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Q&A of Financial Results for the Year Ended March 31, 2014

The following includes questions and answers at the conference for the financial results for the Year Ended March 31, 2014.

Precision Equipment Business

Q:What can you tell us about the results in the fiscal year ended March 2014?

Compared to our forecast in February 2014, we shipped one FPD lithography system earlier than planned, while the booking of sales of four ArF immersion scanners was carried over to the year ending March 2015, resulting in the non-attainment of 9.6 billion yen in net sales. On the other hand, our operating income turned out to be 1 billion yen higher than expected as the result of progress in cost cuts, service income improvement, reductions in operating expenses, etc.

Q:What is your forecast for the fiscal year ending March 2015?

As for FPD lithography systems, capital investment in the production of small to medium-sized high-definition panels has been completed, and because the market is expected down by around 25% year-on-year, sales of our systems for the 5th and 6th generations are expected to drop by 31 units compared to last fiscal year. However, sales of systems for the 7th generation and beyond for large-screen televisions are expected to increase of 13 units.
The market for Semiconductor lithography systems is expected to expand by around 10% year-on-year, and sales of our ArF immersion scanners are also expected to grow massively. We will continue thorough cost cuts, while making progress in evaluating our state-of-the-art "NSR-S630D," and simultaneously cultivating new customers to give a major improvement in our operating income.

Imaging Products Business

Q:What can you tell us about the warranty reserve for the D600?

With regard to the issue of the D600 digital SLR camera that we announced on March 28th, 2014, we allocated 1.8 billion yen for warranty reserve in the year ended March 2014 to cover the cost of repairs and replacements. We are taking this matter very seriously, and we will continue to offer users of the D600 a special service and , while we will be taking steps to restore confidence in the Nikon brand.

Q:What can you tell us about the inventory level?

We have no concerns for the level of our inventory on hand. Regarding the amount of channel inventory, we have somewhat of a surplus at the moment due to the downturn in market conditions, but it is approaching proper levels compared to the situation at the end of December, 2013.

Instruments Business

Q:What can you tell us about going into the black in the fiscal year ending March 2015?

We expect a return to profitability in the fiscal year ending March 2015 with a growth in sales. Both the bioscience and the industrial instruments fields have faced difficult times over the last several years, and this was combined with the negative influence of the foreign exchange market.
We will aggressively develop the Asian and Chinese markets in the bioscience field, and market conditions in the industrial instruments field have improved since the latter half of the fiscal 2014, which helps our sales of non-contact 3D metrology systems and X-ray inspection systems expand further. This means the prospects of this fiscal year are looking positive for the achievement of our profit targets.


Q:What can you tell us about cost cuts?

The Management Measures Committee set up from August 2013 to the end of March 2014 achieved cost cuts in procurement and implemented operational cost cuts in mainly advertising and logistics in the imaging products business. This was combined with corporate-wide efforts to streamline spending on research and development, among other initiatives, enabling the achievement of a total cost cut in excess of our 20 billion yen target.
We plan to implement cost cuts even at the designing stage this fiscal year, and because we can expect cuts in operational costs to remain effective throughout the year, we are projecting total savings of more than 10 billion yen.

Q:What can you tell us about the cultivation of a new business in the health and medical field?

We formed a capital and business alliance with JEOL Ltd. in February 2014. Furthermore, in May we entered into a basic alliance agreement regarding business in the areas of health and medical care with LSI Medience Corporation, a company which operates a testing and analyzing business as a group company of Mitsubishi Chemical Holdings.
Steady progress is being made in laying down the groundwork for cultivating a business in the health and medical care field. Moving forward we will continue active engagement in this area while forging ahead with the forming of business alliances and execution of M&As.

Q:What can you tell us about the changes made to the depreciation and amortization methods?

The entire Nikon Group will adopt the straight-line basis in depreciation and amortization of tangible fixed assets, starting in the fiscal year ending March 2015.
In consideration of the recent utilization review of tangible fixed assets, the globalization of production systems, and the promoting a designing platform and so on, we have decided to switch the method of depreciation and amortization we take to the more appropriate straight-line basis.
Furthermore, this alternation will anticipate a decrease of 4.0 billion yen at the depreciation and amortization in the fiscal year ending March 2015.