended March 31, 2015 to 22.2% for the year ended March 31, 2016.

 

For more information, see Note 16 to our audited consolidated financial statements included elsewhere in this annual report.

 

Equity in Net (Loss) Income of Affiliated Companies

 

Equity in net income of affiliated companies decreased ¥28 million from ¥29 million for the year ended March 31, 2015 to ¥1 million for the year ended March 31, 2016.

 

Consolidated Net Income

 

As a result of the foregoing, our consolidated net income increased ¥14,775 million from ¥78,088 million for the year ended March 31, 2015 to ¥92,863 million for the year ended March 31, 2016.

 

Net Income Attributable to Noncontrolling Interests

 

Our net income attributable to noncontrolling interests decreased ¥1,020 million, or 49.2%, from ¥2,073 million for the year ended March 31, 2015 to ¥1,053 million for the year ended March 31, 2016. This decrease primarily resulted from the share exchange transactions through which we made certain consolidated subsidiaries our wholly owned subsidiaries. Specifically, in October 2014, we made Nidec Copal Electronics Corporation and Nidec-Read Corporation wholly owned subsidiaries.

 

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Net Income Attributable to Nidec Corporation

 

As a result of the foregoing, our net income attributable to Nidec Corporation increased ¥15,795 million from ¥76,015 million for the year ended March 31, 2015 to ¥91,810 million for the year ended March 31, 2016.

 

As a percentage of net sales, our net income attributable to Nidec Corporation increased from 7.4% for the year ended March 31, 2015 to 7.8% for the year ended March 31, 2016.

 

Year Ended March 31, 2015 Compared to Year Ended March 31, 2014