Musashi Seimitsu Industry Co., Ltd. Business Report FY2009

Business Highlights

Financial Overview

(in millions of JPY)
  FY2009 FY2008 Rate of
Change(%)
Factors
Overall
Sales 107,816 145,499 (25.9) 1)
Operating income 5,616 8,589 (34.6) -
Ordinary profit 5,898 5,856 0.7 -
Net income 3,561 (4,381) - -

Factors
<Japan>
-Sales drastically declined, as the Company's major customers cut their production volumes.

<North America>
-Demand for four-wheel vehicles declined; consumers migrated to small, compact cars; and demand for all-terrain vehicles (ATVs) declined.

<Europe>
-Sales of automotive products to the Company's major customers drastically declined and the appreciation of the Japanese yen against the euro created negative currency translation.

Supply Agreements

-The Company announced that it won a contract to supply automatic transmission gears (ATGs) for four-wheeled vehicles with 6-speed ATs and light weight differential assemblies from Honda, and that it has already started production and delivery. The differential assemblies will be installed in the automaker's V6 engines for the North American market. The assembly has achieved weight savings of 10-15%, mainly due to the introduction of the Company's highly durable gears, when compared with conventional product. (From a press release on Oct. 30, 2009)

-The Company announced that it won a contract to supply camshaft assemblies to be installed in Hyundai's L4 engines for the North American market. The Company has been making preparations for the production in Japan as well as at Musashi Auto Parts Canada Inc. (MAP-CA), its subsidiary in Canada. The camshaft assembly has achieved weight savings of approx. 30% when compared with conventional forged camshaft assembly. (From a press release on Oct. 30, 2009)

-The Company announced that it won a contract to supply differential gears to be installed in a new model to be released in 2010 by Ford. The gears, 400,000 units per year, will be delivered, beginning early 2010. (From a press release on Oct. 30, 2009)

-The Company announced that its Thai unit - Musashi Auto Parts Co., Ltd. (Thailand) - won a contract to supply differential gears to be installed in four-wheeled vehicles produced by Suzuki Motor. The gears, 140,000 units per year, will be shipped through Dana, starting the spring of 2010. (From a press release on Oct. 30, 2009)

Business Restructuring

-The Company completed developing light-weight differential assemblies for automobiles. The new assemblies offer a 10 to 15 percent reduction in product weight, while offering the same level of product performance achieved by conventional products. The improvement was made possible by using the Company's proprietary high-strength gear and modifying the case design and assembly method of existing products. (From a press release, May 7, 2009)

-The Company said that it will close its wholly-owned subsidiary "Musashi South Carolina Inc. (MSC)" based in South Caroline, U.S.A., which manufactures and sells automotive parts. The Company has been taking such measures as consolidation of auto parts operations, reorganization of production facilities and optimization of workforce arrangement as part of plans to streamline its operations in North America with the aim of establishing a slim and solid corporate structure that is capable of generating profit. Liquidation of MSC was decided because transfer of its operation to other subsidiaries turned out to be possible. The subsidiary will cease sales operations in Dec. 2009 and start liquidation procedures. (From an article in the Nikkan Jidosha Shimbun on Aug. 26, 2009)

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

R&D

R&D Expenditure

(in millions of JPY)
  FY2009 FY2008 FY2007
Overall 1,240 1,346 1,324

R&D Structure

Division Business in charge Number of engineers R&D cost
Development Div. No.1 -Developing new suspension systems and researching new applications for existing products
-Maintaining and administering patents
-Management of product drawings
31 303 million JPY
Development Div. No.2 -Developing new car and motorcycle drivetrains and researching new applications for existing products
-Developing advanced technology for next-generation products
43 573 million JPY
Production Technology Dept. -Conducting R&D work on new production technology 48 52 million JPY
Production technology Dept., Technology Div., Kyushu Musashi Seimitsu Co., Ltd. -Conducting R&D work on production technology for motorcycle and general-purpose gears, camshafts, etc. 35 310 million JPY

Product Development

-The Company completed developing light-weight differential assemblies for automobiles. The new assemblies offer a 10 to 15 percent reduction in product weight, while offering the same level of product performance achieved by conventional products. The improvement was made possible by using the Company's proprietary high-strength gear and modifying the case design and assembly method of existing products. (From a press release, May 7, 2009)

-The Company announced that it has almost established new production methods which will reduce the weight and cost of major engine and drivetrain components. They will reduce the weight of automotive camshafts and differential units by 10 to 30%. The Company aims to increase orders by proposing new products made by the new methods to automakers working to improve vehicles' fuel efficiency. The new method for automotive camshafts is to assemble a cold-forged cam nose into a shaft. Development for its application to the new camshaft model is in the final stage. Compared to the conventional method of casting and then machining a material in which a cam and a shaft are integrated, the new method will cut the weight by approx. 30%, while increasing the intensity and reducing the cost. By forging the cam nose, integrated manufacturing of camshafts will be achieved in-house. The Company will make further cost cutting efforts for winning orders. (From an article in the Nikkan Jidosha Shimbun on May 9, 2009)

Development of suspension system components
-The Company’s suspension system business suffered the impact of the economic crisis because the Company’s customers were forced to revise their development schedules. But the Company developed highly functional ball joints that are smaller, lighter and more durable than conventional joints and require lower torque. The Company also started to prepare for commercial production of the new joints. Particularly, the Company completed development of lighter aluminum arms for its European customers, making use of its analysis and simulation technology based on a CAE (computer-assisted engineering) system.

Development of engine system components
-The Company's engine system component sector is now developing a new, assembled camshaft that features the Company’s proprietary methods for cam-forming and linking.

Development of drivetrain system components
-The Company focused on developing light-weight differential assemblies that boast cases having an optimum shape, being designed by a CAE system. The new assemblies have smaller and high precision bevel gears, featuring a unique three dimensional shape making them superior to others.

Contracts for Technical Assistance

(As of Mar. 31, 2010)

Name of the partner company
(Country)
Product items Contents
of contract
Term
Musashi Auto Parts Michigan Inc.
(USA)
Special parts customized and then produced at the time they are needed for vehicles, motorcycles, and general-purpose products 1. Technical assistance for production, assembly, and marketing of customized parts
2. Providing industrial ownership rights
1994.02.01-1999.01.31
Automatically renewed annually after the term
Musashi Auto Parts Co., Ltd.
(Thailand)
Special parts customized and then produced at the time they are needed for vehicles, motorcycles, and general-purpose products 1. Technical assistance for production, assembly, and marketing of customized parts
2. Providing industrial ownership rights
1987.12.28-1992.12.27
Automatically renewed annually after the term
Musashi Auto Parts UK Ltd.
(UK)
Special parts customized and then produced at the time they are needed for vehicles, motorcycles, and general-purpose products 1. Technical assistance for production, assembly, and marketing of customized parts
2. Providing industrial ownership rights
1995.01.01-1999.12.31
Automatically renewed annually after the term
P. T. Musashi Auto Parts Indonesia
(Indonesia)
Special parts customized and then produced at the time they are needed for vehicles, motorcycles, and general-purpose products 1. Technical assistance for production, assembly, and marketing of customized parts
2. Providing industrial ownership rights
1996.05.08-2001.05.07
Automatically renewed annually after the term
Musashi Auto Parts Canada Inc.
(Canada)
Special parts customized and then produced at the time they are needed for vehicles, motorcycles, and general-purpose products 1. Technical assistance for production, assembly, and marketing of customized parts
2. Providing industrial ownership rights
1998.01.01-2002.12.31
Automatically renewed annually after the term
Musashi South Carolina Inc.
(USA)
Special parts customized and then produced at the time they are needed for vehicles, motorcycles, and general-purpose products 1. Technical assistance for production, assembly, and marketing of customized parts
2. Providing industrial ownership rights
2001.01.01-2005.12.31
Automatically renewed annually after the term
Musashi Hungary Mfg. Ltd.
(Hungary)
Special parts customized and then produced at the time they are needed for vehicles, motorcycles, and general-purpose products 1. Technical assistance for production, assembly, and marketing of customized parts
2. Providing industrial ownership rights
2001.01.01-2005.12.31
Automatically renewed annually after the term
Musashi do Brasil Ltda. (Brazil) Special parts customized and then produced at the time they are needed for vehicles, motorcycles, and general-purpose products 1. Technical assistance for production, assembly, and marketing of customized parts
2. Providing industrial ownership rights
5 years from
2008.11.01-2013.10.31
Musasi Auto Parts India private Ltd.
(India)
Special parts customized and then produced at the time they are needed for vehicles, motorcycles, and general-purpose products 1. Technical assistance for production, assembly, and marketing of customized parts
2. Providing industrial ownership rights
2003.04.01-2004.03.31
Automatically renewed annually after the term
Musashi da Amazonia Ltda.
(Brazil)
Special parts customized and then produced at the time they are needed for vehicles, motorcycles, and general-purpose products 1. Technical assistance for production, assembly, and marketing of customized parts
2. Providing industrial ownership rights
5 years from
2009.11.01-2014.11.01
Musashi Auto Parts (Zhongshan) Co., Ltd.
(China)
Special parts customized and then produced at the time they are needed for vehicles, motorcycles, and general-purpose products 1. Technical assistance for production, assembly, and marketing of customized parts
2. Providing industrial ownership rights
10 years from
2006.0101-
2015.12.31

Investment Activities

Capital Investment

(in millions of JPY)
  FY2009 FY2008 FY2007
Overall 6,669 12,646 13,303
facility for ball joints 251 598 1,204
facility for cam shafts 858 1,661 2,711
facility for gears and other parts 4,124 7,927 7,492

Production facilities for ball joints

-74 million yen to install new facilities at Musashi Hungary Mfg. Ltd.
-69 million yen to upgrade facilities at Musashi Auto Parts Canada Inc.
-65 million yen in order to set up production operations to handle new products at the Company's Akemi 1st. plant

Production facility for cam shafts
-185 million yen in order to set up production operations to handle new products at Musashi Auto Parts Canada Inc.
-179 million yen to increase production volume at Musashi Hungary Mfg. Ltd.
-94 million yen to install new facilities at the Horai plant

Production facility for gears and other parts
-1,011 million yen to increase production volume at Musashi Autoparts Co., Ltd.
-666 million yen to increase production volume and rationalize production operations at P. T. Musashi Auto Parts Indonesia
-116 million yen to install new facilities at the Ueda Plant

Investment Outside Japan

-The Company will enhance the production capacity at its Chinese unit - Musashi Auto Parts (Zhongshan) Co., Ltd. (MAP-CH). At MAP-CH, the Company plans to establish an integrated plastic product processing system for gears used in four-wheeled vehicles with automatic transmissions over the next 3 years, boosting the manufacturing capacity to 600,000 units per year. This move is in response to the increase in production and procurement volume in China by Honda Motors. MAP-CH, based in Zhongshan, Guangdong Province, is a wholly-owned subsidiary of the Company. (From a press release on Oct. 30, 2009)

Capital Investment Plan

(As of Mar. 31, 2010)

Region Planned investment
(million yen)
Major details and objectives of production facility
Japan 2,900 Setting up production operations to handle new products and strengthening product development capabilities
North America 1,000 Setting up production operations to handle new products and rationalization of existing facilities
Europe 150 Renewing existing production facilities
Asia 5,000 Strengthening and renewing its ability to handle production of new products, and enhancing its production capacity for producing motorcycle and automotive components
South America 950 Renewing and rationalizing existing facilities