Profile

Consolidated Financial Highlights

In the nearly 80 years since we began operations and more than 50 years since our foundation, EXEDY
Corporation has grown steadily, together with the evolution of power trains. Many of our outstanding
products, developed from our original technology and constant research, have ensured safe, comfortable
travel and operability of vehicles and industrial machinery, thus contributing to all areas of industry.
Through our efforts to manufacture the best products in response to current needs, we aim to deliver
satisfaction to our direct customers, and ultimately to the general public. With this in mind we areconstantly striving to advance our special technology even further, which has been developed over many
years. Efforts to expand our overseas production facilities are backed by a simple principle: products
should be produced where they are needed by members of the local community.
We work to undertake business activities that contribute to the local communities, regions andcountries that we serve. As a comprehensive engineering manufacturer of driving systems, we aredetermined to continue our quest to become the world’s best company.

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended as of March 31, 2004 and 2005

Japanese yen(Millions)

U.S. dollars(thousands)

Change
%

2005

2005

2004/2005

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・ ¥ 122,281¥ 136,307$ 1,269,271

+

11.5

5,179

6,300

58,665+

21.6

Total assets・
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・ ¥ 110,799¥ 123,289$ 1,148,047

+

11.3

69,61476,032708,000

+

9.2

1.19

+

17.2

2004
For the year :Net income・
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At Year-End:
Shareholders’ equity・
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Japanese yen

Per Share Data:

Automatic Automotive Drivetrain Operations
Torque converters, automatic transmissions/parts, etc.

U.S. dollars

Net income・
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108.84¥ 127.61

Shareholders’ equity ・
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1,432.90

1,525.24

14.20

+

6.4

Cash dividends・
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15.00

18.00

0.17

+

20.0

$

Notes.1: Dollar figures are translated, for convenience only, at the rate of ¥107.39 to U.S. $1.00.
2: Effective as of April 1, 2002, per share data are stated under “Accounting Standards for the computing net income per share ofcommon stock (Standards of Enterprise accounting No.2)” and “Implementation Guideline of Standards for the computing net
income per share of common stock (Implementation Guideline of Standards of Enterprise accounting No.4)”.
3: In fiscal year 2004, the new accounting standard for impairment of fixed assets was adopted as referred to in Notes 1(g) and 12.
4: In fiscal year 2005, the method of accounting for employees’ severance and retirement benefits was changed as referred to in Notes
1(k) and 7.

Comprehensive Engineering
Manufacturer of Driving Systems

Manual Automotive Drivetrain Operations

Net Sales

Net Income Per Share of Common Stock

Clutch discs, clutch covers, 2 mass flywheels, etc.

(Millions of yen)

136,3072005

122,2812004

113,673

2003

Other Operations

0

20,00040,00060,000 80,000

95.80
30.99

2002

113,622

2001

Power shift transmissions, torque converters, hydraulic clutches,machine devices, molding devices, shipping agent, clutches
for motorcycles, etc.

108.84

2004
2003

101,215

2002

(Yen)

127.61

2005

42.71

2001

100,000 120,000 140,000

Net Income

0

20

40

60

80

100

120

140

Shareholders’ Equity Per Share of Common Stock(Millions of yen)

6,300

2005
5,179

2004

C o n t e n t sProfile・
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Consolidated Financial Highlights・
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To Our Shareholders・
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Business Results by Division ・
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Business Results by Market ・
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EXEDY World-Tour 2005・
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Topics of the Year ・
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Outline of the EXEDY Group・
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・13

1 Annual Report 2005

Consolidated Five-Year Summary・
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Consolidated Balance Sheets・
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Consolidated Statements of Income・
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Consolidated Statements of Shareholders’ Equity・・・・18
Consolidated Statements of Cash Flows・
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Notes to Consolidated Financial Statements・
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Report of Independent Public Accountants・
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Corporate Data・
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・30

0

1,000

2,000

1,386.57
1,320.08

2002

2,072

2001

1,432.90

2003

1,482

2002

1,525.24

2005
2004

4,448

2003

(Yen)

2001
3,000

4,000

5,000

6,000

7,000

1,214.25
0

200

400

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800

1,000

1,200

1,400

1,600

Annual Report 2005 2

To Our Shareholders

Takeshi Nakano
President and Chief Executive Officer

Business Operations
Review of Fiscal Year 2004
The sales in the auto parts industry saw favorable bullish
trends due to the effects of Japanese automakers inmarketing new cars and the upward movement in the
North American and Asian car markets. However, there
are growing concerns over increasing costs reflecting the
expected higher costs from price increases in steel
material and oil.
In such an environment, in order to expand its
management base, the EXEDY Group focused mainly on
the automatic automotive drivetrain business in Japanand the U.S., where its outsourcing is increasing, and themanual automotive drivetrain business in Asia, where its
market is expanding. During the fiscal year 2004, theEXEDY Group achieved an increase in orders in theautomatic automotive drivetrain business for Japanese

3 Annual Report 2005

automakers in addition to an upward movement in businessin the Asian and U.S. markets. As a result, the EXEDY Group
had sales of 136.3 billion yen (an increase of 11.5% over theprevious year). Despite the increase in procurement costs
resulting from the rise in prices of steel material and costs tocope with increased orders, due to the increase in sales andthorough cost improving activities, the EXEDY Group had
operating profits of 12.7 billion yen (an increase of 11.0% overthe previous year), an ordinary income of 11.6 billion yen (anincrease of 6.4% over the previous year), and a net income of
6.2 billion yen (an increase of 21.6% over the previous year).
Meanwhile, the EXEDY Group revised its retirement benefits
plans in the second half of the fiscal year 2004. As a result, theEXEDY Group is now capable of remarkably reducing actuarial
differences in the future. Accordingly, the EXEDY Groupchanged its accounting policy and charged the actuarial
difference from the prior years and costs relating to the revisionof retirement benefits plans to the income in fiscal year 2004.
Moreover, in order to reduce its manufacturing costs, Daikin
Clutch Corporation, which had produced and marketed
manual clutches in the U.S., transferred its manufacturing
department to the EXEDY head office in Japan and EXEDY
America Corporation in Tennessee, U.S., and started
concentrating on marketing. As a result, the EXEDY Groupcharged the costs for business realignment to the income.

Financial Position

Outlook for Fiscal Year 2005

Outlook for Fiscal Year 2005

We expect that the domestic market will expand based on
the growing automatic automotive drivetrain businesscentering on torque converters and the Asian market willcontinue to expand, but the future prospects of the U.S.
market will become increasingly unclear. The EXEDY Group
continues to develop eco-friendly products that improve fueleconomy and suppress noise and vibration in vehicles with
fuel-efficient engines under the complete quality
management. Regarding earnings, we are determined tosecure solid profitability by streamlining operations given thesevere financial condition and the expected higher costs
from price increases of steel material. Consequently, we
expect sales of 140 billion yen (an increase of 2.7% over theprevious year), an ordinary income of 12.5 billion yen (anincrease of 6.9% over the previous year), and a net incomeof 7 billion yen (an increase of 11.1% over the previous year)
for the next fiscal year.

Cash flow obtained from operating activities will increase by 1.2
billion yen compared to fiscal year 2004 due to increases in net
income before income taxes and depreciation expenses,
decrease in corporate tax expenses, and variations in working
capital. Cash flow from investment activities will increase by 5.4
billion yen over fiscal year 2004 reflecting capital investment
mainly in response to the expanded AT business. Cash flow fromfinancing activities will total 1 billion yen due to the payment ofdividends and other items. As the results indicate, cash andcash equivalents at the end of the fiscal year 2005 will total 16.5
billion yen (a decrease of 2.3 billion yen compared to the end ofcurrent year).

Review of cash flows in Fiscal Year 2004
Our cash flow from operating activities was 13.3 billion yen, adecrease of 200 million yen over fiscal year 2003. The main
breakdown is as follows: net income before income taxes
was 8.8 billion yen (compared to 9.3 billion yen for fiscal year
2003) and depreciation expenses were 7.9 billion yen, an
increase of 300 million yen over fiscal year 2003. The
introduction of defined contribution pension plans generated
outstanding transfer, which resulted in the increase of longterm accrued liabilities by 2.1 billion yen. Trade accountreceivables, and inventory increased by 5 billion yen in total,
and accounts payables increased by 1.8 billion yen due togood sales. The corporate tax paid was 3.3 billion yen. Cashflow from investments was 10.8 billion yen, which was thesame level as the previous year. Expenses for capital
investment were 10.8 billion yen (9.4 billion yen for the previousyear). Proceeds from sale of investments in securities were 1.7
billion yen, and payments for loans were 1.9 billion yen. Cashflow from financial activities was 300 million yen, a decrease of
1.8 billion yen over the previous year. The payment of dividends
was 800 million yen and the long/short term loan payments were
1.4 billion yen. In addition, gain from treasury stock issued in
March 2005 was 2 billion yen.

July 2005
Takeshi Nakano

Management goals
EXEDY Group will put our corporate climate reform
activities named NC21 (New Century 21) into practicebased on our corporate principle “Creation of
Fulfillment” as the key basis.
The backbone is “being competitive as we fulfill our
corporate responsibilities in society including
compliance, corporate principle, and eco-friendly
operation to improve our social standing.”

Top management policies
Accomplish the world’s best quality, cost performance,and manufacturing promptly to transform our corporate
structure as the world’s leader.
1) Keep focusing on customer needs and supply products
in a timely manner2) Achieve order-of-magnitude quality improvements; thekey factor to increase the reliability3) Accomplish the world’s best cost performance by
establishing a system of global production and supply
4) Do all work based on “5S5TEI” to continuously enhance“Work Quality” and “Product Quality”
5) Establish a corporate structure to accomplish eachtarget with complete commitment to activities
6) Establish better communication to create an active andwell-communicated corporate climate

Annual Report 2005 4

Business Results by DivisionAT

Due to the effects of Japanese auto makers in marketingnew cars and increased exports to South Korea, net
sales were 76.6 billion yen (an increase of 14.9% over the previous year)
and operating profits were 6.8 billion yen (an increase of 8.1% over theprevious year).

Net Sales ofAutomatic automotive drivetrain operations(Millions of yen)

76,6902005
66,753

2004

61,5332003
0

40,00050,00060,00070,000Other

Due to the increase in sales of forklifts
and motorcycles, and the recovery oforders for construction machinery products, net sales were 18.9 billion yen(an increase of 24.6% over the previous year) and operating profits were 800
million yen (an increase of 50.4% over the previous year).

Net Sales of
Other operations(Millions of yen)

18,9192005
15,1882004
11,486

2003

80,000

0

6,000

9,000

12,000Integrated production of torque converters required for driving convenience, in AT segment, future automobiles are in perspective
through continuous development of new products and technology, such as the development of a highly efficient, small size, long, flat
torque converter based on fluid mechanics and the world’s smallest, lightest FRU (forward/rear switch unit) essential for the CVT.
In addition, EXEDY’s business field is expanding into the whole automatic transmission including development and production of AT parts.

We supply products for construction machinery and industrial vehicles that keep Japanese industry on the move. Because thisfield involves custom manufacturing of a wide variety of products in small lots, great flexibility is required. EXEDY develops,
manufactures, and assembles power shift transmissions that stand out for their quality. In addition, EXEDY is expanding its
motorcycle clutch business in the Southeast Asian market based on our clutch technology developed for automobiles.

Automatic automotive drivetrain operations

Industrial drivetrain operations,
Motorcycle drivetrain operations and other operations

Super-elliptical type
torque converter

Unity torque converter

Lock-up damper

Clutch PackMT

Due to a slight increase in demand in Japan
reflecting increased repairs in overseas markets andupward movement in the Asian market, net sales were 46.6 billion yen (anincrease of 2.6% over the previous year) and operating profits were 5.7
billion yen (an increase of 4.3% over the previous year).

15,00018,000Friction Plates

Net Sales ofManual automotive drivetrain operations

Transmission for a rough-terrain craneForklift transmission

RetarderOne-way clutch
for mortor cycle

Multiplate wet clutch
for mortor cycle(Millions of yen)

46,657

2005
2004

45,476

2003

44,088Other
0

10,00020,00030,00040,00013.3%

50,000Net sales by Division

In the MT business, EXEDY develops, manufactures, and assembles components for manual transmissions,such as clutch discs and clutch covers. Our advanced engineering has led to a number of innovations,
including sports clutches and WAD (wide-angle dampers), hydrodamp systems that provide the superioranti-noise, anti-vibration performance needed in today’s compact, lightweight cars.

Japanese yen(millions)

Manual automotive drivetrain operations

2004

MT

32.8%

AT

U.S. dollars(thousands)

2005

2005

A T・・・・・・・・・・・・・・・・・・¥

66,753

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45,476

46,657434,467

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15,18818,919176,174

Eliminations・
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(5,136)(5,959)(55,492)

Total・
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・¥ 122,281¥ 136,307$ 1,269,271¥

76,690$714,122

53.9%
The graph above shows the percentage ofsales to customers outside the Group.
WAD (wide angle damper)

5 Annual Report 2004

Large sized unity disc

Silent disc

Large sized pull-type clutch

Hydrodamp system

Multi-plate clutch

Annual Report 2005 6

Business Results by Market
Other (Europe)

Asia and Oceania

1.1%

9.4%

Net Sales by Location
Japanese yen(millions)

United States

2004

2005

Japan・
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・¥ 98,435¥ 110,171$ 1,025,896

16.8%

Japan

72.8%

The graph above shows the percentage ofsales to customers outside the Group.

■ Production● Sales/Warehousing● Licensee

U.S. dollars(thousands)

United States
Due to the increase of sales of the automatic automotive drivetrain products, net sales were25.3 billion yen (an increase of 3.5% from the previous year) and operating profits were 1.2
billion yen (a decrease of 10.8% over the previous year).

2005

United States・
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24,49325,361

236,153

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9,887

14,157

131,824

Other (Europe)・
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1,812

1,691

15,742Eliminations・
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・ (12,346)(15,073)(140,344)

Total・
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・ ¥ 122,281¥ 136,307$ 1,269,271

EXEDY Holdings of America Corporation

U.S.A.

1 Daikin Clutch Corporation

2 DYNAX America Corporation

1
2
3

Other ( Europe )Net sales were 1.6 billion yen (a decrease of 6.7% over the previous year)
and operating profits were 100 million yen (a decrease of 20.8% overthe previous year).

U.S.A.

DYNAX Industry(SHANGHAI) Corporation

Hyundai Motor
Kia Motors

Shanghai DYNAXCorporation

4

7

5

England

U.S.A.

Hungary

BONEM

8Tamp Auto Parts

9

3 EXEDY America Corporation

6
12 13

11

4

EXEDY Clutch Europe Ltd.

5 Euro EXEDY Clutch Ltd.

U.A.E.

10

Japan
14

Asia and Oceania
Due to the stable growth of automobile production in Asian countries and increased sales ofmotorcycle products, net sales were 14.1 billion yen (an increase of 43.2% over the previous year) andoperating profits were 1.7 billion yen (an increase of 60.3% over the previous year).

6 EXEDY Middle East Fzco

China

Indonesia

China

India

Due to the effects of Japanese automakers in marketing new cars and increased exports of repair parts to South Korea, net
sales were 110.1 billion yen (an increase of 11.9% over the previous year) and operating profits were 9.6 billion yen(an increase of 9.1% over the previous year).
DK Pronac Co., Ltd.

Head Office

DYNAX Corporation● DYNAX Corporation● DH Corporation

1-1-1, Kidamotomiya, Neyagawa-shi,
Osaka 572-8570, Japan
Phone: 81-72-824-6933
Facsimile: 81-72-821-7913
7 EXEDY Chongqing Co., Ltd.

8 EXEDY (Shaghai) Friction Material Co.,Ltd.

9 Ceekay Daikin Ltd.

10 P.T. Daikin Clutch Indonesia

Malaysia

ThailandThailandAustralia

6-11, Taguchi kenkyu danchi,
Higashihiroshima-shi,
Hiroshima 739-0038, Japan
Phone: 81-82-425-3434
Facsimile: 81-82-425-3436

1053-1, Kamiosatsu, Chitose-shi,
Hokkaido 066-8585, Japan
Phone: 81-123-24-3247
Facsimile: 81-123-49-2050● Hiroshima Sales Office● DK Pronac Co., Ltd.
● EXEDY Precision Co., Ltd．
● Tokyo Sales Office● Business Location● Affiliated Companies

11 EXEDY (MALAYSIA) SDN. BHD.

7 Annual Report 2005

12 EXEDY(Thailand)Co.,Ltd.

13 EXEDY Friction Material Co., Ltd.

● Head office● Nippon Retarder System Co., Ltd.
● Exenet Logistics Co., Ltd.
● DK Building Service Co., Ltd.
● DBS Career Service Co.,Ltd．

● Kawagoe Plant● Pronet Co.,Ltd．

● Ueno Division● Shizuoka Sales Office● Chubu Sales Office

14 EXEDY Australia PTY. Ltd.

Annual Report 2005 8

EXEDY World-Tour 2005

EXEDY World-Tour 2005

EXEDY (Thailand) Co., Ltd.

EXEDY (Shanghai) Friction Material Co., Ltd.

EXEDY (Thailand) Co., Ltd. (EXT) is an EXEDY Group
company located in Chonburi, Thailand. They changed theirname from Siam DK Technology Co., Ltd. (SDK) in January2005 as part of efforts to strategically strengthen the EXEDY
brand. EXT makes clutch discs and clutch covers forpassenger cars, and motorcycle clutches. Since theirfounding in 1995, they have earned the strong trust ofcustomers inside and outside Thailand.
EXT has departments specializing in die design,
manufacture and maintenance, and features a total
production system from coil material procurement to pressstamping, machining, heat treatment and assembly. EXT is
outfitted for testing and evaluation so they are set up to do
everything in-house from material procurement to assembly
and testing.
The first motorcycle clutch produced
by EXT was a one-way clutch for a selfstarter that they began delivering to

EXEDY (Shanghai) Friction Material Co., Ltd. (ESF) was
founded in May 2004 as a wholly-owned subsidiary of
EXEDY Corporation with headquarters in Shanghai, China.
ESF started making dry friction material, a primary
component of manual clutches, in June 2005.
The EXEDY Group already had a subsidiary that was
making dry friction material that being EXEDY Friction
Material Co., Ltd. (EFM) located in Thailand, but ESF
was founded to avoid the risk of concentrating thegroups production of dry friction material in EFM, toincrease purchasing activities within the group and toopen routes to the Chinese market, which is expected
to grow considerably in the future. For this reason,
ESF can produce friction materials for all sizes ofvehicles from compact cars to trucks. The same
production system at EFM is used, that being a new
and original eco-friendly system developed by EXEDY.
This year, ESF is supplying dry friction material forthe aftercare market to EXEDY, but come 2006 plans
are to supply the OEM and aftercare markets of
EXEDY Chongqing Co., Ltd. (EXC), a subsidiary that
manufactures and sells manual clutches in China. By
supplying dry friction material from China as a primary
component of manual clutches to EXC, ESF expects
to further enhance price competitiveness.

Thai Honda in December 2001. Utilizing the torque converter
technology that EXEDY has long nurtured, the finished clutch
was simple, high capacity and easy to assemble. At present 3
types are produced on 2 lines and turnout has reached
160,000 per month, making it one of the company’s leading
products.
Since April 2004, EXT has been producing multiplate wet
clutches for Thai Honda’s NOVA SONIC 125 cc scooter and,as of April 2005, have been producing 2 models as a new
clutch was added for the Wave 125i.
As they expand business from automobile clutches tomotorcycle clutches, EXT will be making a concerted effort todevelop new products and broaden their reputation for highquality and high performance.

ESF has a 130,000 m2 site located about 30 km southof downtown Shanghai. It can be very easily accessed bysea, highway and air and is only about 20 km away fromgroup companies Shanghai DYNAX Corporation (DXC) and
DYNAX Industry (Shanghai) Corporation (DXS) who produce
friction material and component parts for automatictransmissions.

Multiplate wet clutch forThai Honda’s NOVA SONIC 125cc

9 Annual Report 2005

Annual Report 2005 10

Topics of the Year

Topics of the Year
Motorcycle Clutch Lineup

World’s First Technology from DYNAX

Expanding the Motorcycle Business in AsiaDYNAX Contributes to the Development of SH-AWD(Super Handling All-Wheel Drive System) for Honda’s Legend

Riding the wave of the motorcycle business in Asia, local
EXEDY subsidiaries in Thailand, EXEDY (Thailand) Co., Ltd.
and EXEDY Friction Material Co., Ltd., continue to increase
the production of motorcycle clutches for Thai Honda andThai Yamaha. The two companies have built a lineup of costcompetitive motorcycle clutches by internally producing
friction materials and procuring most components locally.
Preparations are also moving forward to expand lines andincrease production further because of the strong outlook for
future growth of the motorcycle market.

In February 2005, EXEDY affiliate DYNAXCorporation was given the Supplier Award by
Honda Motor for their contribution to thedevelopment of the SH-AWD (Super Handling AllWheel Drive) built into the Honda Legend.

Gear high clutch and low clutch

2004-2005 Car of the Year JAPAN Award“Most Advanced Technology” Award
2005 RJC Technology of the Year Award

Direct electromagnetic clutch

Low clutch packOne-way clutch

Multiplate wet clutch

Multiplate wet clutch

Tradeshows Worldwide
High clutch

Strategically Strengthening the EXEDY Brand
To help the EXEDY brand penetrate the world market,
EXEDY shows aggressively at automotive parts tradeshows
inside and outside Japan. In 2004, EXEDY exhibited at 5shows in 4 countries around the world (USA x 2, Germany,
China and United Arab Emirates) and 4 shows in Japan(Yokohama, Chiba x 2, Osaka), effectively improving
recognition of EXEDY brand and products.

RR/LR clutches

2004 Major Global Vehicles Using EXEDY Products

Nissan Fuga
DYNAX AT Parts（2005 RJC Car of the Year）

SEMA SHOW 2004
（USA Las Vegas）

AUTO MECHANIKA GULF 2004（UAE Dubai）

11 Annual Report 2005

Miss Motor Show visited
EXEDY Booth at Bangkok
International Motor Show（Thailand）

Ford Escape Hybrid
EXEDY Torque Limiter Damper

VW Golf
DYNAX AT Parts

Annual Report 2005 12

Consolidated Five-Year Summary
EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended as of March 31

Status of the EXEDY GroupThe EXEDY Group, consisted of EXEDY Corporation,
26 affiliates and 1 related company, is mainly
engaged in production and sales of manualautomotive drivetrain components (MT) andautomatic automotive drivetrain components (AT), as
well as provides a wide range of service activities
related to the main business.
The domestic business structure is composed of
manufacture and sales of products and parts by
EXEDY Corporation and DYNAX Corporation, andsubcontracted manufacture and other businesses byother Group companies.
Overseas, each Group company manufacturesand markets MT, AT and other products for local
users; EXEDY Corporation and DYNAX Corporation
export to international customers and also provide
technical support, products and parts to Group
companies located overseas.
The business outline of EXEDY Corporation,affiliates and related company is classified as follows;

Outline of the EXEDY Group

Japanese yen(millions)

2001

2002

2003

2004

2005

2005

Net sales ............................................................ ¥ 113,622

For the year:¥ 101,215¥ 113,673¥ 122,281¥ 136,307$ 1,269,271

2,072

1,482

4,448

5,179

6,300

58,665

Total assets ........................................................ ¥ 105,952¥ 106,576¥ 108,907¥ 110,799¥ 123,289$ 1,148,047

Net income .........................................................

At year-end:

Current assets ....................................................

51,41950,81754,21355,39963,783593,937

Property, plant and equipment .........................

47,00548,514

48,10847,041

49,719462,972

Current liabilities ................................................

33,10628,32524,73325,074

27,647

257,439

Long-term debt ..................................................

6,382

5,914

8,354

2,594

2,687

25,025

Shareholders’ equity ..........................................

58,90860,081

63,192

69,61476,032708,000

Shareholders’ equity / Total assets (%) .............

55.60

56.37

58.02

62.83

61.67

61.67

Retained earnings .............................................

45,111

47,21951,13655,40660,808566,235

Japanese yen

Per share data:

Automatic Automotive Drivetrain Operations●EXEDY Corporation●Dynax Corporation●EXEDY America Corporation●Dynax America Corporation●Dynax North America Sales Corporation●EXEDY Australia PTY. Limited●EXEDY (Thailand) Co., Ltd.
●Shanghai Dynax Corporation●Dynax Industry (Shanghai) Corporation
2 other companies

Manual Automotive Drivetrain Operations●EXEDY Corporation●Dynax Corporation●DK Pronac Co., Ltd.
●EXEDY America Corporation●Daikin Clutch Corporation●EXEDY Australia PTY. Limited●EXEDY Middle East Fzco
●EXEDY Clutch Europe Limited●Euro EXEDY Clutch Limited●EXEDY (Thailand) Co., Ltd.
●EXEDY Friction Material Co., Ltd.
●EXEDY (Malaysia) SDN. BHD.
●EXEDY Chongqing Co., Ltd.
●EXEDY (Shanghai) Friction Material Co., Ltd.
●P.T. Daikin Clutch Indonesia●Ceekey Daikin Limited
3 other companies

Other Operations●EXEDY Corporation●Dynax Corporation●Exenet Logistics Co., Ltd.
●EXEDY America Corporation●Daikin Clutch Corporation●Dynax America Corporation●EXEDY (Thailand) Co., Ltd.
●EXEDY Friction Material Co., Ltd.
●Shanghai Dynax Corporation
6 other companies

U.S. dollars(thousands)

Net income ......................................................... ¥42.71

Net income-diluted ............................................

42.23

Shareholders’ equity ..........................................

1,214.25¥

U.S. dollars

95.80¥ 108.84

30.84

93.32

106.12

127.591.19

1,320.08

1,386.57

1,432.90

1,525.24

14.20

30.99

¥

¥

127.61$

1.19

Notes: 1. Dollar figures are translated, for convenience only, at the rate of ¥107.39 to U.S. $1.00.
2. Effective as of April 1, 2002, per share data are stated under “Accounting Standards for the computing net income per share of common stock(Standards of Enterprise accounting No.2)” and “Implementation Guideline of Standards for the computing net income per share of common
stock (Implementation Guideline of Standards of Enterprise accounting No.4)”.
3. In fiscal year 2004, the new accounting standard for impairment of fixed assets was adopted as referred to in Notes 1(g) and 12.
4. In fiscal year 2005, the method of accounting for employees’ severance and retirement benefits was changed as referred to in Notes 1(k) and 7.

Financial Section
Consolidated Five-Year Summary・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・14
Consolidated Balance Sheets・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・15
Consolidated Statements of Income・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・17
Consolidated Statements of Shareholders’ Equity・
・
・
・
・18
Consolidated Statements of Cash Flows・
・
・
・
・
・
・
・
・
・
・
・
・19
Notes to Consolidated Financial Statements・
・
・
・
・
・
・
・
・
・20
Report of Independent Public Accountants・
・
・
・
・
・
・
・
・
・
・
・
・29
Corporate Data・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・30

●=Consolidated subsidiaries●=Equity-method applied companies
A holding company, EXEDY Holdings of America Corporation, that is one of theconsolidated subsidiaries, is not listed above.

13 Annual Report 2005

Annual Report 2005 14

Consolidated Balance Sheets
EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2004 and 2005

U.S. dollars(thousands)

Japanese yen(millions)
ASSETS

2004

2005

2005

Current Assets:
Cash and cash equivalents [Notes 1(p) & 6] ..............................
Time deposits .................................................................................

¥

16,752

18,893$ 175,926

59

67

628

25,31728,922

269,319

364

187

1,739

(218)

(1,239)(11,536)

Inventories (Note 2) ........................................................................
Deferred tax assets (Note 4) .........................................................

10,33911,856110,399

1,593

2,437

22,695

Short-term loans ............................................................................

249

1,321

12,300Notes and accounts receivableTrade .......................................................................................
Non-consolidated subsidiaries and affiliates ...................
Allowance for doubtful accounts ........................................

¥

Other current assets ......................................................................

944

1,339

12,467

Total current assets .............................................................

55,39963,783593,937

Property, Plant and Equipment (Notes 6 & 12):Land ..................................................................................................

7,036

7,118

66,279Buildings and structures ...............................................................

28,07728,930269,393

Machinery and vehicles .................................................................

76,06879,960744,577

Tools and furniture .........................................................................

23,781

26,055

242,624Construction in progress ...............................................................

2,647

3,282

30,557

137,609145,345

1,353,430(90,568)(95,626)(890,458)

47,041

49,719462,972

2,884

1,127

10,497

non-consolidated subsidiaries and affiliates ..........................
Long-term loans .............................................................................

471

723

6,734

214

193

1,799

Deferred tax assets (Note 4) .........................................................

2,366

5,291

49,271Other assets ....................................................................................
Total investments and other assets ...................................

2,424

2,453

22,837

8,359

9,787

91,138¥ 110,799¥ 123,289$1,148,047

Less-accumulated depreciation ..................................................
Total property, plant and equipment ..................................
Investments and Other Assets:
Investment in securities (Note 3) .................................................
Investments in and loans to

U.S. dollars(thousands)

Japanese yen(millions)
LIABILITIES AND SHAREHOLDERS’ EQUITY

2005

2005

3,617

$ 33,678

13,014
702
91
4,227
1,647
367
25,074

14,985
863
174
4,792
2,964
252
27,647

139,5398,038
1,619
44,61827,596
2,351
257,439

Long-term Liabilities:
Long-term debt (Note 5) ...............................................................
Deferred tax liabilities (Note 4) ....................................................
Employees’ severance and retirement benefits (Note 7) ........
Retirement benefits for directors and corporate auditors ......
Other long-term liabilities .............................................................
Total long-term liabilities ...................................................

2,594
368
7,928
450
683
12,023

2,687
487
8,115
375
2,802
14,46625,025
4,538
75,567
3,492
26,087
134,709

Minority Interests ................................................................................

4,088

5,144

47,8997,227
7,712
55,406
1,113(1,843)

8,284
8,768
60,808414(2,237)

77,141
81,643566,235
3,853(20,825)(1)
69,614¥110,799(5)
76,032¥123,289(47)
708,000$1,148,047

Current Liabilities:
Short-term borrowings including
current portion of long-term debt (Note 5) ............................
Notes and accounts payable Trade .....................................................................................
Construction ........................................................................
Non-consolidated subsidiaries and affiliates .................
Accrued expenses ........................................................................
Accrued income taxes (Note 4) ...................................................
Other current liabilities ..................................................................
Total current liabilities .........................................................

2004

¥

5,026

¥

Contingent Liabilities (Note 10)
Shareholders’ Equity (Note 8):
Common stock
Authorised-168,000 thousand shares in 2004 and 2005
Outstanding-48,520 thousand shares in 2004 and
49,794 thousand shares in 2005 .............................................
Capital surplus ...............................................................................
Retained earnings ..........................................................................
Net unrealized holding gains on securities ...............................
Foreign currency translation adjustments [Note 1(c)] .............
Treasury stock
2 thousand shares in 2004 and4 thousand shares in 2005 ......................................................
Total shareholders’ equity .................................................

The accompanying notes to the consolidated financial statements are an integral part of these statements.

15 Annual Report 2005

Annual Report 2005 16

Consolidated Statements of Income

Consolidated Statements of Shareholders’ Equity

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended as of March 31, 2004 and 2005

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended as of March 31, 2004 and 2005

U.S. dollars(thousands)

Japanese yen(millions)
2004

2005

2005

Net Sales ..............................................................................................

¥ 122,281¥ 136,307$1,269,271

Cost of Sales ......................................................................................
Gross profit ......................................................................................

92,23430,047104,01032,297

968,528
300,743

Selling, General and Administrative Expenses ..........................
Operating income ...........................................................................

18,527
11,52019,513
12,784

181,697
119,046

(55)
194

(104)
158

(968)
1,472

Other (Income) Expenses:
Interest and dividend income .......................................................
Interest expense ..............................................................................
Losses on sale or disposal of property,
plant and equipment ...................................................................
Allowance for doubtful accounts .................................................
Gains on sale of investments in securities .................................
Loss on reorganization of subsidiary’s business ......................

310
—
(2)
—

295
886
(1,192)
479

2,745
8,249
(11,099)
4,458

607

607

5,651

—

2,923

27,218

(48)
404

70
76

655
712

1,079
(279)
2,210

—
(306)
3,892

—
(2,851)
36,242

Income before income taxes and minority interests ...................

9,310

8,892

82,804

Income Taxes (Note 4)
Current ..............................................................................................
Deferred ............................................................................................

3,878
(554)

4,524
(3,223)42,129(30,014)

Minority Interests in Net Income of Consolidated Subsidiaries ...

807

1,291

12,024

Amortization of the net transition obligationfor employees’ severance and retirement benefits ..............
Losses on change of plan for employees’ severance andretirement benefits (Note 7) .......................................................
Equity in losses (gains) of non-consolidated subsidiaries
and affiliates ..................................................................................
Foreign exchange loss, net ............................................................
Impairment losses on property, plant and equipment[Notes 1(g) & 12] ..........................................................................
Other, net ..........................................................................................

Net Income ...........................................................................................

¥

5,179

¥

6,300

Japanese Yen
Per Share Data (Note 11):Net income .......................................................................................
Net income-diluted .........................................................................
Cash dividends ................................................................................

¥

108.84106.12
15.00¥

127.61127.5918.00

The accompanying notes to the consolidated financial statements are an integral part of these statements.

17 Annual Report 2005$

58,665

U.S.dollars
$

1.19
1.19
0.17

Japanese yen(millions)

Number ofoutstanding
shares(thousands)

Commonstock

Balance as of 31 March, 2003 .........................
Net income ......................................................
Net unrealized holding gains on securities ....
Adjustments from translation of foreign
currency financial statements ....................
Exercise of warrants .......................................
Sale of treasury stock .....................................
Purchase of treasury stock .............................
Cash dividends paid .......................................
Bonuses to directors and corporate auditors ...

48,514——¥ 7,223
—
—

—
6
—
—
—
—

—
4
—
—
—
—

—
4
1,227
—
—
—

Balance as of 31 March, 2004 .........................
Net income .....................................................
Net unrealized holding gains on securities ......
Adjustments from translation of foreign
currency financial statements ......................
Exercise of warrants .....................................
Public stock offering .....................................
Purchase of treasury stock ..........................
Cash dividends paid .....................................
Bonuses to directors and corporate auditors ...

48,520
—
—

7,227
—
—

—
74
1,200
—
—
—

—
46
1,011
—
—
—

Balance as of 31 March, 2005 ........................

49,794¥ 8,284

Number ofoutstanding
shares(thousands)

Net
Foreign
Retained
unrealized
currency
earnings holding gains translation
on securities adjustments

Treasury
stock

277
—
836

¥ (372)——¥ (1,553)
—
—

—
—
—
—
(820)
(89)

—
—
—
—
—
—

(1,471)
—
—
—
—
—

—
—
1,555
(3)
—
—

7,712
—
—

55,406
6,300
—

1,113
—
(699)

(1,843)
—
—

(1)
—
—

—
46
1,010
—
—
—

—
—
—
—
(801)
(97)

—
—
—
—
—
—

(394)
—
—
—
—
—

—
—
—
(4)
—
—

414

¥(2,237)

Capitalsurplus¥ 6,481 ¥ 51,136
5,179
—
—
—

¥ 8,768 ¥ 60,808

¥

¥

(5)

U.S. dollars(thousands)
Net
Foreignunrealized
currency
holding gains translation
on securities adjustments

Commonstock

Capitalsurplus

Balance as of 31 March, 2004 .........................
Net income ....................................................
Net unrealized holding gains on securities ......
Adjustments from translation of foreign
currency financial statements ......................
Exercise of warrants .....................................
Public stock offering ....................................
Purchase of treasury stock .........................
Cash dividends paid ....................................
Bonuses to directors and corporate auditors ...

48,520 $ 67,293————$71,816
—
—

—
428
9,420
—
—
—

—
428
9,399
—
—
—

—
—
—
—
(7,460)
(903)

—
—
—
—
—
—

Balance as of 31 March, 2005 ........................

49,794 $ 77,141$ 81,643$566,235$ 3,853

—
74
1,200
—
—
—

¥

Retainedearnings$515,933 $ 10,364
58,665—(6,511)—

Treasurystock$(17,161) $
—
—

(10)
—
—

(3,664)
—
—
—
—
—

—
—
—
(37)
—
—

$(20,825) $(47)

The accompanying notes to the consolidated financial statements are an integral part of these statements.

Annual Report 2005 18

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended as of March 31, 2004 and 2005

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES

U.S. dollars(thousands)

Japanese yen(millions)

2004
Cash Flows from Operating Activities:
Income before income taxes and minority interests ....................................
Adjustments for :Depreciation and amortization .................................................................
Losses on sale or disposal of property, plant and equipment ......................
Gains on sale of investments in securities .................................................
Impairment losses on property, plant and equipment ..................................
Increase in allowance for doubtful accounts ...............................................
Increase in employees’ severance and retirement benefits ..........................
Interest and dividend income ...................................................................
Interest expense .....................................................................................
Increase in notes and accounts receivables ...............................................
Increase in inventories .............................................................................
Increase in notes and accounts payables ..................................................
Other, net ..............................................................................................
Sub-total .....................................................................................
Interest and dividend income received ......................................................
Interest paid ...........................................................................................
Income taxes paid ..................................................................................
Net cash provided by operating activities .......................................
Cash Flows from Investing Activities:
Increase in time deposits .........................................................................
Decrease in time deposits .......................................................................
Payments for purchase of property, plant and equipment ...........................
Proceeds from sale of property, plant and equipment ................................
Payments for acquisitions of intangible assets ...........................................
Payments for investments in securities .....................................................
Proceeds from sale of investments in securities .........................................
Payments for additional investments in consolidated subsidiaries ...............
Acquisition of consolidated subsidiary, net of cash acquired [Note 13(a)] ........
Payments for investments in non-consolidated subsidiaries ........................
Additions to loans receivable ...................................................................
Collection of loans receivable ...................................................................
Other, net ..............................................................................................
Net cash used in investing activities ...............................................

¥

9,310

2005
¥

7,630
310
(2)
1,079
204
442
(55)
194
(956)
(988)
808
1,031
19,00757(192)(5,259)13,613

7,999
295(1,192)$82,804
74,483
2,745(11,099)

—

—

1,065
187
(104)
158
(3,650)(1,366)
1,845
2,662
16,791
104(149)(3,377)
13,369

9,918
1,744
(968)
1,472
(33,986)(12,716)
17,183
24,779156,359
970(1,389)(31,447)
124,493(668)
168(9,492)
72
(208)
(9)
103
(697)

(41)
31
(10,882)
132
(545)
(12)
1,767

—

—

—
—

(103)
(100)
(1,926)694
146(10,797)

(961)
(931)
(17,937)
6,466
1,361
(100,544)

1,648
159
(3,236)
2,021
(801)
(212)

15,3451,480(30,130)
18,818(7,460)(1,975)

—

—

88
(333)

820
(3,102)(56)
2,182
16,752¥ 18,934(526)
20,321
155,990$ 176,311

(42)
62
(68)
(10,110)

Cash Flows from Financing Activities:
Increase (decrease) in short-term borrowings, net ......................................
Proceeds from long-term loans payable ....................................................
Repayments of long-term loans payable ....................................................
Proceeds from issuance of common stock ................................................
Cash dividends paid ...............................................................................
Cash dividends paid to minority shareholders ............................................
Proceeds from sale of treasury stock ........................................................
Other, net ..............................................................................................
Net cash used in financing activities ...............................................

(820)
(151)
713
5
(2,230)Effect of Exchange Rate Changes on Cash and Cash Equivalents .................
Net Increase in Cash and Cash Equivalents ..................................................
Cash and Cash Equivalents at Beginning of Year ..........................................
Cash and Cash Equivalents at End of Year ...................................................

(382)
890
16,530¥ 17,420(214)—(1,763)—

The accompanying notes to the consolidated financial statements are an integral part of these statements.

19 Annual Report 2005

8,892

2005

(385)
293
(101,330)
1,230(5,077)(116)
16,458

1. Summary of Significant Accounting and Reporting Policies( a ) Basis of presenting consolidated financial statements
EXEDY Corporation (the “Company”) and its consolidated domestic
subsidiaries maintain their accounts and records in accordance withthe provisions set forth in the Japanese Commercial Code and the
Securities and Exchange Law, and in conformity with accounting
principles and practices generally accepted in Japan (“Japanese
GAAP”). Overseas consolidated subsidiaries have adopted
accounting generally accepted in their respective countries and no
adjustment has been made to their financial statements on
consolidation, as allowed under accounting principles and practices
generally accepted in Japan. Certain accounting principles andpractices generally accepted in Japan are different in certain
respects from the application and disclosure requirements ofInternational Financial Reporting Standards.

( d ) Securities
Securities consist principally of marketable and nonmarketable
equity securities and interest-bearing securities.

The accompanying financial statements have been restructured andtranslated into English (with some expanded descriptions and theinclusion of statements of shareholders’ equity) from theconsolidated financial statements of the Company prepared inaccordance with Japanese GAAP and filed with the director of
Kanto Finance Bureau in Japan as required by the Securities andExchange Law of Japan. Some supplementary information includedin the statutory Japanese language consolidated financial
statements, but not required for fair presentation, is not presented
in the accompanying financial statements.

If the fair market value of other securities declines significantly, suchsecurities are stated at fair market value and the difference between
the fair market value and the carrying amount is recognized as aloss in the period of decline. If the net asset value of othersecurities, except for interest-bearing securities, with no available
fair market value declines significantly, such securities should be
written down to the net asset value by charging to income.

The translation of the Japanese yen amounts into U.S. dollars is
included solely for the convenience of the reader, using theprevailing exchange rate as at March 31, 2005 which was ¥107.39
to U.S. $1.00. The convenience translations should not be
construed as representations that the Japanese yen amounts havebeen, could have been, or could in the future be, converted into
U.S. dollars at this or any other rate of exchange.

( f ) Inventories
Inventories except for supplies are mainly stated at the lower ofcost (first-in, first-out) or market value. Supplies are mainly stated atcost determined by the last purchase cost method.

( b ) Principles of consolidation
The accompanying consolidated financial statements include theaccounts of the Company and significant companies over which theCompany has power of control through majority voting rights orexistence of certain conditions evidencing control by the Company.
Investments in non-consolidated subsidiaries and affiliates overwhich the Company has the ability to exercise significant influence
over operating and financial policies of the investees, are accounted
for using the equity method.
In the elimination of investments in consolidated subsidiaries, theassets and liabilities of the subsidiaries, including the portion
attributable to minority shareholders, are valued using the fair value
at the time the Company acquired control of the respective
subsidiaries. Material intercompany balances, transactions andprofits have been eliminated in consolidation.
( c ) Translation of foreign currencies
Monetary assets and liabilities denominated in foreign currency aretranslated into Japanese yen at current rates at each balance sheet
date and the resulting translation gains or losses are charged toincome for the current period.
Balance sheets of consolidated overseas subsidiaries are translated
into Japanese yen at the year-end rate except for shareholders’equity accounts, which are translated at the historical rates. Income
statements of consolidated overseas subsidiaries are translated ataverage rates during the year. Translation adjustments resulting
from translating financial statements whose accounts aredenominated in foreign currencies are not included in thedetermination of net income but are reported as “Foreign currencytranslation adjustments” in a component of shareholder’s equity
and minority interests.

Other securities with available fair market value are stated at fairmarket value. Net unrealized holding gains and losses on thesesecurities are reported, net of applicable income taxes, as aseparate component of shareholders’ equity.
Realized gains and losses on the sale of such securities arecomputed using the moving average cost method.
Other securities with no available fair market value are stated atmoving average cost, net of the amount considered not collectible.

(e) Derivatives
All derivatives are stated at fair value.

( g ) Property, plant and equipment
Depreciation of property, plant and equipment is mainly computed
using the declining-balance method over their estimated useful lives
as follows:
Buildings and structures ...................................................... 3-60 years
Machinery and vehicles ........................................................ 2-15 years
Tools and furniture ................................................................ 2-20 years
Buildings acquired by the Company and its domestic consolidated
subsidiaries on and after April 1, 1998 are depreciated using thestraight-line method.
Maintenance and repairs including minor renewals and betterments
are charged to income as incurred.
Software is amortized using the straight-line method over the useful
lives (3-5 years) of the software.
From the year ended March 31, 2004, the Company adopted newJapanese accounting standards for Impairment of Fixed Assets(“Opinion concerning establishment of Accounting Standards for
Impairment of Fixed Assets” issued by the Business Accounting
Deliberation Council on August 9, 2002) and “Implementation
Guideline of Standards for Impairment of fixed assets(Implementation Guideline of Standards of Enterprise accounting
No.6 issued on October 31, 2003)”. On the balance sheet,
impairment losses are subtracted from the book cost of each asset
type.
( h) Leases
The Company and its domestic consolidated subsidiaries accountfor leases which transfer substantially all the risks and rewards ofownership of the leased assets as capital leases, except that leases
which do not transfer ownership of the leased assets at the end of
the lease term are accounted for as operating leases, in accordancewith accounting principles and practices generally accepted inJapan. Overseas consolidated subsidiaries of the Company
account for leases that transfer substantially all risks and rewards ofownership of the leased assets as capital leases.
Annual Report 2005 20

( i ) Income taxes
The Company and its consolidated subsidiaries recognize the tax
effects of temporary differences between the carrying amounts ofassets and liabilities for tax and financial reporting purposes.
The asset and liability approach is used to recognize deferred tax
assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and the amounts used forincome tax purposes.
( j ) Allowance for doubtful accounts
The company and its consolidated subsidiaries provide for doubtful
accounts principally at an amount computed based on the historicalbad debt ratio during a certain reference period plus the estimateduncollectible amount based on the analysis of individual accounts.
( k ) Employees’ severance and retirement benefits
The Company and most of its consolidated subsidiaries provide for
employees’ severance and retirement benefits at the end of the
fiscal year based on the estimated amounts of projected benefit
obligation and the fair value of the plan assets at that date.
The net transition obligation is recognized in expenses in equalamounts primarily over 5 years commencing with the year ended
March 31, 2001. Actuarial differences are fully amortized in the year
following the year in which the actuarial differences are recognized.
The prior service cost is recognized in expenses in the year in which
they are incurred.
(Accounting change)
In order to reduce actuarial differences, reflect employees’
performance on retirement payments and shift to new pension
plans, the Company and its domestic consolidated subsidiaries
revised their retirement benefits plans effective as of March 31,
2005: implemented retirement benefits plans fully based on
employees’ performance, adopted pension plans known as “Cashbalance plans” and transferred a certain portion of the defined
benefit pension plans to defined contribution pension plans.
In accordance with the revision of retirement benefits plans, theCompany and its domestic consolidated subsidiaries changed theiraccounting policies related to employees’ severance and retirement
benefits as follows:
Through the year ended March 31, 2004, actuarial differences wereamortized on a straight-line basis over 15 years, which was within
the estimated average remaining service lives of employees,
beginning in the year following the year in which the actuarial
differences were recognized. From the year ended March 31, 2005,
the Company and its domestic consolidated subsidiaries changed
their method of accounting for actuarial differences and adopted
the policy of charging the entire amount of actuarial differences toincome in the year following the year in which the actuarial
differences are recognized.
In previous years, prior service costs were amortized using thestraight-line method over 15 years, which was within the estimatedaverage remaining service lives of employees, beginning in the year

in which the prior service costs were recognized. From the year
ended March 31, 2005, the Company and its domestic consolidated
subsidiaries changed their method of accounting for prior service
costs and adopted the policy of charging the prior service costs toincome as incurred.
In relation to the change of accounting policies described above, inthe year ended March 31, 2005, income before income taxes andminority interests decreased by ¥2,581 million ($24,033 thousand)compared with what would have been recorded under the previous
accounting policies.

3. Securities
Other securities with book values (fair values) exceeding acquisition costs as of March 31, 2004 and 2005 were as follows:
Japanese yen (millions)
March 31,2004
Equity securities ......................................................................................................................
Interest-bearing securities ......................................................................................................
Others .....................................................................................................................................

( l ) Retirement benefits for directors and corporate auditors
The Company and domestic subsidiaries have unfunded retirement
allowances plans for directors and corporate auditors. The amounts
required under the plans have been fully accrued.
(m) Accounting for consumption taxes
Consumption taxes are imposed at the flat rate of 5% on all
domestic consumption of goods and services (with certain
exemptions).
The consumption taxes withheld upon sale and consumption taxes
paid by the Companies on their purchases of goods and services
are not included in the amounts of respective revenue and cost or
expense items in the accompanying consolidated statements ofincome.
( n ) Research and development expenses
Research and development expenses are charged to income as
incurred. Research and development expenses charged to income
amounted to ¥4,206 million and ¥3,945 million ($36,738 thousand)for the years ended March 31, 2004 and 2005, respectively.
( o ) Per share data
The computation of net income per share is based on the weighted
average number of shares outstanding during each year, excluding
the Company’s treasury stock and based on net income attributing
to ordinary shareholders, excluding bonuses to directors andcorporate auditors, etc. The computation of net income-diluted pershare assumes the full exercise of outstanding warrants and fullconversion of convertible bonds at the beginning of the year (or at
the time of issuance, if it is after beginning of the year) with anapplicable adjustment for related net-of tax interest expense. The
computation of Shareholders’ equity per share is based on thenumber of common stock shares outstanding at year end,
excluding the Company’s treasury stock.
Cash dividends per share shown in the statements of income are
the amounts applicable to the respective years.
( p ) Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits
which have maturities of three months or less when purchased.

Book
value

Difference

¥ 927
—
4
¥ 931

¥ 2,791—5¥ 2,796¥ 1,864—1¥ 1,865

U.S. dollars (thousands)

Japanese yen (millions)
March 31,2005
Equity securities .................................................
Interest-bearing securities .................................
Others ...............................................................

Acquisition
cost
¥

362
—
—
362

¥

Book
value
¥ 1,045——¥ 1,045

Difference
¥

Book
value

Difference$ 3,368——$ 3,368$ 9,729——$ 9,729$ 6,361——$ 6,361¥

Other securities with book values (fair values) not exceeding acquisition costs as of March 31, 2004 and 2005 were as follows:
Japanese yen (millions)
March 31,2004
Equity securities ......................................................................................................................
Interest-bearing securities ......................................................................................................
Others .....................................................................................................................................

Acquisition
cost

Book
value

Difference

¥

¥

¥

36
—
—
36

¥

March 31,2005
Equity securities .................................................
Interest-bearing securities .................................
Others ...............................................................

Book
value

Difference

¥

¥

¥

¥

¥

18
—
—
18

Japanese yen(millions)
2004
5,140
1,912
2,762
525
¥ 10,339
¥

2005
5,411
3,633
2,213
599
¥ 11,856¥

U.S. dollars(thousands)
2005
50,38633,827
20,611
5,575$ 110,399

(8)
—
—
(8)

¥

U.S. dollars (thousands)

Acquisition
cost
18
—
—
18

28
—
—
28

¥

Japanese yen (millions)¥

Acquisition
cost

—
—
—
—

$
$

Book
value

169
—
—
169

$
$

Difference

169
—
—
169

¥

—
—
—
—

¥

The book value of securities with no available fair values as of March 31, 2004 and 2005 were as follows:
Japanese yen(millions)
Other securities with no fair value
Non-listed equity securities
Carrying amount .................................................................................................................

U.S. dollars(thousands)

2004

2005

2005

¥

¥

$

61

64

600

Maturities of other securities with maturities as of March 31, 2004 and 2005 were as follows:
Japanese yen(millions)
2004

Inventories as of March 31, 2004 and 2005 were as follows:

Finished goods ...................................................................................................................
Work-in process .................................................................................................................
Raw materials ......................................................................................................................
Supplies ................................................................................................................................

Acquisition
cost

683
—
—
683

( q ) Reclassification
Certain comparative figures have been reclassified to confirm withthe current year’s presentation.

2. Inventories

Corporate bonds
Within one year ........................................................................................................................
After one year through five years ................................................................................................
After five years through ten years ...............................................................................................
Over ten years ........................................................................................................................
Other
Within one year ........................................................................................................................
After one year through five years ................................................................................................
After five years through ten years ...............................................................................................
Over ten years ........................................................................................................................

¥

U.S. dollars(thousands)

2005
—
—
—
—

¥

—
5
—
—

2005
—
—
—
—
—
—
—
—

$

—
—
—
—
—
—
—
—

$

Other securities sold in the year ended March 31, 2004 and 2005 were as follows:
Japanese yen(millions)

Sales value ................................................................................................................................
Gains ..........................................................................................................................................
Losses ........................................................................................................................................

21 Annual Report 2005

Acquisition
cost

U.S. dollars(thousands)

2004

2005

2005

¥ 103
2
—

¥ 1,767
1,192—$16,458
11,099—Annual Report 2005 22

4. Income Taxes

Annual maturities of long-term debt as of March 31,2005 were as follows:Significant components of the Company’s deferred tax assets and liabilities as of March 31, 2004 and 2005 were as follows:Year ending March 31,

Japanese yen(millions)

U.S. dollars(thousands)

2004

2005

2005

Deferred tax assets:
Employees’ severance and retirement benefits ..........................................................................
Net operating loss carryforwards ................................................................................................
Accrued defined contribution pension to employees .................................................................
Accrued bonuses to employees ..................................................................................................
Allowance for doubtful accounts ................................................................................................
Losses on devaluation of inventories ..........................................................................................
Unrealized income (inventories) ..................................................................................................
Accrued enterprise tax ................................................................................................................
Unrealized income (fixed assets) ................................................................................................
Accrued warranty costs ..............................................................................................................
Retirement benefits for directors and corporate auditors ..........................................................
Other ...........................................................................................................................................
Total deferred tax assets .................................................................................................................
Valuation allowance ....................................................................................................................

¥ 3,030
3,333
—
741
130
195
171
227
188
107
182
830
9,134
(3,684)¥ 3,191
2,666
1,199
765
536
286
221
211
210
173
152
717
10,327(811)$ 29,717
24,825
11,164
7,123
4,994
2,664
2,058
1,963
1,960
1,613
1,411
6,676
96,168(7,560)

Deferred tax assets .......................................................................................................................

¥ 5,450¥ 9,516$ 88,608

Deferred tax liabilities:
Property, plant and equipment ...................................................................................................
Retained earnings of overseas subsidiaries ...............................................................................
Reserve for advanced depreciation ............................................................................................
Net unrealized holding gains on securities .................................................................................
Reserve for special depreciation .................................................................................................
Other ...........................................................................................................................................
Total deferred tax liabilities ..............................................................................................................
Valuation allowance ....................................................................................................................
Deferred tax liabilities ....................................................................................................................

¥ (968)
(348)
(349)
(750)
(255)
(214)
(2,884)
1,026¥(1,859)

¥

(817)
(487)
(346)
(276)
(202)
(177)
(2,305)30¥ (2,275)$ (7,612)(4,537)(3,218)(2,570)(1,883)(1,644)(21,464)
283$(21,181)

Net deferred tax assets .................................................................................................................

¥ 3,591¥ 7,241

2004
Statutory tax rate ..........................................................................................................................................................
Adjustments for:Non-deductible expenses .........................................................................................................................................
Per capita inhabitant tax ...........................................................................................................................................
Effect of operating loss carryforwards of overseas subsidiaries ..............................................................................
Write-off of valuation allowance ...............................................................................................................................
Other .........................................................................................................................................................................
Effective tax rate ...........................................................................................................................................................

$ 67,427

493
1,977
187
30
2,687

$

4,595
18,412
1,739
279$ 25,025

6. Assets Pledged as CollateralJapanese yen(millions)Land ................................................................................................................................................
Buildings and structures, net .....................................................................................................
Machinery and vehicles, net .......................................................................................................

2004
152
327
18
¥
497
¥

2005
152
12
261
¥
425
¥

U.S. dollars(thousands)
2005
1,418
112
2,426
$ 3,956$

As is customary in Japan, short-term and long-term bank loans are made under general agreements which provide that additional security
and guarantees for present and future indebtedness will be given at the request of the bank under certain circumstances, and that any
collateral so furnished will be applicable to all indebtedness to that bank.
To date, the Company and its consolidated subsidiaries have not received such requests from their banks.
A cash deposit of ¥9 million ($80 thousand) was also pledged for deferred payment of electricity as of March 31,2005.

7. Employees’ Severance and Retirement Benefits
As a result of revision of the retirement benefits plans effective March 31, 2005, the Company and its domestic subsidiaries adopt defined
benefit retirement plans: cash balance plans and lump-sum payment plans, as well as defined contribution pension plans.
The liability for employees’ severance and retirement benefits included in the liabilities section of the consolidated balance sheets as ofMarch 31, 2004 and 2005 consists of the following:
Japanese yen(millions)

U.S. dollars(thousands)

41.7 %

40.4 %

Projected benefit obligations ......................................................................................................
Fair value of pension assets .......................................................................................................

0.9
0.2
(6.7)
—
(0.4)
35.7 %

0.4
0.2
(5.6)
(21.4)
0.6
14.6 %

2004¥17,620(3,424)
14,1962005¥12,104(4,364)
7,740

2005$112,710(40,635)
72,075

Unrecognized net transition obligation .....................................................................................
Unrecognized actuarial differences ...........................................................................................
Liability for employees’ severance and retirement benefits .............................................

(607)(5,661)¥ 7,928—375¥ 8,115—
3,492$ 75,567

5. Short-term Borrowings and Long-term Debt
Long-term debt as of March 31, 2004 and 2005 is summarized below:
Japanese yen(millions)23 Annual Report 2005¥

U.S. dollars(thousands)

The following assets were pledged as collateral for ¥52 million of secured short-term loan from banks and ¥712 million of secured
long-term loans from government sponsored agencies as of March 31, 2004, and for ¥563 million ($5,328 thousand) of secured long-termloans from government sponsored agencies as of March 31, 2005:

2005

Short-term borrowings are notes payable to banks due in 30-180 days. The interest rates on these loans as at March 31, 2005 ranged
from 0.34 percent to 8.99 percent.

Less: Current portion ...................................................................................................................

2007 ..............................................................................................................................................................................
2008 ..............................................................................................................................................................................
2009 ..............................................................................................................................................................................
2010 ..............................................................................................................................................................................

¥The Company is subject to a number of taxes based on income, which, in the aggregate, indicate a statutory rate in Japan of approximately
41.7% for the year ended March 31, 2004, and 40.4% for the year ended March 31, 2005.
The following table summarizes the significant differences between the statutory tax rate and the Company’s effective tax rate for financial
statement purposes for the years ended March 31, 2004 and 2005:

Loans from banks and others,
due in installments through 2010,
with interest rates ranging from 0.50% to 4.94% - Unsecured .....................................
Loans from government sponsored agencies
due in installments through 2009,
with interest rate at 1.6% - Secured ..................................................................................

Japanese yen(millions)

U.S. dollars(thousands)

2004

2005

2005

¥ 5,063¥ 2,384$ 22,206

712
5,775(3,181)¥ 2,594

563
2,947
(260)
¥ 2,687

5,238
27,444(2,419)$ 25,025(Notes) 1. The decrease in liability for employees’ severance and retirement benefits arising from the transition to the revised plan effective
March 31, 2005 is summarized as follows:
Japanese yen
U.S. dollars(millions)(thousands)¥ (6,329)$ (58,932)
Decrease in projected benefit obligation ...........................................................................................
547
5,090
Unrecognized actuarial differences ....................................................................................................
3,156
29,393
Unrecognized prior service costs .......................................................................................................
¥ (2,626)$ (24,449)
Decrease in liability for employees’ severance and retirement benefits ......................................
The total pension liabilities to be transferred over 4 years to the defined contribution plan system amounted to ¥2,967 million($27,629 thousand). The amount to be transferred subsequent to March 31, 2005 amounted to ¥2,967 million ($27,629
thousand), which was included under “Notes and accounts payable” and “Other long-term liabilities”.
2. The increase in liability for employee’s severance and retirement benefits due to the change of accounting polices issummarized as follows:
Japanese yen
U.S. dollars(millions)(thousands)¥ 5,737$ 53,426
Unrecognized actuarial differences ....................................................................................................
(3,156)(29,393)
Unrecognized prior service costs .......................................................................................................
¥ 2,581$ 24,033
Increase in liability for employees’ severance and retirement benefits ........................................

Annual Report 2005 24

Included in the consolidated statements of income for the years ended March 31, 2004 and 2005 were employees’ severance andretirement benefit expenses comprised of the following:
Japanese yen(millions)
Service costs .................................................................................................................................
Interest costs .................................................................................................................................
Expected return on plan assets .................................................................................................
Amortization of net transition obligation ...................................................................................
Amortization of actuarial differences ........................................................................................
Employees’ severance and retirement benefit expenses ................................................
Losses on change of plan for employees’ severance and retirement benefits ........................................

2004
¥ 816
337
(69)
607
414
2,105
—
¥ 2,105

2005
¥ 820
350
(103)
607
429
2,103
2,923
¥ 5,026

U.S. dollars(thousands)
2005
7,632
3,263
(956)
5,651
3,994
19,584
27,218$ 46,802$(Notes) 1. ¥342 million ($3,185 thousand) of the increase in expenses relating to the transfer of a certain portion of defined benefit plans todefined contribution plans, was included in “Losses on change of plan for employees’ severance and retirement benefits”.
2. ¥2,581 million ($24,033 thousand) of the increase in expenses due to the change of accounting policies was included in “Losses
on change of plan for employees’ severance and retirement benefits”.
Assumptions used in the calculation of the above information were as follows:

Japanese yen (millions)
Acquisition Accumulated Accumulated losses
Balance
March 31,2005
cost
depreciation
on impairment
Machinery and vehicles .......................
¥ 1,027
¥ 200
¥ —
¥ 827
Tools and furniture ...............................
274
188
—
86
Other .....................................................
190
136
—
54
¥ 1,491
¥ 524
¥ —
¥ 967

U.S. dollars (thousands)
Acquisition Accumulated Accumulated losses
Balancecostdepreciation
on impairment$ 9,559$ 1,862$ —$ 7,697
2,556
1,751
—
805
1,770
1,269
—
501
$13,885$ 4,882$ —$ 9,003

The scheduled maturities of future lease payments, on such lease contracts as of March 31, 2004 and 2005, were as follows:
Japanese yen
U.S. dollars(millions)(thousands)
Due within one year .....................................................................................................................
Due over one year ........................................................................................................................

2004
¥ 250
487
¥ 737

2005
¥ 202
765
¥ 967

2005
$ 1,879
7,124$ 9,003

Lease payments for the year ......................................................................................................

¥ 257

¥ 211

$ 1,968

The amounts of acquisition costs and future minimum lease payments under finance leases included the interest expense portion.
Depreciation expenses, which are not reflected in the accompanying consolidated statements of income, calculated by the straight-line
method, would be ¥257 million and ¥211 million ($1,968 thousand) for the years ended March 31, 2004 and 2005, respectively.
The Company had no leased assets on which impairment shall be recognized for the years ended March 31, 2004 and 2005.

2004
Method of attributing the projected benefits to periods of service ................................................................... straight-line basis
Discount rate ...............................................................................................................................................................
2.0%
Expected rate of return on plan assets ...................................................................................................................
3.0%
Amortization of net transition obligation .................................................................................................................
5yearsAmortization of prior service costs ..........................................................................................................................
—
Amortization of actuarial differences .......................................................................................................................
15years

2005
straight-line basis
2.0%
3.0%
5years
1year
1year(b) Operating leases
The scheduled maturities of future lease payments under non-cancelable operating leases as of March 31, 2004 and 2005, were as follows:
Japanese yen(millions)Due within one year ......................................................................................................................
Due over one year .........................................................................................................................

2004
¥
6
8
¥
14

U.S. dollars(thousands)

2005
¥
6
2
¥ 8

2005
$
58
18
$ 76

8. Shareholders’ Equity
The Company is subject to the Japanese Commercial Code (the “Code”), to which certain amendments became effective on October 1, 2001.

10. Contingent Liabilities

The Code provides that all appropriations of retained earnings, except interim cash dividends, must be approved at an ordinary general meetingof shareholders. In accordance with customary practice in Japan, appropriations of retained earnings are not accrued in the financial statements
for the year to which they relate but are recorded in the subsequent accounting year after shareholders’ approval has been obtained.

Contingent liabilities for guarantees by the Company as of March 31, 2004 and 2005 were as follows:

The Code provides that an amount equal to at least 10% of cash dividends and directors’ bonuses, etc., to be paid be appropriated as a legal
reserve. Before September 30, 2001, no further appropriation was required when the legal reserve equaled 25% or more of common stock.
Pursuant to the amendments to the Code, no further appropriation is required when the sum of the capital surplus and legal reserve equals 25%
or more of common stock. If the amount of accumulated capital surplus and legal reserve exceeds the required amount, the excess amount isallowed to be appropriated by a resolution at an ordinary general meeting of shareholders.
The legal reserve might be used to reduce a deficit or it might be transferred to common stock through the appropriate legal procedures.

Guarantees of loans from banks of affiliates under the equity method .......................................

Japanese yen(millions)

U.S. dollars(thousands)

2004

2005

2005

¥ 500

¥ 950

$ 8,846

11. Per Share Data
Per share data as of March 31, 2004 and 2005 were as follows:

The following appropriations of retained earnings of the Company were proposed and approved at the general meeting of shareholders held on
June 28, 2005:

Balance at March 31, 2005 ..........................................................................................................................................
Appropriations-Cash dividends paid (¥10.5 per share outstanding at March 31, 2005) .......................................
Bonuses to directors and corporate auditors .................................................................................
Balance after appropriations .......................................................................................................................................

Japanese yen(millions)¥ 60,808523
65¥ 60,220

U.S. dollars(thousands)$ 566,235
4,869
605$ 560,761

9. Leases(a) Finance leases
Information relating to finance leases, except those leases for which the ownership of the leased assets is considered to be transferred to
the lessee, is described below.

Japanese yen
2004
Net income ..................................................................................................................................
Net income-diluted .....................................................................................................................
Shareholders’ equity ...................................................................................................................

¥ 108.84
106.12
1,432.90

March 31,2004
Machinery and vehicles ......................................................................
Tools and furniture ..............................................................................
Other ......................................................................................................

25 Annual Report 2005

Acquisition
cost
¥ 900
355
246
¥1,501¥

127.61127.591,525.24

Japanese yen(millions)

¥ 499
140
98
¥ 737

$

1.19
1.19
14.20

U.S. dollars(thousands)

2004

2005

2005

Net income per share of common stock
Net income ...................................................................................................................................
Amounts not attributed to ordinary shareholders ......................................................................
(Bonuses to directors and corporate auditors) ..........................................................................
Net income attributed to ordinary shareholders ..........................................................................

¥ 5,179
92(92)¥ 5,087¥ 6,300
90(90)¥ 6,210$ 58,665
842(842)$ 57,823

The weighted average number of shares (thousands) .................................................................

46,73948,662

48,662

Japanese yen
2004

Balance2005

The information on which per share data was calculated as of March 31, 2004 and 2005 was as follows:

Pro forma information regarding the leased property such as acquisition cost, accumulated depreciation, accumulated losses on impairment and future minimum lease
payments under finance leases that do not transfer the ownership of the leased property to the lessee for the year ended March 31, 2004 and 2005 was as follows:
Japanese yen (millions)
Accumulated
Accumulated losses
depreciation
on impairment
¥ 401
¥
—
215
—
148
—
¥ 764
¥
—

U.S. dollars

2005

Net income-diluted per share of common stock
Effect of dilutive securities
On net income (net-of-tax interest expense) ...........................................................................
On the weighted average number of shares (thousands) ........................................................

¥

1
1,208

U.S. dollars

2005

¥

2005

—
6

$

—
6

Annual Report 2005 26

12. Impairment of Property, plant and equipment

15. Segment Information

The Company evaluated profitability in each business category: Manual automotive drivetrain operations, Automatic automotive drivetrain
operations, Industrial drivetrain operations and Other (Plants and other facilities), and the result indicates that each business will return theinvestments in the future. However, the company has some assets which do not belong to any business category and the carrying amount ofthese assets may not be recoverable. Therefore the Company recognized impairment losses on those assets where the recoverable value wasless than the net book value. The recoverable value of land was based on valuation of property and equipment taxes and the recoverable value ofother assets was based on fair value to sell. Impairment losses were recognized for the excess of the net book value over the recoverable value.

The Company and its consolidated subsidiaries operate three business segments, Manual automotive drivetrain operations, Automatic automotive
drivetrain operations and Other. The Manual automotive drivetrain segment manufactures and sells clutch discs, clutch covers, flywheels and other manualtransmissions. The Automatic automotive drivetrain segment is engaged in the manufacture and sale of torque converters and wet friction clutch plates.
The Other segment consists of industrial machine drivetrain operations, that is, the manufacture and sale of powershift transmissions, and other operations
including the sale and manufacture of clutches for motorcycle, plants and other facilities.
Effective for the year ending March 31, 2004, the Company and its subsidiaries changed the segment category as shown below because the Automatic
automotive drivetrain segment is expanding its business significantly and this new categorization shall provide investors with more useful information.

Impairment losses on fixed assets for the years ended March 31, 2004 and 2005 were as follows:
March 31,2004

March 31,2005

Asset Group
Asset, notbelonging to any
business category

Asset Group—

Asset Type

Location

Land
Land
Buildings and Structures
Tools and Furniture

Hyogo Pref.
Osaka Pref.
Osaka Pref.
Osaka Pref.

Asset Type—

Location—

Usage
Idle ...........................
Idle ...........................
Idle ...........................
Idle ...........................

Usage— ...........................

Former segment

Japanese yen(millions)

Automotive drivetrain operations

¥ 473
589
17
0
¥ 1,079

Industrial drivetrain operations
Other operations

Japanese yen(millions)

U.S. dollars(thousands)

¥
¥

¥
¥

—
—

—
—

Japanese yen(millions)
Manual automotive drivetrain operations ................................................
Automatic automotive drivetrain operations ............................................
Other operations .................................................................................
Eliminations(inter-segment net sales) .....................................................

Sales:

Operating Costs and Expenses: Manual automotive drivetrain operations ................................................
Automatic automotive drivetrain operations ...........................................
Other operations ..................................................................................
Non-allocated operating expenses and eliminations ...............................

(a) Acquisition of newly consolidated subsidiaries
In the year ended March 31, 2005, the Company acquired a majority of the outstanding shares of P. T. Daikin Clutch Indonesia, which waspreviously accounted for using the equity method. The assets and liabilities of P. T. Daikin Clutch Indonesia upon consolidation with the Company
and the reconciliation between the acquisition cost and net cash used for the acquisition are as follows:

Current assets ..............................................................................................................................................................
Non-current assets .....................................................................................................................................................
Consolidation difference .............................................................................................................................................
Current liabilities ...........................................................................................................................................................
Non-current liabilities ...................................................................................................................................................
Minority interest ............................................................................................................................................................
Acquisition cost ............................................................................................................................................................
The Company’s interest prior to acquisition ..............................................................................................................
Cash and cash equivalents of newly consolidated subsidiary ................................................................................
Net acquisition cost .....................................................................................................................................................

Japanese yen(millions)
¥ 669
223
79
(654)
(27)
(98)
192
(49)
(40)
¥ 103

U.S. dollars(thousands)$ 6,230
2,074
734(6,091)
(253)
(910)
1,784
(460)
(363)
$ 961

Operating Income (Loss) :Manual automotive drivetrain operations ................................................
Automatic automotive drivetrain operations ...........................................
Other operations ..................................................................................
Non-allocated operating expenses and eliminations ...............................

Assets:Manual automotive drivetrain operations ...............................................
Automatic automotive drivetrain operations ............................................
Other operations ..................................................................................
Corporate and eliminations ....................................................................

Depreciation and Amortization:

Manual automotive drivetrain operations ................................................
Automatic automotive drivetrain operations ............................................
Other operations ..................................................................................
Corporate and eliminations ..................................................................

Impairment Losses on Fixed Assets: Manual automotive drivetrain operations ...............................................
Automatic automotive drivetrain operations ...........................................
Other operations ..................................................................................
Corporate and eliminations ..................................................................
Capital Expenditures:(b) Non-cash investing and financing activities
In the year ended March 31, 2004, convertible bonds were converted and the Company resold treasury stock instead of issuing new stock.

Operating Costs and Expenses: Japan .................................................................................................
America ..............................................................................................
Asia-Oceania ......................................................................................
Other .................................................................................................
Non-allocated operating expenses and eliminations ...............................

The following table provides information on derivative instruments as of March 31, 2004 and 2005.

Forward exchange contracts:
To sell U.S. dollars .......................................................................................................................
To sell Euro...................................................................................................................................

Japanese yen (millions)
Fair
value

Japanese yen (millions)Contract
amount¥¥27 Annual Report 2005

—
—
—

Fair
value
¥
¥

¥
¥

7
4
11

¥
¥

—
—
—

Contract
amount
$
$

—
—
—

Fair
value
$
$

2005

2005

¥ 46,657
76,69018,919(5,959)¥ 136,307¥ 40,862
69,88318,036(5,258)¥ 123,523¥ 5,795
6,807
884
(702)
¥ 12,784¥ 35,642
61,607
12,022
14,018¥ 123,289¥ 2,587
4,860
629
(77)
¥ 7,999
¥
—
—
—
—
¥
—
¥ 3,814
6,874
990
(118)
¥ 11,560$ 434,467
714,122
176,174(55,492)$1,269,271$ 380,504
650,740
167,946(48,965)$1,150,225$ 53,963
63,381
8,228(6,526)$ 119,046$ 331,896
573,676
111,943
130,532$1,148,047$ 24,092
45,257
5,855(721)$ 74,483
$
—
—
—
—
$
—
35,51264,006
9,216(1,090)$ 107,644

Operating Income (Loss) :Japan ................................................................................................
America ..............................................................................................
Asia-Oceania ......................................................................................
Other .................................................................................................
Non-allocated operating expenses and eliminations ...............................

Assets:Japan .................................................................................................
America ..............................................................................................
Asia-Oceania ......................................................................................
Other ..................................................................................................
Corporate and eliminations ..................................................................

2004

2005

2005

¥ 98,435
24,493
9,887
1,812(12,346)¥ 122,281¥ 89,556
23,0608,803
1,574(12,232)¥ 110,761¥ 8,878
1,432
1,084
238
(112)
¥ 11,520¥ 71,923
17,565
11,202968
9,141¥ 110,799¥ 110,171
25,361
14,157
1,691(15,073)¥ 136,307¥ 100,486
24,083
12,4191,502(14,967)¥ 123,523
¥
9,685
1,278
1,738
189
(106)
¥ 12,784¥ 77,005
18,85315,097
1,182
11,152¥ 123,289$1,025,896
236,153
131,824
15,742(140,344)$1,269,271$ 935,707
224,254
115,644
13,987(139,367)$1,150,225$ 90,189
11,89916,1801,755(977)$ 119,046$ 717,055
175,556
140,582
11,010103,844$1,148,047

Notes : The Company’s operations are classified into geographical areas as follows: Japan, America, Asia-Oceania (Thailand, Malaysia,
China, Australia and United Arab Emirates) and Other (Europe).

Japanese yen(millions)Gain(loss)———

U.S. dollars(thousands)

Net sales outside Japan for the years ended as of March 31, 2004 and 2005 were as follows :U.S. dollars (thousands)
Gain(loss)———

Gain(loss)

¥ 474
90
¥ 564

¥ 482
93
¥ 575

Japan .................................................................................................
America .............................................................................................
Asia-Oceania ......................................................................................
Other .................................................................................................
Eliminations(inter-segment net sales) ....................................................

Sales:The only derivative transactions the Company engages in are forward currency exchange contracts and for the purpose of hedging against
exchange rate risks. The Company does not engage in derivative transactions for trading or speculative purposes.
Hedging accounting through derivative transactions was not applied as the necessary conditions were not met.
Forward currency exchange contracts bear risk due to changes in the exchange rate. However, as the company trades only with banking
facilities, there is no credit risk. The Company has established a control system which includes policies and procedures regarding derivativetransactions. All derivative transactions were processed under control and with the necessary approval.

Contract
amount2004¥ 45,476
66,753
15,188(5,136)¥ 122,281¥ 39,920
60,455
14,600(4,214)¥ 110,761¥ 5,556
6,299
587
(922)
¥ 11,520¥ 34,950
51,53012,920
11,399¥ 110,799¥ 2,430
4,325
958
(83)
¥ 7,630
¥
—
—
—
1,079
¥ 1,079¥ 2,907
5,802
996
(212)
¥ 9,493

Japanese yen(millions)

14. Derivatives

March 31,2004

Manual automotive drivetrain operations ...............................................
Automatic automotive drivetrain operations ...........................................
Other operations ..................................................................................
Corporate and eliminations ...................................................................

U.S. dollars(thousands)

Geographic area information for the years ended as of March 31, 2004 and 2005 was as follows :Japanese yen(millions)¥ 1,265
Decrease of treasury stock .........................................................................................................................................
804
Increase of capital surplus ..........................................................................................................................................
¥ 2,069
Decrease of convertible bonds ..................................................................................................................................

Forward exchange contracts:
To sell U.S. dollars..................................................
To sell Euro .............................................................

Other operations

Business segment information for the years ended as of March 31, 2004 and 2005 was as follows :13. Cash flows

March 31, 2005

New segment
Manual automotive drivetrain operations
Automatic automotive drivetrain operations

$
$

—
—
—

America ...............................................................................................................
Asia-Oceania .......................................................................................................
Other ...................................................................................................................

U.S. dollars(thousands)

2004

2005

2005

¥ 24,035
14,7385,290¥ 44,063¥ 25,823
19,6596,132¥ 51,614$ 240,464
183,065
57,093$ 480,622

Annual Report 2005 28

Report of Independent Auditor

Corporate Data

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIESTo the Board of Directors and Shareholders of
EXEDY Corporation

BOARD OF DIRECTORSOUTLINE OF COMPANY

As of June 30, 2005

As of March 31, 2005

President and Chief Executive Officer:

Name:

Takeshi Nakano

Executive Managing Directors:

We have audited the accompanying consolidated balance sheets of EXEDY Corporation and its
subsidiaries as of March 31, 2005 and 2004, and the related consolidated statements of income,shareholders’ equity, and cash flows for the year then ended, all expressed in Japanese Yen. These
consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with auditing standards, generally accepted in Japan. Thesestandards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of EXEDY Corporation and its subsidiaries as of March 31,
2005 and 2004, and the consolidated results of their operations and their cash flows for the year thenended in conformity with accounting principles generally accepted in Japan.
As described in Note 1(g), effective for the year ended March 31, 2004, EXEDY Corporation and its
subsidiaries adopted new Japanese accounting standards for impairment of fixed assets.
As described in Note 1(k), effective for the year ended March 31, 2005, EXEDY Corporation and its
subsidiaries changed accounting policies related to employees’ severance and retirement benefits.
As described in Note 15, effective for the year ended March 31, 2004, EXEDY Corporation and its
subsidiaries changed the segment category.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader,have been translated on the basis set forth in Note 1(a) to the accompanying consolidated financial
statements.

Haruo Shimizu
Etsuji Terada

Managing Directors:

Established:
July 1, 1950

Paid-in Capital:￥8,284 million

Number of Employees:

Directors:

Number of Authorized Shares:

Auditors:
Naoaki Sawada
Kanshirou Toyoda
Yusho Dejima
Koji Okada

1,622
168,000 thousand shares

Number of Issued Shares:
49,794 thousand shares

Number of Shareholders:
5,686This statement is to remind users that accounting principles and auditing standards and their application in practice mayvary among nations and therefore could affect, possibly materially, the reported financial position and results ofoperations. The accompanying financial statements are prepared based on accounting principles generally accepted inJapan, and the auditing standards and their application in practice are those generally accepted in Japan. Accordingly,
the accompanying consolidated financial statements and the auditors’ report presented above are for users familiar withJapanese accounting principles, auditing standards and their application in practice.

Chubu Sales Office:Tosho Bldg., 2nd Floor,
28-1 Futatsuike,
Nihongi-cho, Anjo-shi,
Aichi 446-0054, Japan

DBS Hiroshima,
6-6 Sakaemachi,
Kaita-cho, Aki-gun,
Hiroshima 736-0043, Japan

Ueno Division:
2418 Ota-cho, Iga-shi,Mie 518-0825, Japan

Kawagoe Plant:
1-103-25 Yoshinodai,
Kawagoe-shi,
Saitama 350-0833, Japan

EXEDY OVERSEAS NETWORKEXEDY HOLDINGS OF AMERICA CORPORATION

EXEDY (SHANGHAI) FRICTION MATERIAL CORPORATION

P.T. DAIKIN CLUTCH INDONESIA

8601 HAGGERTY ROAD SOUTH, BELLEVILLE,MICHIGAN 48111, U.S.A.
PHONE: 1-734-397-3333
FACSIMILE: 1-734-397-7300

BLOCK M6, SHANGHAI COMPREHENSIVE INDUSTRIAL ZONE,SHANGHAI 201400, CHINA
TEL: 86-21-6710-9075
FACSIMILE: 86-21-5743-4257

JALAN PEGANGSAAN DUA KM2 NO.64, KELAPA GADING,
JAKARTA, UTARA 14250, INDONESIA
PHONE: 62-21-4603353
FACSIMILE: 62-21-4603355

DAIKIN CLUTCH CORPORATION
8601 HAGGERTY ROAD SOUTH, BELLEVILLE,MICHIGAN 48111, U.S.A.
PHONE: 1-734-397-3333
FACSIMILE: 1-734-397-7300

SHANGHAI DYNAX CORPORATION#1 DONGXING ROAD, SONGJIANG,
SHANGHAI 201613, CHINA
PHONE: 86-21-6774-0217
FACSIMILE: 86-21-5774-2381

DYNAX INDUSTRY (SHANGHAI) CORPORATIONDYNAX AMERICA CORPORATION

No.350 RONGXIANG ROAD, EXPORT PROCESSING,
SONGJIANG, SHANGHAI 201613, CHINA
PHONE: 86-21-5774-8388
FACSIMILE: 86-21-5774-8389

EXEDY (Thailand) CO., LTD.
700/316 MOO 6, BANGNA-TRAD ROAD,
TUMBON DON HUA ROH, AMPHUR MUANG,CHONBURI 20000, THAILAND
PHONE: 66-38-214-423
FACSIMILE: 66-38-214-422

EXEDY FRICTION MATERIAL CO., LTD.
DYNAX NORTH AMERICA SALES CORPORATION
47805 GALLEON, SUITE A,
PLYMOUTH, MICHIGAN 48170, U.S.A.
PHONE: 1-734-459-9610
FACSIMILE: 1-734-459-9510

700/359 MOO 6, BANGNA-TRAD ROAD, KM57.
TUMBON DON HUA ROH, AMPHUR MUANG,CHONBURI 20000, THAILAND
PHONE: 66-38-743-923
FACSIMILE: 66-38-743-927

CEEKAY DAIKIN LIMITED
N.K.M. INTERNATIONAL HOUSE, 4TH FLOOR 178,
BABUBHAI. M.CHINAI MARG, MUMBAI 400 020, INDIA
PHONE: 91-22-22020849
FACSIMILE: 91-22-22043939

EXEDY AUSTRALIA PTY. LTD.
21 FIVEWAYS BOULEVARD, KEYSBOROUGH,
VICTORIA 3173, AUSTRALIAPHONE: 61-3-9701-5556
FACSIMILE: 61-3-9701-5684

EXEDY CLUTCH EUROPE LIMITEDUNIT2, ROKEBY COURT, MANOR PARK, RUNCORN,CHESHIRE, WA7 1RW, ENGLAND
PHONE: 44-1928-571850
FACSIMILE: 44-1928-571852

EURO EXEDY CLUTCH LIMITED
2800, TATABANYA, BUZAVIRAG UT4, HUNGARYPHONE: 36-34-311-117
FACSIMILE: 36-34-311-122

EXEDY (MALAYSIA) SDN. BHD.
EXEDY CHONGQING CO., LTD.
158 TAOYUAN ROAD, NANAN DISTRICT,CHONGQING, CHINA
PHONE: 86-23-62904573
FACSIMILE: 86-23-62900348

29 Annual Report 2005

DBS Tokyo,2-17-2 Iwamoto-cho,
Chiyoda-ku,
Tokyo 101-0032, Japan

Hiroshima Sales Office:

8,757 shares

568 EAST PARK DRIVE, ROANOKE,VIRGINIA 24019, U.S.A.
PHONE: 1-540-966-6010
FACSIMILE: 1-540-966-6011

Statement on Accounting Principles and Auditing Standards

Tokyo Sales Office:

TBM Bldg., 3rd Floor,
6-20 Aratajima-cho, Fuji-shi,
Shizuoka 417-0043, Japan

Listed on First Sections,Tokyo/Osaka Stock Exchange

2121 HOLSTON BEND DRIVE, MASCOT,TENNESSEE 37806, U.S.A.
PHONE: 1-865-932-3700
FACSIMILE: 1-865-932-2230

ChuoAoyama PricewaterhouseCoopers

Shizuoka Sales Office:1-1-1 Kidamotomiya,
Neyagawa-shi,
Osaka 572-8570, Japan
Phone: 81-72-824-6933
Facsimile: 81-72-821-7913

Average number of shares
held by one Shareholder:

EXEDY AMERICA CORPORATION
Osaka, Japan
June 28, 2005

Head Office:

EXEDY Corporation

Tsuyoshi Hirata
Hisayasu Masaoka
Masayuki Matsuda
Mikio Natsume
Kenji Takehara
Kouji Kajitani
Yoshitsugu Sakamoto
Katsumi Shintou
Hideki Miura
Osamu Fujiwara
Masanori Motoura
Shougo Okamura

DIRECTORY

PT 16748, JALAN PERMATA 1/5,
ARAB-MALAYSIAN INDUSTRIAL PARK,
71800 NILAI, NEGERI SEMBILAN, MALAYSIA
PHONE: 60-6-7992988
FACSIMILE: 60-6-7996388

EXEDY MIDDLE EAST FZCO
P.O. BOX 18199, WAREHOUSE NO. ZE5 & ZE6,JEBEL ALI FREE ZONE, JEBEL ALI, DUBAI, U.A.E.
PHONE: 971-4-883-2244
FACSIMILE: 971-4-883-2500
Annual Report 2005 30

1-1-1, Kidamotomiya, Neyagawa-shi, Osaka 572-8570, Japan
Phone: 81-72-824-6933 Facsimile: 81-72-821-7913
URL http://www.exedy.co.jp

Mission Statement
The Shape of Our Future-“Creation of Fulfillment”
Each employee, with a good conscience and hope for the future,
will create fulfillment for our society.
Through advanced technology and scrupulous attention to detail,we will create fulfillment for our customers.
With pride and a desire to grow, we will create fulfillment
for the EXEDY family.

Our Guiding Principles
Every one of us
participates with strong self-motivation.
-A company that meets challenges with vitality.
cooperates and strives for performance.
-A company whose efforts are rewarded.
practices what we preach.
-A company that accomplishes its stated goals.
builds mutual respect and trust.
-A company with pride.
encourages workers to grow as individuals.
-A company that makes the most of individual talent.

Business DomainWith advanced technology, dedication to service anda firm base in manufacturing drivetrain components,
we aim to be a world-leader in our field.

2005.8.800.BC. Printed in Japan