Daido Metal Co., Ltd. Business Report FY2006

Business Highlights

Financial Overview

(in million JPY)	FY2006	FY2005	Rate of change (%)	Factors
Overall
Sales	63,841	57,700	10.6	The Company worked on reinforcing its sales structure overseas, as well as enhancing its production capacity in line with the volume of orders it received.
Operating income	2,076	3,343	(37.9)	Operating income decreased as a result of the sharp rise in the prices of materials such as steel, nonferrous metals, and other materials; and the poor performance of Daido Metal Bellefontaine L.L.C. in the USA, which is undergoing a reorganization.
Ordinary income	2,170	3,586	(39.5)	-
Current net income	(426)	1,310	-	-
Bearing metal for automobiles
Sales	51,514	46,418	11.0	While the volume of domestic automobile sales decreased, the volume of automobiles destined for export, especially to the U.S.A., significantly increased.

Recent Developments Overseas
The Company will expedite its rehabilitation plans for Daido Metal Bellefontaine L.L.C., a U.S. subsidiary of the Company. It now owns a 100 percent share in the U.S. manufacturing company, which was a joint venture with Dana Corporation. In efforts to improve largely its product quality at the U.S. operations, the Company will introduce three advanced manufacturing lines, same types of facilities it has at the Inuyama plant in Japan. This move will allow the group to localize supply to Toyota and other Japanese automakers operating in the U.S. from 2007, as well as to deliver its products directly from the U.S. facility to the Big 3, from which it won new contracts. Through improving efficiencies and planned downsizing, the Company expects to restore profitability at the U.S. operations, aiming to achieve a surplus in fiscal 2009. (From an article in the Nikkan Jidosha Shimbun on Nov. 21, 2006)

Recent Developments in Japan
The Company constructed a new plant specializing in the production of automobile bearing brass, at Seki Techno Hi-Land located in Seki City, Gifu Prefecture. The Company constructed this new plant as a key part of its strategy to build a global production structure. Production at the new plant started in February 2007.

R&D

-R&D activities are carried out by the following four divisions: Central Laboratory, Production Promotion Office, Company No.1 Development Office, Company No.3 Development Office, where a total 64 employees work.
- R&D expenses for FY2006 were 1,314 million yen.

The Company focused its R&D activities in the area of metals used in automotive bearings:
(1) Development of a journal bearing for dynamos
- The Company was able to establish a sliding mechanism made of PEEK composite materials, in the course of a research project sponsored by NEDO (New Energy and Industrial Technology Development Organization). Then, the Company analyzed the sliding surface using a surface trace element analyzer, verifying the sliding mechanism.

(2) Development of a copper alloy bearing with lead-free overlay
- The Company developed a byhimas overlay and copper alloy that comply with the European ELV (End of Life Vehicles) regulations that control the use of lead. The overlay and copper alloy that the Company developed have either the same level or an even greater level of performance compared to current overlays and alloys, including even those that contain lead.

Technological alliances
Licensing-out (as of Mar. 2007)

Partner	Country	Technology	Contract	Contract Period
Bimetal Bearings Limited	India	Manufacturing technology for bearing metal	1.Provision of technological information and know-how 2.Licensing of industrial property rights	July 12, 2000- July 11, 2007

2006 JSAE Automotive Engineering Exposition

<PK1/CX4>:Bearing for high loaded engines (image)
-This bearing is used for the piston bush.
-The product received the 56th "Technology Development Award" from JSAE.
<Features>
-Fatigue resistance comparable to a sputtered bearing
-Less than half of sputtered bearing cost
-Lead free three-layer bearing structure

1) Lead-free to meet ELV regulations
-Bismuth is used on the first layer and silver on the second layer
2) Improved performance to meet Euro IV
<Features>
Overlay
The thin film and pyramid-shape surface have improved seizure resistance. Silver is used on the second layer.
-Alloy layer
The copper alloy layer with excellent seizure resistance is used.

Other lead free materials
<Aluminum alloy>
-High performance lead free alternative bearing<A23X> (Image)
-Wear and seizure resistance bearing <A66T>
This aluminum alloy bearing has superior wear resistance and anti-seizure property to conventional aluminum materials (Applicable to bushes as well)

<Polymer Dry-bearing>
-Wear resistance low friction bearing <DDK05> (Image)
This lead free dry-bearing has equal performance to conventional leaded polymer materials

Investment Activities

The Company made a capital investment of 9,231million JPY in total in fiscal year 2006 that ended March 2007.

Capital investment in the automobile bearing metal business

(1) Facilities specialized in processing: 3,749 million JPY

Domestic market: Capital investment for a production launch at Daido Plane Bearing Co., Ltd., which specializes in producing automobile bearing metal.
Overseas market: Capital investment for a production launch at Daido Metal Czech s.r.o., etc.

(2) Production facilities producing bimetal: 901 million JPY

Domestic market: Capital investment at the Company and NDC Co., Ltd.
Overseas market: Capital investment at Daido Metal Bellefontaine L.L.C.

These investments were aimed at enabling the Company to quickly expand the production capacity of bimetal to respond to the growing volume of bimetal being used.

New equipment installations (Extracted from the automobile bearing metal division)

Purpose of Equipment Installation	Estimated amount (in million JPY)	Project Period		Capacity increase on completion
Purpose of Equipment Installation	Estimated amount (in million JPY)	From	To	Capacity increase on completion
Daido Metal Co., Ltd.
-No.1 Company Inuyama Plant (Inuyama City, Aichi Pref., Japan)
To upgrade manufacturing equipment producing half metal	166	Oct. 2005	Dec. 2007	-
-No.3 Company Gifu Plant (Gujo City, Gifu Pref., Japan)
To construct new manufacturing equipment for roll bushes	196	May. 2007	Mar. 2009	About 12% increase in roll bush production capacity
To construct new manufacturing equipment for roll bushes	178	May. 2007	Mar. 2009	About 12% increase in roll bush production capacity
To construct new manufacturing equipment for roll bushes	159	Nov. 2005	Sep. 2007	About 12% increase in roll bush production capacity
-Bi-metal production plant (Inuyama City, Aichi Pref., Japan)
To add a bearing material production line	380	Jan. 2007	Dec. 2007	About 5% increase in bearing material production capacity
To add a bearing material production line	274	Jan. 2007	Dec. 2007	About 5% increase in bearing material production capacity
To add a bearing material production line	168	Dec. 2006	Dec. 2007	About 5% increase in bearing material production capacity
To add a bearing material production line	151	Jan. 2007	Dec. 2007	About 5% increase in bearing material production capacity
NDC Co., Ltd.
-Narashino Plant (Narashino City, Chiba Pref., Japan)
To upgrade manufacturing equipment producing half metal	80	Dec. 2006	Jul. 2007	About 5% increase in half metal production capacity
To add plating equipment for half metal	200	Jun. 2007	Dec. 2007	About 5% increase in half metal production capacity
Daido Plane Bearing Co., Ltd.
-Seki Plant (Seki City, Gifu Pref., Japan)
To add manufacturing equipment for half metal	634	Apr. 2007	Dec. 2007	Associated with operation start at new plant
Daido Metal Bellefontaine L.L.C.
-Bellefontaine Plant (Ohio, USA)
To add a new aluminum bearing material production line	161	Apr. 2006	Sep. 2007	About 5% increase in bearing material production capacity
To add manufacturing equipment for half metal	308	Oct. 2007	Dec. 2007	About 8% increase in half metal production capacity
Daido Metal Czech s.r.o.
(Bruno, Czech Republic)
To construct new manufacturing equipment for roll bushes	85	Sep. 2006	Aug. 2007	For operations launch at new subsidiary
To construct new manufacturing equipment for roll bushes	128	Sep. 2006	Aug. 2007	For operations launch at new subsidiary
To construct new manufacturing equipment for roll bushes	150	Sep. 2006	Sep. 2007	For operations launch at new subsidiary
To construct new manufacturing equipment for roll bushes	170	Jul. 2006	Sep. 2007	For operations launch at new subsidiary
To construct new manufacturing equipment for roll bushes	109	Jan. 2007	Sep. 2007	For operations launch at new subsidiary
To construct new manufacturing equipment for roll bushes	128	Sep. 2007	Apr. 2008	For operations launch at new subsidiary
To construct new manufacturing equipment for roll bushes	150	Apr. 2008	Oct. 2008	For operations launch at new subsidiary