Financial Overview
Revenues increased in all the regions and the sales, operating profit, ordinary profit and current net profit all reached record highs. 

(in millions of JPY)	FY2006	FY2005	Rate of Change(%)	Factors
Overall
Sales	144,329	125,512	15.0	- In Japan, profitability deteriorated due to sluggish sales of machinery to overseas subsidiaries, despite brisk sales to Honda Motor, its major customer. - In North America, vehicle sales were strong, boosting sales of the Company. However increased costs and depreciation expenses in connection with launching new parts resulted in an operating loss.  - In Europe, sales of vehicle parts were robust both at Musashi Auto Parts UK Ltd. and Musashi Hungary Mfg. Ltd., contributing to increased sales and profit.   - In Asia, sales increased, thanks to the growing Indian motorcycle market and the contribution favorable currency translation played because of the weak yen. However profit was down  because of increased depreciation expenses and sluggish sales of motorcycles in Indonesia during the first half of the year. - In South America, brisk sales of motorcycle parts to the company's major customers and a significant appreciation of the real, compared to what is was the previous reporting period, resulted in increased sales and profit.
Operating income	11,695	9,577	22.1
Ordinary profit	10,898	9,581	13.7	-
Net income	4,964	4,772	4.0	-

Organizational change
The Company announced that it would reorganize its corporate structure, incorporating a new management system that will oversee the responsibilities of each executive director as of May 1, 2006. This reorganization initiative aims to raise the overall level of the Company's capabilities in the global market as well as to implement a totally new management system that creates corporate value in order to respond to the increasingly competitive automotive parts industry and to changes taking place in the business environment. It will establish a Production Engineering Department by integrating all the production engineering functions engaged in all product categories. It will also set up an Overseas Planning Promotion Office and an Overseas Regional Management System to strengthen its production operations worldwide by disseminating its technologies and management systems in place in Japan to its operations overseas.  Also, in order to enhance its parts business in Japan, each business division will be responsible for each of the category of parts it produces. By setting up this new comprehensive management structure, the Company hopes to gradually decentralize its operations. (From an article in the Nikkan Jidosha Shimbun on April 21, 2006)

R&D Expenditure

(in millions of JPY)	FY2006	FY2005	FY2004
R&D Expenditure	1,104	973	1,033

Research and Development Structure (as of March 2007)

Division	Development Div. No.1 and No.2	Development Div. No.3	Development Div. of Kyushu Musashi Seimitsu Co., Ltd.	Production technology Dept., Technology Div., Kyushu Musashi Seimitsu Co., Ltd.
Business in charge	-Development of new products (and their applications) of ball joints, cam shafts, gears etc.  Patent control. Management of product drawing.	- R&D for a new production technology and production processes for products such as ball joints, cam shafts, and gears.	- R&D for new products such as gears for motorcycles and general -purpose gears.	- Development of new products such as gears for motorcycles and general -purpose gears. R&D related to production technology and process design.
Number of engineers	44	7	9	36
R&D cost	549million JPY	147 million JPY	139 million JPY	269 million JPY

Product Development
<Ball joints>
- The Company mass-produced ball joints which simultaneously achieve both low-torque and a high level of durability. After launching mass-production of these ball joints, the Company has been working to broaden the application of this latest technology on ball joints. The Company successfully commercialized rear suspension ball joints for its customers in Europe. 
- In the area of environmental-protection technology, the Company started mass-production of ball joints that employ aluminum suspension arms.  These improve fuel efficiency by incorporating highly recyclable and lightweight components. In Europe the Company also started mass- production of advanced aluminum ball joints.  

<Cam shaft>
- The Company worked on establishing a system to evaluate both materials and product performance, in order to make product proposals to customers. In the future the Company will develop products in line with developments being made in production technology.

<Gears>
- The Company enhanced the design of its original 3D bevel gears, which have been already commercialized, to improve design quality and shorten production lead time. 
- The Company introduced testing equipment that can evaluate abrasion resistance and resistance against printing.
- The company is continuously working to introduce testing equipment that can evaluate differential assemblies to ensure they function and perform as designed.

Development of production technology
- The Company worked on developing proprietary technology to improve product functions and lower the prices of cam shafts, differential assemblies and planetary assemblies. In the field of forging technology, the Company worked on developing new production methods that utilize servo stamping machines.
- The Company conducted joint-development activities with universities and facility makers mainly on surface reforming technology and conjugation technology. 
- In addition, by utilizing high quality engineering skills, the Company started developing technology that is effective in simultaneously achieving excellent product reliability and in reducing production lead time, aiming to strengthen its development capabilities. 

Contracts for technical assistance (FY2006)

Name of the partner company (Country)	Product items	Contents of contract	Term
Musashi Auto Parts Michigan Inc. (USA)	see note below	see note below	1994.02.01-1999.01.31 (Automatically renewed annually after the term)
Musashi Auto Parts Co., Ltd. (Thailand)	see note below	see note below	1987.12.28-1992.12.27 (Automatically renewed annually after the term)
Musashi Auto Parts UK Ltd. (UK)	see note below	see note below	1995.01.01-1999.12.31 (Automatically renewed annually after the term)
P. T. Musashi Auto Parts Indonesia (Indonesia)	see note below	see note below	1996.05.08-2001.05.07 (Automatically renewed annually after the term)
Musashi Auto Parts Canada Inc.(Canada)	see note below	see note below	1998.01.01-2002.12.31 (Automatically renewed annually after the term)
Musashi South Carolina Inc. (USA)	see note below	see note below	2001.01.01-2005.12.31 (Automatically renewed annually after the term)
Musashi Hungary Mfg. Ltd. (Hungary)	see note below	see note below	2001.01.01-2005.12.31 (Automatically renewed annually after the term)
Musashi do Brasil Ltda. (Brazil)	see note below	see note below	5 years from 2003.11.17-2008.11.16
Musasi Auto Parts India private Ltd. (India)	see note below	see note below	2003.04.01-2004.03.31 (Automatically renewed annually after the term)
Musashi da Amazonia Ltda. (Brazil)	see note below	see note below	5 years from 2004.11.01-2009.10.31

Product items in the contract	:	Special parts customized and then produced at the time they are needed for vehicles, motorcycles, and general-purpose products
Contents of contract	:	1. Technical assistance for production, assembly, and marketing of customized parts 2. Providing industrial ownership rights

Capital Expenditure

(in millions of JPY)	FY2006	FY2005	FY2004
Capital Expenditure	16,991	23,071	13,551
facility for ball joints	2,096	1,191	1,591
facility for cam shafts	2,622	1,913	2,637
facility for gears and other parts	9,131	16,966	6,469

Production facilities for ball joints:
- 907 million yen to install new facilities at the 1st Akemi Plant
- 493 million yen to install new facilities at Musashi Auto Parts Co., Ltd.
- 675 million yen to install new facilities at Musashi Hungary Mfg. Ltd.

Production facility for cam shafts:
- 373 million yen to install new facilities at the Horai plant
- 1,323 million yen for Musashi Auto Parts Michigan Inc. to increase production volume to cope with new orders 

Production facility for gears and other parts:
- 2,014 million yen at the Ueda Plant to install new facilities 
- 1,073 million yen for Kyushu Musashi Seimitsu to increase production volume to cope with new orders
- 1,140 million yen for Musashi Auto Parts Co., Ltd. to install new facilities
- 1,646 million yen for P. T. Musashi Auto Parts Indonesia to install new facilities and increase production volume to cope with new orders
- 1,142 million yen for Musashi do Brasil Ltda. to increase production volume to cope with new orders

Capital investment plan for FY2007

Region	Planned investment as of March 2007 (million yen)	Main contents and objective of production facility
Japan	5,700	Renewal of exiting production, facility, response to a new vehicle model and reinforcement of testing facilities.
Asia	4,200	To strengthen and renew its ability to respond to new models and enhance production capacity for two-wheeler components
North America	3,500	To handle production increase of components (new supply award)
South America	1,500	To strengthen its ability to respond to new vehicle models being produced and enhance production capacity for motorcycle components
Europe	400	To handle production of components for a new supply award it won.