Financial Overview

(in million USD)	FY2007	FY2006	Rate of change	Remarks
Overall
Sales	13,033	12,232	6.5%	Net sales in 2007 were a new record for the Company.Sales growth of 7% consisted of 3% from acquisitions of business, 3% from foreign exchange, amd 1% from organic growth.
Gross Profit	3,651	3,283	11.2%	Primarily due to sales growth, benefits from the Excel 07 program(*), benefits from integrating acquired busieness, continued productivity improvements
Net Income	994	950	4.6%	Net income in 2007 was new record for the Company. This increase was primarily due to higher sales.
Automotive
Sales	1,647	1,545	6.6%	The increase reflected a 3% increase from organic growth, 3% from foreign exchange, 1% from acquisitions of business.
Operating Profit	214	124	72.6%	Largely due to 52 million USD of net pretax costs in 2006 related to Excel 07 program, benefits from the Excel 07 program in 2007, and sales growth in 2007.
Truck
Sales	2,147	2,520	(14.8%)	The reduction in sales reflected a 18% decline in sales volume, offset by a 3% increase from foreign exchange.The decline in sales was due to a reduction in North American commercial production in 2007 from 2006.
Operating Profit	357	448	(20.3%)	Primarily due to reduction in sales.

* Excel 07 program : A series of actions taken in 2006 intended to address resource levels and opearationg performance in business that underperformed in 2005 and businesses that were expected to weaken during second half 2006 and 2007.

Acquisitions

The Company completed its purchase of the fuel components division of Saturn Electronics & Engineering, Inc. The division employs approximately 100 people at a facility in Oxford, Michigan, and had sales of approximately 28 million USD in 2006. The division manufactures fuel containment valves for vehicle safety in the event of vehicle rollover or accident impacts, as well as fuel shutoff valves to prevent splash back and vapor release during refueling. (From a press release on May 2, 2007)

-The Company has acquired Pulizzi Engineering, a leading manufacturer of AC power distribution, AC power sequencing, redundant power and remote-reboot power management systems. Terms were not disclosed. Pulizzi Engineering had 2006 sales of 12 million USD and is located in Santa Ana, California. (From a press release on Jun. 19, 2007)

Divestitures
The Company completed the sale of its Mirror Controls Division to funds managed by Englefield LLP for 111 million USD. (From a press release on Aug. 27, 2007)

Strategy
-Asia Pacific Region
The Company announced a sales goal of 1 billion USD in China by the end of 2010, more than doubling its current revenue in the country. Its goal is to increase sales in the Asia Pacific region to 2.5 billion USD. (From a press release by the company on Feb. 2, 2007)

R&D Expenditures

(in million dollars)	FY2007	FY2006	FY2005
Amount	335	315	279

-Over the past five years, the Company has invested approximately 1.4 billion USD in R&D.

Technological Alliance
The Company signed memorandums of understanding with three top universities in China respectively to sponsor research programs and develop advanced technologies for its core businesses. Under the agreements, it will cooperate with Zhejiang University in Hangzhou, Zhejiang, Huazhong University of Science and Technology in Wuhan, Hubei, and Xi'an Jiaotong University in Xi'an, Shannxi. The Company and the universities will develop technologies in advanced hydraulics systems, power electronics, power supply infrastructure and management, advanced powertrain, materials and renewable energies. (From a press release on Mar. 23, 2007)

PACCAR and the Company announced that they have entered into an agreement to jointly develop proprietary hybrid technology for heavy-duty commercial vehicles in North America. The new products will be introduced exclusively in Kenworth and Peterbilt trucks in the North American market, targeted for initial production by the end of 2009. (From a press release on Aug. 22, 2007)

Product Development
The Company announced that the its medium-duty hybrid power systems are now commercially available and will be ready for customer deliveries in 2008 on the chassis of several major North American commercial vehicle manufacturers. These include International Truck and Engine Corporation, Kenworth Truck Co., Peterbilt Motors and Freightliner. The announcement follows more than four years of development and 2 million miles of successful field-testing in North America, Europe and Asia. (From a press release on Aug. 9, 2007)