NIKON REPORT 2018 Year Ended March 31, 2018 Unlock the future with the power of light Unleashing the limitless possibilities of light. Striving to brighten the human experience. Focused, with purpose, on a better future for all. THIS IS THE ESSENCE OF NIKON. Creation of New Value by Unlocking the Future with the Power of Light Throughout a century since its founding, Nikon has continued to win customer trust by contributing to the development of society with products and solutions based on its core opto-electronics and precision technologies. The technologies, the human resources, and the brand cultivated through this process have become reliable strengths supporting Nikon today. After completing the restructuring that began in November 2016, it will be crucial to further hone these strengths and fulfill our role as the “new eyes for people and industry” in order to create new value and support our growth strategies. Our vision formulated in 2017 will guide us in fostering corporate culture in which each employee is encouraged to think about what is necessary in order to accomplish growth and to tackle the challenges this introspection reveals. With this culture, everyone at Nikon will unite in our quest to consistently create corporate value. Nikon Report 2018 puts a spotlight on the value we have provided thus far and the strengths cultivated over the years. Moreover, the report seeks to communicate the basis for the growth strategies to be implemented after the completion of the restructuring and the tasks that will need to be addressed in order to effectively implement those strategies. We kindly ask all of our stakeholders, including shareholders and investors, to read this report. Our Philosophy Trustworthiness and Creativity Our corporate philosophy is “Trustworthiness and Creativity.” These are simple words, but they are not easily put into practice. These important words represent unchanging principles to which we will always be dedicated. Our Vision Unlock the future with the power of light Unleashing the limitless possibilities of light. Striving to brighten the human experience. Focused, with purpose, on a better future for all. THIS IS THE ESSENCE OF NIKON. Our Qualities of Mind Curiosity We show our passion for progress through a wide range of interests to cultivate fresh ideas. Acceptance We warmly embrace diverse ideas and delight in differences among people and cultures. Inspirational Power We share our ideas with infectious enthusiasm to effect positive change in the world. CONTENTS INTRODUCTION CORPORATE GOVERNANCE 2 Cover Story 36 Directors and Officers 38 Corporate Governance BUSINESS STRATEGY 42 Interview with an External Director 6 Management Message 7 To Our Stakeholders 12 Interview with the CFO 14 Restructuring 16 Strengths of the Nikon Group 16 Technologies 19 Human Resources 20 Brand SUSTAINABILITY 44 Strengthening of Management Resources Underpinning Growth Strategies SPECIAL FEATURE 22 Business Portfolio–Path of Transformation FINANCIAL AND CORPORATE DATA 48 Management’s Discussion and Analysis 52 Financial Information BUSINESS PERFORMANCE 106 Independent Auditor’s Report 24 Performance Highlights 107 Organization of the Nikon Group 28 Nikon’s Business Structure 108 Corporate Data / Investor Information 30 Overview of Divisions and Business Units 109 For Additional Sustainability Information 30 Corporate Strategy Division Independent Practitioner’s Assurance of 31 Imaging Business Unit Environmental-Related Data 32 FPD Lithography Business Unit 33 Semiconductor Lithography Business Unit 34 Healthcare Business Unit 35 Industrial Metrology Business Unit Statements contained in this report regarding the plans, projections, and strategies of Nikon Corporation and its subsidiaries and affiliates that comprise the Nikon Group that are not historical fact constitute forward-looking statements about future financial results. As such, they are based on data that is obtainable at the time of announcement in compliance with the Nikon Group’s management policies and certain premises that are deemed reasonable by the Nikon Group. Hence, actual results may differ, in some cases significantly, from these forward-looking statements due to changes in various factors, including—but not limited to—economic conditions in principal markets, prod- uct and service demand trends, customer capital expenditure trends, and currency exchange rate fluctuations. This report covers the activities of domestic and overseas Nikon Group companies, centered on Nikon Corporation. In principle, the terms “the Company,” “Nikon Corporation,” and “Nikon” refer to Nikon Corporation, while “the Group” and “the Nikon Group” refer to Nikon Corporation and its Group companies. As for the numerical values relating to the financial content of this report, figures displayed in hundred millions of yen are truncated, and figures displayed in millions of yen are rounded to the nearest unit. NIKON REPORT 2018 1 Cover Story Four Values Provided by Nikon Four Values Provided by Nikon Contributions as “Eyes” for People and Industry Ever since its establishment in 1917, Nikon has been focusing on light and expanding the possibilities of light as a pioneer of optical “Eyes” for Capturing technologies to the world. Moments, Truths, and By leveraging the technologies it has 1 Emotions cultivated thus far, Nikon will continue to function as the “eyes” that help From historic events to everyday life, photographs are used to record our precious moments. They can help us enrich people and industry while share joy and wonder, and sometimes sadness and anger, providing new value for the future. beyond the bounds of time and space and have the power to better our lives and the world. Nikon will contribute to the development of image cultures on into the future. Support for Capturing Images around the World Provided by High-Quality Lenses Aggregate total production volume of NIKKOR lenses for interchangeable lens cameras Over 109 million* * Interchangeable lenses for Nikon SLR cameras and Nikon 1, Advanced Camera with Interchangeable Lenses (as of July 31, 2018) Cultivation of Photography Culture through International Photography Contests Aggregate number of entries submitted to the Nikon Photo Contest over 1,620,000 photographic works submitted by more than 410,000 photographers* * Aggregate total for Nikon Photo Contest 2016–2017 2 NIKON REPORT 2018 Cover Story Four Values Provided by Nikon “Eyes” for Creating a Society 2 in Which People and Objects Are Interconnected The Power of High-Resolution Images at Home or in Your Hand The evolution of IT is bringing about massive Aggregate deliveries of FPD lithography systems used to changes to our lifestyles. We can receive informa- manufacture high-definition LCD panels and organic tion from around the world through the Internet, light-emitting diode (OLED) panels for flat-screen TVs, while big data, AI, and other technologies are trans- smartphones, and tablets forming how we use information. Elevating such No. 1 global share* information to the status of knowledge will enrich * Since 2004, unit sales basis society and people’s lives. The society realized through the evolution of IT Support for a Sophisticated and is often referred to as a “super smart society.” Convenient IT Society Nikon supports the development of more sophisti- Number of Nikon semiconductor lithography systems for cated semiconductors and displays, which will be manufacturing semiconductors to be used in various electronic devices in operation around the world integral to the creation of this society, with its lithography systems. More than 3,000 units NIKON REPORT 2018 3 Cover Story Four Values Provided by Nikon “Eyes” for Viewing at Cellular Level and Discerning 3 by Retinal Images Medical progress is helping people live longer, but there are still many incurable diseases needing to be cured. Also, everyone wants to always be healthy. Nikon has been involved in the development of micro- scopes since its founding. Leveraging the technologies and expertise we have accumulated over the course of our his- tory, we help realize the quick practical use of regenerative medicine. We also assist in the diagnosis of patients with our ultra-wide field retinal imaging devices in the retinal imaging diagnosis field. In this manner, Nikon supports the advancement of life science and medicine and contributes to improved quality of life for countless individuals. Support for the Advancement of Life Science and Medicine Reports published on research performed using Nikon’s biological microscopes Approx. 27,000 a year* * Number of reports published in 2017 that note use of Nikon biological microscopes Early Detection of Lesions with the Potential to Cause Eye Fundus Diseases Number of ultra-wide field retinal imaging devices capable of instantly imaging the center of the eye fundus and surrounding areas shipped Aggregate total of more than 10,000 units 4 NIKON REPORT 2018 Cover Story Four Values Provided by Nikon Support for Air Safety Laser Radar, a non-contact large-volume inspection system, is used to ensure accurate assembly of aircrafts Accuracy of ±0.5 mm up to 50 m away Contributions to Evolution of Industrial Robots Nikon encoders that are incorporated into industrial robot joints to realize sophisticated motion control Over 1 million produced a year “Eyes” for Performing High-Precision Measurements 4 and Inspections Industries supported by sophisticated manufactur- ing capabilities continue to advance, creating a more convenient society. This