Consolidated Financial Highlights（Years ended March 31）

2005

2006

·308,172¥344,228

Operating income（Millions of Yen）

84,920101,096

Ordinary income（Millions of Yen）

89,525

103,638

Net income（Millions of Yen）

64,13575,620Total assets（Millions of Yen）

351,482

361,538

Total shareholders equity（Millions of Yen）

277,889

279,481Net income·144.71¥171.71

Diluted net income

144.38171.08Cash dividends applicable to the year

37.50

60.00＊2

Price earnings ratio（Times）

20.4

27.7

Price cash flow ratio（Times）

17.2

19.7

Price book value ratio（Times）

4.7

7.3

Stock price at year-end（Yen）＊3

2,950

4,750

Net sales（Millions of Yen）

Per share data（Yen）＊1*1. Indicates per share data are all retroactive adjustments reflecting the four for one share
split that was effective from November 15, 2005.
*2. The cash dividend of ¥60 indicates the sum of the ¥30 year-end dividend per share, andthe ¥30 retroactive adjustment reflecting the share split implemented November 2005
relating to the interim dividend (¥120 per share) prior to the split.
*3. The stock price at year-end reflects the share split that was effective from November 15,
2005, and is a retroactive adjustment of the stock price prior to the split.

Contents
A Message to Our Stakeholders

2

Hoya s Technological Strengths

6

Hoya s Business Strengths

8

Hoya at a Glance

10

Information Technology

12Electro-Optics Division

13

Photonics Division

17

Eye Care18

Vision Care Division

19

Health Care Division

21

Other Businesses

23

Crystal Division

23

R&D and New Businesses

24

Corporate Governance26

Corporate Social Responsibility

27

Environmental Initiatives

28

Financial Section and Corporate Data

29

Note on segment data:
In addition to the review of operations by segment found on pages 10 to 23 of this annual
report, segment-specific data can be found on pages 32 through 43, in the financial section.

1

A Message to Our Stakeholders

Hiroshi Suzuki,
President and CEO2

I am delighted to have the opportunity to report on
Hoya’s consolidated results for the fiscal year ended
March 31, 2006, and to give an overview of our
future business direction.

The Surprising Scope of Hoya’s Business
The number of Hoya shareholders jumped from just 7,000 ayear ago to more than 50,000 at the end of March 2006.
Institutional investors continue to hold the greater proportion ofshares, but I am also extremely pleased that a large number ofindividuals became Hoya shareholders during the fiscal year
under review.
Many readers probably have an image of Hoya as a company
in the eyeglass lens and contact lens business. In fact, theCompany has core strengths in two business areas: Information
Technology and Eye Care. Eyeglass lenses and contact lenses are
the main products of the Eye Care side of our business, and I
believe that consumers in general are quite familiar with the
Hoya name when it comes to these. In the Information
Technology business, however, some might be surprised to hear
about our dominant share in the markets for the mask blanks
and photomasks that are so essential to the production ofsemiconductor chips and LCD panels, the glass disks used in the
HDDs found in notebook computers, and the optical glass lenses
seen in digital cameras and camera-equipped mobile phones. Allof these are home electrical products influenced by advances indigital technologies, and although Hoya’s brand name does notappear on these consumer products, we contribute significantly
to the improved functionality of the products that people
everywhere use. Our products greatly enhance the convenience
to consumers. Hoya has been admired by institutional investors
for some time, but from here forward I hope that individual
shareholders will also feel an affinity for Hoya as an especiallyapproachable company.

Review of Fiscal 2006 Results
Let me provide a brief review of Hoya’s consolidated results forfiscal 2006. Net sales rose 11.7% on the previous year to reach¥344,228 million. Operating income was up 19.0% year on yearto ¥101,096 million, and ordinary income grew 15.8% to¥103,638 million. Net income increased 17.9% to ¥75,620
million. In the Information Technology field, both sales and income
saw double-digit growth as we stepped up production capacity inresponse to strong demand. In fact, demand grew more quickly
than expected, so we lost some opportunities due to inadequate
supply. In the Eye Care field, both eyeglass lenses and contactlenses achieved steady growth in sales and income. Clearly, theindustrial structures of the Information Technology and Eye Care
fields differ greatly. Yet I believe that this year’s results clearly
demonstrate the effectiveness of Hoya’s overall group strategy,
which is to maximize income by leveraging our intrinsic strengths
in both fields.

<Information Technology>
The Electro-Optics division saw net sales grow by 15.0% overthe previous year, and operating income rose 18.3%. Like lastyear, both the growth in demand for digital consumer electronics
products and the increasing demand for highly functional
products contributed to these favorable results.
Hoya’s mask blanks, which are used in the production ofsemiconductors, enjoy the major share of the market, and sales
to semiconductor manufacturers around the globe continued topost steady results. Over the past several years, sales of high-end
products have been expanding. The trend toward more minutely
detailed integrated circuit (IC) chips continues, and the need forhigh-resolution, high-precision mask blanks keeps on growing.
Demand for photomasks employed in semiconductor production
is following a similar trend.
In South Korea, we built a new plant for production of thephotomasks used in the manufacture of LCD panels. With thisstep, we have completed our three-facility production system,with the other bases being in Japan and Taiwan. Because each of
Hoya’s production facilities is located close to the panel makers’
own plants, we can ensure that our products accurately meet
our clients’ detailed requirements. We are positioned to develop
our business with great responsiveness to market needs. Anotherpositive for the Company is that the growing size of LCD panels
is driving increased demand for larger and more precise
photomasks—an area where we already have the edge.
Income from the sale of glass disks for HDDs saw a major
increase in the fiscal year under review, with demand driven by
the many consumers replacing their desktop computers withnotebooks as the latter have become widely used. During theyear, Hoya responded to this strong demand by opening a newplant in Vietnam, in addition to expanding capacity at existing
plants. In the field of optical lenses, results were enhanced by the3commencement of full-scale production of lenses for cameraequipped mobile phones, in addition to existing production oflenses for digital cameras.
The Photonics division recorded a contraction in net sales of
6.1% in comparison with the previous year. This is a businesscharacterized by severe competition and challenges in productdifferentiation. However, due to efforts to improve the earnings
structure in this business, we achieved a small increase of 4.6% inoperating income.

<Eye Care>Net sales in the Vision Care division grew 10.0% compared tothe previous year, and operating income rose 19.3%. In Japan,
sales did not grow as quickly as we had hoped, as a result of theslowdown in the eyeglass market. Demand recovered in Europe,
which is a large market for Hoya, and results for North America,
Asia-Pacific region also improved, yielding these strong
overall results.
In the Health Care division, net sales were 13.0% higher thanthe previous year. This growth was driven by healthy sales in
Hoya’s directly managed contact lens specialty retail store chain,
Eye City, where we have been aggressively opening new stores. I
credit these good results to Eye City’s customer-specific consulting
approach to sales, and the excellent after-sales service offered. We
achieved growth despite the fact that price competition has
become entrenched in the Japanese domestic market. Elsewhere,
we are developing the global market especially in Europe for
intraocular lenses (IOLs), which are used in the treatment ofcataracts, and sales are growing steadily. During the fiscal year
under review, we made accounting changes in the treatment of thebonus points given to Eye City customers when they makepurchases, and as a result a full year’s worth of the reserve fund
was appropriated in one lump sum as sales administrative
expenses for the fourth quarter. In addition to that, R&D costs
increased greatly due to investment in the development of new
products. As a result, the division recorded a decline in operating
income of 3.9% compared with a year earlier.

<Other Business Field>
The Crystal division, another business operated by Hoya, isengaged in the production and sale of crystal tableware andinterior products. Faced with the contraction in the market forgifts and increasing competition from overseas products, the4size of this business has decreased year by year. During the fiscal
year under review, we attended to streamlining the existing
business to lay the groundwork for our plans to revitalize it.

Future Prospects
Hoya continues to strive to expand the scope of its two key
fields of business: Information Technology and Eye Care. The
Information Technology field currently enjoys the lion’s share of
growth in the Company’s profits and scale of business, but this isalso a field with plenty of risk, because any technologicalrevolution can suddenly change the competitive environment.
The Eye Care area, the other key field, is less affected bytechnological innovation or shifts in economic conditions. The
two fields therefore strike a good balance with one another.
Our theme for the year ahead will be further sharpening
Hoya’s competitive edge. Since the Company’s mask blanks, LCD
photomasks, optical lenses and glass disks all enjoy a high share of
their markets, we spent the last two years prioritizing expansionof productive capacity to fulfill supply responsibilities. We arelikely to meet our goals for increased production volumes in thefirst half of fiscal 2007, so during the second half we plan to
devote more resources to further improving quality.

Management Systems
Within the Hoya Group, headquarters does not issue orders toeach business division relating to each action, and in fact eachdivision has the authority to conduct its own business.
Prescriptions for the improvements to quality that I referred toabove are prepared by each division. One division may
strengthen its cost-competitiveness, while another might consider
it vital to refine its leading-edge technologies. Also, because thesame division might need to proceed differently depending on
the region, there are circumstances when each region makes its
own independent decisions. For example, it is not unusual for theJapanese, European and North American regions to undertake
completely different marketing activities for eyeglass lenses within
the Vision Care division.
I believe that the Hoya Group will be strongest if each businessdivision has its own decision-making authority, and if each division
works hard to create the ideal conditions for its own business. At
the same time, in return for this devolution of authority, eachdivision has the responsibility to explain its actions.The decisionmaking process is unconstrained, but decision makers are held

A Message to Our Stakeholders

accountable to demonstrate why and how they reached aparticular conclusion. We also recognize that, concerningcompliance and corporate social responsibility, each individual ineach division shoulders an important duty, since he or she is
responsible for his or her own actions, rather than having themdictated from the top down. Headquarters clearly sets out thetarget standards of conduct, and each division acts in accordancewith those standards. I see Hoya as having the responsibility to
conduct its business in conformity not only with legal and ethicalcodes, but also with those rules that it must observe to stay true
to itself as a high-quality company.

A Final Word to Our Shareholders
I like to think that all of our stakeholders—including
shareholders, employees and management—share a common
destiny in a ship called “Hoya.” My long-held conviction that acompany belongs to its shareholders will not change. I am fully
aware that it is the duty of the management to make the mosteffective use of our shareholders’ investments, and to work as
one with our employees to further develop the business andenhance Hoya’s corporate value.
We are all deeply grateful for your ongoing support.

Corporate Governance
Hoya operates within a company-with-committees system. Thereis a Board of Directors, which is the highest decision-making
organ, and three committees—the Nomination Committee,
Compensation Committee and Audit Committee. Of the eight
members of the Board of Directors, the majority are outside
directors, and all members of the three committees areoutside directors. We have thus established a systemof corporate governance that maximizes
supervisory functions. It can be said that
corporate governance systems are reallycalled to account in emergency situations.
The role of the Board of Directors
is recognized as being not only tosupervise the activities of theexecutive officers, but also in an
emergency to act as therepresentative of the shareholders
and protect the interests of theCompany. Our outside directors,
who have no particular interest in
Hoya, serve an important supervisoryrole in the Company’s management. In
addition, we considered it important todevelop and operate systems to preventthe occurrence of an emergency, as well as
maintaining a system of checks. The
Company is striving to further strengthen its
internal control systems and perfect athoroughgoing checking function through its internal
audit team.

Hiroshi Suzuki, President and CEO

5

Hoya’s Technological Strengths
Hoya’s Seven Core Technologies

Pure Innovation—From the Very
Beginning to Today
Hoya got its start in 1941 as Japan’s first specialty maker of opticallenses. At the time, the production of optical glass was seen as aleading-edge industry, and Hoya took on the challenge of building
this new business from the ground up. Ever since then, theCompany has pursued the endless possibilities offered by glass.
And glass is more than just a material; it is a conveyor of light.
Another key theme since the beginning has been the emphasis on“light” in Hoya’s pursuit of technological innovation and expansion
into new fields. Today, the Company’s business has broadened
considerably. Hoya is a partner of choice for the semiconductor
and digital equipment industries when it comes to ultra-advanced
electro-optics, and also helps individuals lead healthy and fulfilling
lives with its eyeglasses, contact lenses and crystal products.
The creation of completely new technologies from theground up, their augmentation with the addition of newtechnologies, and the further development of existing
technologies—Hoya’s history is a story of continuous
technological innovation.
Hoya’s core technologies support its development as a“technological creator” company.

Glass Formation Technologies
At any given time, Hoya is producing more than 100 different
varieties of optical glass, working from a proprietary “recipe book”
that contains over 50,000 different ways to manufacture glass.
Hoya carefully selects the purest materials from around the globe,
and combines them in a multitude of ways to create an endlessvariety of glass products with optical characteristics that precisely
match market needs.
Glass Melting Technologies
Hoya melts glass at around 1,300ºC to 1,500ºC, which enables it
to produce high-quality glass that is extremely even andhomogeneous. The Company introduced platinum furnace andelectric melting systems ahead of other companies, and has
adopted a continuous melting process. As a result, Hoya offers its
customers an extremely stable supply of high-quality products.
Molding Technologies
Molten glass can be continuously molded into a variety of different
shapes, permitting efficient production of large volumes of opticalglass. Hoya’s use of extremely high-precision press molding techniques
enables the Company to produce molded aspherical lenses without
the need for time-consuming grinding and polishing processes. Best ofall, these technologies allow Hoya to conduct mass production withmeasurement tolerances at the sub-micron level.

1941

Optical glass

1962

Eyeglass lenses

1945

Crystal glass

▲
1940
6

▲
1945

▲
1965

Polishing Technologies
Glass substrates are ground and polished to a designated degree ofthickness.The grinding process involves the use of diamond
grindstones that smooth out bumps, hollows and other irregularities
in the substrate. On top of this, polishing processes use special
polishing powders to produce an ultra-smooth surface. Hoya’s highest
precision products are the mask blanks and photomasks used in the
production of semiconductors.These products are polished flat to an
accuracy of one thousandth of a millimeter, with a surface roughness
of only one millionth of a millimeter.
Thin Film Technologies
Hoya developed its surface treatment technologies beginning with
anti-reflective coatings for optical filters. It has continued to refine
these technologies by developing coatings for eyeglass lenses, andtoday it employs new technologies in spattering processes formask blanks and glass magnetic-memory disks.
Optics Design
Hoya has amassed a considerable armada of optical lens design
technologies over the years. The Company rigorously controls thedegree of refraction, dispersion and light transmittance, as well as
the homogeneity of the glass, and fine-tunes these characteristics
to create optical products that meet the very different needs ofeach individual client. Hoya’s advanced lens design technologies
contribute to the development of higher resolution displays withgreater image quality for both digital cameras and mobile phones
with cameras. These advanced technologies are also seeing use in
the design of eyeglass lenses.
Precision Processing (Lithographic Technologies)
The photomasks employed in the production of semiconductors
stand at the pinnacle of the world of high-tech products that
require ultra-precise processing technologies. Leading-edge
lithographic technologies are used to etch extremely fine circuit
patterns with line widths of only several tens of nanometers. On adaily basis, Hoya is challenging the limitations of technologies andpushing back the frontier of physical materials, providing assistanceto semiconductor makers who continue to develop products that
perform better and achieve ever greater integration.

1988

HDD glass disks
1990
1983

LSI photomasks
1974

Electro-Optics

Mask blanks
1991

LCD mother glass plates

Information Technology

Large-sized LCD photomasks

1987

Aspherical molded lenses
1977

1991

Laser glass

Photonics

Photonics

1972

Contact lenses
Health Care1977

Eye Care

Vision Care

Crystal1974

Service

Service
▲
1975

▲
1985

▲
1990

Other
Businesses

Intraocular lenses

▲
2000
7

Hoya’s Business Strengths
Hoya’s Objective:
To Maximize Corporate Value
In 1997, the Company’s management benchmark was changed
from return on equity (ROE) to shareholder value added (SVA).
ROE, an index that emphasizes the effective use of capital,
measures how much profit a company has made using the capitalthat its shareholders have entrusted to it. In contrast, SVA takes
into consideration the cost of capital, so it attaches great
importance to the value to shareholders. It subtracts the profit
anticipated by shareholders from the net income generated bybusiness activity, yielding the amount of added value that has
actually accrued to shareholders. In actuality, prior to 1997 Hoya
had already adopted the management stance of “consider
shareholders first.” This principle was taken one step further
through the utilization of the SVA index, and the Company now
explicitly aims to “maximize corporate value.”

Reorganization of Business Indicators at Hoya

Ordinary income
Before March 31, 1994

Sales-oriented management focused on how much profit has increased inrelation to sales

ROE(Return on equity)
April 1, 1994 to March 31, 1997
Capital efficiency-oriented management focused on how much profit has
been generated using shareholders’ equity

SVA(Shareholder value added)
April 1, 1997 to present
Shareholder value-oriented management focused on how much profit has
exceeded the cost of capital

SVA and Market Value (Shareholder Value)
SVA6 to10 yearsMarketvalue,
shareholder
value(Theoreticalaggregate
marketvalue)

SVA5

Market
value
added
(MVA)
(Premium)

Capital,shareholders’equity

SVA4
SVA3
SVA2
SVA1

10 years of SVA

1. MVA is the aggregate each year of single-year SVA discounted by the cost ofcapital at current value.
2. The outcome of utilizing SVA will be the same as the shareholder value
calculated from cash flow.

8

Building a Global BusinessHoya’s Medium-Term Strategic Plan, adopted in 1997, identified
building a global business as a key piece of the Company’s effort
to deliver increased value to shareholders.
Doing business with a broad, global perspective has enabled
Hoya to not only discern in advance changes in market structures
but also reform its overall business organization. This in turnallowed the Company to introduce more efficient business
management methods. As a result, Hoya outgrew the need tolimit allocation of management resources to its business in Japan,
and can choose the best production locations and mostappropriate sales locations from around the globe.
In Japan, the location of Hoya’s global headquarters, global
strategies are formulated, research and development isundertaken, production technologies are developed, and high-end
goods are produced. The Company’s headquarters issues strategic
directives and provides development technologies to production
facilities and sales offices located around the world, ensuring thatthese quickly reflect local production and sales activities. In
addition, regional headquarters in the United States, Europe andAsia work across different operational divisions, providing legal
assistance and financial administration to their respective regions.
The Hoya Group Financial Headquarters are currently
located in the Netherlands, and this is where global financial

Management
Today’s business environment is changing at a tremendous pace.
Technological innovation continues to evolve, and market competition
grows more and more fierce. In this environment, decision-making by
top management has become increasingly important, and society hasreached the point where such decision-making can have a life-ordeath outcome for a company. Hoya has sought to strengthen its
corporate governance systems, through the earliest possible adoptionof a company-with-committees system, and it simultaneously took
active steps to appoint outside directors. At the same time, itestablished a clear separation between management and execution,and by delegating a large amount of authority to those responsible for
execution, the Company has accelerated decision-making processes
and promoted more efficient business management.
Hoya is committed to continuing to benefit society by making thebest possible use of its technological strengths and resources, applying
them to bring products to the market when they are most needed.
By excelling in basic corporate activities like these, the Company has
become what it is today—moving steadily from one achievement to
the next under a highly responsive management system.

H o ya ’s
Global Network● Global headquarters andregional headquarters● Electro-Optics● Eye Care
● Crystal

Transitions in the Board of Directors
Year

Total number of directors

1994

10

1995

8

1999

7

2000

6

2001

6

2003 to present

8strategies and funding activities are carried out. Further,
proportionate to the Company’s increasing ratios of overseas
production and sales, the number of overseas-based employees
and foreign shareholders is also growing, showing that Hoya’sbusiness has embraced globalization.

Internal directors

Outside directors
Number of Employees by Region

Sales by Customer Region
and Rate of Overseas Sales

Aggregate Market Value andPercentage of Overseas Shareholding

Net Income per Share*/ROE(Billions of yen)(%)(People)400

50

30,000

48

(Yen)

(%)

(Billions of yen)

(%)

200

30

2,500

60

180

25,000

25

160

300
20,000

140
20

46
120
200

50

2,000

15,000

40
1,500

100

15

30

44
80

10,000

1,000
10

60

100
42

40

5,000

5

20

500

10

20
0

40
2002

2003

2004

2005

2006

0
2002

2003

2004

2005

2006

0

0
2002

■North America ■Europe ■Asia and Other Areas ■Japan■North America ■Europe ■Asia ■Japan

2003

2004

2005

2006

0

0
2002

2003

2004

2005

2006

*Data have been retroactively adjusted reflecting stock split.

9H oya at a Glan c e
Information Technology
Electro-Optics Division
The main products in this division include the mask blanks and photomasks that are
essential to the production of semiconductor chips and LCDs, as well as glass disks
for HDDs and optical lenses for digital cameras. For all of these products, theevolution of higher functionality is ongoing, and the functional standards demanded byclients continue to rise. Hoya’s ability to build production systems that can meet
expanding demand is a strong determinant of its market competitiveness. The ElectroOptics Division continues to meet market demands accurately, and the businesskeeps growing. In both overall sales and profitability, the division plays a leading role
for the Hoya Group.
● Mask blanks for the productionof semiconductors● Photomasks for the productionof semiconductors● Large-sized LCD photomasks● Glass disks for HDDs
(substrates and media)● Optical lenses, glass materials

Net sales (Millions of yen)

Percentage of Net Sales(Year ended March 31, 2006)

Operating income ratio (%)

200,000

40

150,000

30

100,000

20

50,000

10

0

0
2003

2004

2005

2006

55.4%
Photonics Division
The primary products in this division comprise industrial and medical equipment thatutilizes lasers and specialized light sources. Key clients for industrial equipment are
the manufacturers of semiconductors, LCD panels and digital cameras. Achieving
differentiation in this business is a challenge, but Hoya expects it to benefit frompositive synergies with the Electro-Optics Division.
● UV light sources and excimer light sources● Industrial and medical laser oscillators

Net sales (Millions of yen)

Operating income ratio (%)

1212,000

8
8,000

4

4,000

-4

0

-12

0
-8
2003

10

2004

2005

2006

Eye Care
Vision Care Division
Hoya engages in the global production and sale of eyeglass lenses. Since this market isrelatively mature, sales growth is somewhat slow, but the Company has succeeded inmaintaining stable profitability by introducing high-value-added products and cutting costs
through the expansion of overseas production. Hoya is developing this business with afocus on four key regions: Japan, Europe, North America and Asia/Pacific. Because eachregion has its own unique characteristics, the Company develops business strategies in
response to the specific commercial practices and consumer tastes found in each locality.
● Eyeglass lenses

Net sales (Millions of yen)

Operating income ratio (%)

20

120,000
100,000

15

80,00010

60,00040,0005

20,000

0

0
2003

30.4%

2006

Hoya’s Health Care Division oversees the development of the Eye City chain of directly
managed contact lens specialty stores, and also produces intraocular lenses (IOLs) for thetreatment of cataracts. Eye City is the top player in this field in Japan. Customers appreciate theway Eye City experts offer genuine customer consultation throughout the sales process, andalso enjoy the full after-sales service.Their preference for Eye City is reflected in continuously
growing sales and profit figures. In addition, with the global market for IOLs poised to keep
growing vigorously, IOLs are the most promising single product in Hoya’s Eye Care business.
Net sales (Millions of yen)

Operating income ratio (%)

40,00025

30,00020
15

20,00010
10,000

5

0

0
2003

2.9%
1.0%

2005

Health Care Division● Contact lenses● Intraocular lenses (IOLs)

10.3%

2004

2004

2005

2006

Other Businesses
Crystal Division: Hoya’s crystal products have to date targeted the gift market, but the
declining scale of this market has meant that the crystal business has continued tocontract.The Company has therefore decided to implement a major change of strategic
direction for this business, and will
Net sales (Millions of yen)
Operating income ratio (%)
8develop new markets in line with an 10,000
entirely new concept.
8,000
6Service Division: This division is
6,000
4
mainly engaged in the development
4,000
and operation of information2
2,000
systems for the companies of the00
Hoya Group.
2003
2004
2005
2006

11

Infor ma tio nTechno lo g y

12Cameras are moving on from film to digital; televisions are leaving behindcathode-ray tubes in favor of LCDs; and cassette tape players have given way
to portable digital music players. The adoption of digital technology in homeelectrical appliances such as these is transforming people’s daily lives for the
better. This change is being accomplished by advances in the technologies
used to manufacture such devices as semiconductors, optical glass lenses,
LCD panels and HDDs. Hoya, through its Information Technology business,
contributes significantly to this technological revolution.

E l e c t r o - O p t i c s D i v i si o nInformation
Technolog y

Mask Blanks for Producing Semiconductors
Mask blanks and photomasks are essential in the production of semiconductor chips. Mask blanks are precisely polished glass
plates coated with a metallic film and a light-sensitive material. A mask blank becomes a photomask when circuit patterns are
etched into it with electron beam or laser etching equipment. To use the analogy of film photography, the mask blank is like theunexposed film, and the photomask is the equivalent of the developed negative. Just as a photographic print is made by passing
light through the negative onto the photographic paper, in semiconductor production a lithographic process is used to transfer
the circuit pattern on the photo mask onto the semiconductor wafer.
During the fiscal year ended March 31, 2006, Hoya’s high-end mask blanks, including phase-shift mask blanks*1, recorded big
increases in shipments due to the trend toward increased inTransfer image of circuit pattern in the exposure process
performance and capacity in large-scale integrated circuits(LSIs). Semiconductor design rules*2 are steadily developing
Light source
to require ever more minute line widths, from 90 nm*3
through 65 nm to 45–32 nm. This trend means that mask
blanks will be required to offer a level of quality andCondenser lensprecision that exceeds current concepts of high resolution
and freedom from defects. The Company enjoys a more
Mask blanks/
photomasks
than 70% share of the global market for mask blanks usedin semiconductor manufacture. As the leader in this field,
Hoya actively pursues technological innovation that will
Reduced projectionlens unit
result in product quality that is not only better than what
the competition can offer, but that also meets the absolute
quality requirements of clients. The Company will continue
to pour its energies into the development of leading-edge
Wafer
technologies that meet clients’ needs by working(Semiconductor chip)collaboratively with semiconductor manufacturers andmask makers.

Photomasks for Producing Semiconductors
The market for photomasks used in the production of semiconductors is, on thewhole, in a period of stable growth. Industry participants, however, are closely
watching trends in restructuring on the supply side the industry as well as the dayto-day changes in technological competitiveness. In this market environment, Hoya
devotes its resources to the development and production of high-precision
photomasks, concentrating on high-end products.
During the fiscal year ended March 31, 2006, full-scale commercial production
got under way for 65-nm photomasks. Since semiconductor manufacturers areactively increasing their investment in R&D, Hoya also shipped samples ofstate-of-the-art photomasks for use in the development of next-generation
semiconductors.The semiconductor industry is in the midst of a change in the lightsource used for the lithographic etching of the circuit pattern onto the wafer, fromthe current krypton fluoride (KrF) with a wavelength of 248 nm to the argon
fluoride (ArF) excimer laser with a wavelength of 193 nm. Furthermore, throughthe use of immersion technology*4, ArF lasers have entered the ultra-highresolution lithographic field, creating the possibility of line widths of 32 nm andbelow.The demand for high-resolution photomasks grows stronger all the time, andthe Company expects its role in filling that demand to continue to expand.
Notes:*1. Phase-shift masks use phase differences in light to enable extremely high-resolution lithography.
*2. Design rules are constraints placed on the design of LSIs to ensure that production processes
can successfully meet the design intent.
*3. A nanometer (nm) equals one billionth of a meter.
*4. Using this lithographic technology, the gap between the lens and the wafer is filled with a liquid toimprove resolution.

13

LCD Photomasks
LCD photomasks are the large-sized photomasks inscribed with the patterns used for the production of LCD panels. LCD televisions,which are increasing in size year by year, play a large part in boosting demand for LCD panels, and there is a corresponding growth indemand for ever larger photomasks for use in the production of those panels. Because the degree of precision demanded of large
LCD panels is comparable with that required of semiconductor chips, Hoya, which produces photomasks for semiconductors, is wellplaced to use the same technologies to meet market needs.
Supplementing its plants in Kumamoto, Japan and Taiwan, Hoya opened a new plant in South Korea in October 2005, bringing tothree the number of LCD photomask production facilities. Because all three plants are close to their respective LCD panel
manufacturers, the Company can develop products that meet the needs of each market and shorten delivery time frames. Hoya willcontinue to improve its competitive strengths using this approach.
LCD panels are classified according to their size as fifth-generation, sixth-generation and so on*1. In 2006, full-scale commercial
production will begin for seventh-generation panels, and production of eighth-generation panels is also expected to be brisk during 2007.
In response to this expanding demand for large panels and to ensure that Hoya builds a dominant position for itself in comparison withthe competition, the Company has set a number of operational objectives. On the technical side, these include the development of highvalue-added technology, which can best be represented by the multi-tone mask*2.
On the production side, Hoya will enhance competitiveness by improving the
production efficiencies and effectively managing its three-plant system.
Notes:*1. Panel manufacturers’ mother glass plate sizes:
Fifth-generation: 1,100 mm x 1,300 mm (yielding three 32-inch wide LCD television panels).
Sixth-generation: 1,500 mm x 1,850 mm (yielding eight 32-inch wide LCD television panels).
Seventh-generation: 1,870 mm x 2,200 mm (yielding three 50-inch wide LCD television panels).
Eighth-generation: 2,160 mm x 2,400 mm (yielding six 50-inch wide LCD television panels).
*2. A photomask that allows for mid-range light penetration through miniaturization of patterns and semitransparent film. Use of this mask reduces the number of lithographic processes for TFT LCD panelsfrom five to four, contributing to production efficiencies and cost reductions for panel manufacturers.
South Korea plant

Large-sized LCD photomask (1,220mm x 1,400 mm) used for eighth-generation LCD panels.

14

E l e c t r o - O p t i c s D i v i si o nInformation
Technolog yGlass Disks for HDDs
To ensure that data are not damaged if notebook computers are subjected to vibration or shock, the HDDs inside must be
highly shock resistant. These HDDs utilize glass disks, which have excellent shock resistance properties, and Hoya is the top
supplier of those glass disk substrates.
The glass disk sizes produced by Hoya can be broadly divided into 3.0-inch, 2.5-inch, 1.8-inch and smaller diameter sizes(1.0-inch and 0.85-inch). The 2.5-inch disks are widely used in notebook computers, and are also installed in car navigation
systems and game machines. The 3.0-inch disks are produced mainly for high-performance computing equipment such asservers, which require high reliability. The small diameter sizes are found in portable music players and digital video cameras.
The production of glass disks is divided into two main processes: the polishing of the glass plate to produce the substrate,
and the deposition of the magnetic media on the glass substrate. During the fiscal year ended March 31, 2006, more notebook
computers were shipped than had been forecast, and this resulted in a sudden growth in demand for 2.5-inch glass disks. To
meet this demand and boost production capacity, Hoya expanded manufacturing facilities in existing plants and opened a new
substrate plant in Vietnam in October 2005. Currently Hoya is producing disk substrates at plants in Thailand, the Philippines andVietnam, and the magnetic media are applied by its Singapore plant.
The next technology to be introduced into the HDD arena is theperpendicular magnetic recording method, which will allow for higher data
storage volumes. Rapid development of this media and speedy finalizationof mass production technologies are required. Because the new method
will greatly increase the storage size of hard disks in comparison with thecurrent longitudinal recording method, it is expected that new commercial
applications will be developed. Hoya was quick to commence
development work on the media to be used for the perpendicularmagnetic recording method, and is proceeding with preparations tocommence actual shipments in 2006.
Vietnam plant

Glass disks, which have excellent shock resistance properties, are components of various digital devices.

Notebook computer

Digital camera

Portable digital audio player

Mobile telephone

Video camera

Car navigation system

Portable game machine

Server15

Information
Technolog y

Ele ctro -Optic s Div is ion

Optical Lenses
Hoya is one of the few manufacturers able to undertake integrated production of lenses, from the production of the glassmaterials through to the actual optical lenses. Glass lenses can be broadly broken down into two categories: molded glass lenses(aspherical lenses) and polished glass lenses (spherical lenses). Glass molded aspherical lenses are able to correct superbly for
aberrations. They permit shorter focusing distances, and fewer lens elements need to be used. Because of this, they help toreduce the size and weight of optical equipment. The Company’s molded glass aspherical lenses take advantage of thesecharacteristics chiefly for digital cameras, digital video cameras and camera-equipped mobile phones.
During the fiscal year ended March 31, 2006, Hoya commenced large-scale production of lenses for use in camera-equipped
mobile phones. Until recently, it was usual for such lenses to be made of plastic, but now that mobile phones are being producedwith high-resolution cameras of 2 megapixels and above, the demand for aspherical glass molded lenses has jumped. The
Company has been making camera lenses for mobile phones at its plant in Suzhou, China, where production commenced inAugust 2004. Demand is expected to grow even further, and Hoya is currently pushing ahead with plans to further expand
production capability.
Camera lenses for mobile phones must meet even stricter optical performance standards than those used in digital cameras,
and large-scale, low-cost production facilities are also required. In addition to devoting resources to the development of theselenses, Hoya is working to incorporate its own proprietary techniques into its production processes, so that it can offer productsthat precisely meet the needs of its clients.

Hoya’s glass molded aspherical lenses used for camera lenses
for mobile phones with upgraded resolution

Comparison between aspherical and spherical glass lenses(Aspherical lens)
Focal plane
Light axis

(Spherical lens)
Focal plane
Light axis

Feature of aspherical molding lensAspherical molding lens that enables manufacturing high-precisionlens without polishing process. Because the aberration (distortion)
decreases compared with the spherical lens, the miniaturization anddegree of freedom of the design of the product have been improved
since it reduced the number of lenses used.

16

P h o t o n i c s D i v isi o nInformation
Technolog y

Photonics
The Photonics Division develops and markets lasers and other optical equipment, based on the practical application of opticaltechnologies developed by the Company over many years. The division comprises HOYA CANDEO OPTRONICSCORPORATION, which handles equipment used by industry, and HOYA PHOTONICS CORPORATION and HOYA
PHOTONICS, INC. (a U.S. corporation) and others, which handle medical equipment.
In the field of industrial applications, the main products are laser oscillators used during the production of flat panel displays
to correct defects, and ultraviolet light source devices used to cure ultraviolet resins in bonding processes for optical parts (suchas optical pickups and camera modules). Others are colored glass filters and opto-electronics glass used in optical equipment
and industrial applications. Hoya places great emphasis on technology development in such core areas as equipment planningand technical design, as well as on its product differentiation strategies. The Company also believes that the key to further
growth in this field is to maintain close liaison with end users. In particular, Hoya has established local offices for the productionof equipment used in the manufacture of flat panel displays in South Korea and Taiwan, so that it can gain an accurate
understanding of the actual needs of its client panel manufacturers in their plants. It actively incorporates the understanding
gained in this way into product development.
Hoya’s photonics equipment for medical use includes laser scalpels, laser equipment for dental treatment, and lasers
employed in dermatological treatment and plastic surgery. Such equipment is widely used in medical treatment.

Laser oscillator (LASER SYSTEM HSL-5500)

Spot UV light source equipment (EXECURE 4000)

Color filter

Electro-optical glasses

17

Eye C a re18

Hoya’s Eye Care business comprises two separate divisions.
The Vision Care Division produces high-value-added eyeglass lenses for
global markets.
The Health Care Division operates Hoya’s Eye City contact lens specialty
stores throughout Japan, and is also working to manufacture and sell on a
global basis the intraocular lenses (IOLs) used in cataract operations.
It is precisely because Hoya has been involved in the “eye” business for solong that it is able to offer very high standards of product quality and service.

Vision Care Division

E ye C a reEyeglass Lenses
While the global eyeglass lens market is showing moderate growth overall,there is a trend toward polarization in the market, with sales of high-end
lenses rising in specific regions and countries, and low-priced products
becoming more prominent elsewhere. Faced with such a market
environment, the Company has continued to focus on the upper end of thismarket, relying on cutting-edge technology to provide high-value-added
products that support the vision needs of society. This strategy has provided
solid growth.
Underpinning growth during the fiscal year ended March 31, 2006, wasan emphasis on localization, and the success of continuous new productdevelopment. The eyeglass lens market varies widely by country and regionin terms of distribution structures, customer preferences and governmental
regulation, and Hoya has restructured its business to divest decision-making authority to country and regional managers, allowing
them to pursue the best strategies for their markets. This region-based marketing strategy has opened up new channels for the
cutting-edge products that are the basis for the Company’s success. These include the thin, high-index material lens EYNOA andEYRY, “Hoyalux iD,” the world’s first integrated double-surface progressive lens design. By utilizing both surfaces of the lens inconjunction, these lenses expand the clear view at both near and far distances, and vastly improve on the curvature anddistortions common in previous lenses. Other products include the new SunTech series of light-sensitive lenses, and a scratchresistant SFT Coating.
The two most important markets for Hoya are Japan and Europe, both of which have high demand for premium products
and similar replacement cycles. The Vision Care headquarters was relocated from Japan to the Netherlands during 2005,
reflecting the growth potential in Europe and a commitment to greater global business development from a European base.

Hoya Continues to Hold the Top Market Share in Japan
Despite a mature market that has been stagnant overall for the last few years, reflecting sluggish personal consumption anddeflationary trends, Hoya continues to hold the leading position in its home market, where the quality and reliability of its
products are particularly valued, and sales inched up from a year earlier. Low-priced glasses from discount retailers, the so-called“three-price shops,” remain popular, but growth has shown signs of leveling off, and recovery in the economy is helping to turnattention toward the premium products in which Hoya has an advantage. The aging of the population should also give a boost to
the multifocal lenses and special coatings that are the Company’s strength, and provide steady sales if not rapid growth.

Comparison between SFT Coating and conventional lens
SFT Coating

Conventional lens

The steel wool wear endurance
test, which moves the lens fromside to side 50 times with aload of four kg applied to thesteel wool
Compared by Hoya

19

E ye C a reVisio n Ca re Div is ion

Europe Rebounds with Solid Growth
Sales in Europe rebounded nicely from a year earlier, mainly in Germany, where a change in government health insurance policies
caused a significant disruption in the market the previous year. The relocation of the Vision Care headquarters to theNetherlands during the period will allow Hoya to focus more closely on the entire European market, which is expected to growas standards of living rise and the European Union expands. In anticipation of the market expansion, Hoya is devoting resourcesto establishing new distributor channels and strengthening partnership relationships, conducting seminars for opticians, training
sales representatives and hiring new personnel, and devising other strategies to grow business throughout the continent. This
broad-based sales strategy is centered on local control, and should produce steady annual growth.

Brand Recognition on the Rise in North America
Sales rose in North America, although margins remain tight in the key U.S. market due to structural differences in terms of bothmarketing and distribution, together with Food and Drug Administration (FDA) regulations that limit the degree to which Hoya
can exploit its cutting-edge technologies. Nevertheless, extensive marketing efforts to establish relationships with retailers,particularly independent ophthalmologists, is solidifying the Company’s U.S. base, and recognition of Hoya’s high-value-added
products is rising.

Asia-Pacific Offers a Diversified, Growth Scenario
The Asian market grew substantially during the fiscal year ended March 31, 2006. Asia is extremely diverse in terms of structuresand income levels, however, with differing strategies necessary for each country. Hoya continues to expand its share in theregion, particularly in South Korea, although sales in Australia have doubled over the last five years. The Company’s premium
products have achieved high recognition in both of these markets. China will be a key market once rising living standards boost
demand for premium products, and Hoya is devoting resources to establishing connections in the country that will leave it wellplaced for future growth in this promising market.

Future Continues to Look Bright
Hoya expects to continue its strong growth in all overseas markets while maintaining its leading share in Japan. Supporting thisgrowth is a substantial investment in a new IT system (an upgraded version of Hoya’s current HELP system) that will allow for
greater flexibility, interconnectedness and localization, including customer-specific interfaces and global internal sourcing. Thissystem, which is scheduled to come on line in mid-2006, will reinforce the Company’s local focus and ensure speed and flexibility
to support global business development. We expect a continued rise in sales in this business.

The HOYA Excellent Lens Production (HELP) System

Optician/Glasses Shop

Data entry

OnlineOrder
SystemHELP
Computation
HOYA
host
computer

＋

HOYA
Cut
SystemTracerLenses arrivein three days
to one week

Laboratories(Special orderprocessing)

Finished design
is confirmed
through a 3D
image simulation

High
precisionlenses

Lenses cut to fit thedesignated frame

The HELP system is supported by a leading-edge computer system that handles everything from complex data calculations to the cutting of lenses. Glasses canbe ordered while creating simulations of finished products.

20

H e a l t h C a r e D i v i si o n

E ye C a reContact Lenses and Eye City
The Eye City chain of directly owned and managed retail stores specializing in the sale of contact lenses boasts the largest sales
volume of any such enterprise in the Japanese domestic market. As of March 2006, 141 Eye City stores were operating acrossthe country. Eye City not only supplies extremely safe, effective, and high-quality contact lenses from manufacturers around theglobe, it also advises individual customers on the specific products that are most appropriate for their eyes and vision
characteristics. Eye City consultants use their precise knowledge of the benefits of all the latest products to offer a uniquely
professional sales consultation service. The chain is also known for providing thoroughly satisfying after-sales service, helping
customers to derive the maximum benefit from their contact lenses with optimum comfort and reliability over time.
Contact lenses are specially controlled medical devices worn on the prescription of an ophthalmologist, and their use requires
careful management. Recently, however, in a number of cases people failed to take their contacts seriously enough, and the incidence ofeye-related problems caused by mistakes in usage or care has been increasing. Eye City protects the health of its customers’
irreplaceable eyes by giving the greatest possible priority to safety. Professional consultants with a precise understanding of contactlenses and a thorough knowledge of the latest product information—which changes on virtually a daily basis—carefully explain lenscharacteristics and make suggestions to customers on correct use.The total number of Eye City customers now stands at 4.5 million:
they value not only the broad lineup of high-quality products but also the quality of the customer-focused service they receive.
The development of new retail locations continues to proceed on the basis of convenience to customers. New stores aredeveloped primarily in the main hub stations of train lines and in suburban shopping malls. A vigorous scrap-and-build program for the
closure and relocation of underperforming locations has also been maintained. Hoya continues to devote its energies to maintaining
close relationships with ophthalmologists and to making sure retail facilities have an extremely
clean feel. Apart from aiming to create the right “hardware”—the stores themselves—theCompany is working to ensure excellent “software,” which is how Eye City employees relate
to customers, by providing training in the provision of high-quality customer service. During
the fiscal year ended March 31, 2006, new training centers were established in Tokyo andOsaka, and the division is working hard to assist the development of human resources.
In December 2005, the first Eye City store outside Japan was established in Shanghai,
China. Here, as well, Hoya puts top priority on providing reassuring and reliable service
by developing premium-quality sales stores.
The first Eye City store outside Japan (Shanghai, China)

China

KansaiChugoku-Shikoku
district
36 stores

Shanghai
1 storeHokkaidoTohoku district
9 stores

KoshinetsuHokuriku district
6 stores

Japan
Kyushu district
17 stores

Kanto district
59 stores

TokaiChubu district
14 stores
As of March 31, 200621

E ye C a re

Hea lth Ca re Div is ion

Intraocular Lenses (IOLs)

12.5 mm

6.0 mm

In Hoya’s Eye Care field, sales of IOLs are expected to record the strongest growth.
IOLs are medical devices used for the surgical treatment of cataracts. After the eye’s clouded lens has been removed, an
IOL, which is an artificial lens, is inserted to restore good vision. Together with the gathering pace of the aging of society,primarily in developed countries, the number of patients with age-related cataracts is increasing rapidly, and further growth isexpected over the long term. There are two types of IOLs: the conventional hard type and the new foldable soft type, which
is folded for insertion during the cataract operation. This latter type, which can be surgically inserted through a much smaller
incision, is on the way to becoming the mainstream solution due to the greatly reduced discomfort for the patient.
The shift to use of the foldable lens type IOL is proceeding quickly in the Japanese market, and in this market Hoya’s
product quality is valued highly. Market share is growing steadily. In 2004, a new yellow type of IOL was introduced which, in
addition to offering the ability to reduce UV light transmission, also offered a protective effect for the retina. An injector
system that simplifies the surgical procedure has also become firmly established in the market.
During the fiscal year ended March 31, 2006, Hoya worked hard to grow its business in world markets, and was
successful in building stronger networks with ophthalmology clinics and stepping up marketing activities. Driven primarily byGermany and France, sales in the Company’s European markets grew very significantly. In Asia, Hoya posted solid results incountries such as China and South Korea. In the United States, the Company is making final preparations to gain Food andDrug Administration (FDA) certification. It will lodge applications in 2006, with certification expected some time during 2007.
Hoya’s Singapore plant, which commenced commercial operations in 2004, started shipping products to Japan during the
fiscal year ended March 31, 2006, in addition to continuing its exporting to Europe. The plant now serves as a central point of
production for the Company’s global markets.

Global Estimate of the Number of Eyes with< 6/60 Due to Cataracts(Millions)
200

Foldable acrylic IOL: HOYA AF-1 (UY)
150

100

50
IOL injector: HOYA Injector System HOYA-IS

0
1980

1990

2000

2010

2020

Source:Journal of Community Eye HealthInternational Resource Centre, International Centre of Eye Health22

Oth er Bus ines s es

Crystal Division
Hoya’s Crystal business incorporates the production and sale of crystal tableware, interior products, jewelry and artistic
pieces. The appeal of these products, which are made from the best-quality glass materials, comes from the sense oftransparency that seems to draw the viewer in, as well as from the beauty created by the interplay of light within the crystal.
The Company’s Crystal business has a history of more than 50 years, but with the contraction of the corporate gift market
and the sluggish demand for personal gifts, Hoya has intentionally allowed the business to shrink each year.
Currently, however, we aim to revive the business, and have begun reviewing existing business structures and the productlineup under a new conceptual framework. In addition to designing new product concepts, the business will move away fromits current focus on the gift market. Purchasers will be carefully targeted, and the objective will be to appeal to moresophisticated individual consumers. Hoya hopes to propose attractive designs that will appeal to consumers. The mission
assigned to the Crystal division is to serve as the new “face” of the Hoya Group.

23

R&D and New Businesses
The Hoya Group has adopted a variety of strategies focused on increasing corporate value and ensuring continued growthin the future. Of these, the most critical are R&D and new business development. Hoya aims to build on its existing
proprietary technologies to develop highly competitive businesses. The Company is committed to aggressive investment inthese two areas.

Further Technological Developmentof Existing Businesses
The majority of Hoya’s current products enjoy a solid share of
their respective markets, thanks to their reliability and theoutstanding technologies behind them. Hoya, however, does notintend to relax its continual effort at R&D. Rather, it is determined
to continue to leverage technological progress to meet changing
client needs.
The latest developments in the R&D arena related to Hoya’s
existing fields of business are introduced below, as well as theCompany’s efforts to expand the scope of its business based on
the innovative application of existing technologies.

Information Technology
In the field of lithography, Hoya continues to grow its business byfocusing primarily on the development of high-precision, high-end
mask blanks used in the production of semiconductors. In
response to the ongoing miniaturization of semiconductors,
the Company is working to develop next-generation, high-end
mask blank that anticipate the specifications laid down in the
Road Map.*1
Under the Road Map for next-generation lithography
technology, the electron beam has been ruled out as a candidate
for the lithographic light source, and extreme ultraviolet (EUV) is
viewed as the strongest candidate. Hoya has already completed
the development of the essential technologies required for themask blanks needed for EUV lithography. In addition to being able
to offer mask blanks for testing mass production with greatly
reduced defects at the nanometer level, the Company is pushing
forward with the development of technologies for EUV photomasks. In the field of electron beam lithography, Hoya continues tosupply samples to some industry sectors, and will keep a close
watch on trends in technological developments in that field.
In the field of glass memory disks for HDDs, Hoya is moving
toward the commencement of mass production of disks for the
new perpendicularmagnetic recording
method,*2 whichtranscends thelimitations of theconventionally usedlongitudinal
recording method.
Competition isintensifying with the24

flash memory alternative to hard disks, however, so now it isnecessary to achieve both a further increase in recording density
and a reduction in cost.
To address these issues, Hoya is proceeding with developmentof technologies for the perpendicular method as well as researchon the development of the next-generation, high-density recording
method that will one-day supersede the perpendicular magnetic
method. The Company anticipates the practical application of
discrete track media technology*3 or patterned media
technology.*4 Hoya feels strongly that the relative importance of
new fundamental technologies will grow. These include ultraprecise process technologies and nano-scale materials—the kindof technologies that have not been incorporated into the current
generation of hard disks. To resolve the technological issues facedin these areas, the Company will take a creative approach todevelopment that applies all the core technologies it has amassedin the field of lithography.
In the field of optics, Hoya enjoys particular strengths in thepress mold technologies used in the production of asphericallenses. In addition, the Company continues to develop new opticalglass materials with special optical characteristics, and is working torealize the practical application of production technologies for
specially shaped lenses that meet the needs of state-of-the-art
optical design technologies. In these ways, Hoya will protect its
status as an industry leader in the market for digital imaging lenses,
which will become increasingly competitive. The Company will also
further improve its press mold technologies, which are used in the
precision mass production of extremely small lenses, thus
continuing to enhance its competitiveness in the market for
camera lenses for mobile phones, which are being produced inhigher and higher resolutions.
Notes:*1. The Road Map describes the setting of various numerical objectives andassociated technological issues that must be addressed to achieve theproduction of next-generation semiconductors. This is an important set of guiding
principles in the context of the drive for technological development ofsemiconductor manufacturers and the makers of equipment and materials usedin the production of semiconductors.
*2. A technology that increases the density of hard disk recorded data bymagnetizing the disk’s magnetic layer in a vertical direction, in contrast to thecurrent horizontal direction.
*3. By making a groove between recording tracks, it is possible to reduce themagnetic interference between neighboring tracks. It is anticipated that this will
make possible further miniaturization and greater recording density.
*4. Recording media in which magnetic particles are physically isolated from eachother in a regular pattern. Neighboring magnetic particles are not affected byeach other, and it is anticipated that this will make it possible to achieve muchhigher recording density.

Eye Care
Manufacturers of eyeglass lenses in South Korea and China have
until recently concentrated on low-end products, but are now moving
into such middle-end products as plastic lenses with a high refractive
index.They are speeding up their drive to catch up technologically. In
response to this situation, Hoya is developing a new range of highly
functional coatings, including a new anti-reflective coating,photochromic coatings,*5 and dirt repellent coatings. Hoya’s effort topush ahead with the introduction of high-value-added products is also
augmented by its aspherical free form processing technologies andother unique advantages. In addition, the Company is striving to cut
costs by creating innovative production technologies.
The need for IOLs is expected to increase significantly into the
future, in line with the growth in the number of cataract patients inaging societies. Hoya is working to introduce an improved cartridge
injector for IOLs to greatly reduce the levels of discomfort
experienced by patients during cataract operations and further
enhance the safety of the procedure.The Company will continue toactively engage in R&D of new medical products in the ophthalmic
field, including the development of an IOL that offers a broader rangeof vision correction.
Note:*5. Photochromic lenses change color when subjected to light, through changes tothe molecular structure while the molecular weight remains unchanged. These
lenses are used in light-sensitive sunglasses.

New Business Development
The Hoya Group actively seeks to develop or acquire a new, third
major line of business to complement its successes in Information
Technology and Eye Care.The objective is to develop a business thatleverages its proprietary technologies in a field which can be expected
to grow over the long term.The Company engages in both in-houseand collaborative R&D, and is investing in a variety of ventures withthe objective of procuring and developing new technologies that willsustain growth into the future.This section presents several new
fields that hold the promise of taking root and growing as strong
new businesses.

Optical Communications System
Over the past several years, broadband has won acceptance quickly
both in the workplace and at home, and new services such asvideo distribution have come into their own. Hoya is working ontechnologies for the integration of optical parts for communications
devices, through the practical application of optical technologies.The
Company has invested in the U.S. firm, Xponent Photonics, Inc., whichowns technologies allowing for the development of highly integrated

modules used in fiber to the home (FTTH), an optical fiber data
communications service for the home that is currently experiencing
rapid growth.These technologies offer the potential to go beyond
FTTH—for instance, they can be used in connectors of highresolution audiovisual equipment. We will work with Xponent toexpand the range of applications.

3C-SiC
Seen from the perspective of strategies for responding to global
warming and contributing to environmental conservation,
expectations have grown for hybrid automobiles and fuel cell
powered vehicles. Hoya is developing devices that use large-diameter
3C-SiC monocrystal (based on silicon carbide), which can be
employed in power devices that are highly energy efficient at highvoltage and with low power loss. The aim is to achieve practicalapplications in the automobile field, which demands absolute safety
and reliability.

Glass Substrates
Glass substrate products came into commercial production in2006 for use in mobile phones, thanks to their superior highfrequency characteristics, capability for minutely detailed
processing, and capacity for double-sided electrical connectivity.
Demand is somewhat limited at the moment, but Hoya anticipatesthat the track record of these glass substrates will provide theevidence it takes to motivate producers to adopt them for
ultrahigh-speed optical-electric conversion modules.

Nanoimprint Technology
Thus far, miniaturization in the semiconductor industry has primarily
helped to realize lower production costs. From the next generation ofsemiconductors onward, however, huge changes in lithography
technologies will be required, and the industry is concerned about thepossibility of increased investment in plant and equipment.This has
given rise to the belief that EUV lithography, which is expected to be
the next-generation technology, may be used only for the productionof a limited range of identical devices in large numbers.
In this context, nanoimprint technology is attracting attention as a
new ultra-fine processing technology that could be used to moldcircuit patterns on devices requiring smaller production runs, at alower cost. Hoya is proceeding with development of technologies thatcan be employed at the 50-nanometer level and below. Applications
may not be limited to semiconductor manufacture; the Company isalso considering the possibility of expanding the use of the technology
to optical applications such as light emitting devices and displays.

25

Corporate Governance
Hoya treats corporate governance as one of its most vital management principles. Based on its fundamental vision that“companies are owned by their shareholders,” the Company conducts its corporate management with the goal of
maximizing shareholder value. To ensure it does not operate according to internal management philosophies alone, Hoya
was quick to adopt a system of outside directors who represent shareholders. While enhancing its systems of corporate
governance, the Company has also separated management and execution functions to accelerate decision-making.

Corporate Governance Systems
In June 2003, Hoya instituted a company-with-committees system.
Three committees—the Nomination Committee, Compensation
Committee and Audit Committee—were established. Through its
resolve to strengthen supervisory functions and to broadly
devolve authority from the Board of Directors to executive
officers, the Company has set up a system that helps executive
officers improve business results by allowing them to manage
operations in a more timely and efficient manner.

The Board of Directors and the Three
Committees

1995. Outside directors provide operational supervision andadvice. The membership of the Nomination Committee, theCompensation Committee and the Audit Committee consists
exclusively of the outside directors, to further strengthen the
supervisory function.
Nomination Committee
The Nomination Committee is responsible for the nomination of
directors and executive officers and for relieving them of their posts if
necessary. Authority to appoint the President and to remove him fromhis post if necessary is also held by the outside directors, who represent
all shareholders.

Compensation Committee

The eight-member Board of Directors comprises five outside
directors and three internal directors. To guard against thepotential for stagnation in the Board of Directors system, and toensure lively debate, Hoya has since 1989 been gradually reducing
the number of its directors. From a total of 17 in 1989, numbers
have fallen to the current eight. Further, to achieve greater
freedom of expression that is unconstrained by internalhierarchical structures or personal relationships, the Company has
invited outside directors to participate in its management since

The Compensation Committee prepares the remuneration system that
boosts incentives for the directors and executive officers. It wasestablished with the objective of contributing to improved financial
performance for Hoya, by undertaking fair and accurate evaluationsof results.

Audit Committee
The Audit Committee verifies the financial statements of the Company
on the basis of reports received from outside auditors. It also audits
internal control systems and undertakes audits of business activities,
assets, and others.

Corporate Governance Structure
General Meeting of Shareholders

Eiko Kono
Election
Election(Board of Directors)

Outside Director

Internal Directors: 3(serving concurrently as
executive officers)
Outside directors: 5
Compensation Committee
5 outside directors
Collaboration andmutual monitoring
Nomination
Committee
Secretariat

Nomination Committee
5 outside directors
Collaboration andmutual monitoring

Audit
Committee
Secretariat

26

Audit Committee
5 outside directors

President
Executive Officers(3 internal directors)
Supervision and advice

Compensation
Committee
Secretariat

Yukiharu Kodama

Yoshikazu Hanawa(Executive Officers)

Yuzaburo Mogi
Outside Director,
Chairperson of theCompensation
Committee

Execution ofoperations

Members of theBoard of Directors

Hiroaki Tanji
Director/Executive Officer,
Chief Technology Officer andStrategy & Business
Development

Takeo Shiina
Outside Director,
Chairperson of theNomination
Committee

Divisions

Outside Director,
Chairperson of the
Audit Committee

Outside Director

Hiroshi Suzuki
President and CEO

Kenji Ema
Director/Executive Officer,
Chief Financial Officer

Business Operations and Compliance
The Board of Directors meets every month, excluding Februaryand August. Its task is to ensure that the outside directors oversee
the business activities of the executive officers in an atmospherethat encourages lively debate. Authority has been broadly
devolved from the executive officers to the heads of each businessdivision, who are responsible for business operations in theirrespective areas of activity. Each business division makes a detailed
report to the executive officers at a business reporting meeting
held every month, and strategies to be followed in response toeach issue are discussed. The devolution of authority allows fortimely and effective decision-making. At the same time, however,since the outside directors (who act as overseers) are in the
majority, the executive officers are made more accountable. This
arrangement means that Hoya’s corporate governance enjoys astrong system of checks and balances.
In the area of compliance, the Company has issued the Hoya
Business Conduct Guidelines, which are based on the Corporate
Mission and Management Principles of the Hoya Group. The
Guidelines outline the guiding principles under which each
employee should perform his or her duties, with resoluteadherence to work ethics. A Hoya Help Line, an internal reportingand consultative system, has also been established. Should any
employee discover an act that contravenes the law or the Hoya
Business Conduct Guidelines, the Hoya Help Line ensures that areport will quickly reach top management so that appropriate

action can be taken on the issue. This system helps to preserve thehealth of the Group as a whole. The Hoya Help Line, a special
system that has been established at the Company’s headquarters,
can also be used as a point of contact with external lawyers
available to listen to employees. The system was introduced at
Hoya’s U.S. companies in 2005, and plans are in place to expand it
to cover the Company’s operations worldwide.

Full Disclosure
Fair and prompt disclosure of information is a fundamental duty ofmanagement. Hoya respects the rights of shareholders and isdiligent in fulfilling its obligations concerning disclosure. The
Company also values dialogue with its shareholders, and willcontinue to clearly reflect their views in its management practices.
In 1998, Hoya commenced the disclosure of quarterly financial
statements ahead of many other Japanese firms, and has gradually
reduced the delay between the end of each quarter andpublication. It releases consolidated accounts about three weeks
after the end of the period, and the volume of information is of
the same level as that contained in reports published annually. The
Company continues to strive to increase the speed of disclosureand broaden the content. Top management actively participates ininvestor relations activities. For example, the CEO attends investor
meetings that are held each quarter to discuss quarterly financial
reports, where he explains strategy and fields questions.

Corporate Social Responsibility
Hoya believes that companies should pursue more than profit: they should also fulfill their
responsibilities as good corporate citizens, for instance, by contributing to the community and taking
care of the environment. In this regard, the Company has established a set of Management Principles,
which each employee must follow and which cover decision-making and behavior in the business
context. These principles are based on Hoya’s Corporate Mission. By acting in accordance with theseManagement Principles, the Company aims to not only grow as a group but also contribute to thebroader society, including in terms of economic and cultural development.

Corporate Mission
Dedicated to innovation in information
technology, lifestyles and culture,
Hoya envisions a world where all canenjoy the good life, living in harmony
with nature.

Management Principles
Commitment to society
Hoya always strives to be a responsible
corporate citizen. We work hard to ensure that
our corporate activities are carried out withrespect for the environment. We are absolutely
committed to legal compliance andethical practices.

Commitment to shareholders
Hoya strives to increase corporate value by
improving business results and maintaining
growth. Our goal is to pay fair dividends andgive shareholders a return on investment thatmeets their expectations. We willingly andimpartially disclose corporate information.

Commitment to customers
Hoya’s goal is to provide safe, high-quality
products and services that offer true value.
We make every effort to increase customer
satisfaction by continuously improving thequality of our operations.

Commitment to employees
Hoya respects the personality and individualityof each employee. We offer employees
opportunities to maximize their initiativeand creativity in a safe and fulfilling work
environment. We do our best to ensure
a good living for our employees.

Dedication to innovative management
Hoya constantly strives to create new value
through innovation and creative technology.
We make the most of the advances of theinformation age with our worldwide
management network. We take a global
perspective while respecting local culture
and customs.

27

Environmental Initiatives
The Hoya Group believes that the expanding scale of a company’s business operations must be matched by the willingness
to take on greater and greater responsibility for issues of social concern, such as environmental protection. Hoya pursues
business growth with full consideration for the earth’s precious environment, and has stated as much in its philosophy onprotecting the environment. In 1976, Hoya established pollution countermeasure committees at each of its plants, and has
been engaged ever since in a variety of initiatives to protect the environment and conserve natural resources. A few of
those initiatives are introduced below.

1. Reduction of Environmental Impact
Hoya has identified the four main areas where its production activities have anenvironmental impact—levels of energy consumption, water usage, waste
volume, and volume of packaging materials—and is pushing ahead withmeasures to reduce impact in all of these areas.
Energy Consumption
Hoya has implemented a number of energy-saving initiatives at its facilities, including
the introduction of ice thermal storage systems and high efficiency electricaltransformers. Along with these steps, Hoya has also introduced rooftop gardening
at factory buildings, casual days in the office on ordinary work days in summer.
Effor ts such as these are examples of the steps that Hoya has taken across all of its
businesses to conserve energy. In the term under review, Hoya reduced energy
usage levels 8% from the previous year, although the ratio of energy usage to net
sales increased by approximately 11%.

Water Usage
Through ongoing efforts for the re-use of factory waste water and the introduction of
automated water faucet control in washroom hand basins, water usage decreased by
7% year on year, but rose by 13% when expressed as a ratio to net sales.

Waste Volume
In the fiscal year under review, the Musashi Plant building was dismantled andproduction was moved to Akishima-shi in metropolitan Tokyo, so there was a large
increase in the volume of waste. As a result, a large increase in waste volume wasrecorded. Regarding other wastes, however, efforts were made to reduce waste
volume on a number of fronts, including recycling of sludge from polishing as raw
material for concrete and thermal recycling of waste plastics. The volume of waste
was reduced by around 29%, or about 13% when expressed as a ratio to net sales.

Volume of Packaging Materials
Thanks to activities such as promoting the re-use of cardboard packing boxes, thevolume of packaging materials used fell by 21% year on year, and was about levelwith last year when expressed as a ratio to net sales.

Energy Consumption (Oil Conversion) and Its Ratio to Net Sales(Oil conversion kl)(Ratio to net sales [1999=100])

100,000
100
80,00080

60,00060

40,00040

20,00020

001999 2000 2001 2002 2003 2004 2005 2006

Water Use and Its Ratio to Net Sales(km3)(Ratio to net sales [1999=100])

4,000
100
3,000

80
60

2,000

40
1,000

20

0

0
1999 2000 2001 2002 2003 2004 2005 2006

Waste Volume and Its Ratio to Net Sales(Tons)(Ratio to net sales [1999=100])

10,000
100
8,000

80

6,000

60

4,000

40

2,000

20

0

0
1999 2000 2001 2002 2003 2004 2005 2006

The yellow portion is the transient construction scrap wood and others accompanying
the Musashi factory relocation conducted during the fiscal year ended March 2006,
and the sales unit index except a transient factor is expressed as the dotted line.

Packaging Materials and Their Ratio to Net Sales

2. Introduction of Environmental Management
Systems (ISO 14001 Certification)
In October 1996, the Hoya Group announced plans to make its environmental
management systems compliant with ISO 14001 certification standards, and in
December 1997 the plant run by HOYA LENS DEUTSCHLAND GmbH (inGermany) became the first to gain such certification. Since then, the Hoya
Group has pushed forward according to plan toward the certification of all
production plants, including those located overseas. By the end of March 2001,
nearly all mass production plants in Japan and abroad had been certified. As ofthe end of March 2006, a total of 35 plants belonging to the Hoya Group had
been certified (11 in Japan, 24 abroad).

28(Tons)(Ratio to net sales [1999=100])

4,000
100
3,000

80
60

2,000

40
1,000

20

0

0
1999 2000 2001 2002 2003 2004 2005 2006

Notes: 1. Ratio to net sales indicated based on 1999=100. Please also notethat Hoya uses units of millions of yen to calculate ratios to net sales.
2. Statistics of the nine domestic production sites; Nagasaka, Hachioji,
Kumamoto, Akishima, Nagano, Lens Technology Center, Minakuchi,Musashi (currently Tokyo Studio), Kodama.

Financial Section and Corporate Data

Co n te n ts
Ten-Year Summary

30

Management’s Discussion and Analysis

32

Consolidated Balance Sheets

44

Consolidated Statements of Income

46

Consolidated Statements of Shareholders’ Equity

47

Consolidated Statements of Cash Flows49

Notes to Consolidated Financial Statements

51

Independent Auditors’ Report

67

Corporate Data

68

Investor Information

69

Hoya’s Timeline70

Hoya’s Directory7129

Te n - Ye a r S u m m a r y

1997

1998

1999

2000

¥193,402¥193,473¥201,290¥201,110

Operating income (Millions of yen)

32,936

26,39531,726

34,688

Ordinary income (Millions of yen)

35,086

26,75933,61235,484

Net income (Millions of yen)

15,30012,348

17,837

20,716

Selling, general and administrative expenses/net sales (%)

27.7

28.2

26.4

25.4

Return on assets (ROA) (%)

7.1

5.3

7.8

8.9

Return on equity (ROE) (%)

11.4

8.5

11.6

12.4

Equity ratio (%)

61.0

63.7

71.7

73.2

Inventory turnover (Months)

3.2

3.4

3.2

3.3

Capital expenditures (Millions of yen)

32,31819,504

13,654

17,770Depreciation, amortization and other (Millions of yen)

15,705

17,57018,234

16,051

Research and development expenses (Billions of yen)

6.0

7.5

7.8

7.7

Net income

32.42

26.12

37.77

44.06

Cash dividends

5.75

7.00

7.50

8.75

Cash flow

66.75

64.41

77.65

79.15

Shareholders’ equity

305.17317.67340.56376.55

Price earnings ratio (PER) (Times)

42.7

36.4

44.5

55.0

Price cash flow ratio (PCFR) (Times)

20.8

14.8

21.6

30.6

Price book value ratio (PBR) (Times)

4.5

3.0

4.9

6.4

Stock price at year-end (Yen) (after adjustment for stock split)

1,385

950

1,680

2,425

Aggregate market value (Billions of yen)

643.3

441.3

780.4

1,126.4

Employees (Persons)

9,588

9,320

9,414

10,651

Net sales (Millions of yen)

Per share data (Yen)(after adjustment for stock split)

Effective April 1, 2002, the Company adopted a new accounting standard for net income per share of common stock issued by the Accounting Standards Board of Japan. Net income pershare and related data prior to that date are also calculated according to the standard for purposes of comparison.
● Ordinary income: Income before income taxes that is adjusted for non-operating income and expenses. Ordinary income is not reported net of taxes.
● Selling, general and administrative expenses/net sales: A calculation of management efficiency, also known as the “sales expense ratio.”● Return on assets (net income/ average total assets x 100): An index of efficiency and profitability in terms of management of the Company’s assets.
● Return on equity (net income/ average total shareholders’ equity x 100): An index of efficiency and profitability in terms of the shareholders’ equity.
● Shareholders’ equity ratio: The ratio of shareholders’ equity to total assets; the higher the ratio, the higher the degree of safety.
● Inventory turnover (average of inventory assets at beginning and end of fiscal period /monthly average cost of goods sold): An index of capital efficiency. The fewer the number of months,
the better the production and sales efficiencies.
● Capital expenditures: Includes property, plant and equipment as well as intangible fixed assets.
● Depreciation, amortization and other: Includes the loss on impairment of long-lived assets and amortization of goodwill.
● Per-share data: Per share data has been retroactively adjusted to reflect a 4-for-1 split of common shares implemented on November 15, 2005. The dividend per share for 2006 of ¥60
per share is the aggregate value of the interim dividend of ¥30 (actual payment before the split of ¥120 ÷ 4) and the year-end dividend of ¥30 (after the split).

30

2001

2002

2003

2004

2005

2006

¥236,802¥235,265¥246,293¥271,444¥308,172¥344,228

45,12843,89852,983

68,16784,920101,096

48,18445,77450,87466,55489,525

103,638

21,86023,741

20,03839,54964,13575,620

23.8

24.2

24.4

22.3

21.1

20.7

8.6

8.7

7.3

14.0

20.0

21.2

11.8

11.5

9.0

17.8

25.8

27.1

73.0

78.8

81.7

75.5

79.1

77.3

3.1

3.2

2.9

2.8

2.7

2.7

39,673

19,585

15,94830,65940,17548,78632,138

20,105

19,792

25,32822,52027,485

7.3

7.3

8.7

9.8

10.9

14.1

46.65

50.78

42.77

87.74

144.71

171.71

12.50

12.50

12.50

25.00

37.50

60.00

116.24

88.31

82.72

174.91

171.65240.57420.11471.55486.29491.90623.59648.87

43.7

44.5

41.8

28.9

20.4

27.7

17.6

25.6

21.6

14.5

17.2

19.7

4.9

4.8

3.7

5.2

4.7

7.3

2,040

2,260

1,787

2,537

2,950

4,750

947.6

1,049.8

830.3

1,178.7

1,325.7

2,066.3

12,966

13,311

14,02318,092

21,23425,176● Cash flow per share: From fiscal 2002 and after, figures for cash flow per share are shown as cash flow from operating activities divided by the average number of issued shares for the
fiscal period. Figures prior to 2002 are calculated using simple cash flow calculated by adding depreciation and other factors to net income.
● Price earnings ratio (stock price at year-end/net income per share): An index of valuation that compares the Company’s stock price with its earnings to judge whether the stock isovervalued or undervalued.
● Price cash flow ratio (stock price at year-end/cash flow per share): Cash flow is calculated by adding net income, depreciation, amortization and other. Depreciation indicates active
investment aiming for future growth, so the price cash flow ratio can be used to gauge the price level of a stock bytaking into consideration future growth potential. It can be used together with the price earnings ratio, the market
average and comparative ratios for other companies in the same industry to judge whether the Company’s stock priceis overvalued or undervalued.
● Price book value ratio (stock price at year-end/shareholders’ equity per share): An index of valuation that compares the Company’s stock price to the value of its net assets. An index ofless than one suggests that dissolving the company and selling off its assets may be more profitable thanholding the company’s stock.

31

MANAGEMENT’S DISCUSSION AND ANALYSISThe Hoya Group and Scope of Consolidation

management strategies formulated by the Global Headquarters at Hoya
Corporation in line with their independent business responsibilities. Byarea, the regional headquarters in North America, Europe and Asia
conduct activities such as strengthening relationships with the countries
and areas in their respective regions, providing legal support andconducting internal audits, thereby supporting the promotion ofbusiness activities. The Group’s financial headquarters is locatedin Europe.

The Hoya Group (the “Group”) consists of Hoya Corporation, its 62
consolidated subsidiaries (five in Japan and 57 overseas) and five
affiliates in Japan. One of the five affiliates is accounted for by the equity
method. Compared with the end of the prior consolidated fiscal year,
five consolidated subsidiaries were added through establishment of newcompanies, and one was added by an acquisition. One consolidated
subsidiary was eliminated through liquidation, and one was eliminatedthrough absorption by merger with the parent company. There were nochanges in the number of affiliates.
The Group is managed through consolidated group management
on a global basis. Each of the Group’s major business divisions, centeredon the Information Technology and Eye Care fields, implements the

Net Sales

2002

Net Sales
Consolidated net sales for the fiscal year ended March 31, 2006
increased 11.7% year on year to ¥344,228 million. By main businesssegment, net sales for the Electro-Optics division in the Information

2003

2004

2005

2006

(Millions of yen)
350,000
300,000
250,000
200,000
150,000
100,000
50,0000(Millions of yen)

Net sales

Sales by Business Segment

235,265

246,293

271,444

308,172

344,228

2002

2003

2004

2005

2006

43.1

45.3

49.8

53.8

55.4

3.5

2.9

30.8

30.4

25

0

3.1

39.6

(Millions of yen)

Electro-Optics

32

2.2

38.3

1.5
36.2

(% of total)
100

75

50

9.8
3.7
0.7

10.9
2.7
0.6

10.4
1.6
0.5

10.2
1.2
0.5

10.3
0.5
0.5

190,552

101,496

111,461

135,071

165,664

Photonics

7,157

5,485

4,116

10,74910,093

Vision Care

93,184

94,38898,203

94,971

104,457

Health Care

23,106

26,71728,381

31,40935,484

Crystal

8,788

6,719

4,322

3,672

1,864

Service

1,534

1,523

1,351

1,707

1,778

Technology field rose 15.0% year on year, net sales for the Vision Caredivision in the Eye Care field increased 10.0%, and net sales for the
Health Care division rose 13.0%.
Regarding net sales by customer region, net sales to customers inJapan increased 4.3% to ¥173,506 million, while net sales overseas grew
20.4% to ¥170,722 million. As a result, the composition of net sales was
50.4% domestic and 49.6% overseas. Domestic sales and overseas sales
in the previous fiscal year accounted for 54.0% and 46.0% of total net
sales, respectively, illustrating the rising proportion of overseas sales thathas continued from the prior consolidated fiscal year.
Hoya calculates the effect of exchange rates on operating results inthe consolidated fiscal year under review by comparing the foreign
currency denominated financial statements of its overseas subsidiaries,

Sales by Region

2002

when converted into yen at the average exchange rates during theconsolidated fiscal year under review, with the same statements whenconverted into yen at the average exchange rates prevailing during theprevious fiscal year. In currency markets during the fiscal year, the yen
weakened 5.9% against the U.S. dollar to ¥113.93, 1.8% against the euro
to ¥138.13, and 4.9% against the Thai baht to ¥2.81. Because the yen fell
against all these main currencies, the operating results of Group
companies in the United States, Europe and Thailand swelled on an
exchange rate basis. Overall, the effect of exchange rates added ¥4,718
million to net sales and ¥2,650 million to net income.

2003

2004

2005

2006

(Based on the location of the Company’s offices)(% of total)
100

75

67.8

67.5

71.2

69.4
74.9

50

4.2
12.3
15.7

4.8

4.6

13.2

13.8

4.1
11.0

11.4

14.5

12.2

10.0

10.3

7.1

25

0

(Millions of yen)Japan

159,368

166,178

188,441

230,946244,998

Asia

9,948

11,705

12,404

12,64824,527

Europe28,964

32,63937,48633,80339,232

North America

36,98535,771

33,11330,77535,471

Sales to Domestic and Foreign Customers

2002

2003

2004

2005

2006

(% of total)
100

56.2

56.0

54.6

54.0

50.4

75

(Based on the location of customers)

50

10.7
16.2
16.9

13.3

16.5

20.1

25.2

15.8

14.8

11.8

12.0

14.9

14.1

14.1

12.4

25

0
(Millions of yen)Japan

132,248

138,006

148,325

166,414173,506

Asia and Other Areas

25,12732,80644,66861,80886,848Europe38,14438,78940,16836,43041,201

North America

39,746

36,69238,283

43,52042,67333

Net Income
the previous fiscal year and a decline in foreign exchange gains (losses),from ¥875 million in the previous year to ¥243 million. There wereotherwise increase of ¥1,746 million for loss on clarification of soil
pollution and ¥374 million for impairment losses, although declines of¥323 million in loss on disposal of property, plant and equipment, and¥741 million in loss on plant closure from the ¥1,264 million due tosignificant restructuring generated in the previous year.
Return on assets (ROA) improved by 1.2 percentage points to
21.2%, and return on equity (ROE) improved by 1.3 percentage points
to 27.1%. Dividends for the consolidated fiscal year under review
consisted of an interim dividend of ¥120 per share and a year-end
dividend of ¥30 per share, for an aggregate ¥150 per share for the full
year. If the interim dividend is adjusted retroactively to reflect the 4-for-1
stock split implemented in November 2005, the dividend payment for
the full year amounts to ¥60 per share (¥120 ÷ 4 + ¥30 = ¥60), a 60%
increase from previous year’s dividend of ¥37.5 per share.

As net sales expanded, the cost of sales also rose, increasing 8.9% year
on year to ¥172,034 million. Because cost of sales grew less than net
sales, which increased 11.7%, the gross profit margin improved to 50.0%,
up 1.3 percentage points from 48.7% in the previous fiscal year. Selling,
general and administrative (SG&A) expenses also rose with the growthin net sales, increasing 9.0% to ¥71,098 million. SG&A expenses as apercentage of net sales, however, declined 0.4 percentage point, from
21.1% to 20.7%, because SG&A expenses rose at a lower pace than thegrowth rate for net sales. As a result, operating income increased 19.0%
to ¥101,096 million, and the operating income ratio improved by 1.8
percentage points to 29.4%. By quarter, the operating income ratio was
30.6% in the first quarter, 29.1% in the second quarter, 31.2% in thethird quarter and 26.7% in the fourth quarter.
Net income for the consolidated fiscal year under review increased
17.9% to ¥75,620, despite contraction in other income such factors as afall in equity in earnings of associated companies of ¥2,423 million fromOperating Income,Ordinary Income and Net Income

2002

2003

2004

2005

2006

(Millions of yen)
120,000
100,000
80,00060,00040,00020,0000(Millions of yen)

Operating income

43,89852,983

68,16784,920101,096

Ordinary income

45,77450,87466,55489,525

103,638

Net income

23,741

20,03839,54964,13575,6202005

Quarterly Profits
1Q

2Q

2006
3Q

4Q

1Q

2Q

3Q

4Q

(Millions of yen)
30,00025,00020,00015,00010,0005,000
0(Millions of yen)

34

Operating income

21,082

23,04721,652

19,13925,056

24,74027,25724,043

Ordinary income

22,366

24,40522,314

20,44027,466

26,974

27,161

22,037

Net income

16,223

16,671

16,123

15,11820,38918,596

20,12016,515

Profit Ratios

2002

2003

2004

2005

2006

(%)
35
30
25
20
15
10
5
0

(%)

Operating income ratio

18.7

21.5

25.1

27.6

29.4

Ordinary income ratio

19.5

20.7

24.5

29.1

30.1

Return on sales

10.1

8.1

14.6

20.8

22.0

2005

Quarterly Profit Ratios

1Q

2Q

2006
3Q

4Q

1Q

2Q

3Q

4Q

(%)
35
30
25
20
15
10
5
0

(%)

Operating income ratio

28.1

29.4

27.8

24.9

30.6

29.1

31.2

26.7

Ordinary income ratio

29.8

31.1

28.7

26.6

33.6

31.7

31.1

24.4

Return on sales

21.6

21.3

20.7

19.6

24.9

21.9

23.1

18.3

Profitability

2002

2003

2004

2005

2006

(%)
30
25
20
15
10
5
0

(%)

Return on equity (ROE)

11.5

9.0

17.8

25.8

27.1

Ordinary income/total assets

16.8

18.4

23.6

27.9

29.1

Return on assets (ROA)

8.7

7.3

14.0

20.0

21.2

35

Segment Overview
Information Technology (Electro-Optics and Photonics Division)
Net sales in the Electro-Optics division rose 15.0% year on year to¥190,552 million. In mask blanks for semiconductor production, demand
was strong for high-precision products such as phase shift mask blanks inresponse to greater functionality and higher capacity of LSIs.There was anincrease in orders for photomasks for semiconductor production, mainly
high-end products that comply with 65-nm line width design rules, thoughsales remained flat overall as a result of a special order for ordinary classproducts during the previous fiscal year. In photomasks for LCD panels, theGroup benefited from increased production capacity owing to the openingof a new production facility, and demand was strong for leading-edge,
large-scale masks as a result of the establishment of highly active, newproduction lines, and the development of new models by many
panel manufacturers.
In glass disks for HDDs, although demand for applications such as
portable music players slowed from the middle of the year, demand fordisks for laptop computers expanded strongly. Net sales also rose steadily
as a result of the start of production at a new plant, and investment aimed
at increasing production at existing plants. In optical glass products,
inventory adjustments in the digital camera market that began in thesecond half of the previous year were completed. Sales rose from theprevious fiscal year as a result of increased demand for lenses for digital
cameras (mainly products with high degrees of added value), and the fullscale start of shipments of camera lenses for new applications such as
mobile phones.
Operating income in the Electro-Optics division rose 18.3% to¥74,862 million. In the first half, demand exceeded supply capacity for many
products, boosting profit margins to high levels because plant capacity
utilization rates were high. In the second half, supply capacity was filled as aresult of the benefit of investment in increased production, although profit
margins eroded due to such factors as the surfacing of price competition
for certain products, and changes in the product mix. Demand for all
products remained strong, however, and the operating income ratio for thefull year rose by 1.0 percentage point to 39.1%. By quarter, the operating
income ratio was 42.0% in the first quarter, 38.3% in the second quarter,
39.8% in the third quarter and 36.8% in the fourth quarter.
As indicated in the graph for “Sales Growth and Profitability of Main
Business Segments” (“the segment graph”), the net sales growth rate in
the Electro-Optics division was higher than the consolidated average
growth rate for net sales of 11.7% (the circle is above the Consolidated

Basis line), and the operating income ratio rose from the previous
consolidated fiscal year (the circle shifted to the right).
Capital investment in the Electro-Optics division rose 16.5% to¥37,244 million, due mainly to the establishment of a new large-scale LCD
photomask plant in South Korea, a new HDD glass disk plant in Vietnam,
and proactive investments to increase production capacity at existing
plants, such as those for optical lenses.
Net sales for the Photonics division fell 6.1% to ¥10,093 million fromthe previous fiscal year. Operating income rose 4.6% to ¥934 million, andthe operating income ratio improved 0.9 percentage point to 9.0%.
Although net sales declined as a result of a reshuffling of the product mix
in favor of more profitable products, earnings rose due to thestrengthening of the marketing structure and greater efficiency in the
production structure.
2004(Millions of yen)
200,000

Electro-Optics Division

2005

2006
(%)
40

150,000

20

100,000

0

50,0000

Net sales (Millions of yen)

135,071

165,664

190,552

Operating income (Millions of yen)

45,17063,29074,862

Operating income ratio* (%)

33.4

38.1

39.1

Assets (Millions of yen)

132,240

162,638

204,192

Depreciation (Millions of yen)

13,205

14,73018,716

Capital expenditures (Millions of yen)

22,24731,962

37,244* The operating income ratio above is calculated using net sales plus intersegment
sales. Please refer to details on page 62 Segment Information.

Sales Growth and Profitability of Main Business Segments
Fiscal year ended March 31, 2006 (Compared with the previous fiscal year)

Sales Growth Ratio (%)

Consolidated Basis

35

Size of circle shows the volume of operating income.

25

Health Care
15
Consolidated Basis
5

Vision Care

Electro-Optics-5-15
Operating Income Ratio (%) 15

36

20

25

30

35

40

45

Eye Care (Vision Care Division)
Net sales of the Vision Care division rose 10.0% to ¥104,457 million. In thedomestic eyeglass lens market, despite signs of deflationary trends and asense of shrinkage of the market, there was an increase in high-value-added
products such as progressive lenses, and sales rose slightly, 0.4% from theprevious fiscal year. In overseas markets, on the other hand, strong growth innet sales was recorded in all regions, including Europe, North America andthe Asia-Pacific region.
In Europe, the Company’s principal market of Germany had remainedsluggish since the abolishment in December 2003 of a provision of thehealth insurance system supporting the purchase of eyeglasses, but the
deep-rooted popularity of high-value-added lenses and recovery since theabandonment of the health insurance provision resulted in a 15.9% rise insales.The global headquarters for the Vision Care division has been moved
to the Netherlands as part of an ongoing policy of focusing on the European
market. In North America, awareness of the Hoya brand is steadily rising, andrevenue rose 20.0% from the previous fiscal year as a result of the success of
product strategies. In the Asia-Pacific region, the focus on marketing activity
tailored to each region led to an 18.0% rise in net sales.
Operating income for the Vision Care division increased 19.3% to¥20,370 million, while the operating income ratio was 19.5%, 1.5
percentage points higher than in the previous fiscal year. Profitability rose asa result of a decline in the sales to cost ratio following the rise in revenue,
along with healthy sales of high-value-added products. By quarter, theoperating income ratio was 17.9% in the first quarter, 19.6% in the second
quarter, 21.9% in the third quarter and 18.7% in the fourth quarter. Circles
in the segment graph have shifted up and to the right, reflecting therecovery in the net sales growth rate and increase in the profit margin.

Capital investment in the Vision Care division increased by 17.3% to¥7,958 million. During the consolidated fiscal year under review, theCompany continued to build a global production organization with a focus
on optimal production locations.
2004(Millions of yen)
120,000

2005

2006
(%)
40

100,000
20
80,000060,00040,00020,0000

Net sales (Millions of yen)

98,203

94,971

104,457

Operating income (Millions of yen)

17,496

17,07920,370Operating income ratio* (%)

17.8

18.0

19.5

Assets (Millions of yen)

92,082

90,76598,243

Depreciation (Millions of yen)

5,735

5,900

6,444

Capital expenditures (Millions of yen)

6,916

6,787

7,958

* The operating income ratio above is calculated using net sales plus intersegment
sales. Please refer to details on page 62 Segment Information.

Eye Care (Health Care Division)
Net sales for the Health Care division grew 13.0% to ¥35,484 million. In contactlenses, net sales expanded strongly due to efforts by directly managed Eye City
stores to open new locations and increase the ability to attract customers, alongwith promotion of consulting sales requiring a high level of expertise. In IOLs,
sales rose both in Japan and overseas as a result of sales of high-value-added
products such as soft and yellow lenses, and due to aggressive efforts todevelop the business globally.
Operating income for the Health Care division decreased 3.9% to ¥6,859
million. In the fourth quarter of the consolidated fiscal year under review,accounting for expenses related to the point system for product sales at Eye
City was changed from time of use to time of conferment, resulting in a fullyear’s worth of point system expenses for the consolidated fiscal year underreview being recorded as a lump sum in SGA expenses during the fourth
quarter. As a result of this change in the accounting treatment for the point
system, and aggressive investment of R&D expenses in the IOL field, theoperating income ratio fell in the short term during the fourth quarter, and theoperating income ratio for the year was down 3.4 percentage points to 19.3%.
By quarter, the operating margin was 24.1% in the first quarter, 24.8% in thesecond quarter, 21.0% in the third quarter and 7.6% in the fourth quarter.
On the segment graph, as a result of the increase in the net sales growthrate combined with the fall in profit margin, the circle has shifted upward and to
the left. It also represents the effect of forward-looking investments made withan eye to future growth.
Capital investment in the Health Care division increased approximately 3.2
times to ¥2,391 million.This was mainly for capital expenditures related to R&D
in the field of IOLs, and shifting of production plants overseas.

2004(Millions of yen)
40,000

2005

2006
(%)
40

35,00020

30,00025,0000

20,00015,00010,0005,000
0Net sales (Millions of yen)

28,381

31,40935,484

Operating income (Millions of yen)

6,273

7,141

6,859

Operating income ratio* (%)

22.1

22.7

19.3

18,873

18,33019,927

Depreciation (Millions of yen)

532

669

855

Capital expenditures (Millions of yen)

1,201

738

2,391

Assets (Millions of yen)

* The operating income ratio above is calculated using net sales plus intersegment
sales. Please refer to details on page 62 Segment Information.

37

Segment Overview
Other Businesses (Crystal Division)
Net sales for the Crystal division decreased 49.2% to ¥1,864 million. In
response to the slowdown in corporate demand for gifts, Hoya is currently
reducing the scale of this business, and is in the process of fundamentally
restructuring the division. The Crystal division incurred an operating loss
totaling ¥155 million for the consolidated fiscal year under review, although thisloss is down significantly from the ¥421 million loss in the previous fiscal year.
The value of certain assets was reduced to a recoverable amount, and the¥864 million reduction was recorded as an impairment loss.

2004(Millions of yen)
5,000

2005

2006
(%)
0

4,000

-4

3,000

-8
-12

2,000

-16

1,000

-18
0
-500

-20

Net sales (Millions of yen)

4,322

3,672

1,864

Operating loss (Millions of yen)

-496

-421

-155

Operating loss ratio* (%)

-11.3

-11.3

-8.2

Assets (Millions of yen)

2,805

1,900

840

Depreciation (Millions of yen)

352

-

-

Capital expenditures (Millions of yen)

224

92

762

* The operating income ratio above is calculated using net sales plus intersegment
sales. Please refer to details on page 62 Segment Information.

Sales Growth and Profitability by Geographical Segment
Fiscal year ended March 31, 2006 (Compared with the previous fiscal year)

Sales Growth Ratio (%)

Consolidated Basis

120
Size of circle shows the volume of operating income.

Asia
100
80
60
40

North America

20

Consolidated Basis
0

Japan

Europe-20

Operating Income Ratio (%)

38

0

5

10

15

20

25

30

35

40

2002

Capital Expenditures

2003

2004

2005

2006

(Millions of yen)
50,00040,00030,00020,00010,0000(Millions of yen)

Capital expenditures

19,585

15,94830,65940,17548,786

Depreciation, amortization and other

20,105

19,792

25,32822,52027,485

Note: Depreciation, amortization and other includes depreciation, amortization of goodwill, and loss on impairment of long-lived assets.

Research andDevelopment Expenses

(%)
5

2002

2003

2004

2005

2006

(Billions of yen)
15

4

12

3

9

2

6

1

3

0

0

R&D expenses (Billions of yen)

7.3

8.7

9.8

10.9

14.1

R&D expenses/net sales (%)

3.1

3.5

3.6

3.6

4.1

Group Employees by Region

2002

2003

2004

2005

2006

16.7

11.1

22.5

14.2

24.7

(% of total)
100

75

48.2

52.4

15.8

14.8

11.3

10.3

7.3

8.5
6.2

8.0
5.3

25,176

65.9

71.1

75.6

50

25

10.1

0

(Persons)

Total

13,311

14,02318,092

21,234

Japan

3,282

3,150

3,023

3,007

2,800

Asia

6,411

7,346

11,925

15,102

19,030Europe

2,102

2,082

1,821

1,809

2,009

North America

1,516

1,445

1,323

1,316

1,337

39

Financial Position
In terms of assets at the end of the consolidated fiscal year under review,
current assets declined by 8.8% to ¥212,274 million.This was due mainly to
a 4.0% increase in notes and accounts receivable to ¥78,294 million, against
a 26.0% fall in cash and cash equivalents to ¥83,574 million stemming froman increase in expenditures for acquisition of treasury stock (up ¥63,994
million year on year), and an increase in dividend payments (up ¥11,157
million). Because property, plant and equipment increased 26.7% to¥120,604 million, and investments and other assets rose 22.2% to ¥28,660
million, noncurrent assets expanded 25.8% to ¥149,264 million.Total assets
increased 2.9% from the previous fiscal year to ¥361,538 million.
Current liabilities increased 12.0% to ¥79,305 million, reflecting
increases in notes and accounts payable of 3.2% to ¥41,020 million, andincome taxes payable of 43.1% to ¥14,342 million. Noncurrent liabilities fell

Total Assets,
Shareholders’ Equity andShareholders’ Equity Ratio

(%)
90

2002

7.0% from the previous fiscal year to ¥1,832 million, while total liabilities
were up 11.5% to ¥81,137 million.
In shareholders’ equity, retained earnings decreased 0.7%, or ¥1,909
million, to ¥266,346 million, reflecting the increase in net income of¥75,620 million, against a decrease of ¥77,529 million composed mainly of
dividends paid of ¥23,398 million, and retirement of treasury stock of¥53,181 million. Shareholders’ equity rose 0.6% from the previous fiscal
year to ¥279,481 million as a result of a shift in the foreign currencytranslation adjustments from a subtraction of ¥4,688 million the previous
fiscal year to an addition of ¥7,142 million resulting from a decline in thevalue of the yen, and an increase in treasury stock of ¥8,401 million.
The shareholders’ equity ratio fell by 1.8 percentage points, to 77.3%
from 79.1%.

2003

2004

2005

2006

(Millions of yen)
400,000

85
300,000
80
75

200,000

70
100,000
65
60

Total assets (Millions of yen)

278,068

274,289

289,887

351,482

361,538

Shareholders’ equity (Millions of yen)

219,180

224,219

218,979

277,889

279,481

78.8

81.7

75.5

79.1

77.3

Shareholders’ equity ratio (%)

400Cash Flows
Cash provided by operating activities amounted to ¥105,855 million, an
increase of ¥29,855 million from the previous fiscal year. The main
factors with a positive impact on cash were income before income
taxes and minority interests of ¥97,367 million (up ¥13,901 million year
on year) and depreciation and amortization of ¥26,252 million (up¥4,591 million). The main factors with a negative impact on cash werean increase in notes and accounts receivable of ¥4,042 million (down¥1,351 million year on year), an increase in inventories of ¥2,547 million(up ¥21 million), and income taxes paid of ¥18,247 million (down¥5,011 million).
Net cash used in investing activities amounted to ¥52,013 million,
an increase of ¥16,489 million from the previous fiscal year. This mainlyreflected purchases of property, plant and equipment of ¥47,742 million

Net Cash Provided by Operating Activities(up ¥14,348 million year on year), a significant rise that has continued
from the previous fiscal year.
Net cash used in financing activities amounted to ¥85,788 million,
an increase of ¥74,096 million from the previous fiscal year. Main uses ofcash were acquisition of treasury stock of ¥64,032 million (up ¥63,994
million year on year), and payment of dividends of ¥23,403 million (up¥11,157 million).
As a result of the above, the balance of cash and cash equivalents
at the end of the consolidated fiscal year under review totaled ¥83,574
million, a decrease of ¥29,301 million.

2002

2003

2004

2006

2005

(Millions of yen)
120,000
100,000
80,00060,00040,00020,0000(Millions of yen)

Net income

23,741

20,03839,54964,13575,620Net cash provided by operating activities

41,02338,39078,74476,000105,855

Quarterly Net Cash Provided by Operating Activities

2005
1Q

2Q

2006
3Q

4Q

1Q

2Q

3Q

4Q

(Millions of yen)
50,00040,00030,00020,00010,0000(Millions of yen)

Net income

16,223

16,671

16,123

15,11820,38918,596

20,12016,515

Net cash provided by operating activities

10,091

25,522

12,60327,78417,75929,802

17,02541,26941

Stock Price Data

2002

(Times)
100

2003

2004

2005

2006

80

4,000

60

3,000

40

2,000

20

1,000

0

0

Price earnings ratio (Times)

44.5

41.8

28.9

20.4

27.7

Price cash flow ratio (Times)

25.6

21.6

14.5

17.2

19.7

Price book value ratio (Times)

4.8

3.7

5.2

4.7

7.3

Stock price at fiscal year-end (Yen)

2,260

1,787

2,537

2,950

4,750

(after adjustment for stock split)

Stock Priceand Trading Volume

(Yen)
5,000

Stock price (Yen)
6,000

FY2005

Trading volume(Thousands of shares)
60,000FY2006(after adjustment for stock split)
5,000

50,0004,000

40,0003,000

30,0002,000

20,0001,000

10,0000

04Dividend Per Share

5

6

2002

7

8

9 10 11 12 1

2003

2

3

4

2004

5

6

7

8

9 10 11 12 1

2005

2

2006

3 (Month)

(Yen)
60

40

20

0
(Yen)

Period-end dividend

6.25

6.25

12.50

22.50

30.00

Interim dividend

6.25

6.25

12.50

15.00

30.00

Total dividend

12.50

12.50

25.00

37.50

60.00

Note: Dividend per share has been retroactively adjusted to reflect a 4-for-1 split of common shares implemented on November 15, 2005. The interim dividend per share for 2006
indicated above is ¥30 reflecting a stock split, although the actual interim payment before the split was ¥120.

42

Business Risk
The main items believed to be potential risk factors for development of the businesses of the Hoya Group are described below.
Matters concerning forward-looking activities included in these statements are based on information evaluated by
Hoya’s management as of the date these materials were prepared.

Fluctuation of Exchange Rates

Competence for Developing New Products

As the Hoya Group develops its business on a global scale, if thecurrencies of those countries in which the Hoya Group has major
manufacturing operations appreciate, export prices of its products
would rise, which would incur an increase in costs on a consolidated
basis. If the currencies of those countries in which the Hoya Grouphas major sales operations depreciate, it would bring about a decrease

In the industrial sector to which Hoya Group belongs, technologicaladvances are swift and the Hoya Group strives at all times to develop
state-of-the-art technologies. However, if the Hoya Group fails to
sufficiently predict changes in the sector and markets or to develop new
products that meet customer needs in time, the business results andfinancial condition of Hoya Group might be adversely affected.

in sales.

Competition
Influence of International Situations
At present, the situation in some countries, is extremely tense.
Hereafter, in the event that movement of people, goods or money wererestrained extraordinarily in a certain region, or if certain unexpected
events took place in those countries in which the Hoya Group hasbusiness operations—including changes in the political, economic orlegal environments, labor shortages, strikes, or natural calamities, etc.—
certain problems may arise in the execution of business operations.

The Hoya Group, which has the top market share for its many productsin their respective sectors, is constantly exposed to relentlesscompetition. There is no guarantee that the Hoya Group can maintainits overwhelming market share and compete efficiently in future. If
customers shift allegiance due to cost pressures or inefficiency of Hoya’scompetitiveness, the business results and financial condition of Hoya
Group might be adversely affected.

Production Capacity
Our Business as in Production Goods
Every part of the Electro-Optics products range, which constitutes amajor portion of the Hoya Group revenue, involves intermediate
production goods, components or materials. Therefore, growth of thebusiness thereof is affected substantially by the market conditions ofsuch products as semiconductors, LCD panels and HDDs that are
manufactured utilizing the Hoya Group products, and by that ofpersonal computers and home appliances, etc. that are manufactured
utilizing the resultant products.

Emergence of Discounters andLowering of Prices in the Consumer Goods Sector
In recent years in the eyeglass and contact lens markets, discount shopsof an unprecedented type have emerged and brought about a loweringof prices. If the influence of such discount shops swells to an extent
that cannot be absorbed by the Hoya Group’s cost reduction efforts
and strategies for adding high value both in Japan and abroad, thebusiness results and financial condition of the Hoya Group might be

At present, the Hoya Group reinforces its production capacity so as tomeet orders that exceed existing production capacity in multiple
business areas. However, if the setting up of such capacity were delayed
for any reason, it would affect not only the Hoya Group’s results but
also the production and sales plans of its customers, which might bringabout increased market share for its competitors, etc., and adversely
affect the business results and financial condition of the Hoya Group.

New BusinessNew business is important for future growth. In the event that nopromising new business is developed, the growth of the Hoya Groupmight not be achieved as planned. Besides, the Hoya Group may carryout mergers and acquisitions as a part of its business strategy. If
unexpected obstacles emerge after such acquisition and unscheduled
time and costs are required, the business results and financial conditionof the Hoya Group might be adversely affected.

adversely affected.

Disclaimer
This report is provided solely for the purpose of reference to those investors making their own evaluation of the company at their own risks.
We accept no liability whatsoever for any direct or consequential loss arising from any use of this report.

43

Consolidated Balance Sheets
Hoya Corporation and Subsidiaries
March 31, 2006 and 2005

Thousands of U.S. Dollars(Note 1)Millions of Yen
ASSETS

2006

2005

2006

¥ 83,574¥ 112,875

Trade78,381

73,619667,243

Other

1,426

2,913

12,139CURRENT ASSETS:
Cash and cash equivalents$

711,450

Notes and accounts receivable:

Allowance for doubtful receivables
Inventories (Note 4)(1,513)(1,236)(12,880)

41,17836,165350,541

Deferred income taxes (Note 10)

7,408

6,501

63,063

Prepaid expenses and other current assets

1,820

2,035

15,493

212,274

232,872

1,807,049

Total current assets
PROPERTY, PLANT AND EQUIPMENT (Note 5):
Land

8,649

8,937

73,627

Buildings and structures

61,58356,916524,245

Machinery and vehicles

193,972

165,885

1,651,247

Furniture and equipment

25,02322,858213,016

Construction in progress

13,196

6,907

112,335

302,423

261,5032,574,470(181,819)(166,345)(1,547,791)

120,604

95,1581,026,679

Investment securities (Note 3)

2,998

897

25,521

Total
Accumulated depreciation
Net property, plant and equipment
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies (Note 6)

11,063

9,486

94,177

Goodwill

1,875

1,336

15,962

Software

3,922

3,101

33,387

Lease deposits

3,006

2,633

25,590

Deferred income taxes (Note 10)

2,757

3,098

23,470

Other assets

3,335

3,203

28,390Allowance for doubtful receivables
Total investments and other assets
TOTAL
See notes to consolidated financial statements.

44

(296)

(302)

(2,520)28,66023,452

243,977¥ 361,538¥ 351,482$ 3,077,705

Thousands of U.S. Dollars(Note 1)Millions of Yen
LIABILITIES AND SHAREHOLDERS’ EQUITY

2006

2005

2006

CURRENT LIABILITIES:
Short-term loans (Note 8)

¥

—

¥

195

$

—

Notes and accounts payable:Trade28,07024,453238,955

Construction and other

12,95015,289110,241

Income taxes payable (Note 10)

14,342

10,023122,091

Accrued bonuses to employees

4,208

3,917

35,822

Accrued expenses

18,40914,162

156,712

Other current liabilities

1,326

2,753

11,28879,30570,792

675,109

620

542

5,278

Total current liabilities
LONG-TERM LIABILITIES:
Reserve for periodic repairs
Other long-term liabilities
Total long-term liabilities
MINORITY INTERESTS

1,212

1,428

10,318

1,832

1,970

15,596

920

831

7,832

CONTINGENT LIABILITIES (Notes 12, 13 and 15)
SHAREHOLDERS’ EQUITY (Notes 9 and 17):
Common stock—authorized, 1,250,519,400 shares in 2006 and 316,224,600 shares in 2005;
issued, 435,017,020 shares in 2006 and 112,349,005 shares in 2005

6,264

6,264

53,324

Capital surplus

15,89915,899135,345

Retained earnings

266,346

268,255

2,267,353

110

38

936

7,142

(4,688)60,799Net unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Treasury stock—at cost, 4,401,607 shares in 2006 and 967,762 shares in 2005
Total shareholders’ equity
TOTAL(16,280)(7,879)(138,589)

279,481

277,889

2,379,168¥361,538¥351,482$3,077,705

45

Consolidated Statements of Income
Hoya Corporation and Subsidiaries
Years Ended March 31, 2006, 2005 and 2004

Thousands of U.S. Dollars(Note 1)Millions of Yen
2006

2005

2004

2006

NET SALES¥344,228¥308,172¥271,444$2,930,348

COST OF SALES (Notes 11 and 12)

172,034

158,024

142,683

1,464,493

172,194

150,148

128,761

1,465,855

Gross profit
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES(Notes 7, 11 and 12)

71,09865,22860,594605,244

101,096

84,92068,167

860,611

Interest and dividend income

1,795

1,022

558

15,281

Interest expense

(142)

(87)

(189)

(1,209)Foreign exchange gains (losses)—net

243

875

(2,900)2,069

Operating income
OTHER INCOME (EXPENSES):

Equity in earnings of associated companies

1,285

3,708

1,700

10,939Loss on clarification of soil pollution and others(3,726)(1,980)—(31,719)

Loss on closure of plant(523)(1,264)—(4,452)

Loss on disposal of property, plant and equipment

(625)

(948)

(1,900)(5,321)

Loss on impairment of long-lived assets (Note 5)(1,233)(859)(2,040)(10,496)

Additional retirement benefits paid to employees (Note 7)(1,689)(843)(1,090)(14,378)

Gain on sales of property, plant and equipment and other assets

109

195

523

928

Gain on transfer of business

1,656

—

—

14,097

Amortization of goodwill——(3,300)—Additional expense incurred to dissolve the contributory
funded pension plan (Note 7)

—

—

(888)

—

Other income (expenses)—net(879)(1,273)(3,145)(7,483)

Other expenses—net(3,729)(1,454)(12,671)(31,744)

97,367

83,46655,496

828,867

22,25018,69018,574

189,410INCOME BEFORE INCOME TAXES AND MINORITY INTERESTSINCOME TAXES (Note 10):
Current
Deferred
Total income taxes

(512)

532

(2,775)(4,358)21,73819,222

15,799185,052

(9)

(109)

(148)

(76)

¥ 75,620¥ 64,135¥ 39,549$ 643,739

MINORITY INTERESTS IN NET INCOME
NET INCOME

Yen

U.S. Dollars

2006

2005

2004

2006

Basic net income¥171.71¥578.84¥350.96$1.46

Diluted net income

171.08577.52350.56

1.46

Cash dividends applicable to the year

150.00150.00100.001.28

PER SHARE OF COMMON STOCK (Notes 2.o and 16):

See notes to consolidated financial statements.

46

Consolidated Statements of Shareholders’ Equity
Hoya Corporation and Subsidiaries
Years Ended March 31, 2006, 2005 and 2004

Millions of Yen

BALANCE, MARCH 31, 2003

Outstanding
Number of
Shares ofCommon Stock

CommonStockCapitalSurplus115,173,355¥6,264¥15,899

Net income

Retained
Earnings

Net Unrealized
Gain (Loss) on
Available-forSale Securities

Foreign
Currency
Translation
Adjustments

TreasuryStock¥216,272¥ 15¥(7,178)¥ (7,053)

39,549Appropriations:
Cash dividends, ¥75.00 per share(8,440)Bonuses to directors(169)

Repurchase of treasury stock(3,962,711)

Disposal of treasury stock

55,894(32,905)(36)

Net decrease in unrealized gain on
available-for-sale securities

454
(45)

Net decrease in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2004

(3,648)111,266,538

6,264

15,899Net income

247,176(30)(10,826)(39,504)

64,135

Appropriations:
Cash dividends, ¥110.00 per share(12,241)

Bonuses to directors(63)

Repurchase of treasury stock(3,437)

Disposal of treasury stock

118,142(38)

Retirement of treasury stock

(50)

961

(30,702)30,702

Net increase in unrealized gain on
available-for-sale securities

68

Net increase in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2005

6,138
111,381,243

6,264

15,899Net income

268,255

38(4,688)(7,879)75,620Appropriations:
Cash dividends, ¥210.00 per share(23,398)

Bonuses to directors(65)

Stock split (Note 16)334,143,729

Repurchase of treasury stock(15,695,711)

Disposal of treasury stock

786,152(64,032)

Retirement of treasury stock

(871)

2,450

(53,181)

53,181

Net increase in unrealized gain on
available-for-sale securities

72

Net increase in foreign currencytranslation adjustments

11,830

Other decreases
BALANCE, MARCH 31, 2006

(14)
430,615,413¥6,264¥15,899¥266,346¥110¥ 7,142¥(16,280)

47

Thousands of U.S. Dollars (Note 1)

BALANCE, MARCH 31, 2005

CommonStockCapitalSurplusRetained
Earnings

Net Unrealized
Gain (Loss) on
Available-forSale Securities$53,324$135,345$2,283,604$323

Net income

Foreign
Currency
Translation
Adjustments

TreasuryStock$(39,908)$ (67,072)

643,739

Appropriations:
Cash dividends, $1.79 per share(199,183)

Bonuses to directors(553)

Stock split (Note 16)
Repurchase of treasury stock(545,093)

Disposal of treasury stock(7,415)20,856Retirement of treasury stock(452,720)

452,720

Net increase in unrealized gain on
available-for-sale securities

613

Net increase in foreign currencytranslation adjustments

100,707

Other decrease
BALANCE, MARCH 31, 2006
See notes to consolidated financial statements.

48

(119)
$53,324$135,345$2,267,353$936$ 60,799$(138,589)

Consolidated Statements of Cash Flows
Hoya Corporation and Subsidiaries
Years Ended March 31, 2006, 2005 and 2004

Thousands of U.S. Dollars(Note 1)Millions of Yen
2006

2005

2004

2006

¥ 97,367¥ 83,466¥ 55,496$ 828,867

OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:
Depreciation and amortization

26,252

21,661

19,988223,478

Amortization of goodwill

—

—

3,300

—

Provision for (reversal of) allowance for doubtful receivables

235

(345)

(1,169)2,000

Provision for accrued bonuses to employees

278

194

191

2,367

Reversal of accrued retirement benefits

—

—

(293)

—

Provision for reserve for periodic repairs

76

185

94

647

Gain on sales of property, plant and equipment and other assets

(109)

(195)

(523)

(928)

Loss on disposal of property, plant and equipment

625

948

1,900

5,321

Loss on impairment of long-lived assets

1,233

859

2,040

10,496

Foreign exchange loss (gain)

(599)

(233)

1,209

(5,099)Bonuses to directors

(65)

(63)

(169)

(553)

Gain on transfer of business(1,656)——(14,097)

Equity in earnings of associated companies(1,285)(3,708)(1,700)(10,939)

77

554

1,126

655

Increase in notes and accounts receivable(4,042)(5,393)(4,997)(34,409)

Decrease (increase) in inventories(2,547)(2,526)

222(21,682)

Other
Changes in assets and liabilities:

Decrease (increase) in other current assets

2,097

2,428

(1,961)

17,851

Increase (decrease) in notes and accounts payable

3,644(1,629)5,116

31,021

Increase in other current liabilities

2,420

3,142

1,719

20,601(1,795)(1,022)(558)(15,281)

142

87

189

1,209

Interest and dividends income
Interest expense
Interest and dividends receivable

1,866

958

659

15,885Interest payable

(112)

(110)

(155)

(953)

(18,247)(23,588)(6,880)(155,333)

—

330

3,900

—

Income taxes—paid
Income taxes—refunded
Total adjustments
Net cash provided by operating activities

8,488(7,466)23,24872,257

105,855

76,00078,744

901,124

—

—

102

—

(2,070)

(10)

(379)

(17,622)

(337)

—

—

(2,869)INVESTING ACTIVITIES:
Proceeds from sales of investment securities
Payments for investment securities
Acquisition of majority shares
Proceeds from sales of property, plant and equipment

267

541

814

2,273

(47,742)(33,394)(23,212)(406,419)

Payments for purchases of goodwill——(3,300)—

Proceeds from transfer of business

2,230

—

—

18,984

Payments for property, plant and equipment

Proceeds from other assets
Payments for purchases of other assets
Net cash used in investing activities

271

532

2,829

2,307

(4,632)(3,193)(5,193)(39,431)(52,013)(35,524)(28,339)(442,777)

49

Thousands of U.S. Dollars(Note 1)Millions of Yen
2006

2005

2004

2006

FINANCING ACTIVITIES:Net decrease in short-term loans
Payments for purchases of treasury stock
Proceeds from sales of treasury stock
Dividends paid
Other
Net cash used in financing activities
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS OF NEWLY CONSOLIDATEDSUBSIDIARY AT THE DATE OF CHANGE
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS

¥

(208)
(64,032)¥(158) ¥ (1,738)

$

(38)

(545,092)(32,921)(1,771)

1,855

911

419

15,791(23,403)(12,246)(8,588)(199,225)

(0)

(161)

(25)

(0)

(85,788)(11,692)(42,853)(730,297)(31,946)

28,784

7,552(271,950)

—

—

378

—

2,645

3,666

(3,199)22,516

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

112,875

80,42575,694960,884

CASH AND CASH EQUIVALENTS, END OF YEAR

¥ 83,574¥112,875¥ 80,425$ 711,450¥ 53,181¥ 30,702¥—$ 452,720

Assets (primarily accounts receivable, inventory and property)

—

—

2,607

—

Liabilities (primarily trade payables)

—

—

(870)

—

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Retirement of treasury stock
Increase in assets and liabilities due to consolidation of
a subsidiary previously unconsolidated

See notes to consolidated financial statements.

50Notes to Consolidated Financial Statements
Hoya Corporation and Subsidiaries

No. 1

BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements have been

financial statements of the Company prepared in accordance

prepared in accordance with the provisions set forth in thewith Japanese GAAP and filed with the appropriate Local FinanceJapanese Securities and Exchange Law and its related accounting

Bureau of the Ministry of Finance as required by the Securities

regulations, and in conformity with accounting principles generally

and Exchange Law. Some supplementary information included in

accepted in Japan, which are different in certain respects as tothe statutory Japanese language consolidated financial statements,

application and disclosure requirements of International Financial

but not required for fair presentation, is not presented in theReporting Standards.

accompanying consolidated financial statements.

The accounts of overseas subsidiaries are based on their

The translations of the Japanese yen amounts into U.S. dollars

accounting records maintained in conformity with generally

are included solely for the convenience of readers outside Japan,

accepted accounting principles prevailing in the respective

using the prevailing exchange rate at March 31, 2006, which wascountries of domicile. The accompanying consolidated financial¥117.47 to U.S. $1. The convenience translations should not be

statements have been restructured and translated into English

construed as representations that the Japanese yen amounts have(with some expanded descriptions and the inclusion of consoli-

been, could have been, or could in the future be, converted into

dated statements of shareholders’ equity) from the consolidated

U.S. dollars at this or any other rate of exchange.

No. 2

SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIESa. Principles of Consolidation—The consolidated financial state-b. Cash Equivalents—Cash equivalents are short-term invest-

ments as of March 31, 2006 include the accounts of the Company

ments that are readily convertible into cash, and are exposed toand its 62 (58 in 2005 and 55 in 2004) subsidiaries (together, theinsignificant risk of changes in value. Cash equivalents mature or“Group”).

become due within three months of the date of acquisition.

Under the control or influence concept, those companies inwhich the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies

c. Inventories—Inventories are stated principally at cost using the
average method.

over which the Group has the ability to exercise significant

d. Investment Securities—All investment securities are classified

influence are accounted for by the equity method.

as available-for-sale securities. Marketable available-for-sale securi-

Investment in an associated company through the years isties are reported at fair value, with unrealized gains and losses,

accounted for by the equity method and remaining associatednet of applicable taxes, reported in a separate component ofcompanies are stated at cost due to immateriality.

shareholders’ equity. The cost of securities sold is determined

The differences between the cost and underlying net equity ofinvestment in consolidated subsidiaries and associated companies

based on the moving-average method.
Non-marketable available-for-sale securities are stated at costaccounted for by the equity method are charged to income

determined by the moving-average method. For other than tem-when incurred.

porary declines in fair value, investment securities are reduced to

All significant intercompany balances and transactions have been

net realizable value by a charge to income.

eliminated in consolidation. All material unrealized profits included in
assets resulting from transactions within the Group are eliminated.

51

e. Property, Plant and Equipment—Property, plant and equip-

i. Leases—All leases are accounted for as operating leases. Under

ment are stated at cost. Depreciation of property, plant andJapanese accounting standards for leases, finance leases that deem

equipment of the Company and its domestic subsidiaries is com-to transfer ownership of the leased property to the lessee are

puted substantially by the declining-balance method at rates based

to be capitalized, while other finance leases are permitted to beon the estimated useful lives of the assets, while the straight-line

accounted for as operating lease transactions if certain “as if

method is applied to buildings acquired on or after April 1, 1998

capitalized” information is disclosed in the notes to the lessee’s

by the Company and its domestic subsidiaries, and to almost all

consolidated financial statements.

property, plant and equipment of consolidated foreign subsidiaries.
The net book value of tangible fixed assets depreciated by thestraight-line method was approximately 66.4% of total tangible
fixed assets in 2006 and 56.3% in 2005. The ranges of useful lives
are from 10 to 50 years for buildings and structures and from 5
to 10 years for machinery and vehicles.

j. Income Taxes—The provision for income taxes is computed
based on the pretax income included in the consolidated statements of income. 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 and the tax bases of assets and liabilities. Deferred taxes

f. Long-Lived Assets—The Group reviews its long-lived assets forare measured by applying currently enacted tax laws to theimpairment whenever events or changes in circumstance indicate

temporary differences.

the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying
amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued
use and eventual disposition of the asset or asset group. The

k. Appropriations of Retained Earnings—Appropriations ofretained earnings at each year end are reflected in the consolidated financial statements for the following year upon shareholders’approval or resolution of the Board of Directors.

impairment loss would be measured as the amount by which thel. Foreign Currency Translations—All short-term and long-term

carrying amount of the asset exceeds its recoverable amount,monetary receivables and payables denominated in foreign curren-

which is the higher of the discounted cash flows from the contin-

cies are translated into Japanese yen at the exchange rates at theued use and eventual disposition of the asset or the net sellingbalance sheet date. The foreign exchange gains and losses fromprice at disposition.

translation are recognized in the statements of income to theg. Intangible Assets—Intangible assets are carried at cost lessextent that they are not hedged by forward exchange contracts.

accumulated amortization, which is calculated by the straight-line

m. Foreign Currency Financial Statements—The balance sheet

method. Amortization of software is calculated over 5 years.

accounts of the consolidated overseas subsidiaries and associatedGoodwill is amortized with a period of 20 years on a straight-line

companies are translated into Japanese yen at the current

method.

exchange rates as of the balance sheet dates except for share-h. Research and Development Expenses—Research and development expenses are charged to income when incurred.

holders’ equity, which is translated at historical exchange rates.
Differences arising from such translation are shown as “Foreign
currency translation adjustments” in a separate component ofshareholders’ equity.
Revenue and expense accounts of the consolidated overseas
subsidiaries are translated into Japanese yen at the monthly
average exchange rates.

52

n. Derivatives and Hedging Activities—The Group uses deriva-

p. Reclassifications—Certain reclassifications have been made fortive financial instruments to manage its exposures to fluctuations

the 2005 and 2004 consolidated financial statements to conformin foreign currency exchange rates. Foreign exchange forward

to the classifications used in 2006. These changes had no impact

contracts are utilized by the Group to reduce foreign currency

on previously reported results of operations or cash flows or

exchange risks. The Group does not enter into derivatives forshareholders’ equity.

trading or speculative purposes.
Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: (a) all derivatives
are recognized as either assets or liabilities and measured at fairvalue, and gains or losses on derivative transactions are recognizedin the statements of income and (b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because ofhigh correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives aredeferred until maturity of the hedged transactions.
The foreign exchange forward contracts employed to hedge
foreign currency exchange rate exposures for export sales aremeasured at the fair value and the unrealized gains/losses arerecognized in income. Forward contracts applied for forecasted(or committed) transactions are also measured at the fair value
but the unrealized gains/losses are deferred until the underlying
transactions are completed.
o. Per Share Information—Basic net income per share iscomputed by dividing net income available to common shareholders by the weighted-average number of common shares
outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilution that
could occur if the outstanding stock options were exercised into
common stock. Diluted net income per share of common stock
assumes full exercise of the outstanding stock options at the
beginning of the year (or at the time of grant).
Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable to therespective years including dividends to be paid after the end of
the year.

53

No. 3INVESTMENT SECURITIESInvestment securities as of March 31, 2006 and 2005 mainly consisted of the following:
Millions of Yen

Marketable equity securities
Non-marketable equity securities
Total

Thousands of U.S. Dollars

2006

2005

2006

¥1,875
1,081¥2,956

¥309
588
¥897

$15,9629,202$25,164

The carrying amounts and aggregate fair values of marketable equity securities at March 31, 2006 and 2005 were as follows:
Millions of Yen
Cost

Unrealized
Gains

Unrealized
LossesFair Value

March 31, 2006:
Available-for-sale—Equity securities¥1,693¥182—¥1,875

March 31, 2005:
Available-for-sale—Equity securities

160

149

—

309

Thousands of U.S. Dollars

March 31, 2006
Available-for-sale—Equity securities

Cost

Unrealized
Gains

Unrealized
LossesFair Value$14,412$1,550—$15,962

Available-for-sale securities whose fair value was not readily determinable as of March 31, 2006 and 2005 were as follows:
Carrying AmountMillions of Yen

Equity securities
Investment to limited partnership and others
Total

2006

2005

2006

¥ 802
279
¥1,081

¥274
314
¥588

$6,827
2,375$9,202

There were no sales of available-for-sale securities for the years ended March 31, 2006 and 2005.

54

Thousands of U.S. Dollars

No. 4INVENTORIESInventories at March 31, 2006 and 2005 consisted of the following:
Millions of Yen

Finished products and merchandise
Semi-finished products and work in process
Raw materials
Supplies
Total

No. 5

Thousands of U.S. Dollars

2006

2005

2006

¥15,646
9,446
6,836
9,250
¥41,178¥14,623
8,084
6,198
7,260
¥36,165$133,191
80,41258,19478,744$350,541

LONG-LIVED ASSETSThe Group reviewed its long-lived assets for impairment as of thein value, mainly from land of the Photonics division of theyears ended March 31, 2006 and 2005. As a result, the Group

Maebashi Plant due to a close of that unit. The carrying amountrecognized impairment losses of ¥864 million ($7,355 thousand)of the relevant property, plant and equipment was written downand ¥92 million for the years ended March 31, 2006 and 2005,

to the recoverable amount, which was measured in consult ofrespectively, as other expense for a decline in value, mainly fromappraised value of land facing a thoroughfare and sales amountproperty of certain plants including the Musashi Plant of theamong others.

Crystal division, due to a continuous operating loss of that unit.

The Group reviewed its long-lived assets for impairment as

The carrying amount of the relevant machinery was written downof the year ended March 31, 2006, and as a result recognized

to the recoverable amount, which was measured at its value inan impairment loss of ¥369 million ($3,141 thousand) as otheruse. The discount rate used for computation of the present value

expense for a decline in value of the leased land in Machida-city,of future cash flows was 5%.

due to a fall of market land prices. The carrying amount of the

The Group reviewed its long-lived assets for impairment asof the year ended March 31, 2005 and as a result, recognized an

relevant land was written down to the recoverable amount,which was measured at its declared value.

impairment loss of ¥767 million as other expense for a decline

No. 6

INVESTMENTS IN ASSOCIATED COMPANIESInvestments in associated companies at March 31, 2006 and 2005 were as follows:
Millions of Yen

Investments

Thousands of U.S. Dollars

2006

2005

2006

¥11,063¥9,486$94,17755

No. 7RETIREMENT BENEFITS AND PENSION PLANS

For the year ended March 31, 2003, the Company and certain

contributory funded pension plan and the abolishment of thedomestic subsidiaries dissolved the contributory funded plan andunfunded retirement benefit plan was charged to income in theabolished the unfunded retirement benefit plan. The remaining

year ended March 31, 2003.

balance of transitional obligation at the dissolution of the
The components of net periodic benefit costs for the years ended March 31, 2006, 2005 and 2004 were as follows:
Millions of Yen

Additional expense incurred to dissolve the contributory fundedpension plan
Additional retirement benefits paid to employees
Net periodic benefit costs

Thousands of U.S. Dollars

2006

2005

2004

¥

¥ —
843
¥843

¥ 888
1,090
¥1,978—
1,689¥1,6892006$—
14,378$14,378

Additional expenses incurred to dissolve the contributory funded pension plan were loss incurred on the dissolution of the plan for theyear ended March 31, 2004.

No. 8

SHORT-TERM LOANS

Short-term loans at March 31, 2005 consisted of notes to banks and bank overdrafts and the annual interest rates applicable to theshort-term loans were 4.70% at March 31, 2005. There were no short-term loans at March 31, 2006.

56

No. 9SHAREHOLDERS’ EQUITY

Under the Japanese laws and regulations, the entire amount ofBoth of the Code and the Law allow Japanese companies topayment for new shares is required to be designated as common

repurchase treasury stock and dispose of such treasury stock bystock, although, generally, a company may, by a resolution of theresolution of the Board of Directors. The repurchased amount

Board of Directors, designate an amount not exceeding one-halfof treasury stock cannot exceed the amount available for futureof the price of the new shares as additional paid-in capital, which

dividend plus amount of common stock, additional paid-in capitalis included in capital surplus.

or legal reserve to be reduced in the case where such reduction

Japanese Company Law (“the Law”) became effective on May

was resolved at the shareholders meeting. The Company retired

1, 2006, and, at the same time, the Japanese Commercial Codetreasury stock of ¥53,181 million ($452,720 thousand) andwas repealed (“the Code”).

¥30,702 million during the fiscal years ended March 31, 2006

Under the Code, companies were required to set aside anamount equal to at least 10% of cash dividends and other cash

and 2005, respectively.
The general shareholders meeting held in June 2003 approved

appropriations as legal earnings reserve until the total of legal

the introduction of the Committees System stipulated in theearnings reserve and additional paid-in capital equaled 25% ofCode. Before the Committees System was introduced, dividends

common stock. Under the Law, in cases when dividends are paid,

had been approved by the general shareholders meeting held sub-an amount equal to 10% of the dividends or the excess of 25%

sequent to the fiscal year to which the dividends were applicable.

of common stock over the total of additional paid-in-capital andAfter introducing the Committees System, dividends may be paid

legal earnings reserve, whichever is the smaller, must be set aside

upon resolution of the Board of Directors, subject to certain limi-

as additional paid-in-capital or legal earnings reserve. Under thetations imposed by the Code. Semiannual interim dividends may

Code, additional paid-in capital and legal earnings reserve werealso be paid upon resolution of the Board of Directors, subject toavailable for distribution by the resolution of the shareholders’certain limitations imposed by the Code.

meeting as long as the total amount of legal earnings reserve andadditional paid-in capital remained equal to or exceeded 25% ofcommon stock. Under the Law, even when the total amount ofadditional paid-in-capital and legal earnings reserve is less than
25% of common stock, additional paid-in-capital and legal earnings
reserve may be available for dividends if there are sufficient distributable surplus. Under the Code, legal earnings reserve and additional paid-in capital could be used to eliminate or reduce a deficit
by a resolution of the shareholders’ meeting or may be capitalized
by a resolution of the Board of Directors. Under the Law, bothof those appropriations require a resolution of the shareholders’meeting. Legal earnings reserve is included in retained earnings in
the accompanying consolidated balance sheets.

57

No. 10INCOME TAXESThe Company and its domestic subsidiaries are subject to40.4% for the years ended March 31, 2006 and 2005 and 41.7%

Japanese national and local income taxes which, in the aggregate,

for the year ended March 31, 2004.

resulted in a normal effective statutory tax rate of approximately
Significant components of deferred tax assets and liabilities as of March 31, 2006 and 2005 were as follows:
Millions of Yen

Current:
Deferred tax assets:
Inventories—intercompany unrealized profits
Accrued bonuses to employees
Accrued loss on clarification of soil pollution and others
Accrued enterprise taxes
Accrued expenses
Inventories—loss on write-down
Other
Total
Non-current:
Deferred tax assets:
Amortization of goodwill and property, plant and equipment
Loss on impairment of long-lived assets
Loss on closure of plant in the next year
Allowance for doubtful receivables
Other
Total
Deferred tax liabilities:
Reserves for special depreciation and other
Other
Total
Net deferred tax assets

58

Thousands of U.S. Dollars

2006

2005

2006

¥1,692
1,602
1,474
728
—
254
1,658
¥7,408¥1,711
1,529
692
498
455
1,616
¥6,501$14,404
13,63812,548
6,197
—
2,162
14,114$63,063¥1,962
1,376
—
105
259
3,702

¥1,876
862
510
117
624
3,989

$16,702
11,714—894
2,205
31,515705
240
945¥2,757700
191
891¥3,098

6,002
2,043
8,045
$23,470

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying
consolidated statements of income for the years ended March 31, 2006, 2005 and 2004 was as follows:
Normal effective statutory tax rate
Lower or exemption of income tax rates applicable to income in certain foreign countries
Expenses not permanently deductible for income tax purposes
Per capita portion
Non-taxable dividend income
Intercompany cash dividend and transactions
Equity in earnings of associated companies
Special income tax credit on experiment and research expenses
Other—net
Actual effective tax rate

No. 11

2006

2005

2004

40.4%
(18.2)
0.4
0.1
(1.8)
1.8
(0.5)
(0.5)
0.6
22.3%

40.4%
(13.8)
0.4
0.1
(2.6)
0.8
(1.8)
(0.8)
0.3
23.0%

41.7%
(12.4)
0.7
0.2
(2.1)
1.6
(1.2)
(1.1)
1.1
28.5%

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses charged to income for¥14,135 million ($120,329 thousand), ¥10,957 million and ¥9,847

the years ended March 31, 2006, 2005 and 2004 weremillion, respectively.

No. 12LEASESThe Group leases certain machinery, computer equipment, office

the Group recorded an impairment loss of ¥276 million on certain

space and other assets. Total rental expenses including lease

leased property held under finance leases that do not transfer

payments for the years ended March 31, 2006, 2005 and 2004

ownership, and an allowance for impairment loss on leased

were ¥5,602 million ($47,689 thousand), ¥5,802 million andproperty, which is included in current liabilities.

¥6,748 million, respectively. For the year ended March 31, 2004,
Pro forma information of leased property such as acquisition cost, accumulated depreciation, accumulated impairment loss, obligation
under finance lease, depreciation expense of finance leases that do not transfer ownership of the leased property to the lessee on an “as if
capitalized” basis for the years ended March 31, 2006 and 2005 was as follows:
Millions of Yen
2006

Acquisition cost
Accumulated depreciation
Accumulated impairment loss
Net leased property

Machinery Furniture
andand
Vehicles Equipment¥3,4852,398—¥1,087¥2,084
1,138
—
¥ 946

Thousands of U.S. Dollars
2005

2006

Total

Machinery Furniture
andand
Vehicles Equipment

Total

Machinery Furniture
andand
Vehicles Equipment¥5,5693,536—¥2,033¥3,796
2,191—¥1,605¥6,2053,858
203¥2,144$29,667
20,414—$ 9,253¥2,409
1,667
203
¥ 539

$17,741
9,687—$ 8,054

Total$47,408
30,101—$17,307

The imputed interest expense portion as lessee is included in the above acquisition cost.

59

Obligations under finance leases:
Millions of Yen

Due within one year
Due after one year
Total

Thousands of U.S. Dollars

2006

2005

2006

¥ 833
1,200
¥2,033¥ 786
1,358¥2,144$ 7,091
10,216$17,307

Allowance for impairment loss on leased property of ¥170 million as of March 31, 2005 is not included in obligations under finance leases.
Depreciation expense and other information under finance leases:
Millions of Yen

Depreciation expense
Lease payments
Reversal of allowance for impairment loss on leased property
Impairment loss

Thousands of U.S. Dollars

2006

2005

2004

2006

¥726
896
170
—

¥959
959
105
—

¥1,297
1,297—
276$6,180
7,627
1,447
—

The imputed interest expense portion as lessee is included in the above obligations under finance leases.

No. 13

CONTINGENT LIABILITIESAt March 31, 2006, the Group had the following contingent liabilities:
Millions of Yen

Guarantees of borrowings and lease obligations for customers
Guarantees of borrowings for the Group’s employees
Total

No. 142005

2006¥2,206
4¥2,210¥1,364
5¥1,369$18,779
34$18,813

STOCK-BASED COMPENSATION PLANS (UNAUDITED)On June 17, 2005, June 18, 2004, June 20, 2003 and June 21,

At the Company’s shareholders’ meeting held on June 16, 2006,

2002, the Company’s shareholders approved a stock option plan

the following stock option plan for the Group’s directors and key

for the Group’s directors and key employees. Under the plan,

employees was approved. The plan provides for granting options

4,401 thousand options were granted to them to purchase sharesto the Group’s directors and key employees to purchase up toof the Company’s common stock during the exercise period from1,200 thousand shares of the Company’s common stock in

October 1, 2006 to September 30, 2015, October 1, 2005 to

the period from October 1, 2007 to September 30, 2016. The

September 30, 2009, October 1, 2004 to September 30, 2008 or

options are granted at an exercise price at the fair value at thefrom October 1, 2003 to September 30, 2007. The options wereprevious date of the option grant. The Company plans to issue

granted at an exercise price of ¥4,150, ¥2,713, ¥2,438, ¥1,673

acquired treasury stock upon exercise of the stock options.

or ¥1,918.

60

Thousands of U.S. Dollars

2006No. 15DERIVATIVESThe Group enters into foreign currency forward contracts to

Derivative transactions entered into by the Group have been

hedge foreign currency exchange risk associated with certain

made in accordance with internal policies which regulate theassets and liabilities denominated in foreign currencies.

authorization and credit limit amount.

All derivative transactions are entered into to hedge foreign

Foreign currency forward contracts which qualify for hedge

currency exposures incorporated within its business. Accordingly,

accounting for the years ended March 31, 2006 and 2005 andmarket risk in these derivatives is basically offset by opposite

such amounts which are assigned to the associated assets ormovements in the value of hedged assets or liabilities.

liabilities and are recorded on the balance sheets at March 31,

Because the counterparties to these derivatives are limited
to major international financial institutions, the Group does not2006 and 2005, are not subject to disclosure of market
value information.

anticipate any losses arising from credit risk.

No. 16NET INCOME PER SHARE

Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended March 31, 2006, 2005 and2004 was follows:Year ended March 31, 2006:
Basic EPS—Net income available to common shareholders
Effect of dilutive securities—Stock options
Diluted EPS—Net income for computation
Year ended March 31, 2005:
Basic EPS—Net income available to common shareholders
Effect of dilutive securities—Stock options
Diluted EPS—Net income for computation
Year ended March 31, 2004:
Basic EPS—Net income available to common shareholders
Effect of dilutive securities—Stock options
Diluted EPS—Net income for computation

Millions of Yen

Thousands ofSharesYen

U.S. Dollars

Net Income

Weighted-Average
SharesEPS

EPS¥75,555—¥75,555

440,008
1,625
441,633¥171.71$1.46¥171.08$1.46¥64,072—¥64,072

110,690253
110,943¥578.84¥39,500—¥39,500

112,545
129
112,674¥577.52¥350.96¥350.56

On November 15, 2005, the Company effected four-for-one

stock in issue has increased to 449,396,020 shares. If the stock

stock split of its shares of common stock pursuant to a resolution

split had gone into effect at the beginning of the year ended

approved at a meeting of the Board of Directors held on July 20,

March 31, 2005 and 2004, net income per share would have been

2005. As a result, the number of shares of the Company’s common¥144.71 ($1.23) in 2005 and ¥87.74 ($0.75) in 2004.

61

No. 17

SUBSEQUENT EVENTSAppropriations of Retained Earnings
The following appropriations of retained earnings for the year ended March 31, 2006 were resolved by the Company’s Board of Directors
on May 25, 2006:
Millions of Yen

Thousands of U.S. Dollars¥12,918$109,969

Year-end cash dividends, ¥30.00 ($0.26) per share

In addition to the cash dividends described above, the Company paid interim cash dividends of ¥13,374 million ($113,850 thousand,¥120.00 ($1.02) per share) on November 21, 2005 to shareholders of record as of September 30, 2005, based on a resolution of theBoard of Directors.

No. 18

SEGMENT INFORMATION

Information about industry segments, geographical segments and sales to foreign customers of the Company and subsidiaries for the years
ended March 31, 2006, 2005 and 2004 was as follows:(1) Industry Segments
a. Sales and Operating Income
Millions of Yen
2006
Information
Technology
Electro-Optics Photonics

Sales to customers
Intersegment sales
Total sales
Operating expenses
Operating income (loss)¥190,552
744
191,296
116,434¥ 74,862¥10,093
246
10,3399,405¥ 934

Eye CareLifestyleRefinement

VisionCare

HealthCare

Crystal¥104,4571
104,458
84,088¥ 20,370¥35,484
035,484
28,625¥ 6,859¥1,864 ¥1,778
33
4,333
1,897
6,111
2,052
5,464
¥ (155) ¥ 647

Service

Total¥344,228
5,357
349,585
246,068¥103,517

Eliminations
and Corporate Consolidated¥—(5,357)(5,357)(2,936)¥(2,421)¥344,228—
344,228
243,132¥101,096

b. Assets, Depreciation, Loss on Impairment of Long-Lived Assets and Capital Expenditures
Millions of Yen
2006
Information
Technology

AssetsDepreciation
Impairment loss
Capital expenditures

62

Eye CareLifestyleRefinement

Electro-Optics

Photonics

VisionCare

HealthCare

CrystalService

Total¥204,192
18,716—37,244¥7,606109—
208¥98,243
6,444
—
7,958

¥19,927
855
—
2,391

¥840
—
864
762

¥3,98453—
160¥334,792
26,177864
48,723Eliminations
and Corporate Consolidated¥26,74675
369
63¥361,538
26,252
1,233
48,786

a. Sales and Operating Income
Thousands of U.S. Dollars
2006
Information
Technology

Sales to customers
Intersegment sales
Total sales
Operating expenses
Operating income (loss)

LifestyleRefinement

Eye Care

Electro-Optics

Photonics$1,622,133
6,333
1,628,466
991,181$ 637,285$85,9202,094
88,01480,063$ 7,951

VisionCare

HealthCare

CrystalService

Total

Eliminations
and Corporate Consolidated$889,223 $302,068 $15,868 $15,136 $2,930,348 $— $2,930,348
9
0281 36,886
45,603(45,603)—889,232 302,068 16,149 52,022 2,975,951(45,603)2,930,348
715,825 243,679 17,468 46,514 2,094,730(24,993)2,069,737$173,407 $ 58,389 $ (1,319) $ 5,508 $ 881,221 $(20,610) $ 860,611

b. Assets, Depreciation, Loss on Impairment of Long-Lived Assets and Capital Expenditures
Thousands of U.S. Dollars
2006
Information
Technology

AssetsDepreciation
Impairment loss
Capital expenditures

Eye Care

Electro-Optics

Photonics$1,738,248
159,326—
317,051$64,748
928
—
1,771

VisionCare

HealthCare$836,324 $169,635
54,857
7,278——
67,745
20,354

LifestyleRefinement
CrystalService

Total

Eliminations
and Corporate Consolidated$7,151 $33,915 $2,850,021 $227,684—
451
222,840
638
7,355
—
7,355
3,141
6,487
1,362
414,770536$3,077,705
223,478
10,496415,306

a. Sales and Operating Income
Millions of Yen
2005
Information
Technology
Electro-Optics Photonics

Sales to customers
Intersegment sales
Total sales
Operating expenses
Operating income (loss)¥165,664
526
166,190102,900¥ 63,290¥10,749
234
10,983
10,090¥ 893

Eye CareLifestyleRefinement

VisionCare

HealthCare

Crystal¥94,97118
94,98977,910¥17,079¥31,409—31,40924,268¥ 7,141¥3,672 ¥1,707
50
5,054
3,722
6,761
4,143
6,088
¥ (421) ¥ 673

Service

Total¥308,172
5,882
314,054
225,399¥ 88,655

Eliminations
and Corporate Consolidated¥—(5,882)(5,882)(2,147)¥(3,735)¥308,172—
308,172
223,252¥ 84,920

b. Assets, Depreciation and Capital Expenditures
Millions of Yen
2005
Information
Technology
Electro-Optics Photonics

AssetsDepreciation
Impairment loss
Capital expenditures¥162,638
14,730—31,962¥7,648126
767
191

Eye CareLifestyleRefinement

VisionCare

HealthCare

CrystalService

Total¥90,765
5,900
—
6,787

¥18,330
669—
738¥1,900—92
92¥3,21682—219¥284,497
21,507859
39,989Eliminations
and Corporate Consolidated¥66,985154—
186¥351,482
21,661
859
40,17563

a. Sales and Operating Income
Millions of Yen
2004
Information
Technology
Electro-Optics Photonics

Sales to customers
Intersegment sales
Total sales
Operating expenses
Operating income (loss)¥135,071
81
135,152
89,982¥ 45,170

LifestyleRefinement

Eye Care¥4,116
—
4,116
4,193
¥ (77)

VisionCare

HealthCare

CrystalService

Total¥98,20318
98,22180,725¥17,496¥28,381—
28,381
22,108¥ 6,273¥4,322
62
4,384
4,880
¥ (496)¥1,351
5,804
7,155
6,547
¥ 608

¥271,444
5,965
277,409
208,435¥ 68,974

Eliminations
and Corporate Consolidated¥—(5,965)(5,965)(5,158)¥ (807)¥271,444—
271,444
203,277¥ 68,167b. Assets, Depreciation and Capital Expenditures
Millions of Yen
2004
Information
Technology
Electro-Optics Photonics

AssetsDepreciation
Impairment loss
Capital expenditures¥132,240
13,205—22,247

LifestyleRefinement

Eye Care¥1,74859—
36

VisionCare

HealthCare

CrystalService

Total¥92,082
5,735
—
6,916

¥18,873
532
—
1,201

¥2,805
352
2,040
224

¥2,79730—
14¥250,545
19,9132,040
30,638Eliminations
and Corporate Consolidated¥39,34275—
21¥289,887
19,9882,040
30,659Notes: 1. The Company and subsidiaries primarily engage in the manufacture and sale of products in six major segments grouped on the basis of similarities in the types, nature andmarket of the products. The six segments, namely, Electro-Optics, Photonics, Vision Care, Health Care, Crystal and Service, consist primarily of the following products:
Electro-Optics: Photomasks and mask blanks for semiconductors, masks for liquid-crystal display (LCD), parts for glass panels of LCDs, glass disks for hard disk drives(HDDs), optical lenses, optical glasses, electronic glasses, optical communication products, etc.
Photonics:
Laser equipment, light sources for use in the electronics industry, special optical glass, etc.
Vision Care:
Eyeglasses, eyeglass frames, etc.
Health Care: Contact lenses and related accessories, intraocular lenses, etc.
Crystal:Crystal glass products
Service:
Construction of information systems, outsourcing, etc.
2. Corporate operating expenses consist primarily of the administration expenses of the Company and foreign holding companies, which are not allocated to industry segments.
Corporate operating expenses for the years ended March 31, 2006, 2005 and 2004 were ¥2,630 million ($22,389 thousand), ¥2,873 million and ¥2,424 million, respectively.
3. Corporate assets consist primarily of cash, time deposits, investment securities and administrative assets of the Company and the foreign holding companies. Corporate
assets as of March 31, 2006, 2005 and 2004 were ¥35,135 million ($299,098 thousand), ¥75,076 million and ¥52,594 million, respectively.
4. Consolidated operating expenses are equal to the total of cost of sales and selling, general and administrative expenses shown in the accompanying consolidated statements
of income.

(2) Geographical Segments
The geographical segments of the Company and subsidiaries for the years ended March 31, 2006, 2005 and 2004 are summarized as follows:
Millions of Yen
2006

Sales to customers
Interarea transfers
Total sales
Operating expenses
Operating income
Assets

64

Japan

North
America

Europe

Asia

Total

¥244,998
23,901
268,899
230,414¥ 38,485¥163,840¥35,471
222
35,69334,606¥ 1,087¥22,377¥39,232683
39,91533,367¥ 6,548¥63,346¥ 24,527
120,813145,340
97,226¥ 48,114¥149,299¥344,228
145,619489,847
395,613¥ 94,234¥398,862

Eliminations
and Corporate Consolidated¥—(145,619)(145,619)(152,481)¥ 6,862¥ (37,324)¥344,228—
344,228
243,132¥101,096¥361,538

Thousands of U.S. Dollars
2006

Sales to customers
Interarea transfers
Total sales
Operating expenses
Operating income
Assets

Japan

North
America

Europe$2,085,622
203,465
2,289,087
1,961,471$ 327,616$1,394,739$301,958
1,890
303,848
294,594$ 9,254$190,491$333,974 $ 208,794 $2,930,348 $— $2,930,348
5,814 1,028,458
1,239,627 (1,239,627)—
339,788 1,237,252
4,169,975 (1,239,627)
2,930,348
284,047
827,667
3,367,779 (1,298,042)
2,069,737$ 55,741 $ 409,585 $ 802,196 $58,415 $ 860,611$539,253 $1,270,954 $3,395,437 $ (317,732) $3,077,705

Asia

Total

Eliminations
and Corporate

Consolidated

Millions of Yen
2005

Sales to customers
Interarea transfers
Total sales
Operating expenses
Operating income
Assets

Japan

North
America

Europe

Asia

Total

¥230,946
19,048249,994
204,413¥ 45,581¥165,938¥30,775
200
30,97530,912¥
63¥17,129¥33,803
255
34,05828,195¥ 5,863¥32,927¥ 12,648
89,749102,397
71,004¥ 31,393¥104,191¥308,172
109,252
417,424
334,524¥ 82,900¥320,185

Eliminations
and Corporate Consolidated¥—(109,252)(109,252)(111,272)¥ 2,020¥ 31,297¥308,172—
308,172
223,252¥ 84,920¥351,482

Millions of Yen
2004

Sales to customers
Interarea transfers
Total sales
Operating expenses
Operating income
Assets

Japan

North
America

Europe

Asia

Total

¥188,441
16,790205,231
167,669¥ 37,562¥161,336¥33,11391
33,204
31,390¥ 1,814¥19,059¥37,486
849
38,33529,294¥ 9,041¥26,691¥12,404
60,196
72,60054,693¥17,907¥66,338¥271,444
77,926349,370
283,046¥ 66,324¥273,424

Eliminations
and Corporate Consolidated¥—(77,926)(77,926)(79,769)¥ 1,843¥ 16,463¥271,444—
271,444
203,277¥ 68,167¥289,887

Notes: 1. The Company and subsidiaries are summarized in four segments by geographic area based on the countries where the Group is located. The segments consisted of thefollowing countries:
North America: United States of America, Canada, etc.
Europe:Netherlands, Germany, United Kingdom, etc.
Asia:
Singapore, Thailand, China, Republic of Korea, Taiwan, etc.
2. Corporate operating expenses consist primarily of the administration expenses of the Company and one foreign holding company, which are not allocated to segments bygeographic area. Corporate operating expenses for the years ended March 31, 2006, 2005 and 2004 were ¥2,317 million ($19,724 thousand), ¥2,562 million and¥2,074 million, respectively.
3. Corporate assets consist primarily of cash, time deposits, investment securities and administrative assets of the Company and one foreign holding company. Corporate assets
as of March 31, 2006, 2005 and 2004 were ¥33,959 million ($289,087 thousand), ¥72,841 million and ¥47,511 million, respectively.
4. Consolidated operating expenses are equal to the total of cost of sales and selling, general and administrative expenses shown in the accompanying consolidated statements
of income.

65

(3) Sales to Foreign Customers
The sales to foreign customers of the Company and subsidiaries for the years ended March 31, 2006, 2005 and 2004 are summarized asfollows:
Millions of Yen
2006

Overseas sales (A)Consolidated sales (B)(A)/(B)

North America

Europe

Asia

Other

Total

¥42,673¥41,201¥85,988

¥860

12.4%

12.0%

25.0%

0.2%

¥170,722
344,228
49.6%

Thousands of U.S. Dollars
2006

Overseas sales
Consolidated sales

North America

Europe

Asia

Other

Total

$363,267$350,736$732,000$7,321$1,453,324
2,930,348

Millions of Yen
2005

Overseas sales (A)Consolidated sales (B)(A)/(B)

North America

Europe

Asia

Other

Total

¥43,520¥36,430¥61,798

¥10

14.1%

11.8%

20.1%

0.0%

¥141,758
308,172
46.0%

Millions of Yen
2004

Overseas sales (A)Consolidated sales (B)(A)/(B)

North America

Europe

Asia

Other

Total

¥38,283¥40,168¥44,656

¥12

14.1%

14.8%

16.5%

0.0%

¥123,119271,44445.4%

Note: The Company and subsidiaries are summarized in four segments by geographic area based on the countries where the customers are located. The segments consisted of thefollowing countries:
North America: United States of America, Canada, etc.
Europe:Netherlands, Germany, United Kingdom, etc.
Asia:
Singapore, Thailand, Republic of Korea, Taiwan, etc.
Other:
Saudi Arabia and Brazil, etc.

66