To Our Shareholders
Business Operations

As of March 31, 2006 and 2007

Review of Fiscal Year 2006

2006

Net assets

90,259Net assets

1,714.93

2007

2007

2006/2007

166,745

1,412,497

8.9

10,49788,921

12.2

144,073

1,220,443

8.0

99,847845,79910.6

215.091.82

15.6

1,907.92

16.16

11.3

34.00

0.29

25.9

Note : Dollar figures are translated, for convenience only, at the rate of ¥118.05 to U.S. $1.00.

In the period under review, while Japan's automotive
industry suffered from sluggish sales growth in the majorindustrialized nations, there was a sharp increase indemand elsewhere, especially in the BRICs countries. As aresult, global production volumes grew at a steady pace.
Due to increasing demand for fuel-efficient vehicles in
response to rising oil prices and carbon dioxide emissions
regulations, Japanese automakers increased their market
share in the overseas market.
On the other hand, rising prices of materials such asaluminum and copper are placing pressure on profit for the
automotive industry. In this environment, the EXEDY Group
continued its efforts to increase production of products that
contribute to improved fuel efficiency in the automatic
automotive drivetrain business (AT business), where
automakers are increasingly outsourcing such parts. In the
manual automotive drivetrain business (MT business) andother areas (particularly motorcycle clutches), efforts weremade to expand business in the Asian market outside
Japan.
Thanks to these efforts, consolidated results for the
fiscal year were favorable, with net sales reaching ¥166.7
billion (an increase of 8.9% over the previous fiscal year),
operating income climbing to ¥16.6 billion (an increase of
11.9% over the previous fiscal year), ordinary income
rising to ¥17.3 billion (an increase of 10.4% over theprevious fiscal year), and net income growing to ¥10.4
billion (an increase of 12.2% over the previous fiscal year).

Outlook for Fiscal Year 2007
2007
2006

166,745
153,059

2007
2006

2005

2005

2004

2004

2003

2003
180,000

215.09186.02220

Net Assets
2007
2006

10,497

2007
2006

9,354

2005

2005

2004

2004

2003

2003
11,0001,907.92
1,714.93

2,000
Note: Figures for FY 2005 and preceding years in the chart above show
shareholders' equity per share of common stock.

1

Annual Report 2007

In the Japanese market, growth is expected to slacken off
as a result of the weak production volume forecast for the
automotive industry. In the North American market, while
prospects for the future of the industry continue to beunclear, orders for our new products are expected toincrease. We expect that the Asian market outside Japan
will remain strong.
The group plans to press forward with the developmentof environment-friendly products geared toward improved
fuel efficiency and noise/vibration control, while making aunified effort to strengthen its quality control systems inorder to better meet the needs of its customers. Increased
depreciation (resulting from the notification of the Ministryof Finance regarding revisions related to depreciable
assets’ useful lives, etc.), along with rising costs resulting
from increases in torque converter production, is expected
to put pressure on earnings. The group intends to further
its streamlining efforts to secure firm earnings.
Consequently, we forecast net sales of ¥177.0 billion(an increase of 6.1% over the previous fiscal year),
operating income of ¥16.8 billion (an increase of 0.8% overthe previous fiscal year), ordinary income of ¥16.8 billion (adecrease of 3.3% from the previous fiscal year), and net
income of ¥10.2 billion (a decrease of 2.8% from theprevious fiscal year).

From left to right: Etsuji Terada (Executive Managing Director), Katsumi Shintou(Managing Director), Masayuki Matsuda (Managing Director), Haruo Shimizu(President and Chief Executive Officer), Yoshitsugu Sakamoto (Managing
Director), and Hisayasu Masaoka (Managing Director)

Financial Position
Review of cash flows in Fiscal Year 2006
In cash flow from operating activities, strong expansion in
operations and business results caused net income before
taxes to rise by ¥1.6 billion against the previous fiscal yearto ¥17.3 billion, while depreciation expenses increased¥400.0 million from the previous year to ¥9.4 billion. The
corporate tax paid was ¥4.4 billion. In balance, funds
received from operating activities rose ¥7.0 billion to ¥20.5
billion.
Cash flow from investments was ¥15.7 billion.
Expenditures for capital investment, chiefly for AT businessexpansion, climbed to ¥15.0 billion from ¥13.9 billion theprevious year.
Cash flow from financial activities was ¥3.8 billion, an
increase of ¥1.0 billion over the previous year. Dividend
payout was ¥1.5 billion, expenditures from acquisition oftreasury stock stood at ¥1.1 billion, and long-term loan
payments totaled ¥600.0 million.

July 2007

Haruo Shimizu
President and Chief Executive Officer

Annual Report 2007

2

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

2006

2007

U.S. dollars(thousands)

13.0%

2007

¥121,418 ¥130,804 $1,108,035

Japan
United States

28,03730,065

254,677

Asia and Oceania

20,51624,334

206,136

Europe

1,956

2,348

19,891

United States

16.0%（18,868）（20,806） （176,242）

Eliminations¥153,059 ¥166,745 $1,412,497

Total$1= ¥118.05

Europe 1.3%

Asia and Oceania

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

New Clutch Sales Company
Established in Guangzhou

Japan 69.7%

EXEDY Guangzhou Co., Ltd.

Europe19

A new clutch sales company, EXEDY Guangzhou Co.,
Ltd., was established in May 2006. It will supplement ourongoing efforts to expand our existing OEM-centeredsales activities with a new emphasis on aftermarket sales.
In this way we hope to expand the scope of our business
operations in the rapidly growing Chinese clutch market.

Japan

18

Total sales reached ￥2.3 billion (an increase of 20.1% overthe previous fiscal year), with operating income of ￥200.0
million (an increase of 2.2% over the previous fiscal year).

17

Increased orders from Japanese automakers for
AT-related products lifted total sales to ￥130.8
billion (an increase of 7.7% over the previous
fiscal year), and operating income to ￥12.1
billion (an increase of 11.3% over the previous
fiscal year).

17

16

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.

United States
6
7 5

9

3
2

8

16

10

1

Buoyed by increased orders for ATrelated products, total sales rose to￥30.0 billion (an increase of 7.2%
over the previous fiscal year).
However, increased product launchcosts held operating income to ￥1.2
billion (a 36.3% decrease from theprevious fiscal year).

12 11

13

New Motorcycle Clutch Production
Company Established in Indonesia
P.T. EXEDY Motorcycle Indonesia Co., Ltd.
P.T. EXEDY Motorcycle Indonesia was established in July
2006, becoming our second motorcycle clutch plant inIndonesia. We now operate five motorcycle clutch production
facilities in three Southeast Asian countries (Thailand,
Vietnam, and Indonesia), and the scope of our motorcycle
business in the ASEAN region continues to grow.

Manual automotive drivetrain
Head Office
Kawagoe Plant
DK Pronac Co., Ltd.
EXEDY America Corporation 2
EXEDY Chongqing Co., Ltd. 9
EXEDY (Thailand) Co., Ltd. 123Annual Report 2007

EXEDY (Malaysia) Sdn. Bhd.
P.T. EXEDY Indonesia
Ceekay Daikin Ltd.
Euro EXEDY
Euro
EXEDYClutch
ClutchLtd.
Ltd.

New Torque Converter Plant
Completed in Shanghai

14 15Asia and Oceania

EXEDY (Shanghai) Co., Ltd.

As a result of steady growth in the Asian
automotive industry outside Japan, andincreased orders for motorcycle clutches, total
sales climbed to ￥24.3 billion (an increase of
18.6% over the previous fiscal year), andoperating income climbed to ￥3.0 billion (anincrease of 74.6% over the previous fiscal year).

444Automatic automotive drivetrain

13
15
16
18

Ueno Division
EXEDY America Corporation
EXEDY (Shanghai) Co., Ltd.

2
5

DYNAX Corporation
DYNAX America Corporation
DYNAX Industry (Shanghai) Co., Ltd.
Shanghai DYNAX Co., Ltd.

In anticipation of an increase in the production volume of automatic transmission
vehicles in China, a new torque converter plant was constructed within EXEDY(Shanghai) Co., Ltd., in October 2006. This is our third torque converter plantworldwide, following our Ueno Division and EXEDY America Corporation. Our aim is
to increase the market share of our plants in Japan, the U.S.A., and China, eventuallyachieving an annual production volume of 8 million units worldwide by 2010.

Clutches for motorcycles

1
6
7

EXEDY America Corporation

Friction facing for manual clutches

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

10

P.T. EXEDY Motorcycle Indonesia

14

P.T. EXEDY Indonesia

15

11
12

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

5
11

Sales/warehousing
EXEDY Globalparts Corporation
EXEDY Australia Pty. Ltd.
EXEDY Guangzhou Co., Ltd.
EXEDY Middle East FZCOEXEDY Clutch Europe Ltd.

3
4
8
17
19

Annual Report 2007

4

Consolidated Five-Year Summary
EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended March 31
Japanese yen(millions)

U.S. dollars(thousands)

2003

2004

2005

2006

2007

2007

Net sales ··························································· ¥ 113,673¥ 122,281¥ 136,307¥ 153,059¥ 166,745$1,412,497

4,448

5,179

6,300

9,354

10,49788,921

Total assets ······················································· ¥ 108,907¥ 110,799¥ 123,289¥ 133,440¥144,073$1,220,443

For the year:

Net income ························································At year-end:

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

54,21355,39963,78366,43370,265595,211

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

48,10847,041

49,71957,24065,011

550,710

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

24,73325,074

27,64730,66732,932278,971

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

8,354

2,594

2,687

2,726

2,727

23,098

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

63,192

69,61476,032———

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

58.0%

62.8%

61.7%

Net assets ·························································

—

—

—

Net assets / Total assets ···································

—%

—%

—%

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

51,13655,406—%90,25967.6%

60,80869,050—%845,799

64.3%

64.3%

75,049Japanese yen

Per share data:—%

99,847635,739
U.S. dollars

108.84¥ 127.61¥ 186.02¥ 215.09

93.32

106.12

127.59——

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

1,386.57

1,432.90

1,525.24———

Net assets ·························································

—

—

—

1,714.93

1,907.92

16.16

Net income ······················································· ¥95.80

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

¥

$

1.82
—

Notes: 1. Dollar figures are translated, for convenience only, at the rate of ¥118.05 to U.S. $1.00.
2 In fiscal year 2004, the new accounting standard for impairment of fixed assets was adopted.
3. In fiscal year 2007, net assets are stated under “Accounting standard for presentation of net assets in the balance sheet (Accounting Standards Board of Japan
Statement No. 5 issued on December 9, 2005)” and “Implementation guidance for Accounting standard for presentation of net assets in the balance sheet(Accounting Standards of Japan Guidance No. 8 issued on December 9, 2005) as referred to in Note 1(q). This standard retroactively applied to the net assets
for fiscal year 2006.

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

Annual Report 2007 6

Consolidated Balance Sheets
EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2006 and 2007

Japanese yen(millions)
ASSETS2006

U.S. dollars(thousands)

2007

2007

Current Assets:
Cash and cash equivalents [Notes 1(o) & 3] ·························¥ 14,512¥ 15,736$ 133,298

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

60

236

1,995

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

31,94835,099297,326

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

135

164

1,389

Notes and accounts receivable (Notes 3 & 4) –Allowance for doubtful accounts ····································(1,220)(395)(3,348)

Securities (Note 9) ·································································

364

—

—

Inventories (Notes 2 & 3) ·······················································

14,514

14,532

123,102

Deferred tax assets (Note 12) ···············································

2,555

2,566

21,741

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

2,510

737

6,240

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

1,055

1,590

13,468

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

66,43370,265595,211Land ·······················································································

7,262

7,588

64,277

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

32,282

34,572292,861

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

84,874

93,154

789,105

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

28,29530,952

262,191

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

4,930

7,726

65,454

157,643

173,992

1,473,888

Less – accumulated depreciation ··········································(100,403)(108,981)(923,178)

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

57,24065,011

550,710

Property, Plant and Equipment (Note 3):

Investments and Other Assets:
1,703

1,627

13,785non-consolidated subsidiaries and affiliates ······················

1,025

682

5,773

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

188

165

1,400

Deferred tax assets (Note 12) ···············································

4,303

3,435

29,095

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

2,548

2,888

24,469Total investments and other assets ································

9,767

8,797

74,522

Investments in securities (Note 9) ·········································
Investments in and loans to¥133,440¥144,073$1,220,443

Japanese yen(millions)

Current Liabilities:
Short-term borrowings including
current portion of long-term debt (Notes 3 & 17) ·····················
Notes and accounts payable –Trade ····················································································
Construction ·········································································
Non-consolidated subsidiaries and affiliates ························
Accrued expenses ·······································································
Accrued income taxes ·································································
Other current liabilities ·································································
Total current liabilities ···························································

2007

2006

LIABILITIES AND NET ASSETS

¥

5,341

U.S. dollars(thousands)

¥

4,624

2007

$

39,173

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

17,747
1,232
57
5,759
2,932
581
32,932

150,333
10,435483
48,78524,8404,922
278,971

2,726
665
7,184
356
1,583
12,514

2,727
1,020
6,345
277
925
11,29423,098
8,642
53,746
2,343
7,844
95,6738,284
8,768
69,0508,284
7,541
75,04970,17563,879635,739(2,951)
83,151(26)
90,848(221)
769,572

744
30
774

698
1,153
1,851

5,909
9,765
15,674

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

6,334

7,148

60,553

Total net assets ·····································································

90,25999,847845,799¥133,440¥144,073$1,220,443

Long-term Liabilities:
Long-term debt (Notes 3 & 17) ····················································
Deferred tax liabilities (Note 12) ··················································
Employees’ severance and retirement benefits (Note 10) ···········
Retirement benefits for directors and corporate auditors ············
Other long-term liabilities ·····························································
Total long-term liabilities ·······················································
Contingent Liabilities (Note 4)
Net Assets [Note 1(q)]Shareholders’ Equity (Note 13):
Common stock
Authorised – 168,000 thousand shares in 2006 and 2007
Outstanding – 49,794 thousand shares in 2006 and 48,594
thousand shares in 2007 ··························································
Capital surplus ·············································································
Retained earnings ·······································································
Treasury stock
856 thousand shares in 2006 and 8 thousand shares in 2007 ···Total shareholders’ equity ····················································
Valuation and Translation Adjustments:
Net unrealized holding gains on other securities ·························
Foreign currency translation adjustments [Note 1(c)] ··················
Total valuation and translation adjustments ·························

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

7 Annual Report 2007

Annual Report 2007 8

Consolidated Statements of Income

Consolidated Statements of Changes in Net Assets

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2006 and 2007

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2006 and 2007

Japanese yen(millions)
2006

U.S. dollars(thousands)

2007¥153,059¥166,745$1,412,497

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

118,323
34,736130,019
36,726

1,101,387
311,110

19,834
14,902Other (Income) Expenses:
Interest and dividend income ·······················································
Interest expense ··········································································
Losses on sale or disposal of property,
plant and equipment ································································
Gains on sale of investments in securities ··································
Equity in gains of non-consolidated subsidiaries and affiliates ····
Foreign exchange gains, net ·······················································
Other, net ·····················································································

20,055
16,671

Income before income taxes and minority interests ····················

169,893
141,217

(167)
221

(133)
186

(1,415)
1,870

217
(1)
(104)
(688)
(311)
(834)

260
—
(112)
(479)
(431)
(708)

2,200
—
(951)
(4,058)(3,643)(5,997)

15,736

17,379147,214

Income Taxes (Note 12)
Current ·························································································
Deferred ·······················································································

4,596
1,045

4,957
1,295

41,98910,973

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

741

630

5,331

Net Income ·······················································································Per Share Data (Note 16):
Net income ··················································································Net income – diluted ····································································Cash dividends ············································································

¥

9,354

$

Japanese yen¥ 186.02—
27.00

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

9 Annual Report 2007

¥ 10,497¥ 215.09—
34.00

Number ofoutstanding
shares(thousands)

2007

Net Sales ··························································································

Selling, General and Administrative Expenses (Note 5) ··············
Operating income ········································································

Japanese yen(millions)

88,921
U.S. dollars

$

1.82
—
0.29

Valuation and translation
adjustments

Shareholders' equity

Commonstock

CapitalsurplusRetainedearnings

Net
ForeignTotal
unrealized
currency
shareholders’ holding gains
translation
equityon otheradjustments
securities

Treasurystock

Minority
interests

Balance as of March 31, 2005 ·······························

49,794¥ 8,284¥ 8,768¥ 60,808(5)¥ 77,855¥ 414¥(2,237)¥ 5,144

Net income ······················································

—

—

—

9,354

—

9,354

—

—

—

Purchase of treasury stock ·····························

—

—

—

—

(2,946)(2,946)———

Cash dividends paid ········································

—

—

—

(1,022)—(1,022)———

Bonuses to directors and corporate auditors

—

—

—

(90)

—

(90)

—

—

—

Other, net ·························································

—

—

—

—

—

—

330

2,267

1,190

Balance as of March 31, 2006 ·······························

49,794

8,284

8,768

69,050(2,951)

83,151

744

30

6,334

Net income ······················································

—

—

—

10,497—

10,497———Purchase of treasury stock ·····························

—

—

—

—

(1,155)(1,155)———Retire treasury stock ········································(1,200)—(1,227)(2,853)

4,080

—

—

—

—

Cash dividends paid ········································

—

—

—

(1,541)—(1,541)———

Bonuses to directors and corporate auditors ···

—

—

—

(104)

—

(104)

—

—

—

Other, net ·························································

—

—

—

—

—

—

(46)

1,123

814

Balance as of March 31, 2007 ·······························

48,594¥ 8,284¥ 7,541¥ 75,049(26)¥ 90,848¥ 698¥ 1,153¥ 7,148¥¥

U.S. dollars(thousands)
Number ofoutstanding
shares(thousands)

Valuation and translation
adjustments
Net
ForeignTotal
unrealized
currency
shareholders’ holding gains
translation
equityon otheradjustments
securities

Shareholders' equity
Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Minority
interests

Balance as of March 31, 2006 ·······························

49,794$70,175$74,270$584,925$(25,001)$704,369$6,302

Net income ······················································

—

—

—

88,921—

88,921———

Purchase of treasury stock ·····························

—

—

—

—

(9,779)(9,779)———Retire treasury stock ········································(1,200)—(10,391)(24,168)

34,559————Cash dividends paid ········································

—

—

—

(13,058)—(13,058)———

Bonuses to directors and corporate auditors ···

—

—

—

(881)

—

(881)

—

—

—

Other, net ·························································

—

—

—

—

—

—

(393)

9,508

6,896

Balance as of March 31, 2007 ·······························

48,594$70,175$63,879$635,739(221)$769,572$5,909$9,765$60,553$$257$53,657

The accompanying notes to the consolidated financial statements are an integral part of these statements.
The consolidated statements of changes in net assets for the fiscal year ended March 31, 2006 are presented under the new standards.

Annual Report 2007 10

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2006 and 2007

EXEDY CORPORATION AND CONSOLIDATED SUBSIDIARIESJapanese yen(millions)

U.S. dollars(thousands)

2006

2007

2007

¥15,736¥17,379$147,214

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

9,432
260
—
(17)
(863)
(167)
221
(2,563)
662
799
(122)
25,021
172(227)(4,412)
20,554

79,899
2,200
—
(143)
(7,308)(1,415)
1,870(21,715)
5,611
6,768
(1,029)211,952
1,458(1,925)(37,370)
174,115

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 ·················································
Proceeds from sale of investments in securities ··············································
Payments for additional investments in consolidated subsidiaries ···················
Payments for investments in non-consolidated subsidiaries ····························
Additions to loans receivable ············································································
Collection of loans receivable ···········································································
Other, net ··········································································································Net cash used in investing activities ························································

(304)
19
(13,946)
170
(137)
1
(48)
(350)
(1,751)723
73(15,550)(184)
13(15,048)
205
(679)
—
—
—
(458)
262
148
(15,741)(1,555)
113(127,469)
1,736(5,755)———(3,879)2,217
1,247(133,345)

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

1,176
546
(427)
(2,946)(1,022)(161)—(2,834)

(526)
179
(655)
(1,155)(1,541)(207)
29(3,876)(4,452)
1,513(5,549)(9,779)(13,058)(1,749)244(32,830)

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 of Newly Consolidated Subsidiaries ····················Cash and Cash Equivalents at End of Year ·························································

481(4,381)
18,893—¥14,512275
1,212
14,512
12¥15,736

2,324
10,264
122,929
105$133,298

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 ·······················································
Decrease in allowance for doubtful accounts ···················································
Decrease in employees' severance and retirement benefits ····························
Interest and dividend income ···········································································
Interest expense ·······························································································
Increase in notes and accounts receivables ·····················································
Decrease (increase) in inventories ···································································
Increase (decrease) 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 ················································

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

1. Summary of Significant Accounting and Reporting Policies(a) Basis of presenting the consolidated financial statements
EXEDY Corporation (the “Company”) and its domestic consolidated
subsidiaries maintain their accounts and records in accordance with theprovisions set forth in the Corporate Law of Japan 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 Japanese
GAAP. Certain accounting principles and practices generally acceptedin Japan are different in certain respects from the application anddisclosure requirements of International Financial Reporting Standards.
The accompanying financial statements have been restructured andtranslated into English from the consolidated financial statementsof the Company prepared in accordance with Japanese GAAP and
filed with the director of Kanto Finance Bureau in Japan as requiredby 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 notpresented 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 prevailingexchange rate as at March 31, 2007, which was ¥118.05 to U.S.
$1.00. These convenience translations should not be construed as
representations that the Japanese yen amounts have been, could havebeen, 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
the Company has the ability to exercise significant influence over
operating and financial policies of the investees, are accounted forusing 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 eliminatedin 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 to income
for the current period.
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
statements of consolidated overseas subsidiaries are translated at the
average rates during the year. Translation adjustments resulting fromtranslating financial statements whose accounts are denominated inforeign currencies are not included in the determination of net income
but are reported as “Foreign currency translation adjustments” in acomponent of net assets and minority interests.
(d) Securities
Securities consist principally of marketable and nonmarketable equity
securities and interest-bearing securities.

11 Annual Report 2007

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 of
net assets.
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
The Company and its domestic consolidated subsidiaries compute thedepreciation of property, plant and equipment by using the decliningbalance method and its overseas consolidated subsidiaries mainly byusing the straight-line method. The depreciation of buildings acquired by
the Company and its domestic consolidated subsidiaries on and after
April 1, 1998 is computed by using the straight-line method.
Estimated useful lives of property, plant and equipment are as follows:
Buildings and structures ············································· 3 – 50 years
Machinery and vehicles ·············································· 2 – 15 years
Tools and furniture ······················································ 2 – 20 years
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.
(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. Leases which do nottransfer ownership of the leased assets at the end of the lease term areaccounted for as operating leases, in accordance with Japanese GAAP.
Overseas consolidated subsidiaries of the Company account for leases
that transfer substantially all risks and rewards of ownership of theleased assets as capital leases.
(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 historical
Annual Report 2007 12

bad 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 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 valueof the plan assets at that date.
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.
(l) Retirement benefits for directors and corporate auditors
The Company and its domestic cosolidated subsidiaries have unfunded
retirement allowance plans for directors and corporate auditors. The
amounts required under the plans have been fully accrued.
(m) Accounting for consumption taxes
Consumption taxes in Japan 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 of income.
(n) 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 shareassumes the full exercise of outstanding warrants and full conversionof convertible bonds at the beginning of the year (or at the time ofissuance, if this is after the beginning of the year) with an applicableadjustment for related net-of-tax interest expense. The computation of
net assets per share is based on the number of common stock shares
outstanding at the year-end, excluding the Company’s treasury stockand based on net assets attributing to ordinary shareholders excluding
minority interests.
Cash dividends per share shown in the statements of income are theamounts applicable to the respective years.
(o) 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.

(p) Reclassification
Certain comparative figures have been reclassified to conform to thecurrent year’s presentation.
(q) Changes in accounting policies
Accounting standard for presentation of net assets in thebalance sheet
Effective from the year ended March 31, 2007, the Company and its
domestic consolidated subsidiaries applied “Accounting standard forpresentation of net assets in the balance sheet (Accounting Standards
Board of Japan Statement No. 5 issued on December 9, 2005)”, and“Implementation guidance for Accounting standard for presentationof net assets in the balance sheet (Accounting Standards of Japan
Guidance No. 8 issued on December 9, 2005)”.
“Net assets” in the consolidated balance sheets for this year ispresented according to the revision of “Regulations Concerning the
Terminology, Form and Presentation Methods of Consolidated Financial
Statements” dated on April 25, 2006. Furthermore, the Company
presented its net assets in the consolidated balance sheets using thenew presentation as of March 31, 2006.
Accounting standard for directors’ and corporate auditors’
bonuses
Effective from the year ended March 31, 2007, the Company and its
domestic subsidiaries applied “Accounting standard for directors’ andcorporate auditors’ bonuses” (Accounting Standards Board of Japan
Statement No. 4 issued on November 29, 2005).
As a result of the application of this standard, operating income for theyear ended March 31, 2007 decreased by ¥104 million ($881 thousand)and income before income taxes and minority interests for the year
ended March 31, 2007 decreased by ¥107 million ($906 thousand),
respectively.
In addition, the effect of the application of this standard on segment
information is discussed in the relevant sections of this report.
Accounting standard for decrease of treasury stock and legal
reserve
Effective from the year ended March 31, 2007, the Company applied“Accounting standard for decrease of treasury stock and legal
reserve” (Accounting Standards Board of Japan Statement No. 1 final
version issued on August 11, 2006) and “Implementation guidance for
Accounting standard for decrease of treasury stock and legal reserve(Accounting Standards of Japan Guidance No. 2 final version issued on
August 11, 2006)”.
There is no effect of the application of this standard on statements ofincome.

2007

2006
Notes and accounts receivable and inventories ·····························································
Land ································································································································
Buildings and structures, net ··························································································
Machinery and vehicles, net ···························································································

U.S. dollars(thousands)¥1,191152
233
6¥1,582¥1,181152
247
8¥1,5882007$10,090
1,290
1,974
49
$13,403

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 notreceived such requests from their banks.
Cash deposits of ¥9 million as of March 31, 2006 were also pledged for deferred payment of electricity.

4. Contingent Liabilities
Contingent liabilities for guarantees by the Company as of March 31, 2006 and 2007 were as follows:
Japanese yen(millions)

2007

2006
Guarantees of loans from banks of affiliates under the equity method ··························

U.S. dollars(thousands)

¥500

¥500

2007
$4,235Trade note receivable endorsed was ¥56 million ($478 thousand) and discounted was ¥19 million ($158 thousand) for the year ended March
31, 2007.

5. Research and Development Expenses
Research and development expenses are charged to income as incurred. Research and development expenses charged to income for theyears ended March 31, 2006 and 2007 were as follows:
Japanese yen(millions)

2007

2006
Research and development expenses ···········································································

U.S. dollars(thousands)¥3,552¥3,714

2007$30,092

6. Changes in Net Assets(a) Shares issued and outstanding / Treasury stock
Number of shares
as of March 31,
2006
Shares issued:
Common stock (thousands) ··························································

2. Inventories
Inventories as of March 31, 2006 and 2007 were as follows:
Japanese yen(millions)Finished goods ···········································································································
Work-in process ··········································································································
Raw materials ·············································································································
Supplies ······················································································································

Japanese yen(millions)

U.S. dollars(thousands)

2006

2007

2007

¥ 5,947
4,998
2,814
755
¥14,514¥ 5,804
5,283
2,611
834
¥14,532$ 49,164
44,754
22,119
7,065$123,102

Increase

Decrease

Number of shares
as of March 31,
2007

49,794
49,794

—
—

1,200
1,200

48,594
48,594

856
856

352
352

1,200
1,200

8
8

Treasury stock:
Common stock (thousands) ···························································(Notes) 1. The decrease of share issued - common stock 1,200 thousand is due to retire treasury stock on January 22, 2007 as approved by the Board of
Directors' meeting held on December 26, 2006.
2. The increase of treasury stock - common stock 352 thousand is due to purchase of the stocks 350 thousand and the stocks less than standard unit
2 thousand as approved by the Board of Directors' meeting held on October 26, 2006.
3. The decrease of treasury stock - common stock 1,200 thousand is due to retire treasury stock on January 22, 2007 as approved by the Board of
Directors' meeting held on December 26, 2006.

(b) Dividends(1) Dividends

3. Assets Pledged as Collateral
The following assets were pledged as collateral for ¥213 million of secured short-term loans from banks and ¥412 million of secured longterm loans from government-sponsored agencies as of March 31, 2006, and for ¥699 million ($5,922 thousand) of secured short-term loans
from banks and ¥263 million ($2,224 thousand) of secured long-term loans from government-sponsored agencies as of March 31, 2007:

13 Annual Report 2007

Cash dividends paid
Japanese yen (millions)
U.S. dollars (thousands)

Resolution

Type of shares

Ordinary general meeting of theshareholders on June 27, 2006

Common stock¥ 832$7,047

Board of Directors’ meeting on
October 26, 2006

Common stock¥ 709$6,011Dividends per share(Japanese yen)
(U.S. dollars)

Cut-off date

Effective date

¥ 17.0$ 0.14

March 31, 2006

June 28, 2006

¥ 14.5$ 0.12September 30, 2006

November 28, 2006
Annual Report 2007 14

(2) Dividends, of which the cut-off date was in the year ended March 31, 2007, and effective date of which will be in the year ending March 31, 2008
Resolution

Type of shares

Ordinary general meeting of theshareholders on June 26, 2007

Common stock

Cash dividends paid
Resources
Japanese yen (millions)ofU.S. dollars (thousands) dividends¥ 948$8,026

Dividends per share
Cut-off date
(Japanese yen)
(U.S. dollars)

Retainedearnings¥ 19.5$ 0.17

Effective date

March 31, 2007

9. Securities
Other securities with book values (fair values) exceeding acquisition costs as of March 31, 2006 and 2007 were as follows:
Japanese yen (millions)

June 27, 2007

Acquisition
cost

March 31, 2006

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

7. Cash Flows
Non-cash investing and financing activities
In the year ended March 31, 2007, the Company retired 1,200 thousand treasury stock.

¥ 389
—
—
¥ 389

U.S. dollars(thousands)¥1,227
2,853¥4,080$10,391
24,168$34,559

March 31, 2007

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

Acquisition
cost
¥
¥

398
—
—
398

Book
value
¥ 1,560——¥ 1,560

Difference¥1,637——¥1,637¥1,248——¥1,248

U.S. dollars (thousands)

Japanese yen (millions)Japanese yen(millions)
Decrease of capital surplus ·····························································
Decrease of retained earnings ························································
Decrease of treasury stock ······························································

Book
value

Difference

Acquisition
cost

Book
value

¥ 1,162——¥ 1,162$ 3,369——$ 3,369$13,214——$13,214

Difference$9,845——$9,845

Other securities with book values (fair values) not exceeding acquisition costs as of March 31, 2006 and 2007 were as follows:

8. Leases

Japanese yen (millions)(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 andfuture minimum lease payments under finance leases that do not transfer the ownership of the leased property to the lessee for the years
ended March 31, 2006 and 2007 was as follows:

March 31, 2006

March 31, 2006
Machinery and vehicles ················
Tools and furniture ························
Other ·············································

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

¥ 320
122
61
¥ 503

Accumulated
losses on
impairment
¥
¥

—
—
—
—

Book
value

¥

¥

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

—
—
—
—

¥

March 31, 2007

Balance

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

¥ 753
40
17
¥ 810

Acquisition
cost
¥
¥

—
—
—
—

Book
value
¥
¥

—
—
—
—

¥

¥
¥

—
—
—
—

U.S. dollars (thousands)
Acquisition
cost

Difference¥

Difference
—
—
—
—

¥

Japanese yen (millions)Japanese yen (millions)
Acquisition
cost

Acquisition
cost

—
—
—
—

$
$

Book
value

—
—
—
—

$

—
—
—
—

$

Difference
$
$

—
—
—
—

The book value of securities with no available fair values as of March 31, 2006 and 2007 were as follows:
Japanese yen (millions)
March 31, 2007
Machinery and vehicles ················
Tools and furniture ························
Other ·············································

Acquisition
cost

Accumulated
depreciation

¥ 290
158
61
¥ 509

¥ 137
117
58
¥ 312

Accumulated
losses on
impairment
¥
¥

—
—
—
—

U.S. dollars (thousands)
BalanceAcquisition
cost

Accumulated
depreciation

¥ 153
41
3
¥ 197

$2,453
1,339
521$4,313$1,159995
487$2,641

Accumulated
losses on
impairment$$

Balance————$1,294344
34$1,672The scheduled maturities of future lease payments, on such lease contracts for the year ended March 31, 2006 and 2007 were as follows:
Japanese yen(millions)

¥ 158
652
¥ 810

78
119
¥ 197

$ 660
1,012
$1,672

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

¥ 213

¥

$ 748

¥

88

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 ¥213 million and ¥88 million ($748 thousand) for the years ended March 31, 2006 and 2007, respectively.
The Company had no leased assets on which impairment should be recognized for the years ended March 31, 2006 and 2007.
(b) Operating leases
The scheduled maturities of future lease payments under non-cancelable operating leases as of March 31, 2006 and 2007, were as follows:
Japanese yen(millions)Due within one year ··········································································································
Due over one year ············································································································¥¥

15 Annual Report 2007

¥

¥

¥
¥

0
—
0

$

1
—
1

67
—

$ 571
—

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)

2007

2006

¥

—
—
—
—

2007
—
—
—
—

$

—
—
—
—

364
—
—
—

—
—
—
—
—
—
—
—

Other securities sold in the years ended March 31, 2006 and 2007 were as follows:
Japanese yen(millions)

Sales value ······························································································································
Gains ·······································································································································
Losses ·····································································································································¥

U.S. dollars(thousands)

2007

2006

2007
$

66
364

2007

Japanese yen(millions)

U.S. dollars(thousands)

2007
2
0
2

2007

Maturities of other securities with maturities as of March 31, 2006 and 2007 were as follows:2007

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

2006

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

U.S. dollars(thousands)

2006

U.S. dollars(thousands)

2007

2006

Japanese yen(millions)

1
1
—

¥

2007
—
—
—

$

—
—
—

Annual Report 2007 16

10. Employees’ Severance and Retirement Benefits

12. Income Taxes

The Company and its domestic subsidiaries adopt defined benefit retirement plans: cash balance plans and lump-sum payment plans, aswell 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, 2006 and 2007 consists of the following:

Significant components of the Company's deferred tax assets and liabilities as of March 31, 2006 and 2007 were as follows:
Japanese yen(millions)

U.S. dollars(thousands)

2006

2007

2007

Deferred tax assets:
Employees’ severance and retirement benefits ·························································Net operating losses carried forward ········································································
Accrued bonuses to employees ················································································
Accrued defined contribution pension to employees ················································
Accrued warranty costs ····························································································
Losses on devaluation of inventories ········································································
Accrued enterprise tax ······························································································
Unrealized income (fixed assets) ··············································································
Unrealized income (inventories) ···············································································
Allowance for doubtful accounts ···············································································
Other ························································································································
Total deferred tax assets ·······························································································
Valuation allowance ··································································································¥ 2,900
2,628
800
887
261
279
167
209
231
530
765
9,657
(944)

¥ 2,558
2,174
836
523
323
245
219
219
218
152
817
8,284
(551)

$21,666
18,416
7,082
4,428
2,733
2,072
1,859
1,856
1,850
1,284
6,927
70,173(4,666)

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

8,713

7,733

65,507

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

(661)
(744)
(342)
(504)
(143)
(132)
(2,526)
6(1,017)
(688)
(339)
(465)
(86)
(157)
(2,752)—(8,612)(5,827)(2,870)(3,936)(730)(1,338)(23,313)—(Note) "Others" represents the payments to defined contribution pension plans.

Deferred tax liabilities ····································································································(2,520)(2,752)(23,313)

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

Net deferred tax assets ··································································································¥ 6,193¥ 4,981$42,194

Japanese yen(millions)

U.S. dollars(thousands)

2006

2007

2007

Projected benefit obligation ······························································································
Fair value of pension assets ····························································································¥11,832(5,135)
6,697¥11,883(5,553)6,330$100,659(47,042)
53,617

Unrecognized actuarial differences ··················································································
Liability for employees’ severance and retirement benefits ·······································

487¥ 7,18415¥ 6,345129$ 53,746

Included in the consolidated statements of income for the years ended March 31, 2006 and 2007 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 actuarial differences ················································································
Employees’ severance and retirement benefit expenses ··········································
Others ·······························································································································

2006

2007

2007

¥

¥

$

¥

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

U.S. dollars(thousands)

706
242
(87)
(375)
486
154
640

¥

471
237
(103)
(465)
140
155
295

3,988
2,004
(870)
(3,942)
1,180
1,316$ 2,496

2006

2007

Straight-line basis
2.0%
2.0%
1 year
1 yearStraight-line basis
2.0%
2.0%
1 year
1 year

The Company is subject to a number of taxes based on income, which, in the aggregate, indicate a statutory tax rate in Japan ofapproximately 40.4% for the years ended March 31, 2006 and 2007.
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, 2006 and 2007:

2006

11. Derivatives
The only derivative transactions the Company and its consolidated subsidiaries engages in are forward currency exchange contracts andcurrency swaps for the purpose of hedging against exchange rate risks. The Company and its consolidated subsidiaries do not engage
in derivative transactions for trading or speculative purposes. Hedging accounting through derivative transactions was not applied as thenecessary conditions were not met. Forward currency exchange contracts and currency swaps 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 and its consolidated subsidiaries
have established a control system which includes policies and procedures regarding derivative transactions. All derivative transactions were
processed under control and with the necessary approval.

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 net operating losses carried forward by overseas subsidiaries ··················
Increase of retained earnings of overseas subsidiaries ············································
Other ························································································································
Effective tax rate ·············································································································

2007

40.4%

40.4%

0.2
0.1
(2.1)
(2.0)
—
—
(0.8)
35.8%

2.1
0.1
(1.5)
(3.0)
(4.5)
2.0
0.4
36.0%

The following table provides information on derivative instruments as of March 31, 2006 and 2007.

13. Shareholders’ Equity

Japanese yen (millions)
March 31, 2006

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

Contract
amount

Fair
value

¥
¥

¥
¥

497
497

501
501

The Company is subject to the Corporate Law of Japan that went into force on May 1, 2006.

Gain (loss)
¥
¥

(4)
(4)

Japanese yen (millions)
March 31, 2007

Contract
amountForward exchange contracts:
To sell U.S. dollars ·····································

¥

624

¥

621

¥

Currency swaps:
Payment Rupiahs ······································
Receipt U.S. dollars····································

¥

46
—

¥

(6)
—

¥

17 Annual Report 2007

Fair
value

The Corporate Law of Japan provides that an amount equal to 10% of cash dividends to be paid be appropriated as a legal reserve. And nofurther appropriation is required when the sum of the capital surplus and legal reserve equals 25% or more of common stock. If the amountof accumulated capital surplus and legal reserve exceeds the required amount, the excess amount is allowed to be appropriated through a
resolution at a 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.

U.S. dollars (thousands)
Contract
amountFair
value

Gain (loss)

3$5,288$5,259

$

(6)
(3)

$

Gain (loss)

389
—

$

(54)
—

29

(54)
$ (25)

Annual Report 2007 18

Net sales outside Japan for the years ended March 31, 2006 and 2007 were as follows:

14. Segment Information

Japanese yen(millions)

The Company and its consolidated subsidiaries operate in 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 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.

America ·······················································································
Asia-Oceania ··············································································
Other ···························································································

Business segment information for the years ended March 31, 2006 and 2007 was as follows:
Japanese yen(millions)

U.S. dollars(thousands)

U.S. dollars(thousands)

2006

2007

2007

¥ 28,006
25,323
6,630¥ 59,959¥ 29,998
26,783
7,326¥ 64,107$ 254,109
226,88162,058$ 543,048

15. Related Party Transactions
For the year ended March 31, 2007, the Company and its consolidated subsidiaries had operational transactions with Aisin AW Co., Ltd.
Aisin AW Co., Ltd. is a subsidiary of Aisin Seiki Co., Ltd. which holds 33.4% of the Company's voting rights.

2006

2007

2007

Manual automotive drivetrain operations ····································
Automatic automotive drivetrain operations ································
Other operations ·········································································
Eliminations (inter-segment net sales) ········································¥ 49,311
89,90819,597(5,757)¥153,059¥ 50,914
99,66022,271(6,100)¥166,745$ 431,288
844,215
188,658(51,664)$1,412,497

A summary of the significant transactions between the Company and its consolidated subsidiaries and such a company for the year ended
March 31, 2007 was as follows:

Operating Costs and Expenses: Manual automotive drivetrain operations ····································
Automatic automotive drivetrain operations ································
Other operations ·········································································
Non-allocated operating expenses and eliminations ···················¥ 43,287
81,92718,089(5,146)¥138,157¥ 43,859
91,293
20,171(5,249)¥150,074$ 371,528
773,344
170,872(44,464)$1,271,280

Categories

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

¥

6,025
7,981
1,508
(612)
¥ 14,902

¥

7,055
8,366
2,100
(850)
¥ 16,671$

59,76070,871
17,785(7,199)$ 141,217

Assets:Manual automotive drivetrain operations ····································
Automatic automotive drivetrain operations ································
Other operations ·········································································
Corporate and eliminations ·························································¥ 39,187
69,426
11,537
13,290¥133,440¥ 39,901
75,723
15,51012,939¥144,073$ 338,001
641,452
131,381
109,609$1,220,443

Depreciation and Amortization:

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

¥

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

¥

2,658
6,172
701
(99)
9,432

$

2,427
11,269861(85)¥ 14,472¥

3,300
12,149816(327)¥ 15,938$

Sales:¥
Capital Expenditures:

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

¥

¥

$

22,51652,281
5,938(836)
79,89927,958102,913
6,911(2,774)$ 135,008(Note) Effective from the year ended March 31, 2007, the Company and its domestic consolidated subsidiaries adopted new accounting standards for directors’
and corporate auditors' bonuses. As compared with the previous method, operating costs and expenses increased by ¥33 million ($275 thousand) in
Manual automotive drivetrain operations, ¥60 million ($511 thousand) in Automatic automotive drivetrain operations and ¥11 million ($95 thousand) in
Other operations, and operating income for each segment decreased by the same amount.

Name

Other related
Aisin AW
company'sCo., Ltd.
subsidiary

Address

CapitalJapanese yen(millions)
U.S. dollars(thousands)

Operation

Votingrights(%)

Directors

BusinessrelationshipAnjo City
Aichi Pref.

¥ 26,480$224,312

Manufacturing
automotive
parts

—

1

Sale ofproducts

U.S. dollars(thousands)

2006

2007

2007

Japan ··························································································
America ·······················································································
Asia-Oceania ··············································································
Other ···························································································
Eliminations (inter-segment net sales) ········································¥121,418
28,037
20,516
1,956(18,868)¥153,059¥130,804
30,06524,334
2,348(20,806)¥166,745$1,108,035
254,677
206,136
19,891(176,242)$1,412,497

Operating Costs and Expenses: Japan ··························································································
America ·······················································································
Asia-Oceania ··············································································
Other ···························································································
Non-allocated operating expenses and eliminations ···················¥110,491
26,06818,7691,730(18,901)¥138,157¥118,645
28,80921,283
2,118(20,781)¥150,074$1,005,037
244,045
180,290
17,940(176,032)$1,271,280

Operating Income:Japan ··························································································
America ·······················································································
Asia-Oceania ··············································································
Other ···························································································
Non-allocated operating expenses and eliminations ···················¥ 10,928
1,969
1,748
225
32
¥ 14,902¥ 12,159
1,255
3,051
230
(24)
¥ 16,671$ 102,998
10,632
25,846
1,951(210)$ 141,217

Japan ··························································································
America ·······················································································
Asia-Oceania ··············································································
Other ···························································································
Corporate and eliminations ·························································¥ 80,210
22,80920,1131,367
8,941¥133,440¥ 84,295
24,92624,2081,760
8,884¥144,073$ 714,065
211,149
205,067
14,91075,252$1,220,443(Notes) 1. The Company's operations are classified into geographical areas as follows: Japan, America, Asia-Oceania (Thailand, Malaysia, China, Indonesia,
Vietnam, Australia and United Arab Emirates) and Other (Europe).
2. Effective from the year ended March 31, 2007, the Company and its domestic consolidated subsidiaries adopted new accounting standards for
directors’ and corporate auditors' bonuses. As compared with the previous method, operating costs and expenses increased by ¥104 million ($881
thousand) in Japan segment and operating income for each segment decreased by the same amount.

19 Annual Report 2007

Sale ofproducts¥ 8,440$71,496

Accounts

Balance
Japanese yen(millions)
U.S. dollars(thousands)

Accounts
receivable¥ 2,010$17,029

Advanced
received

¥
$

4
36

(Note) Consumption taxes are included in the balance, but not in the trade amount.

16. Per Share Data
Per share data for the year ended March 31, 2006 and 2007 were as follows:
Japanese yen

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

U.S. dollars

2007

2006

2007

¥ 215.09—
1,907.92¥ 186.02—
1,714.93

$

1.82
—
16.16

Diluted net income per share is not disclosed because potentially dilutive securities are not issued.

The information on which per share data was calculated for the year ended March 31, 2006 and 2007 was as follows:
Japanese yen(millions)Japanese yen(millions)

Assets:AmountJapanese yen(millions)
U.S. dollars(thousands)(Transaction terms and policy determination thereof)
With regard to sale of products, prices and other transaction terms are determined by negotiation in consideration of market situation.

Geographic area segment information for the years ended March 31, 2006 and 2007 was as follows:

Sales:

Trade

Relationship

U.S. dollars(thousands)

2006

2007

2007

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 ························································¥ 9,354
104(104)¥ 9,250¥10,497—(—)¥10,497$88,921—(—)$88,921

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

49,724

48,80248,802

17. Short-term Borrowings and Long-term Debt
Short-term borrowings and long-term debt as of March 31, 2006 and 2007 were as follows:
Japanese yen(millions)Short-term borrowings ·········································
Current portion of long-term debt ························
Long-term debt ····················································
Other debt ···························································

U.S. dollars(thousands)

2006

2007

2007

¥ 4,720
621
2,726
217
¥ 8,284¥ 4,175
449
2,727
96
¥ 7,447$35,367
3,806
23,098815$63,086

Weighted
averageinterest rates
3.4%
2.7
5.4
0.9

Year
due

2008-2012

Annual maturities of long-term debt as of March 31, 2007 were as follows:
Years ending March 31
2009 ···································································································································································
2010 ···································································································································································
2011 ···································································································································································
2012 and thereafter ···········································································································································

Japanese yen(millions)
¥ 543
103
80
2,001
¥2,727

U.S. dollars(thousands)$ 4,597
868
682
16,951$23,098

Annual Report 2007 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
Hideki Miura
Masanori Motoura
Shougo Okamura
Hidehito Hisakawa
Koji Akita
Hiromu Yamasaki
Toshiharu Yamamoto
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:
1,871
Number of Authorized Shares:
168,000 thousand shares
Number of Issued Shares:
48,594 thousand shares
Number of Shareholders:
5,777
Average number of shares heldby one Shareholder:
8,412 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
Shizuoka Sales Office:
TBM Bldg., 2nd Floor, 6-20
Aratajima-cho, Fuji-shi,
Shizuoka 417-0043, Japan

As of June 30, 2007

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 2007, and the related consolidated statements of income,changes in net assets, 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 2007, 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(q), effective from the year ended March 31, 2007, EXEDY Corporation and its
domestic consolidated subsidiaries applied Accounting standard for presentation of net assets in thebalance sheet and Implementation guidance for Accounting standard for presentation of net assets in thebalance sheet.
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, 2007

EXEDY Overseas Network
EXEDY HOLDINGS OF AMERICA CORPORATIONSHANGHAI DYNAX CO., LTD.

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

No. 2 PLANT 1399 CHENGQIAO ROAD, FENGXIANDISTRICT, SHANGHAI 201400, CHINA
PHONE: 86-21-5743-7465
FACSIMILE: 86-21-5743-7458–
JL. PULOBUARAN RAYA KAV. IIIFF
8-9 PULO–GADUNG JAKARTA TIMUR 13920, INDONESIA
PHONE: 62-21-4602581
FACSIMILE: 62-21-4602580

EXEDY GLOBALPARTS CORPORATIONDYNAX INDUSTRY (SHANGHAI) CO., LTD.

EXEDY VIETNAM CO., LTD.

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

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

KHAI QUANG INDUSTRIAL ZONE, VINH YEN
CITY, VINH PHUC PROVINCE, SOCIALISTREPUBLIC OF VIETNAM
PHONE: 84-211-721252
FACSIMILE: 84-211-721253

EXEDY CORPORATION ASEAN REGIONAL OFFICE

CEEKAY DAIKIN 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

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 (Thailand) CO., LTD.

EXEDY MIDDLE EAST FZCO

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

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 FRICTION MATERIAL CO., LTD.

EXEDY AUSTRALIA PTY. LTD.

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

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

EXEDY (MALAYSIA) SDN. BHD.

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

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

EXEDY-DYNAX AMERICA CORPORATIONStatement 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.

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: 86-23-62924439
FACSIMILE: 86-23-62900348

EXEDY (SHANGHAI) CO., LTD.
1399 CHENGQIAO ROAD, FENGXIAN DISTRICT,SHANGHAI 201400, CHINA
TEL: 86-21-6710-9075
FACSIMILE: 86-21-5743-4257

EXEDY GUANGZHOU CO., LTD.
No. 406, E-ARIA, LONGFU CAR ACCESSORIESCENTRE, HENGFU ROAD, GUANGZHOU, CHINA
PHONE: 86-20-83489371
FACSIMILE: 86-20-83489370

21 Annual Report 2007

Hamamatsu Sales Office:CITY21 Bldg., 6th Floor,
320-4 Sunayama-cho,Naka-ku, Hamamatsu-shi,
Shizuoka 430-0926, Japan
Chubu Sales Office:Tosho Bldg., 2nd Floor,
1-16-5 Mikawaanjo-cho,Anjo-shi, Aichi 446-0054,
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, JapanPT 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,
KELAPA GADING, JAKARTA, UTARA 14250,
INDONESIAPHONE: 62-21-4603353
FACSIMILE: 62-21-4603355

P.T. EXEDY MOTORCYCLE INDONESIA

EXEDY CLUTCH EUROPE LTD.

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

Annual Report 2007 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.com

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.