Clarion Business Report FY2006

Business Highlights

Financial Overview ( in millions of JPY )
- FY2006 FY2005 Rate of
Sales 181,041 184,176 (1.7) -
Operating income 3,072 5,228 (41.2) -
2,052 4,547 (54.9) -
(784) 5,862 - -
Automotive equipment business
Sales 161,786 168,686 (4.1) Despite strong OEM markets in North America and China, sales dipped year-on-year due to decreased sales in the domestic Japan OEM market. This was the result of negative factors, namely declining car sales and changes in vehicle model mix.
1,648 3,578 (53.9) Operating income fell from what it was the previous year due to an increase in development costs; and advertisement and branding expenses for unifying its various product brand-names under "Clarion", which is the Company's single brand name now being used worldwide.

Domestic business

Becoming a subsidiary of Hitachi, Ltd.
Hitachi, Ltd. announced that it has completed on November 30, 2006 the tender offer for common stocks of the Company which commenced on October 25, 2006, and that it will make the Company its consolidated subsidiary on December 7, the day to start settlement. Hitachi acquired all Clarion shares offered, raising its ownership to 63.66% from 14.41% before the purchase. The amount required for the purchase will be 31.9 billion yen. (From an article in the Nikkan Jidosha Shimbun on Dec. 6, 2006)

Acquiring Xanavi Informatics
Hitachi, Ltd. announced that it has signed a share transfer agreement with the Company on December 12, 2006. As a result of the share transaction, Xanavi Informatics Corporation, now 100 percent owned by Hitachi, will become a wholly owned subsidiary of Clarion effective January 1, 2007. This move will allow Xanavi and the Company to promote joint development of car navigation systems, strengthening their capabilities to engineer platform software and technologies for the future. (From an article in the Nikkan Jidosha Shimbun on Dec. 14, 2006)

The Company announced that it began delivery of the 2DIN navigation systems to Volkswagen Group Japan (VGJ). This is the first time for the Company to supply its products to VGJ as line assembly parts, in addition to the existing delivery of the systems to be installed at dealers as options. The "2DIN HDD/DVD AV-NAVI" will be mounted on the "Passat Variant V6 4Motion" as a factory-installed optional system. Clarion expects to deliver 16,000 units in two years and to gradually expand application of the system to other models. (From an article in the Nikkan Jidosha Shimbun on Aug. 1, 2006)

The Company announced that it began supplying car audio systems for the Toyota Passo and Daihatsu Boon in December 2006. Prior to these businesses, the Company's car audio systems have been deployed in Daihatsu's other models. This time, it has been agreed that the products will be also introduced to the Boon as well as to the Toyota Passo with the same specifications - a model Daihatsu is producing for Toyota. Major features of the car audio system include a CD tuner with "Music Server" function and large, easy to use buttons. The "Music Server" allows choice of five sound quality modes, high-speed recording up to 4X with 660 minutes of storing memory. The products are being manufactured at the Tohoku Office and delivered on an OEM basis to Daihatsu for both models. (From an article in the Nikkan Jidosha Shimbun on Jan. 23, 2007)


R&D Expenditure ( in millions of JPY )
- FY2006 FY2005 FY2004
R&D Expenditure 975 710 309
*They are not classified by division as most of the investment was spent on either development of fundamental technology or on cross-divisional technology covering more than one business segment.

Recent developments
(1) Product platform for in-vehicle information system:
As a measure to expand its automotive system business, the Company is actively promoting its technical alliance with Hitachi, Ltd. in the area of Car Information Systems (CISs), including car navigation systems. In fiscal year 2006, the Company launched basic software development activities and advanced development activities in order to meet future market needs.

(2)Advanced parking assist and safe driving system using in-vehicle camera technology:
- The Company developed a parking assist system with image processing technology for rear-mounted cameras. This technology displays a composite image (on a cabin-interior monitor) of an overhead view of the vehicle at point blank range; and of a natural image of a wider area by adjusting the focus angle of the camera lens.
- The Company developed new technology that displays an all-around, overhead image of the vehicle on the cabin-interior monitor. These images are recorded by onboard cameras installed in several locations.

The Company will work on engineering advanced safe driving systems including application development of an intelligent transport system (ITS) to detect approaching cars. At the same time, the Company will continue to work on turning its viewpoint switching technology into practical business solutions.

(3)Advanced audio system to improve acoustic efficiency in a car cabin
The Company developed the following technology:
- Automatic sound calibration technology that automatically calibrates distorted acoustic fields and reproduces them at ideal levels.
- Automatic volume control system incorporating frequency calibration technology. The volume of sound can be automatically optimized depending on the noise level in the car cabin and the human auditory capabilities.
- Sound level calibration technology that adjusts the gap between different media sounds and sources.
- Image search technology with sound analyzing function, which enables audio system users to retrieve the right music data from the hard disc, based on their impression and image of that music.

Technological tie-ups (as of Mar. 2007)
Partner Country Outline of tie-ups Contract period
Discovision Associate U.S.A. licensed patent on manufacturing optical disc players

Dec. 1, 1994 to the patent expiry date

Koninklijke Philips Electronics NV Netherlands licensed patent on DVD products Apr, 1, 2003 -
Mar. 31, 2008
Toshiba Corp. Japan licensed patent on DVD products

Apr. 1, 2001 -
Dec. 31, 2007

Vehicle Information and Communication System Center Japan license on the use of VICS technical information

Nov. 28, 1995 -
expiry date agreed by two parties

Investment Activities

Investment Expenditure ( in millions of JPY )
- FY2006 FY2005 FY2004
Investment 6,074 8,106 3,066
Automotive equipment 5,666 7,748 3,020

Capital investment at the auto parts business (fiscal year 2006)
- Constructing a new building in Saitama Shintoshin
- Installing additional equipment to increase production capacity; and purchasing new dies to cope with model changes at its plant in China.

<Newly Added Facilities> ( in millions of JPY )
Company Name Facilities Planned Investment Start Completion
Technical Center
Building 4,200 Sep. 2006 Jun. 2007