Financial Overview

(in millions of JPY)	FY2006	FY2005	Rate of Change	Factors
Overall
Sales	344,891	284,884	21.1%
Operating income	52,401	41,513	26.2%
Ordinary income	53,855	43,130	24.9%
Current net income	34,072	25,104	35.7%
Automotive
Sales	185,601	165,279	12.3%	See note
Operating income	33,199	29,356	13.1%

Factors
- Automotive
-Following fiscal 2005, the growth in demand in emerging markets and the price hikes in fuel had a positive effect on increasing Japanese and Korean automakers' production volumes. Sales of mainstay products including spark plugs, zirconia oxygen sensors increased at a healthy pace.
-Sales of ceramic glow pugs having properties enabling them to rapidly rise in temperature sold well in Europe and other industrial nations. These plugs are compliant with strict environmental regulations. Also selling well in Europe and other countries were universal air/fuel ratio sensors, wide-range temperature sensors, and some of the Company's other main products.
-The Company shipped more products than it had planned in the aftermarket sector, with high demand coming from growing markets such as Eastern Europe and Russia.


Domestic Business

- In Oct. 2006, the Company announced that it will expand its Miyanojo Plant in Satsumagun, Kagoshima Prefecture in order to increase its spark plug production capacity.

Overseas Business

- In Aug. 2006, the Company established a subsidiary in India for production and sales of spark plugs.

- In Nov.. 2006, the Company announced that it will dissolve a technical tie-up with Lectrolite (Pty) Ltd, a spark plug manufacturing company in Republic of South Africa, and establish a new manufacturing company through joint capital investment with Imperial Holdings Limited, the parent company of Lectrolite.

See Investment for details

Challenges for the future
<Automotive Division>
Spark Plugs:
The Company is working to raise profits in the new car market by conducting sales and promotional activities on high value-added plugs.

Glow Plugs:
The Company is working to make these plug its third largest profit-generating item in the automotive business through expanding its sales channels in the diesel vehicle market.

Sensor Business:
The Company is working to expand its share in both the gasoline- and diesel-vehicle markets by accelerating the speed of development activities and collaborating with its systems makers.

R&D Expenditure

(in millions of JPY)	FY2006	FY2005	FY2004
Overall	16,253	14,691	14,359
R&D expenditures, excluding costs for upgrading current products; and  applied research	2,841	2,844	2,840
Automotive	1,629	1,587	1,401

-The major sections conducting research and development activities are the multidiscipline laboratory, which is a part of the head office, and the technical divisions at each department. R&D personnel participate also in academic conferences as well as associations in both Japan and overseas, in addition to conducting joint research with universities and national research institutes.

<R&D activities of the Automotive Division>
The Company is working developing the following products:
Plugs:
- Spark plugs compatible with gasoline engines that have higher output levels; and bioethanol engines.
- Diesel engine glow plugs capable of responding to low compression.

Sensors:
- Several types of emission gas sensors including oxygen sensors and universal air/fuel ratio sensors.
- Several types of temperature sensors including wide-range temperature sensors.
- Sensors to detect the level of hydrogen in fuel-cells
- Sensors to detect hydrogen leaks

Other Areas:
- Development and commercialization of ignition units, aiming to achieve enhanced durability of plugs for gasoline engines
- Development of next-generation ASICs (specific purpose ICs) for universal air/fuel ratio sensors. These are equipped with an interface for in-vehicle control circuits.

<Main R&D results in FY2006>
Plugs:
- Development of spark plugs for next-generation direct injection gasoline engines and spray-guided direct injection engines.
- Development of glow systems to best control the temperature of glow plugs.

Sensors:
- Development of universal air/fuel ratio sensors for diesel engines.
- Development of oxygen sensors specialized in identifying downstream components of gas emitted from catalysts.

Other Areas:
- Development of small, next-generation ASICs with improved air/fuel ratio sensing accuracy; and a self-diagnosis function for universal air/fuel ratio sensors.

Capital investment

(in millions of JPY)	FY2006	FY2005	FY2004
Overall	29,271	26,919	13,955
Automotive	17,667	18,534	8,817

Domestic Business
The Company announced that it will expand its Miyanojo Plant in Satsumagun, Kagoshima Prefecture in order to increase its spark plug production capacity. The Company has earmarked about 7 billion yen to build an additional facility within the existing plant site for the production of spark plug insulators. The Company's second ceramic plant (total floor area: approximately 16,000 square meters) will raise its monthly insulator production capacity to 16 million units. The construction work will begin this month, with operations scheduled to start in April 2008. (From an article in the Nikkan Jidosha Shimbun on Oct.26, 2006)

Overseas Business
The Company announced the establishment of a subsidiary in India for production and sales of spark plugs. The new plant will start production by December 2007 to supply spark plugs to manufacturers of automobiles and motorcycled with the aim of producing about 15 million spark plugs a year in 2010. It is named "NGK Spark Plugs (India) Private Ltd," and capitalized at about 100 million yen wholly invested by the Company. The new subsidiary was established in August 2006 in the Bawal Industrial park in Haryana to the southwest of Delhi. (From an article in the Nikkan Jidosha Shimbun on Sep.29, 2006)

The Company announced that it will dissolve a technical tie-up with Lectrolite (Pty) Ltd, a spark plug manufacturing company in Republic of South Africa, and establish a new manufacturing company through joint capital investment with Imperial Holdings Limited, the parent company of Lectrolite. The new company will start operation in May 2007 to produce 20 million spark plugs in the first fiscal year. It will be established in the suburbs of Johannesburg with an investment of 30 million rands (about 0.5 billion yen). (From an article in the Nikkan Jidosha Shimbun on Nov.29 2006)

New facilities for the automobile related business etc. (As of March 2007)

Name Name of the business (Location)	Type of facility	Planned amount of investment  (million JPY)	Start	Planned completion	Increased capacity after the investment
Head Office factory (Nagoya-city, Aichi)	Spark plug manufacturing facilities	2,103	2007.03	2008.03	Note 1
	Research facilities	822	2006.10	2007.12	-
Komaki factory (Komaki-city, Aichi)	Plug and sensor-related parts manufacturing facilities	2,776	2007.03	2008.03	Note 1
	Research facilities	2,393	2006.10	2008.03	-
Miyakonojo Factory (Satsuma-gun, Kagoshima)	Spark plug insulator manufacturing facilities	6,806	2007.04	2008.06	Note 2
	Spark plug manufacturing facilities	2,092	2006.10	2008.03	Note 1
Ceramic Sensor Co., Ltd. (Komaki-city, Aichi)	Oxygen sensor production facilities (lease)	1,508	2006.10	2008.03	Note 1
Subsidiaries
NGK Spark Plugs (U.S.A.), lnc.	Spark plug and sensor manufacturing facilities	1,700	2007.04	2008.06	Note 3
Ceramica e Velas de Ignicao NGK do Brasil Ltda	Spark plug manufacturing facilities	1,162	2007.01	2007.12	Note 1
NGK Spark Plugs (India) Pvt. Ltd. (India)	Spark plug manufacturing facilities	623	2006.10	2007.12	Note 4
Nittoku Seisakujyo Satsuma Plant (Satsuma-gun, Kagoshima)	Spark plug parts manufacturing facilities	570	2007.04	2008.04	Note 1

Note 1: The increase in capacity is minimal, as the purpose of the capital investment is to renovate some production facilities and either eliminate or reduce some processes. As a result, it is difficult to estimate any increase in production capacity.
Note 2: Annual production capacity of spark plug insulators will increase by 60 million units.
Note 3: Annual production capacity of assembled spark plugs will increase by 20 million units.
Note 4: Annual production capacity of assembled spark plugs will increase by 15 million units.