Annual

2006

ReportYear Ended M arch 31, 2006

To Our Shareholders
Business Operations
Review of Fiscal Year 2005

In the period under review, Japan’s automotive
industry faced increasing costs due to the rising
prices of commodities such as steel and oil.
Nonetheless, a steady economic recovery enabled
the industry to increase production and sales.
Japanese automakers increased their market share in
the North American market, by their fuel-efficientmodels. With overseas production volumes increasing
as well, the industry’s business is expanding on a
global scale.
In this favorable environment, the EXEDY Grouppressed ahead with efforts to reinforce its operating
foundations in the automatic automotive drivetrain
business (AT business) in the Japanese and U.S.
markets, where automakers are increasingly
outsourcing such parts, and in the manual automotive
drivetrain business (MT business) in Asia outside
Japan.
Thanks to these efforts, orders for AT businessfrom automakers in Japan and South Korea increased,
and demand from elsewhere in Asia as well as North
America remained strong. Moreover, the group was
also able to offset a rise in purchasing costs due tohigher steel prices by slashing costs through a groupwide effort. Net sales reached ¥153 billion (an increaseof 12.3% over the previous year). Operating profits was
up by the rising net sales and cost reductions
described above, leaped to ¥14.9 billion (an increaseof 16.6% over the previous year). Boosted in part byexchange rate gains, ordinary income rose to ¥15.7
billion (an increase of 34.5% over the previous year),and net income soared to ¥9.3 billion (an increase of
48.5% over the previous year).

Outlook for Fiscal Year 2006
Expanded sales in AT business are expected in theJapanese market, paced by torque converters.
Prospects are less clear, however, in the North
American market. We expect that the Asian market willremain strong. The group plans to invest proactively inits fast-growing AT business, while strengthening
development of environment-friendly products andfortifying its quality control systems.
As AT business grows, both investment andproduct launch costs are expected to rise, puttingpressure on earnings. However, the group is confident
that it can secure strong earnings through further
streamlining and rigorous quality control.
Consequently, we forecast net sales of ¥166 billion(an increase of 8.5% over the previous year), an
ordinary income of ¥16 billion (an increase of 7.4%
over the previous year), and a net income of ¥9.6
billion (an increase of 2.6% over the previous year).

Haruo Shimizu

President and Chief Executive Officer

Financial Position
Review of cash flows in Fiscal Year 2005
In cash flow from operating activities, strong expansion in
operations and business results caused net income
before taxes to rise ¥6.8 billion against the previous yearto ¥15.7 billion, while depreciation expenses increased¥1 billion from the previous fiscal year to ¥9 billion. Tradeaccount receivables and inventory combined increased¥4.1 billion, while employees’ severance and retirement
benefits and other long-term liabilities both declined by¥900 million. The corporate tax paid was ¥5.1 billion. In
balance, funds received from operating activities rose¥100 million to ¥13.5 billion.
Cash flow from investments was ¥155 billion, an
increase of ¥4.7 billion over the previous year.
Expenditures for capital investment, chiefly for expansionof AT business, rose ¥3.1 billion from the previous year to¥13.9 billion, and loans receivable of ¥1.7 billion were
issued in the period.
Cash flow from financial activities was ¥2.8 billion, an
increase of ¥2.5 billion over the previous year. Long/shortterm loan payments increased ¥1.2 billion; dividend
payout was ¥1 billion and expenditures from acquisitionof treasury stock in the previous year stood at ¥2.9
billion.
July 2006

Haruo Shimizu
President and Chief Executive Officer
Annual Report 2006

2

Business Results by Market
Net Sales by Location
Japanese yen(millions)

2005

2006

Asia and Oceania
U.S. dollars(thousands)

2006¥110,171 ¥121,418 $1,033,610

Japan
United States

25,361

28,037

238,671

Asia and Oceania

14,157

20,516

174,652

Europe

1,691

1,956

16,647

United States

16.3%

HEAD OFFICE
The head office is engaged in the production of manual
clutches and of power shift transmissions for use inconstruction machinery and industrial vehicles.

（15,073）（18,868） （160,618）

Eliminations¥136,307 ¥153,059 $1,302,962

Total$1=¥117.47

Europe 1.2%

11.9%

The chart at right shows the percentage ofsales to customers outside the Group.

Japan 70.6%

New Torque Converter Plant
Completed at Ueno Division

Europe17

16

Net sales rose to ¥1.9 billion (an increase of 15.7% over theprevious year), while operating profits increased to ¥200
million (an increase of 19.5% over the previous year).

Japan
Thanks to the effects of new cars released by Japanese
automakers and increase of export to Korean market andaftermarket business, net sales grew to ¥121.4 billion (anincrease of 10.2% over the previous year) and operating
profits lifted to ¥10.9 billion (an increase of 12.8% overthe previous year).

15

14

8

Ueno Division

United States

Improved sales of AT business lifted net sales to ¥28 billion(an increase of 10.6% over the previous year) andoperating profits to ¥1.9 billion (an increase of 54.1% overthe previous year).

7 6
5In September 2005, to raise the Group’s torqueconverter production volume in Japan and the U.S. to
7 million units by 2007, EXEDY completed a new
torque converter plant at Ueno Division. As the world’s
automakers continue to outsource the production of
torque converters, EXEDY is leveraging its 100% inhouse manufacturing capability that ranges fromdevelopment to production, driving further expansion
in its automatic transmission business.
3
2

14

1

9
11 10

12

13

Mass Production ofFriction Facing Begun in China

New Motorcycle Clutch Production
Company Established in Vietnam
EXEDY Vietnam Co., Ltd.
In February 2006, EXEDY established EXEDY Vietnam
Co., Ltd. as its third motorcycle clutch production facility
in the ASEAN region. Production will begin in January
2007, further expanding the Group’s business in theregion, an enormous market for motorcycles.

Manual automotive
drivetrain
HEAD OFFICE
Kawagoe Plant
DK Pronac Co., Ltd.
EXEDY America Corporation 2
EXEDY CHONGQING Co., Ltd. 8
EXEDY (Thailand) Co., Ltd. 11

3 Annual Report 2006

Asia and Oceania

4

EXEDY(Shanghai) Corporation

With sales increase of motorcycle-related products andthe brisk growth of the automobile industry in this region,
net sales grew to ¥20.5 billion (an increase of 44.9% overthe previous year) and operating profits rose to ¥1.7
billion (an increase of 0.6% over the previous year).

4

In June 2005, EXEDY (Shanghai) Friction Material Co.,
Ltd. launched mass production of friction facing for
manual clutches. In preparation for the start of torqueconverter production in 2007, the company also changed
its name to EXEDY (Shanghai) Corporation.

Automatic automotive drivetrain
Torque converter

EXEDY (MALAYSIA) SDN. BHD. 12
P.T. EXEDY Indonesia
13
Ceekay Daikin Ltd.
14Euro EXEDY
Euro
EXEDYClutch
Clutch
Ltd.
Ltd.
16

Ueno Division
EXEDY America Corporation

4

Friction facing for
manual clutches

Clutches for motorcycles

Clutch pack,
Friction plates

2

DYNAX Corporation
DYNAX America Corporation
1
DYNAX Industry ((Shanghai)
Shanghai) Corporation 6
Shanghai DYNAX Corporation
7

EXEDY America Corporation
Sales/warehousing

9

EXEDY Vietnam Co., Ltd.
(EXEDY Friction
EXEDY
Friction
Material
Material
Co.,Co.,Ltd.)Ltd.
EXEDY (Thailand) Co., Ltd.

10

P.T. EXEDY Indonesia

13

11

EXEDY (Shanghai) Corporation
EXEDYFriction
FrictionMaterial
Material
Co., Ltd.
EXEDY
Co.,Ltd.

5
10

EXEDY Globalparts Corporation
EXEDY AUSTRALIA pty Ltd.
EXEDY MIDDLE EAST FZCOEXEDY Clutch Europe Ltd.

3
4
15
17

Annual Report 2006 4

Topics of the Year
Consolidated Five-year Summary

Aisin AW New Technology
Cooperation Award

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended as of March 31

In April 2005, Aisin AW Co., Ltd. presented the New
Technology Cooperation Award to EXEDY for two of theCompany’s products: the T030 HEV torque limiter damper
and the F101 torque converter non-woven friction facing.
The award honors innovations (including new products,
technologies, materials, and processes) newly adopted in
the industry. EXEDY is the only company to have won twoof these awards simultaneously.

Japanese yen(millions)

2002

2003

2004

2005

2006

2006

Net sales ··························································· ¥ 101,215¥ 113,673¥ 122,281¥ 136,307¥ 153,059$1,302,962

1,482

4,448

5,179

6,300

9,354

79,625

Total assets ······················································· ¥ 106,576¥ 108,907¥ 110,799¥ 123,289¥ 133,440$1,135,954

For the year:

Strategic Strengthening of the EXEDY Brand
As part of its commitment to raising the recognition of the
EXEDY brand throughout the world market, in FY 2006
EXEDY participated in six auto parts exhibitions in fiveoverseas countries, as well as three such events in Japan.
In the field of motor sports, EXEDY has been a sponsor of
Tetsuya Yamano, who won the All Japan GymkhanaChampionship a record 12 consecutive times. His
unprecedented accomplishment also demonstrated theoutstanding performance of EXEDY clutches.

U.S. dollars(thousands)

Net income ························································At year-end:
T030HEV torque limiter damper

Current assets ··················································

50,81754,21355,39963,78366,433565,533

Property, plant and equipment ··························

48,514

48,10847,041

49,71957,240487,273

Current liabilities ···············································

28,32524,73325,074

27,64730,667

261,068

Long-term debt ·················································

5,914

8,354

2,594

2,687

2,726

23,204

Shareholders’ equity ·········································

60,081

63,192

69,61476,032

83,925

714,438

Shareholders’ equity / Total assets ···················

56.4%

Retained earnings ············································

58.0%

47,21951,136

SEMA Show 2005 (USA Las Vegas)

61.7%
60,808

62.9%

62.9%

69,050Japanese yen

Per share data:

Tetsuya Yamano, winner of the All Japan GymkhanaChampionship 12 consecutive times

62.8%
55,406

587,813
U.S. dollars

Net income ······················································· ¥

30.99

95.80

¥ 108.84¥ 127.61¥ 186.02

Net income – diluted ·········································

30.84

93.32

106.12

127.59——

Shareholders’ equity ·········································

1,320.08

1,386.57

1,432.90

1,525.24

1,712.80

14.58

¥

$

1.58

Notes: 1. Dollar figures are translated, for convenience only, at the rate of ¥117.47 to U.S. $1.00.
2. Effective as of April 1, 2002, per share data are stated under “Accounting Standards for computing net income per share of common stock (Standards ofEnterprise accounting No. 2)” and “Implementation Guideline of Standards for computing net income per share of common stock (Implementation Guideline ofStandards 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 Note 1(g).
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.

2005 Major Global Vehicles
Using EXEDY Products

VW Polo GTIDYNAX AT Parts

Financial Section
Consolidated Five-Year Summary ······································ 6Consolidated Balance Sheets ············································ 7
Consolidated Statements of Income ··································· 9Consolidated Statements of Shareholders’ Equity ··········· 10
Consolidated Statements of Cash Flows ·························· 11
Notes to Consolidated Financial Statements ···················· 12
Report of Independent Auditors ······································· 21
Corporate Data ································································· 22

Peugeot 407
EXEDY Torque Converter

Mazda Roadster

EXEDY Manual Clutch
and DYNAX AT Parts(2005−2006 Japan Car of the Year)

5 Annual Report 2006

Annual Report 2006 6

Consolidated Balance Sheets
EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2005 and 2006

Japanese yen(millions)
ASSETS

2005

U.S. dollars(thousands)

2006

2006

Current Assets:
Cash and cash equivalents [Notes 1(p) & 6] ·························¥ 18,893¥ 14,512$ 123,536

Time deposits ········································································

67

60

513

Trade ··············································································

28,922

31,948271,965

Non-consolidated subsidiaries and affiliates ··················

187

135

1,151

Notes and accounts receivable (Note 6) –Allowance for doubtful accounts ····································(1,239)(1,220)(10,388)

Securities (Note 3) ·································································

—

364

3,094

Inventories (Notes 2 & 6) ·······················································

11,856

14,514

123,556

Deferred tax assets (Note 4) ·················································

2,437

2,555

21,754

Short-term loans ····································································

1,321

2,510

21,367

Other current assets ······························································

1,339

1,055

8,983

Total current assets ························································

63,78366,433565,533

Land ·······················································································

7,118

7,262

61,823

Buildings and structures ························································

28,93032,282274,809

Machinery and vehicles ·························································

79,96084,874

722,514

Tools and furniture ·································································

26,05528,295

240,867

Construction in progress ························································

3,282

4,930

41,969145,345

157,643

1,341,982

Less – accumulated depreciation ··········································(95,626)(100,403)(854,709)

Total property, plant and equipment ·······························

49,71957,240487,273

Property, Plant and Equipment (Note 6):

Investments and Other Assets:
1,127

1,703

14,500non-consolidated subsidiaries and affiliates ······················

723

1,025

8,729

Long-term loans ····································································

193

188

1,598

Deferred tax assets (Note 4) ·················································

5,291

4,303

36,634

Other assets ··········································································

2,453

2,548

21,687

Total investments and other assets ································

9,787

9,767

83,148¥123,289¥133,440$1,135,954

Investment in securities (Note 3) ···········································
Investments in and loans toJapanese yen(millions)
LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent 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 ·································································
Other current liabilities ·································································
Total current liabilities ···························································

2006

2005

¥

3,617

U.S. dollars(thousands)

¥

5,341

2006

$

45,47014,985
863
174
4,792
2,964
252
27,647

15,820
1,343
272
4,997
2,351
543
30,667

134,674
11,4292,314
42,53720,014
4,630
261,068

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 ······················································

2,687
487
8,115
375
2,802
14,466

2,726
665
7,184
356
1,583
12,51423,204
5,664
61,153
3,028
13,477
106,526

Minority Interests ·············································································

5,144

6,334

53,9228,284
8,768
60,808414(2,237)

8,284
8,768
69,050744
30

70,521
74,637
587,813
6,333
258

(5)
76,032(2,951)
83,925(25,124)
714,438¥123,289¥133,440$1,135,954

Contingent Liabilities (Note 10)
Shareholders’ Equity (Note 8):
Common stock
Authorised – 168,000 thousand shares in 2005 and 2006
Outstanding – 49,794 thousand shares in 2005 and 2006 ······
Capital surplus ·············································································
Retained earnings ·······································································Net unrealized holding gains on securities ··································
Foreign currency translation adjustments [Note 1(c)] ··················
Treasury stock
4 thousand shares in 2005 and856 thousand shares in 2006 ···················································
Total shareholders’ equity ····················································

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

7 Annual Report 2006

Annual Report 2006 8

Consolidated Statements of Income

Consolidated Statements of Shareholders’ Equity

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended as of March 31, 2005 and 2006

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended as of March 31, 2005 and 2006

Japanese yen(millions)

U.S. dollars(thousands)

2005

2006

Net Sales ··························································································¥136,307¥153,059$1,302,962

Cost of Sales ····················································································
Gross profit ··················································································

104,01032,297

118,323
34,736

1,007,260
295,702

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

19,513
12,784

19,834
14,902

168,843
126,859

(104)
158

(133)
186

(1,134)
1,583

295
886
(1,192)
479

217
—
(1)
—

1,850
—
(6)
—

607

—

—

2,923

—

—

70
76
(306)
3,892

(104)
(688)
(311)
(834)

(883)
(5,859)(2,647)(7,096)

8,892

15,736

133,955

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 ·························
Amortization of the net transition obligationfor employees’ severance and retirement benefits ···················
Losses on change of planfor employees’ severance and retirement benefits (Note 7) ·····
Equity in losses (gains) of non-consolidated subsidiaries
and affiliates ·············································································
Foreign exchange loss (gain), net ···············································
Other, net ·····················································································
Income before income taxes and minority interests ····················

2006

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

4,524(3,223)

4,596
1,045

39,124
8,896

Minority Interests in Net Income of Consolidated Subsidiaries ··········

1,291

741

6,310

Net Income ·······················································································Per Share Data (Note 11):Net income ··················································································Net income – diluted ····································································Cash dividends ············································································

¥

6,300

¥

9,354

$

Japanese yen¥ 127.61
127.5918.00¥ 186.02—
27.00

Number ofoutstanding
shares(thousands)

79,625
U.S. dollars

$

1.58
—
0.23

Japanese yen(millions)
Commonstock

CapitalsurplusRetainedearnings

Net
Foreignunrealized
currency
holding gains translation
on securities adjustments

Treasurystock

Balance as of 31 March, 2004 ....................
Net income .............................................
Net unrealized holding gains (losses) 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—¥ 7,712—¥55,406
6,300¥ 1,113—¥ (1,843)
—

—

—

—

—

(699)

—

—

—
74
1,200
—
—
—

—
46
1,011
—
—
—

—
46
1,010
—
—
—

—
—
—
—
(801)
(97)

—
—
—
—
—
—

(394)
—
—
—
—
—

—
—
—
(4)
—
—

Balance as of 31 March, 2005 ....................
Net income .............................................
Net unrealized holding gains (losses) on
securities .............................................
Adjustments from translation of foreign
currency financial statements .............
Purchase of treasury stock .....................
Cash dividends paid ...............................
Bonuses to directors and corporate auditors ..

49,794
—

8,284
—

8,768
—

60,808
9,354

414
—

(2,237)
—

(5)
—

—

—

—

—

330

—

—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
(1,022)
(90)

—
—
—
—

2,267
—
—
—

—
(2,946)——

Balance as of 31 March, 2006 ....................

49,794¥ 8,284¥ 8,768¥69,05030¥ (2,951)

Number ofoutstanding
shares(thousands)

Balance as of 31 March, 2005 ....................
Net income .............................................
Net unrealized holding gains (losses) on
securities .............................................
Adjustments from translation of foreign
currency financial statements .............
Purchase of treasury stock .....................
Cash dividends paid ...............................
Bonuses to directors and corporate
auditors ...............................................
Balance as of 31 March, 2006 .....................

¥

744

¥

¥

(1)
—

U.S. dollars(thousands)
Commonstock

CapitalsurplusRetainedearnings

Net
Foreignunrealized
currency
holding gains translation
on securities adjustments

49,794 $ 70,521 $ 74,637 $517,646 $———
79,625

3,522 $ (19,037)——

Treasury
stock

$

(43)
—

—

—

—

—

2,811

—

—

—
—
—

—
—
—

—
—
—

—
—
(8,688)———19,295———(25,081)——6,333 $—
258—
$ 25,124

—
—
—
(770)
49,794 $ 70,521 $ 74,637 $587,813 $The accompanying notes to the consolidated financial statements are an integral part of these statements.
The accompanying notes to the consolidated financial statements are an integral part of these statements.

9 Annual Report 2006

Annual Report 2006 10

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended as of March 31, 2005 and 2006

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIESJapanese yen(millions)

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 ·······················································
Increase (decrease) in allowance for doubtful accounts ··································
Increase (decrease) in employees’ severance and retirement benefits ············
Interest and dividend income ···········································································
Interest expense ·······························································································
Increase in notes and accounts receivable ······················································
Increase in inventories ·····················································································
Increase (decrease) in notes and accounts payable ········································
Other, net ·········································································································
Sub-total ··································································································
Interest and dividend income received ·····························································
Interest paid ······································································································
Income taxes paid ····························································································Net cash provided by operating activities ················································

U.S. dollars(thousands)

2005

2006

2006

¥ 8,892¥15,736$133,955

7,999
295(1,192)
1,065
187
(104)
158
(3,650)(1,366)
1,845
2,662
16,791
104(149)(3,377)
13,369

9,002
217
(1)
(20)
(932)
(133)
186
(2,191)(1,921)(28)(1,173)18,742135(181)(5,174)
13,522

76,634
1,850
(6)
(169)
(7,930)(1,134)
1,583(18,652)(16,357)(239)(9,983)
159,552
1,145(1,544)(44,040)
115,113

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 12) ···········
Payments for investments in non-consolidated subsidiaries ····························
Additions to loans receivable ············································································
Collection of loans receivable ···········································································
Other, net ·········································································································Net cash used in investing activities ························································(41)
31(10,882)
132
(545)
(12)
1,767
—
(103)
(100)
(1,926)694
146(10,839)(304)
19(13,946)
170
(137)
(11)
1
(48)
—
(350)
(1,751)723
84(15,550)(2,584)
158(118,720)
1,447(1,166)
(93)
7
(411)
—
(2,980)(14,902)
6,157
715(132,372)

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 ·······················································
Payments for acquisitions of treasury stock ·····················································Cash dividends paid ·························································································Cash dividends paid to minority shareholders ·················································
Other, net ·········································································································Net cash used in financing activities ·······················································

1,648
159
(3,236)
2,021
—
(801)
(212)
88
(333)

1,176
546
(427)
—
(2,946)(1,021)(162)—(2,834)

10,0104,650(3,636)—(25,082)(8,689)(1,379)—(24,126)

Effect of Exchange Rate Changes on Cash and Cash Equivalents ··················Net Increase (Decrease) in Cash and Cash Equivalents ···································Cash and Cash Equivalents at Beginning of Year ··············································Cash and Cash Equivalents at End of Year ·························································

(56)
2,141
16,752¥18,893481(4,381)
18,893¥14,512

4,091(37,294)
160,830$123,536

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

11 Annual Report 2006

1. Summary of Significant Accounting and Reporting Policies(a) Basis of presenting the consolidated financial statements
EXEDY Corporation (the “Company”) and its consolidated domestic
subsidiaries maintain their accounts and records in accordance with theprovisions set forth in the Japanese Commercial Code and the Securities
and Exchange Law, and in conformity with accounting principles andpractices generally accepted in Japan (“Japanese GAAP”). Overseas
consolidated subsidiaries have adopted accounting generally acceptedin their respective countries and no adjustment has been made to theirfinancial statements on consolidation, as allowed under accounting
principles and practices generally accepted in Japan. Certain accounting
principles and practices generally accepted in Japan are different incertain respects from the application and disclosure requirements ofInternational Financial Reporting Standards.
The accompanying financial statements have been restructured andtranslated into English (with some expanded descriptions and theinclusion of statements of shareholders’ equity) from the consolidated
financial statements of the Company prepared in accordance withJapanese GAAP and filed with the director of Kanto Finance Bureau in
Japan as required by the Securities and Exchange Law of Japan. Some
supplementary information included in the statutory Japanese language
consolidated financial statements, but not required for fair presentation, is
not presented in the accompanying financial statements.
The translation of the Japanese yen amounts into U.S. dollars is included
solely for the convenience of the reader, using the prevailing exchange
rate as at March 31, 2006, which was ¥117.47 to U.S. $1.00. These
convenience translations should not be construed as representations that
the Japanese yen amounts have been, could have been, or could in the
future be, converted into U.S. dollars at this or any other rate of exchange.
(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 or the
existence of certain conditions evidencing control by the Company.
Investments in non-consolidated subsidiaries and affiliates over which theCompany 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, the assets
and liabilities of the subsidiaries, including the portion attributable tominority shareholders, are valued using the fair value at the time theCompany acquired control of the respective subsidiaries. Materialintercompany balances, transactions and profits have been eliminated inconsolidation.

(d) Securities
Securities consist principally of marketable and nonmarketable equity
securities and interest-bearing securities.
Other securities with available fair market value are stated at fair market
value. Net unrealized holding gains and losses on these securities arereported, net of applicable income taxes, as a separate component ofshareholders’ equity.
Realized gains and losses on the sale of such securities are computed
using the moving average cost method.
Other securities with no available fair market value are stated at moving
average cost, net of the amount considered uncollectible.
If the fair market value of other securities declines significantly, suchsecurities are stated at fair market value and the difference between thefair market value and the carrying amount is recognized as a loss in the
period of decline. If the net asset value of other securities, except forinterest-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.
(e) Derivatives
All derivatives are stated at fair value.
(f) Inventories
Inventories except for supplies are mainly stated at the lower of cost(first-in, first-out) or market value. Supplies are mainly stated at cost
determined by the last purchase cost method.
(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 the straight-line method.
Maintenance and repairs including minor renewals and betterments arecharged to income as incurred.
Software is amortized using the straight-line method over the useful life (3– 5 years) of the software.

(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 to income forthe current period.

From the year ended March 31, 2004, the Company adopted new Japanese
accounting standards for Impairment of Fixed Assets (“Opinion concerning
the establishment of Accounting Standards for Impairment of Fixed Assets”
issued by the Business Accounting Deliberation Council on August 9,2002) and “Implementation Guidelines on Standards for Impairment of fixed
assets (Implementation Guidelines on 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.

The 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 statementsof consolidated overseas subsidiaries are translated at the average
rates during the year. Translation adjustments resulting from translating
financial statements whose accounts are denominated in foreign
currencies are not included in the determination of net income but arereported as “Foreign currency translation adjustments” in a component ofshareholder’s equity and minority interests.

(h) Leases
The Company and its domestic consolidated subsidiaries account forleases which transfer substantially all the risks and rewards of ownershipof the leased assets as capital leases, leases which do not transfer
ownership of the leased assets at the end of the lease term are accounted
for as operating leases, in accordance with accounting principles andpractices generally accepted in Japan. Overseas consolidated subsidiariesof the Company account for leases that transfer substantially all risks andrewards of ownership of the leased assets as capital leases.
Annual Report 2006 12

(i) Income taxes
The Company and its consolidated subsidiaries recognize the tax effects
of temporary differences between the carrying amounts of assets andliabilities 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 and liabilities forfinancial reporting purposes and the amounts used for income tax
purposes.

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 policyof charging the prior service costs to income as incurred.

(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.

(l) Retirement benefits for directors and corporate auditors
The Company and its domestic subsidiaries have unfunded retirement
allowance plans for directors and corporate auditors. The amounts
required under the plans have been fully accrued.

(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 andthe fair value of the plan assets at that date.
The net transition obligation is recognized in expenses in equal amounts
primarily over 5 years commencing with the year ended March 31, 2001.
Actuarial differences are fully amortized in the year following the year inwhich the actuarial differences are recognized. Prior service costs arerecognized in expenses in the year in which they are incurred.
In order to reduce actuarial differences, reflect employees’ performancein retirement payments and shift to new pension plans, the Company andits domestic consolidated subsidiaries revised their retirement benefit
plans effective as of March 31, 2005, implemented retirement benefit
plans fully based on employees’ performance, adopted pension plans
known as “Cash balance plans” and transferred a certain portion of thedefined benefit pension plans to defined contribution pension plans.
In accordance with the revision of retirement benefit plans, the Company
and its domestic consolidated subsidiaries changed their accounting
policies related to employees’ severance and retirement benefits asfollows:
Through the year ended March 31, 2004, actuarial differences wereamortized on a straight-line basis over 15 years, which was within theestimated average remaining service lives of employees, beginningin the year following the year in which the actuarial differences wererecognized. 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 to income in the year following the year inwhich the actuarial differences are recognized.
In previous years, prior service costs were amortized using the straightline method over 15 years, which was within the estimated averageremaining service lives of employees, beginning in the year in which the

In relation to the change of accounting policies described above, in theyear ended March 31, 2005, income before income taxes and minority
interests decreased by ¥2,581 million compared with what would havebeen recorded under the previous accounting policies.

Other securities with book values (fair values) exceeding acquisition costs as of March 31, 2005 and 2006 were as follows:
Japanese yen (millions)(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 paidby the Companies on their purchases of goods and services are notincluded in the amounts of respective revenue and cost or expense itemsin the accompanying consolidated statements of income.
(n) Research and development expenses
Research and development expenses are charged to income as incurred.
Research and development expenses charged to income amounted to¥3,945 million and ¥3,714 million ($31,617 thousand) for the years ended
March 31, 2005 and 2006, 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 toordinary shareholders, excluding bonuses to directors and corporate
auditors, etc. The computation of net income-diluted per share assumes
the full exercise of outstanding warrants and full conversion of convertible
bonds at the beginning of the year (or at the time of issuance, if this isafter the beginning of the year) with an applicable adjustment for related
net-of tax interest expense. The computation of Shareholders’ equity pershare is based on the number 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 theamounts applicable to the respective years.
(p) Cash and cash equivalents
Cash and cash equivalents include cash in hand, demand deposits andshort-term investments which have maturities of three months or lesswhen purchased, are easily convertible into cash and have few risks offluctuation of value.
(q) Reclassification
Certain comparative figures have been reclassified to conform to thecurrent year’s presentation.

Inventories as of March 31, 2005 and 2006 were as follows:
Japanese yen(millions)Finished goods ···········································································································
Work-in process ··········································································································
Raw materials ·············································································································
Supplies ······················································································································

U.S. dollars(thousands)

2005

2006

2006

¥ 5,411
3,633
2,213
599
¥11,856¥ 5,947
4,998
2,814
755
¥14,514$ 50,629
42,54523,951
6,431$123,556

Acquisition
cost

March 31, 2005

Equity securities ·············································································································
Interest-bearing securities ······························································································
Others ·····························································································································

Book
value

¥ 362
—
—
¥ 362

Equity securities ·············································
Interest-bearing securities ······························
Others ·····························································

Acquisition
cost
¥
¥

389
—
—
389

Book
value
¥ 1,637——¥ 1,637

Difference¥1,045——¥1,045

Japanese yen (millions)
March 31, 2006

2. Inventories

13 Annual Report 2006

3. Securities

¥ 683
—
—
¥ 683

U.S. dollars (thousands)

Difference

Acquisition
cost

Book
value

¥ 1,248——¥ 1,248$ 3,308——$ 3,308$13,935——$13,935

Difference$10,627——$10,627

Other securities with book values (fair values) not exceeding acquisition costs as of March 31, 2005 and 2006 were as follows:
Japanese yen (millions)
March 31, 2005

Acquisition
cost

Book
value

¥

¥

Equity securities ·············································································································
Interest-bearing securities ······························································································
Others ·····························································································································

18
—
—
18

¥

March 31, 2006

Equity securities ·············································
Interest-bearing securities ······························
Others ·····························································

¥
¥

—
—
—
—

Book
value
¥
¥

¥
¥

¥
¥

—
—
—
—

U.S. dollars (thousands)
Acquisition
cost

Difference

—
—
—
—

18
—
—
18

¥

Japanese yen (millions)
Acquisition
cost

Difference

—
—
—
—

$
$

Book
value

—
—
—
—

$

—
—
—
—

$

Difference
$

—
—
—
—

$

The book value of securities with no available fair values as of March 31, 2005 and 2006 were as follows:
Japanese yen(millions)

2006

2005
Other securities with no fair value
Non-listed equity securities
Carrying amount ·············································································································
Investment trust fund ······································································································¥

U.S. dollars(thousands)

¥

64
—

2006

66
364

$ 566
3,096

Maturities of other securities with maturities as of March 31, 2005 and 2006 were as follows:
Japanese yen(millions)

2006

2005
Corporate bonds
Within one year ··············································································································
After one year through five years ···················································································
After five years through ten years ···················································································
Over ten years ················································································································
Other
Investment trust fundWithin one year ··············································································································
After one year through five years ···················································································
After five years through ten years ···················································································
Over ten years ················································································································

¥

—
—
—
—

¥

U.S. dollars(thousands)

2006
—
—
—
—

$

364
—
—
—

—
—
—
—

—
—
—
—
3,096
—
—
—

Other securities sold in the year ended March 31, 2005 and 2006 were as follows:
Japanese yen(millions)

2005
Sales value ······························································································································
Gains ·······································································································································
Losses ·····································································································································¥1,767
1,192—

U.S. dollars(thousands)

2006
¥

2006
1
1
—

$

7
6
—

Annual Report 2006 14

Annual maturities of long-term debt as of March 31, 2006 were as follows:

4. Income Taxes
Significant components of the Company’s deferred tax assets and liabilities as of March 31, 2005 and 2006 were as follows:
Japanese yen(millions)Year ending March 31,
U.S. dollars(thousands)

2005

2006

2006

Deferred tax assets:
Employees’ severance and retirement benefits ························································Net operating loss carried forward ············································································
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 ····························································································
Other ························································································································
Total deferred tax assets ··································································································
Valuation allowance ··································································································¥ 3,191
2,666
1,199
765
536
286
221
211
210
173
869
10,327(811)¥ 2,900
2,628
887
800
530
279
231
167
209
261
765
9,657
(944)

$24,690
22,372
7,549
6,810
4,511
2,376
1,962
1,426
1,782
2,224
6,509
82,211(8,037)

Deferred tax assets ········································································································

9,516

8,713

74,174

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 ··································································································

(817)
(487)
(346)
(276)
(202)
(177)
(2,305)
30

(744)
(661)
(342)
(504)
(143)
(132)
(2,526)6(6,335)(5,631)(2,912)(4,293)(1,219)(1,110)(21,500)
50

Deferred tax liabilities ····································································································(2,275)(2,520)(21,450)

Net deferred tax assets ··································································································¥ 7,241¥ 6,193$52,724

The Company is subject to a number of taxes based on income, which, in the aggregate, indicate a statutory rate in Japan of approximately
40.4% for the years ended March 31, 2005 and March 31, 2006.
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, 2005 and 2006:

2006

2005
Statutory tax rate ············································································································
Adjustments for:Non-deductible expenses ·························································································Per capita inhabitant tax ···························································································Tax credit for research and development expenses ··················································
Different tax rates applied to overseas subsidiaries ·················································
Effect of operating loss carried forward by overseas subsidiaries ····························
Write-off of valuation allowance ················································································
Other ························································································································
Effective tax rate ·············································································································

40.4%

40.4%

0.4
0.2
—
—
(5.6)
(21.4)
0.6
14.6%

0.2
0.1
(2.1)
(2.0)
—
—
(0.8)
35.8%

U.S. dollars(thousands)¥ 2,532194——¥ 2,726$ 21,550
1,654——$ 23,2042008 ···································································································································································
2009 ···································································································································································
2010 ···································································································································································
2011 ···································································································································································

6. Assets Pledged as Collateral
The following assets were pledged as collateral for ¥563 million of secured long-term loans from government sponsored agencies as ofMarch 31, 2005, and for ¥213 million ($1,809 thousand) of secured short-term loan from banks and ¥412 million ($3,512 thousand) ofsecured long-term loans from government sponsored agencies as of March 31, 2006:
Japanese yen(millions)

Notes and accounts receivable and inventories ·······························································
Land ··································································································································
Buildings and structures, net ····························································································
Machinery and vehicles, net ·····························································································

U.S. dollars(thousands)

2005

2006

2006

¥

¥ 1,181152
247
8¥ 1,588$ 10,051
1,297
2,098
71
$ 13,517

¥

—
152
12
261
425

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.
Cash deposits of ¥9 million as of March 31, 2005 and ¥9 milliion ($79 thousand) as of March 31, 2006 were also pledged for deferredpayment of electricity.

7. Employees’ Severance and Retirement Benefits
As a result of the revision of the retirement benefit 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, 2005 and 2006 consists of the following:
Japanese yen(millions)

U.S. dollars(thousands)

2005

2006

2006

Projected benefit obligation ······························································································
Fair value of pension assets ····························································································¥12,104(4,364)
7,740¥11,832(5,135)
6,697$100,723(43,714)57,009Unrecognized actuarial differences ··················································································
Liability for employees’ severance and retirement benefits ·······································

375¥ 8,115487¥ 7,184

4,144$ 61,153(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:

5. Short-term Borrowings and Long-term Debt

Japanese yen(millions)Short-term borrowings and long-term debt as of March 31, 2005 and 2006 were as follows:
Japanese yen(millions)Short-term borrowings ·········································
Current portion of long-term debt ························
Long-term debt ····················································
Other debt ···························································

Japanese yen(millions)

U.S. dollars(thousands)

2005

2006

2006

¥ 3,357
260
2,687—¥ 6,304¥ 4,720
621
2,726
217
¥ 8,284$40,187
5,283
23,204
1,849$70,523

Weighted
averageinterest rates
2.8%
2.1
5.1
0.3

Year
due

2007-2009

Decrease in projected benefit obligation ······················································································
Unrecognized actuarial differences ······························································································
Unrecognized prior service costs ·································································································
Decrease in liability for employees’ severance and retirement benefits ········································¥ (6,329)547
3,156¥ (2,626)

The total pension liabilities to be transferred over 4 years to the defined contribution plan system amounted to ¥2,967 million.
The amount to be transferred subsequent to March 31, 2005 amounted to ¥2,967 million, which was included under “Notes andaccounts payable” and “Other long-term liabilities”.
2. The increase in liability for employee’s severance and retirement benefits due to the change of accounting policies issummarized as follows:
Japanese yen(millions)
Unrecognized actuarial differences ······························································································
Unrecognized prior service costs ·································································································
Increase in liability for employees’ severance and retirement benefits ·········································

15 Annual Report 2006

¥ 5,737(3,156)¥ 2,581
Annual Report 2006 16

Included in the consolidated statements of income for the years ended March 31, 2005 and 2006 were employees’ severance and retirement
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 ··················
Other ·································································································································

U.S. dollars(thousands)

2005

2006

2006

¥

¥

$

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

¥

706
242
(87)
—
(375)
486
—
154
640

6,011
2,060
(743)
—
(3,193)
4,135
—
1,315
$ 5,450(Notes) For the year ended March 31, 2005
1. ¥342 million of the increase in expenses relating to the transfer of a certain portion of defined benefit plans to defined
contribution plans was included in “Losses on change of plan for employees’ severance and retirement benefits”.

Japanese yen(millions)
March 31, 2005
Machinery and vehicles ················
Tools and furniture ························
Other ·············································

Acquisition
cost

Accumulated
depreciation¥1,027274
190¥1,491

¥ 200
188
136
¥ 524

Accumulated
losses on
impairment
¥

¥

—
—
—
—

Balance
¥ 827
86
54
¥ 967

Japanese yen(millions)
March 31, 2006
Machinery and vehicles ················
Tools and furniture ························
Other ·············································

2. ¥2,581 million of the increase in expenses due to the change of accounting policies was included in “Losses on change of planfor employees’ severance and retirement benefits”.

Acquisition
cost

Accumulated
depreciation¥1,073
162
78¥1,313

¥ 320
122
61
¥ 503

Accumulated
losses on
impairment
¥
¥

—
—
—
—

U.S. dollars(thousands)
BalanceAcquisition
cost

Accumulated
depreciation

¥ 753
40
17
¥ 810

$ 9,134
1,380
661$11,175$ 2,7261,043
510$ 4,279$

Japanese yen(millions)

Assumptions used in the calculation of the above information were as follows:

—
—
—
—

$ 6,408337
151$ 6,896

2005

2006

straight-line basis
2.0%
3.0%
5 years
1 year
1 yearstraight-line basis
2.0%
2.0%
—
1 year
1 year2006

Due within one year ··········································································································
Due over one year ············································································································

¥ 202
765
¥ 967

¥ 158
652
¥ 810

$ 1,344
5,552$ 6,896

Lease payments for the year ····························································································

¥ 211

¥ 213

$ 1,817

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 ¥211 million and ¥213 million ($1,817 thousand) for the years ended March 31, 2005 and 2006, respectively.
The Company had no leased assets on which impairment should be recognized for the years ended March 31, 2005 and 2006.

The Company is subject to the Japanese Commercial Code (the “Code”), to which certain amendments became effective on October 1, 2001.
The Code provides that all appropriations of retained earnings, except interim cash dividends, must be approved at an ordinary general
meeting of shareholders. In accordance with customary practice in Japan, appropriations of retained earnings are not accrued and recordedin the financial statements for the year to which they relate but are recorded in the subsequent accounting year after shareholders’ approvalhas been obtained.

(b) Operating leases
The scheduled maturities of future lease payments under non-cancelable operating leases as of March 31, 2005 and 2006, were as follows:
Japanese yen(millions)Due within one year ··········································································································
Due over one year ············································································································

The following appropriations of retained earnings of the Company were proposed and approved at the general meeting of shareholders heldon June 27, 2006:

Contingent liabilities for guarantees by the Company as of March 31, 2005 and 2006 were as follows:

Japanese yen(millions)

U.S. dollars(thousands)¥69,050832
85¥68,133$587,813
7,082
724$580,007

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.
Pro forma information regarding 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, 2005 and 2006 was as follows:

¥

6
2
8

¥

U.S. dollars(thousands)

2006

2005

The Code provides that an amount equal to at least 10% of cash dividends and directors’ bonuses, etc., to be paid be appropriated as alegal 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, theexcess amount is allowed to be appropriated through 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.

Balance at March 31, 2006 ································································································································
Appropriations – Cash dividends paid (¥17.0 per share outstanding at March 31, 2006) ·································
Bonuses to directors and corporate auditors ··········································································
Balance after appropriations ·····························································································································

U.S. dollars(thousands)

2006

2005

8. Shareholders’ Equity

17 Annual Report 2006$

Balance

The scheduled maturities of future lease payments, on such lease contracts as of March 31, 2005 and 2006, were as follows:

For the year ended March 31, 2006
1. “Other” represents the payments to defined contribusion pension plans.

Method of attributing the projected benefits to periods of service ····································
Discount rate ····················································································································
Expected rate of return on plan assets ·············································································
Amortization of net transition obligation ···········································································
Amortization of prior service costs ···················································································
Amortization of actuarial differences ················································································

Accumulated
losses on
impairment

¥
¥

2006
2
0
2

$
$

15
1
16

10. Contingent Liabilities
Japanese yen(millions)

2005
Guarantees of loans from banks of affiliates under the equity method ····························¥ 950

U.S. dollars(thousands)

2006
¥ 500

2006
$ 4,256

11. Per Share Data
Per share data as of March 31, 2005 and 2006 were as follows:
Japanese yen(millions)2005
Net income ·······················································································································Net income – diluted ·········································································································
Shareholders’ equity ·········································································································¥ 127.61
127.591,525.24

U.S. dollars(thousands)

2006¥ 186.02—
1,712.80

2006
$

1.58
—
14.58

Annual Report 2006 18

The information on which per share data was calculated as of March 31, 2005 and 2006 was as follows:
Japanese yen(millions)

U.S. dollars(thousands)

2005

2006

2006

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 ························································¥ 6,300
90(90)¥ 6,210¥ 9,354
104(104)¥ 9,250$79,625885(885)$78,740

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

48,662

49,724

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) ····································¥

Business segment information for the years ended as of March 31, 2005 and 2006 was as follows:
Japanese yen(millions)

U.S. dollars

2006

¥

—
6

The Company and its consolidated subsidiaries operate three in 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 manual transmissions. The Automatic automotive drivetrain segment is engaged in the manufacture and sale of torqueconverters and wet friction clutch plates. The Other segment consists of industrial machine drivetrain operations, that is, the manufacture andsale of powershift transmissions, and other operations including the sale and manufacture of clutches for motorcycles, plants and other facilities.

49,724

Japanese yen

2005

14. Segment Information

2006

—
—

$

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

¥

¥

669
223
79
(654)
(27)
(98)
192
(49)
(40)
103

2006

2006

Manual automotive drivetrain operations ····································
Automatic automotive drivetrain operations ································
Other operations ·········································································
Eliminations (inter-segment net sales) ········································¥ 46,657
76,69018,919(5,959)¥136,307¥ 49,311
89,90819,597(5,757)¥153,059$ 419,779
765,369
166,824(49,010)$1,302,962

Operating Costs and Expenses:

Manual automotive drivetrain operations ····································
Automatic automotive drivetrain operations ································
Other operations ·········································································
Non-allocated operating expenses and eliminations ···················¥ 40,862
69,88318,036(5,258)¥123,523¥ 43,287
81,92718,089(5,146)¥138,157$ 368,492
697,425
153,989(43,803)$1,176,103

Operating Income (Loss):

Manual automotive drivetrain operations ····································
Automatic automotive drivetrain operations ································
Other operations ·········································································
Non-allocated operating expenses and eliminations ···················

¥

5,795
6,807
884
(702)
¥ 12,784

¥

6,025
7,981
1,508
(612)
¥ 14,902$

51,287
67,944
12,835(5,207)$ 126,859

Assets:Manual automotive drivetrain operations ····································
Automatic automotive drivetrain operations ································
Other operations ·········································································
Corporate and eliminations ·························································¥ 35,642
61,607
12,022
14,018¥123,289¥ 39,187
69,426
11,537
13,290¥133,440$ 333,594
591,007
98,209113,144$1,135,954

Depreciation and Amortization:

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

¥

2,587
4,860
629
(77)
7,999

¥

2,730
5,425
961
(114)
9,002

$

Capital Expenditures:

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

¥

3,814
6,874
990
(118)
¥ 11,560¥

2,427
11,269861(85)¥ 14,472$

Japanese yen(millions)
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 ········································································································

2005
Sales:——

12. Cash Flows¥¥

13. Derivatives
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 derivative transactions. All derivativetransactions were processed under control and with the necessary approval.

Japanese yen(millions)

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

¥
¥

—
—

Fair
value
¥
¥

—
—

—
—

Japanese yen(millions)
March 31, 2006

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

Contract
amount
¥
¥

497
497

Fair
value
¥
¥

501
501

U.S. dollars(thousands)
Gain (loss)
¥
¥

(4)
(4)

Contract
amountFair
value$ 4,227$ 4,227$ 4,263$ 4,263

2005

2006

2006

¥110,171
25,361
14,157
1,691(15,073)¥136,307¥121,418
28,037
20,516
1,956(18,868)¥153,059$1,033,610
238,671
174,652
16,647(160,618)$1,302,962

Operating Costs and Expenses:

Japan ··························································································
America ·······················································································
Asia-Oceania ··············································································
Other ···························································································
Non-allocated operating expenses and eliminations ···················¥100,486
24,083
12,4191,502(14,967)¥123,523¥110,491
26,06818,7691,730(18,901)¥138,157$ 940,586
221,911
159,774
14,730(160,898)$1,176,103

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

¥

9,685
1,278
1,738
189
(106)
¥ 12,784¥ 10,928
1,969
1,748
225
32
¥ 14,902$

93,025
16,76014,8791,918
277$ 126,859

Assets:Japan ··························································································
America ·······················································································
Asia-Oceania ··············································································
Other ···························································································
Corporate and eliminations ·························································¥ 77,005
18,85315,097
1,182
11,152¥123,289¥ 80,210
22,80920,1131,367
8,941¥133,440$ 682,815
194,170
171,220
11,633
76,116$1,135,954

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

Gain (loss)
Net sales outside Japan for the years ended as of March 31, 2005 and 2006 were as follows:$$

Japanese yen(millions)

(36)
(36)
America ·······················································································
Asia-Oceania ··············································································
Other ···························································································

19 Annual Report 2006

U.S. dollars(thousands)

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

Gain (loss)¥¥

20,65895,9337,331(724)$ 123,198

Sales:

The following table provides information on derivative instruments as of March 31, 2005 and 2006.

Contract
amount$23,23946,186
8,183(974)
76,634

Geographic area information for the years ended as of March 31, 2005 and 2006 was as follows:
Japanese yen(millions)

March 31, 2005

U.S. dollars(thousands)

U.S. dollars(thousands)

2005

2006

2006

¥ 25,823
19,6596,132¥ 51,614¥ 28,006
25,323
6,630¥ 59,959$ 238,409
215,574
56,439$ 510,422

Annual Report 2006 20

Report of Independent Auditors

Corporate Data

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Board of Directors

Outline of Company

Directory

President and Chief Executive Ofﬁcer:
Haruo Shimizu
Executive Managing Director:
Etsuji Terada
Managing Directors:
Hisayasu Masaoka
Masayuki Matsuda
Yoshitsugu Sakamoto
Katsumi Shintou
Directors:
Mikio Natsume
Kenji Takehara
Hideki Miura
Masanori Motoura
Shougo Okamura
Hidehito Hisakawa
Koji Akita
Hiromu Yamasaki
Auditors:
Naoaki Sawada
Kanshirou Toyoda
Koji Okada
Takenori Yamasaki

Name:
EXEDY Corporation
Established:
July 1, 1950
Paid-in Capital:¥8,284 million
Number of Employees:
1,569
Number of Authorized Shares:
168,000 thousand shares
Number of Issued Shares:
49,794 thousand shares
Number of Shareholders:
5,712
Average number of shares heldby one Shareholder:
8,717 shares
Listed on First Sections, Tokyo/
Osaka Stock Exchange

Head Ofﬁce:
1-1-1 Kidamotomiya,
Neyagawa-shi, Osaka
572-8570, Japan
Phone:
81-72-824-6933
Facsimile: 81-72-821-7913
Tokyo Sales Ofﬁce:
DBS Tokyo, 2-17-2 Iwamotocho, Chiyoda-ku, Tokyo
101-0032, Japan
Kitakanto Sales Ofﬁce:
Tokyo Denki Sangyo Co.,
Ltd.'s Center Bldg., 6th Floor,
1255-1 Iida-cho, Ota-shi,
Gunma 373-0851, Japan
Chubu Sales Ofﬁce:
Tosho Bldg., 2nd Floor, 28-1
Futatsuike, Nihongi-cho,Anjo-shi, Aichi 446-0054,
Japan

As of June 30, 2006

To the Board of Directors and Shareholders of
EXEDY Corporation
We have audited the accompanying consolidated balance sheets of EXEDY Corporation and its
subsidiaries as of March 31, 2006 and 2005, and the related consolidated statements of income,shareholders’ equity, and cash flows for the years 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 audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards 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 atest 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 bymanagement, as well as evaluating the overall consolidated financial statement presentation. We
believe that our audits 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,
2006 and 2005, and the consolidated results of their operations and their cash ﬂows for the years thenended in conformity with accounting principles generally accepted in Japan.
As described in Note 1(k), effective for the year ended March 31, 2005, EXEDY Corporation and its
subsidiaries changed their accounting policies related to employees’ severance and retirement beneﬁts.
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.

As of March 31, 2006

EXEDY Overseas Network
EXEDY HOLDINGS OF AMERICA CORPORATIONSHANGHAI DYNAX CORPORATION

CEEKAY DAIKIN LIMITED

8601 HAGGERTY ROAD SOUTH,BELLEVILLE, MICHIGAN 48111, U.S.A.
PHONE: 1-734-397-3333
FACSIMILE: 1-734-397-9567

No. 1 DONGXING ROAD, SONGJIANG
INDUSTRIAL ZONE, SHANGHAI 201613,
CHINA
PHONE: 86-21-6774-0217
FACSIMILE: 86-21-6774-0214

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

DYNAX INDUSTRY (SHANGHAI) CORPORATION

EXEDY AUSTRALIA PTY. LTD.

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

21 FIVEWAYS BOULEVARD,KEYSBOROUGH, VICTORIA 3173,
AUSTRALIA
PHONE: 61-3-9701-5556
FACSIMILE: 61-3-9701-5684

EXEDY (Thailand) CO., LTD.

EXEDY CLUTCH EUROPE LIMITED

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

UNIT 2, ROKEBY COURT, MANOR PARK,RUNCORN, CHESHIRE, WA7 1RW,
ENGLAND
PHONE: 44-1928-571850
FACSIMILE: 44-1928-571852

EXEDY FRICTION MATERIAL CO., LTD.

EURO EXEDY CLUTCH LIMITED

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

2800, TATABANYA, BUZAVIRAG UT4,HUNGARY
PHONE: 36-34-311-117
FACSIMILE: 36-34-311-122

EXEDY (MALAYSIA) SDN. BHD.

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

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

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

DYNAX AMERICA CORPORATION
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
This 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 of operations.
The accompanying ﬁnancial statements are prepared based on accounting principles generally accepted in Japan, and theauditing 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 with Japanese accounting
principles, auditing standards and their application in practice.

EXEDY-DYNAX AMERICA CORPORATION
8601 HAGGERTY ROAD SOUTH,BELLEVILLE, MICHIGAN 48111, U.S.A.
PHONE: 1-734-397-6556
FACSIMILE: 1-734-397-6566

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

EXEDY (SHANGHAI) CORPORATION

21 Annual Report 2006

Shizuoka Sales Ofﬁce:
TBM Bldg., 3rd Floor, 6-20
Aratajima-cho, Fuji-shi,
Shizuoka 417-0043, Japan
Hiroshima Sales Ofﬁce:
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, JapanBLOCK M6, SHANGHAI COMPREHENSIVEINDUSTRIAL ZONE, SHANGHAI 201400, CHINA
TEL: 86-21-6710-9075
FACSIMILE: 86-21-5743-4257

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

P.T. EXEDY INDONESIAJALAN PEGANGSAAN DUA KM2 No. 64, KELAPAGADING, JAKARTA, UTARA 14250, INDONESIA
PHONE: 62-21-4603353
FACSIMILE: 62-21-4603355

EXEDY MIDDLE EAST FZCOEXEDY VIETNAM CO., LTD.
KHAI QUANG INDUSTRIAL ZONE, VINH YEN
TOWN, VINH PHUC PROVINCE, SOCIALISTREPUBLIC OF VIETNAM
PHONE: 84-211-721252
FACSIMILE: 84-211-721253
Annual Report 2006 22

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.

2006.7.800. Printed in Japan