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5. Pacific Industrial Co., Ltd. Business Report FY ended 2015

Medium-term management plan OCEAN-18

-Initiatives to achieve the objectives outlined in the mid-term management plan.

1. Expansion of process capacity for ultra high strength steel
-The Company will expand its stamped body parts business in Japan, the U.S. and China. The total investment will amount to JPY 3.4 billion. The Company has established a new cold stamping method to produce 1,180 MPa ultra high strength steel sheets. The Company has introduced a new large cold stamping machine to its plant in China in January 2014 and to Kyushu Plant in Japan in February 2014. Its Higashi-Ogaki Plant in Japan will have the same machine in October 2014, followed by the introduction to the U.S. plant in December 2015. Operations of the new stamping machines will start in phases. Pacific Industrial has also established a new hot stamping method to produce 1,470 MPa ultra high strength steel sheets. The new hot-rolled stamping method was introduced at its Yoro Plant, Japan, in May 2014. (Planned sales turnover for FY 2018: JPY 6.5 billion)

2. Bolstering North American stamped parts business
-The Company will establish a new manufacturing subsidiary, Pacific Manufacturing Tennessee, Inc., in Tennessee, the U.S. in June, 2014. JPY 1.8 billion will be invested in constructing the new plant. The plant will start producing stamped parts and resin parts in August 2015. These parts will be supplied mainly to Toyota Motor Corporation. The new plant will be the Company's second manufacturing base in North America. It will allow Pacific Industrial to establish more efficient local supply network. (Planned sales turnover for FY 2018: JPY 4.0 billion)

3. Strengthening stamped parts business in China
-The Company will produce battery cases for hybrid vehicles in China. As its main customer, Toyota Motor Corporation, is procuring core components locally to improve cost competitiveness, Pacific Industrial will establish an optimum local supply base. The battery cases are the core components of hybrid engines. The Company has produced the cases only in central and northeastern Japan. Its subsidiary, Changsha Pacific Hanya Auto Parts Co., Ltd., located in Changsha City, Hunan Province, will start producing the battery cases around 2015, when Toyota will begin producing its new hybrid model in China. (Planned sales turnover for FY 2018: JPY 1.5 billion)

4. Expansion of resin business
-The Company completed construction of the second plant building at a subsidiary in Thailand, which launched production of resin products. The main product being produced is a wheel cap, which has been well received in terms of its technology, design, and cost-competitiveness. As a result, the Company won orders for the caps from seven Japanese OEMs. (Planned sales for FY 2018: JPY 1.0 billion.)

5. Expansion of high-precision stamping operations
-The Company began stamping high-precision parts for engine and transmissions based on the net-shape manufacturing process. The Company plans to increase sales by 50% in FY2018 by increasing production capacity, developing new technology, and diversifying its customer base. (Planned sales turnover for FY 2018: JPY 1.0 billion)

6. Expansion of die-cast operations
-The Company will expand the die-cast operations of Pacific Air Controls Co., Ltd., creating seamless production operations, from die-casting up to machining casings of compressors used in automotive air-conditioning systems. (Planned sales for FY 2018: JPY 1.0 billion)

7. Expansion of TPMS operations
-The Company will start producing Tire Pressure Monitoring System (TPMS) parts in China in spring 2016. In July 2014, it will establish a new subsidiary, Pacific Auto Parts Technology (Changshu) Co., Ltd. in Changshu, Jiangsu Province, and will start constructing the new plant. JPY 3 billion will be invested in the plant. The plant will have an annual capacity of 3 million units. The Company will establish a TPMS supply system in China expecting a new Chinese law that requires installation of a TPMS in the car. The new law will come into force around 2015 to 2016. This is the first time for Pacific Industrial to produce TPMS parts in China. The plant will be the Company's third TPMS production base following the plants in Japan and the U.S. (Planned sales turnover for FY 2018: JPY 1.5 billion)

>>>Financial Forecast for the Next Fiscal Year (Sales, Operating Income etc.)

R&D Structure

-The R&D organization consists of the technology and production technology functions at each business, and the technology planning function.

-Advancing collaboration among concerned departments company wide, the Company conducts R&D activities based on joint industry-academia-public collaboration such as with specialized manufacturers, universities, and research institutes, in order to create new materials and new production methods for new products, enhance its competitive strengths, and speed up R&D activities.

-The Company's subsidiary, PI Systems, conducts R&D activities on software.

R&D Activities

Product Development

Fuel cell relief valve
-The Company has developed a new fuel cell relief valve, which will be installed on the high-pressure hydrogen tank of a fuel cell vehicle (FCV) to ensure safety. If the tank pressure has increased to an abnormal level, the new valve emits the gas from inside to outside of the tank to avoid explosion. The Company has commercialized the new product by leveraging its know-how to produce tire valve and tire pressure monitoring systems. The Company has won its first order to supply the new valve for use in core units of new Mirai FCV that will be launched by Toyota Motor Corporation on December 15, 2014. The new fuel cell relief valve is produced at the Kita Ogaki Plant in Godo-cho, Gifu Prefecture and supplied to Toyota's plant in Aichi Prefecture. (From an article in the Nikkan Jidosha Shimbun on December 9, 2014)

<Stamping/resin products>
-In Japan, the Company invested mainly to expand the plant building and install stamping equipment at the Kurihara Plant; install stamping equipment that can handle ultra-high-tensile materials at the Higashi Ogaki Plant; and increase production and install dies to handle new products designed for new-model vehicles.

-Outside Japan, the Company invested mainly to build new plant buildings and install equipment in Tennessee (USA) and Changsha (China)

<Valves>
-In Japan, the Company invested mainly to increase production lines manufacturing the TPMS main units and increase production of valves.

-Outside Japan, the Company invested mainly to expand the production plant at the aluminum die-cast plant in Korea and increase production of valves.

-The Company plans to invest JPY 13,850 million as capital expenditure during FY ending Mar. 2016.