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5. Takata Corporation Business Report FY ended 2015

Strategic Alliance

-TK Holdings Inc., the Company's U.S. subsidiary, and Seeing Machines Limited announced that they have signed a 15-year strategic alliance to develop a new driver monitoring system (DMS). This DMS will warn drivers when their attention lapses, reducing the risk of potentially fatal accidents. The two companies have been collaboratively developing the technology for the past two years in an attempt to deliver the first-ever mass-manufactured DMS implementation. (From a press release on September 24, 2014)

Recalls

Agreement with NHTSA on Expansion of Airbag Inflator Recalls
-On May 18, 2015, U.S. subsidiary TK Holdings Inc. ("TKH") entered into a Consent Order with the National Highway Traffic Safety Administration (NHTSA) under which TKH agreed to take action to address public safety concerns involved in NHTSA's investigation of the Company's airbag inflators. In accordance with the Consent Order, TKH has filed with NHTSA four Defect Information Reports ("the Reports") that contemplate expanded recalls by vehicle manufacturers, to be overseen by NHTSA, covering several types of driver‐side and passenger‐side inflators manufactured by the Company. The Reports establish a process to prioritize the replacement of inflators based upon age and location in accordance with testing results to date. Under the Consent Order, the Company also has agreed to continue to cooperate with all future regulatory actions and proceedings that are part of NHTSA's ongoing investigation and oversight of the Company's airbag inflators and accompanying remedial actions, continue to respond to all NHTSA information requests in a complete and timely fashion, and continue to provide NHTSA with all test results and data related to the Company's inflators, among other provisions. (From a press release on May 20, 2015)

U.S. Department of Transportation Addresses Takata Airbag Defects
-U.S. Transportation Secretary Anthony Foxx announced on May 19 that at the Department's insistence, the Company has acknowledged that a defect exists in its air bag inflators. The inflators had been made with a propellant that can degrade over time and has led to ruptures that have been blamed for six deaths worldwide. The Company has agreed to a national recall of certain types of driver and passenger side air bag inflators, expanding the number of vehicles now to be recalled to nearly 34 million. Secretary Foxx announced also that DOT's National Highway Traffic Safety Administration (NHTSA) has issued a Consent Order to the Company. The Consent Order requires the company to cooperate in all future regulatory actions that NHTSA undertakes in its ongoing investigation and oversight of the Company. NHTSA suspended USD 14,000 per day fine from February 20 for not responding to NHTSA's inquires in return.
Furthermore as a remedy, NHTSA announced its intent to begin a formal legal process to organize and prioritize the replacement of defective the Company's inflators under the agency's legal authority.
（TAKATA Release on May 20, 2015)　(NHTSA Release on May 19, 2015)

OEMs going through recall
-As of July 10, 2015: BMW、FCA (Chrysler)、Daimler Trucks North America、Daimler Vans USA、Ford、GM、Honda, Mazda, Mitsubishi, Nissan, Subaru, and Toyota.

Inflator Production

-The Company announced that it will double production of inflators for recalled vehicles to 900,000 units per month by September 2015. The Company normally produces replacement inflators solely in Mexico. It has decided to produce the replacement products also in the U.S., Germany, and China in order to speed up the recall processes initiated by automakers. In connection with a series of recalls, the Mexican plant has expanded its replacement inflator production to 450,000 units from 350,000 units per month since December 2014. With over 17 million vehicles using the Company's airbags being recalled in the U.S. alone, the shortage of replacement inflators is becoming more serious and is causing delays in the recall processes. (From an article in the Nikkan Jidosha Shimbun on March 4, 2015)

-Sales forecasts by region for the fiscal year ending March 2016:

• Japan: 12.2% decrease year-on-year (y/y), based on a prediction of lower automotive production volumes.
• Asia: 15.3% increase y/y in Thailand, based on signs of a recovery in automotive sales; and 10.4% increase y/y in China.
• The Americas: 4.6% increase y/y predicted for North America, but a 4.7% decrease y/y for South America, based on a prediction of lower demand.
• Europe: Sales are predicted to remain flat.

>>>Financial Forecast for the Next Fiscal Year (Sales, Operating Income etc.)

-In the fiscal year ending March 2016, the Company plans to spend JPY 29,000 million on R&D activities, which is 18.9% larger than the amount spent during FY ended March 2015. R&D expenses are expected to account for 4.1% of the Company's sales.

R&D Structure

-R&D centers are located in Japan (Shiga Pref.), North America (Detroit) and Europe (Berlin).

Product Development

Air-belt System Gen. 2
- The Company developed its Air-belt System Gen. 2 that reduces chest injury to passengers in the rear seats by designing it so the part that comes into contact with the chest expands. Wanting to improve productivity in line with the original Gen. 1 system that was first delivered to customers in 2010 and now being widely used, the Company developed this enhanced system. This latest Gen. 2 system is being equipped on U.S. OEMs' vehicles.

Occupant detection system in whole seat
-The Company developed a new system that can protect children from injuries caused by the pressure from airbags when they are deployed. This system is designed to control airbags so that they don't deploy when child safety-seats are fastened to passenger seats. The Company has started supplying this system to both Japanese and non-Japanese OEMs.

Capacitive Touchscreens
-The Company announced that it has presented findings from its paper titled "In-vehicle Touchscreen Concepts Revisited: Approaches and Possibilities" at the SAE World Conference in Detroit, Michigan, USA. The paper asserts that from an automobile perspective, capacitive touchscreens have certain drawbacks in their distraction potential as well as their usability, leading to safety-critical situations. It presents a problem-driven approach toward touch input and a range of technical solutions possibilities. The focus lies on the generation of a holistic touch experience: auditory, visual, and haptic feedbacks are combined with accurate force sensing for activation and deactivation. (From a press release on April 9, 2014)

-In the fiscal year that ended in March 2015, the Company invested to build new facilities and upgrade facilities in all regions, such as at its plant in Hungary and at its Jingzhou Plant in China, building a production structure capable of responding to increased demand in every region.