Financial overview

(in million JPY)	FY2006	FY2005	Rate of Change (%)	Factors
Overall
Sales	2,384,395	2,007,134	18.8%	While promoting reorganization and rationalization activities, the Company strove to cut costs and improve its product quality to cope with a sharp rise in materials prices. In addition, the Company developed and promoted new products and technologies and achieved increases in terms of both profit and revenue.
Operating income	128,745	105,495	22.0%
Ordinary income	145,368	113,194	28.4%
Current net income	76,029	58,346	30.3%
Automotive related business
Sales	1,095,852	883,924	22.4%	Sales of wire harnesses increased both in Japan and abroad. This is attributable to the acquisition of Volkswagen Bordnetze GmbH of Germany and brisk sales of  vehicle models in which the Company's products are installed. This was also the result of the rise in copper prices. Increased sales of vibration isolating rubber contributed as well.
Operating income	58,048	52,567	10.4%

New Company
The Company and Nichia Steel Co. Ltd. announced that the two companies have signed a final agreement on the establishment of J-Y Techs (Kaizuka City, Osaka) by integrating their steel wire manufacturing and sales businesses. Leveraging the synergy expected from the integration, both groups will aim to increase their competitive edge so as to lead the world's automotive and other industries. The new company will be set up on April 1, 2007, consolidating Kokoku Steel Wire Ltd., a steel wire manufacturing subsidiary of the Company, and Metax Corporation, a sales company of Nichia Steel. It will be capitalized at 450 million yen with 55 percent invested by Nichia Steel and 45 percent by the Company. Annual sales (fiscal year ends in March) are expected to reach around 16 billion yen. (From an article in the Nikkan Jidosha Shimbun on Feb.05, 2007)

Transfer of business
The Company and Sanyo Shoji Co., Ltd. reached an agreement on the transfer of Sumitomo's industrial machinery brake division to Sanyo Shoji, effective Apr. 1, 2007. Under the agreement all operations regardig the development, manufacture, and sales of the Company's hydraulic brake systems for industrial machinery and related parts will be handed over to Sanyo Shoji. Sanyo has been the exclusive dealer selling the Company's hydraulic brake system for industrial machinery since 1966. One of Sanyo's group company also manufactures clutches for industrial machinery and other brake systems. (From a press release by the company on Dec. 22, 2006)

Others
The Company is likely to achieve a 20 percent share of the global wire harness market in fiscal 2006 ending in March 2007. The Company had originally targeted the 20 percent threshold for fiscal 2010, but it is highly probable that its share will reach the target significantly ahead of the plan, with the group's sales boosted by the acquisition of Volkswagen Bordnetze GmbH - Volkswagen's subsidiary manufacturing wire harnesses - in this fiscal year. The Company's share in the global market stood at approximately 18 percent in fiscal 2005 (ended in march 2006); the Company expects to achieve roughly 21 percentage point in fiscal 2006, a gain of some 3 percent over the previous year. In the Japan market, the Company held a 40 percent share in fiscal 2005, projecting a growth of 1 percent in this fiscal period to 41 percent. (From an article in the Nikkan Jidosha Shimbun on Nov. 9, 2006)

R&D Expenditure

(in million JPY)	FY2006	FY2005	FY2004	FY2003
Overall	68,373	64,427	56,480	55,276
Automotive related business	40,891	38,019	29,945	26,353

Main Areas of Research
In addition to wire harnesses and in-car electronic devices, the Company concentrated on developing anti-vibration rubber, etc.

R&D Structure
The Company will build a new R & D building at its Osaka Works, Konohana-ku, Osaka City, to enhance R & D in new areas such as high-temperature superconductivity. Approx. 8 billion yen will be invested in the construction including the surrounding green zone. As part of the Company's 110 anniversary project, construction will begin this summer, scheduled to finish in April 2009. The facility, named "WinD Lab," will be a seven-story reinforced concrete building with a gross floor area of 155,00 m2. The R & D operations scattered in the Works will be consolidated to this new building to promote expansion of research areas from electric power cables, electronics and automobiles to include new areas such as high-temperature superconductivity and new materials in environment and resource businesses and ubiquitous technology in automobiles and information/telecommunications. After the completion, 60% of the current 530 researchers or approx. 330, will move to the new building. The building roof will be used for the green area and other 2,200 m2 surrounding green zone will be improved. (From an article in the Nikkan Jidosha Shimbun on Mar. 20, 2007)

R&D Activities
Wire harnesses/in-vehicle electronic equipment
R&D activities are mainly conducted at AutoNetworks Technologies, Ltd.,  which is jointly owned by the Company and Sumitomo Wiring Systems, Ltd. R&D activities are mainly focused on developing new products meeting safety, comfort and environmental needs.   

To make in-car electronic devices capable of handling IT applications and  performing more sophisticated functions, the Company is developing the following:
- Power Distributors (PDs)
-CDUs (Center Display Units) such as cameras that can monitor vehicles from three angles.
-Next-generation, high speed car information LANs and related software:
 The Company also develops wire harness systems suitable for the devices or systems mentioned above.

Environmentally Friendly Products:
 The Company will develop lightweight wire harnesses that respond to environmental concerns.

-High voltage harnesses for HEVs (Hybrid Electric Vehicles)

-Environmentally friendly products for wire harnesses such as halogen-free electric wires, lead-free solder, and connecting terminals that do not require soldering

To achieve the required standard of quality for new products and also shorten development time, the Company will develop technologies on testing, evaluation, and analysis that are essential for developing material elements. The Company is developing technologies that do not require prototypes, by enhancing simulation technology using computer-aided engineering (CAE). This technology simulates the life of wire harnesses and analyzes heat and vibration of electronic modules.

Vibration isolating rubber
Tokai Rubber Industries is making advanced  technological developments aimed at reducing costs, improving ride quality, and expanding the Company's businesses to a global level. The Company is also conducting R&D activities on environmentally friendly technologies.  This includes developing products for low permeability fuels, developing biomass materials and reducing hazardous substances.

The Company carried out development activities on technologies that produce thin film, negative electrodes for high capacity batteries used in hybrid vehicles. These activities are aimed at reducing CO2 emissions. They also form one theme of the Research Institute of Innovative Technology for the Earth. The Company also developed technologies that improve performance of magnesium compound expanded material in terms of strength and flexibility in order to get better fuel efficiency through reducing vehicle weight. This project is based on an R&D theme of the New Energy and Industrial Technology Development Organization (NEDO) dealing with practical applications.

Capital Investment

(in million JPY)	FY2006	FY2005	FY2004	FY2003
Overall	119,887	121,830	102,107	84,048
Automotive related business	69,075	75,263	56,389	44,341

- The Company invested in the automotive business to increase production and improve the efficiency of wire harnesses and vibration isolating rubber.

Investment plan for the term ending March 2008
Groupwide investment is set at 130,000 million yen
Planned investment for production facilities of wire harnesses and vibration isolating rubber is set at 76,000 million yen.