KYB Corporation

Annual Report 2018

Corporate GovernanceCorporate Governance Structure

Basic Policy for Corporate Governance

Shareholders' Meeting

KYB seeks to meet stakeholders’ expectations with continuous growth and the improvement of corporate
value, and to contribute to society by fulfilling our corporate social responsibility. We have a swift, efficientmanagement system centering on the Board of Directors, and a highly fair and impartial management
supervisory function. The following Management Principles and Basic Policies are the foundation of ourapproach to strengthening governance and our efforts for further improvements.

Elect / Dismiss

Elect / Dismiss

Board of Directors
Audit & Supervisory
BoardRequest

Advisory Committee(Nomination, Compensation)

Audit
Representative Director,Chairman andPresident Exective Officer

Management Principles
The KYB Group contributes to society by providing technologies and products that make life safe andcomfortable.
1.	Challenge higher objectives and construct a livelier corporate cultural climate.
2. Maintain grace and good faith, and pay attention to nature and the environment.

Accounting Auditing

Audit

Board of Executive Officers,
Other Management Committees
Audit Dept.
Audit

3.	Always seek creative ideas and contribute to the progress of customers, shareholders, suppliers,Responsible head office departments, operational headquarters,
Group Companies, Branches, Representative offices

and society.
Basic Policies
1.	We shall respect the rights of shareholders, and ensure the equal and fair treatment of allshareholders.

Selection of Outside Directors and Audit & Supervisory Board Members

2.	We shall take the benefits of stakeholders into consideration and endeavor to appropriately
cooperate with those stakeholders.
3.	We shall disclose not only the information in compliance with the relevant laws and regulations, butalso actively provide the important and/or useful information to stakeholders for their well-informed
decision making.

KYB has two outside directors and two outside audit & supervisory board members and selects inaccordance with the requirements of the Companies Act. Standards for independence prescribed by
securities exchanges and other organizations are used for the selection of independent directors and audit& supervisory board members.

4.	The Board of Directors shall be cognizant of its fiduciary responsibility and accountability toshareholders, and shall appropriately fulfill its roles and responsibilities in order to promote sustainable
and stable corporate growth and increase corporate value, profitability, and capital efficiency.
5.	We shall engage in constructive dialogue with shareholders, and make efforts to obtainshareholders’ support regarding the Company’s Business Policies and also reflect shareholders’opinions and concerns in the improvement of management.
Outline of Corporate Governance Systems Structure

10Structure based on Companies Act

Company with Audit & Supervisory Board

Board chairperson

Chairman of the Board of Directors

Number of directors

8 (including 2 outside directors)

Number of Audit & Supervisory
Board Members

4 (including 2 outside audit & supervisory board members)

Number of independent directors/
audit & supervisory board members

2 outside directors and 1 outside audit & supervisory board member

Independent auditor

KMPG AZSA LLC

Reasons for Selections of Outside Directors
Rokuro Tsuruta(Independent Director)
Attorney and Representative ofRokuro Tsuruta Law Office

Mr. Tsuruta is an outside director because KYB believes he can continue
to use his knowledge and experience as an attorney to provide valuable
opinions and recommendations for strengthening internal controls andcompliance and about other subjects.

Shuhei Shiozawa(Independent Director)
Professor of Economics,Keio University

Mr. Shiozawa is an outside director because KYB believes he can continue
to use his extensive knowledge and insight concerning economics
to provide valuable opinions and recommendations concerning KYB’s
finances and CSR activities.

Reasons for Selections of Outside Audit & Supervisory Board Members
Osamu Kawase(Independent Audit & Supervisory
Board Member)

Mr. Kawase is an independent audit & supervisory board member because
KYB believes he can use his knowledge and experience acquired during
a career in the non-life insurance industry to provide valuable opinions
and recommendations primarily from the standpoint of audits of business
operations.

Takashi Saito

Mr. Saito is an outside audit & supervisory board member because
KYB believes he can use his considerable expertise involving financeand accounting based on the knowledge and experience acquired
during his financial institution career to provide valuable opinions andrecommendations.

11KYB Corporation

Corporate GovernanceManagement

As of June 22, 2018

Representative Director,
Chairman and President Executive Officer

Compensation

Annual Report 2018

Yasusuke Nakajima
1.	Compensation for directors and audit & supervisory board members and the number ofSenior Managing Executive Officers

Hiroshi Ogawa
Shizuka Sakai
Toshihiko Hatakeyama

applicable individuals
Category

Managing Executive Officers

Compensation by category (Millions of yen)

Total
compensation(Millions of yen)

Basiccompensation

Number of applicable
individuals

BonusesDirectors(excludes outside directors)
Audit & Supervisory
Board Members(excludes outside members)

366

216

149

7

Representative Director,
Executive Vice President Executive Officer4545—2Takaaki Kato

Outside officers

6262

—

4

2. Compensation paid to the independent auditor

Executive Officers
Millions of yen

FY2016
Category

Compensation foraudit certification

Member of the Board of Directors,
Executive Vice President Executive Officers

FY2017Compensation for
non-auditing services

Compensation foraudit certification

Compensation for
non-auditing services

KYB Corporation

73

581

3Consolidated subsidiaries

31—32

—

105

5113

3Total

Masao Ono

Keiichi Handa

3. Significant Compensation
Five consolidated subsidiaries, including KYB Americas Corporation, have paid ¥116 million to KPMGInternational, which belongs to the same network as the independent auditor used by KYB, for audit
certification and other services for fiscal 2017.

Member of the Board of Directors,
Senior Managing Executive Officers

Keisuke Saito
Investor Relations Activities
The IR Section of the Finance Division discloses information as required by laws and regulations anddiscloses other information that is important or useful for shareholders and other investors.
The IR Section conducted the following activities during the fiscal year ended March 31, 2018.

Masaru Tsuboi
Tomoyuki Nagata
Masayoshi Sakemi
Koji Yamamoto
Hiroshi Kurotaki
Takashi Kondo
kimiro sudo
Masahiro Kawase
Takashi Tezuka
Ryuji Uda
Minoru Ishikawa
Audit & Supervisory
Board Members

Tomoo Akai
Osamu Kawase *Motoo Yamamoto
Takashi Saito *Takafumi Shoji* Outside

Major Activities of FY2017

12

Eiji Hisada
Kenji Yamanouchi
Hideki Nonoyama
Osamu Kunihara
Hitoshi Nitta
Ikuo Inagaki
Hajime Sato

Activities for securities analysts andinstitutional investors• Information meetings: 2 (End of first half and fiscal year)• Small meeting: 1• Conferences: 2• Plant tour: 1• Overseas IR events: 3

Activity for individual investors• Company information meetings: 7• Plant tour: 1

IR website• https://www.kyb.co.jp/ir/index.html• Information meeting materials, flash reports, securities reports, annual
reports and other documents

Member of the Board of Directors(Outside)

Rokuro Tsuruta

Shuhei Shiozawa

13

KYB Corporation

Annual Report 2018

Risk Information

This section explains the major risk factors involving the KYB Group’s results of operations and financial
position that may have a significant effect on decisions by investors. Forward-looking statements in thissection represent the judgments of the KYB Group as of the end of March 2017.

3) Procurement of Materials and Parts
The KYB Group purchases materials and parts from a large number of suppliers. Prices of materials
and other items are closely linked to prices on international commodity markets. If the KYB Groupis unable to fully reflect an increase in the cost of materials or parts in its selling prices, or if it is not

Risks Relating to the Economic Environment

possible to reduce prices of materials and parts sufficiently to reflect a reduction in selling prices, theremay be a significant impact on results of operations.

1) Economic Climate
Consolidated net sales consist primarily of parts that are sold to makers of automobiles, andmotorcycles, construction machinery, and commercial vehicles. Manufacturers of these parts areexpanding overseas operations even faster in response to the growing overseas manufacturing
activities of their customers. The KYB Group supplies parts to customers outside Japan from plants
in the Americas, Europe and Asia. These overseas plants are vulnerable to fluctuations in demand,and the resulting changes in customers’ production volume, caused by changes in the economies inthe regions where these plants are located. As a result, there may be a significant impact on the KYBGroup’s results of operations and financial condition.

2) Fluctuations in Exchange Rates and Interest Rates
Overseas sales are 53.5% of the KYB Group’s total net sales. As a result, changes in foreign exchange
rates may have a significant impact on the Group’s exports from Japan as well as the performance ofgroup companies in other countries.
An increase in interest rates in Japan or other countries may have a significant impact on the KYBGroup’s results of operations.

4) Fund procurement
The KYB Group uses loans from financial institutions in Japan and other countries to meetrequirements involving capital expenditures and working capital. The KYB Group takes out these loans
while carefully monitoring financial markets. However, procuring funds in a timely manner at favorable
terms may not be possible if there is broad decline in prices of the KYB Group’s products, an economicrecession, a credit crunch, a decline in the KYB Group’s credit rating, or for other reasons. Any of theseevents may affect the KYB Group’s financial condition and results of operations.

5) Worsening Overseas Business Conditions
If there is a bankruptcy at a KYB Group overseas manufacturing and sales base caused by a decline
in orders, falling earnings or some other reason, there may be a significant impact on results ofoperations.

6) Counterparty Credit Risk
The KYB Group sells its products to automobile and construction machinery makers and many othercustomers. An unexpected problem involving credit risk of a customer may affect the Group’s resultsof operations.

Risks Relating to Business Operations
Risks Relating to Significant Litigation or Other Legal Action1) Demand Trends
Sales of the KYB Group’s automotive components and hydraulic components operations depend
greatly on the global production volume of automobiles and construction machinery. The decline indemand for these products during the global economic downturn caused by the financial crisis may

If the KYB Group is the defendant in a law suit and the outcome is unfavorable, the resulting demands andrequirements may have a significant impact on the Group’s results of operations.

have a significant impact on results of operations. The KYB Group sells most of its special-purpose
vehicles, aircraft components, system products and electronic components in Japan. Especially in thespecial-purpose vehicles business, which involves primarily concrete mixer trucks, demand may be

Risks Relating to Fires, Accidents and Natural Disasters

significantly influenced by changes in the volume of construction activity, which is closely linked to theeconomic outlook, as well as by changes in laws and regulations.

2) Prices and Quality
The KYB Group’s products are subject to intense price-based competition in Japan and other countries.
Customers are always asking for cost cuts and lower prices. Quality is also critical. The Group supplies
vital automotive parts, such as shock absorbers, which maintain a vehicle’s stability, and power
steering systems. For construction machinery and commercial vehicles, the Group supplies key
functional components such as hydraulic cylinders and motors. Consequently, if the Group supplies a
defective product, there may be substantial expenses due to customers’ demands for the payment ofMany plants of the KYB Group produce hydraulic products that utilize the properties of oil. In addition,plants often have coating equipment that uses organic solvents and storage tanks for various oils,chemicals and other substances. If there is a fire or a leak of a hazardous substance, manufacturing
activity may have to be suspended temporarily.
In Japan, many plants of the KYB Group and its suppliers are located in the Chubu area (central area ofJapan’s mainland). If there is a major earthquake in this region or other disaster that prevents these plantsfrom operating, there may be a substantial decline in the Group’s production capacity.
In addition, if an earthquake, fire, conflict, act of terrorism or other event outside Japan occurs wherethe KYB Group has a plant, there may be a substantial decline in the Group’s production capacity.

damages and other events. Furthermore, sales volume and prices for aftermarket automotive shock
absorbers will probably be influenced by changes in the health of regional economies and the actionsof competitors.

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