Financial Overview

( in millions of won )

	FY2006	FY2005	Rate of Change
Sales	2,063,766	2,003,600	3.0%
Operating income	174,535	230,702	(24.3%)
Ordinary income	229,535	282,681	(18.8%)
Net income	170,173	213,775	(20.4%)

Overseas
-Hungary
In July 2006 Hankook Tire held a ceremony marking the start of construction of a tire plant in Dunaujvaros in the suburbs of Budapest, the capital of Hungary. The new plant is scheduled to be constructed on a site of approximately 528,000 square meters at a total cost of 500 million euros. 

>>> See Investment for details.

-China
In May 2006 the Company established a third plant with an annual production capacity of 2.5 million tires within the premises of its Jiaxing plant, located in Zhejiang Province. The plant already started commercial operations. 

>>> See Investment for details.

Contracts
-Audi
The Company announced that the supplier and Audi have reached a technological agreement under which the Company will supply tires for the Audi A6L and A4 medium-size luxury sedans, starting in June 2007. It will provide Audi with some 90,000 VENTUS S1 evo tires (225/50R16Y, 225/50R17Y), which offers excellent performance in high-speed driving. Building on this contract, the tire maker intends to expand business for upscale models. (Based on a press release by the company on Dec. 14, 2006)

-VW
It has been decided that the Company will be installed on popular models of VW "Golf" and "Bora" on the European market. The Company will supply VW with 440,000 high performance UHP tires for the Golf and 100,000 for the Bora a year, disclosed a company spokesman. Tires to be supplied will include "Ventus Prime K105" and "Optimo K405" developed and desinged for the European market. (Based on a press release by the company on Feb. 8, 2006)

-GM (North America)
In June 2006 the Company started supplying tires for the Chevrolet Cobalt. It also supplies ultra high-performance (UHP) tires for the Pontiac G6 and Saturn Aura. During 2006 the Company supplied two million tires for GM in total.

-Ford
During 2006 the Company supplied 3.5 million tires in total, a large increase from the 170,000 tires it supplied in 2004.

-Domestic automakers
In 2006 the Company supplied approximately 9.23 million tires to major Korean automakers, including Hyundai, Kia, GM Daewoo and Renault Samsung. From 2007 the Company plans to supply 90,000 UHP tires a year for the Hyundai Sonata, built at Hyundai's plant in Alabama. In addition, Hankook Tire will deliver 120,000 SUV tires a year to Kia's Slovakian plant. 

-ITEC (International Truck & Engine Corporation)
In April 2006 the Company concluded an agreement with ITEC to supply 120,000 tires a year, to the company, which is a truck and bus maker, with which Hankook tire successfully launched an OE business agreement to supply radial tires for trucks and buses.

R&D Structure

Facility	Location
Main R&D Center	Daejeon, Korea
Akron Technical Center	Ohio, USA
China Technical Center (CTC)	Jiaxing, Zheziang Province China
Europe Technical Center (ETC)	Hannover, Germany
Japan Technical Liaison office (JTC)	Osaka, Japan

In May 2006 the Company established an R&D center near its Jiaxing plant in  China to support in developing products to meet the needs of the Chinese market and support in evaluating OE tires to be supplied to automakers operating in China. The center will have about 90 researchers.

R&D Expenditure

( in millions of won )

-	FY2006	FY2005	FY2004
R&D Expenditure	74,284	72,082	60,295
% of sales	3.6%	3.6%	3.3%

R&D achievements (FY2006)
The Company became the first maker of eco-friendly tire in Korea. It announced on Apr. 10, 2006 that it has developed Ultra Fuel Efficiency Tire "FX Optima" to be commercialized in the second half of 2006. Compared with existing tires of the same standard, the new tire is 15% lighter in weight and has over 25% less rolling resistance. The Company says that the tire improves fuel efficiency by 3% at maximum. (Based on a press release by the company on Apr. 10, 2006)

Recent R&D achievements

Projects	Term	Results
Projects it commissioned
Research on separating fuel cell plates	Dec. 2001 - Dec. 2004	Conducted research on materials and molding processes to develop carbon composite separating plates used for micro molecule fuel cells
Development of solution-polymerized SBR for tires	Sep. 2002 - Aug. 2005	Developed new synthetic rubber that improves anti-abrasion performance and fuel efficiency
Rationalizing design of 2-piece wheels	Oct. 2002 - Nov. 2004	Conducted research on the existing method used to carry out analysis on 2-piece wheels and also used to new research technology for OEMs
Projects on commission
Research on ride quality and handling analysis	Mar. 2003 - Feb. 2004	Development of a vehicle model was completed
Research on tire wear and tear	Aug. 2003 - Jul. 2004	Developed technologies for basic research on tire wear and tear and on designs to combat abrasion
Research on water walls on the tire surfaces	Aug. 2003 - Jul. 2004	Developed a program to analyze water wall surface using the finite difference method
Research on tire bid and belt durability	Aug. 2003 - Jul. 2004	Established a method to predict tire durability
Tire tread co-extrusion and die design	Jan. 2004 - Dec. 2004	Analyzed balance of the flow of rubber within extrusion machines
Wear and tear characteristics of tread rubber block	Apr. 2004 - Jun. 2005	Conducted research using 3D analysis on rubber blocks when they come into contact with the ground.
Analysis of water wall on tire surface using LS-DYNA	Sep. 2004 - Aug. 2005	Established technologies on tire design dealing with water wall on tire surfaces
Analysis of tire resistance, taking into account the growth of cracks at interface affected by temperature	Sep. 2004 - Aug. 2005	Conducted research on calculated tire resistance in terms of dynamics, and proposed new design methods to improve durability
Research on developing a rating index for the degree of shock on tires (1st)	Jan. 2005 - Jun. 2005	Verified the adequacy of developing a rating index for vehicle ride by analyzing the relationship between the subjective evaluation of shock on tires and the data which was measured
Research on setting a sound-quality index based on sensitivity engineering	Jan. 2005 - Dec. 2005	Developed a system to evaluate the characteristics of tire noise in order to test how humans react to tire noise.
Tire tread co-extrusion and die design (2nd)	Jan. 2005 - Dec. 2005	Estimated the co-extrusion form of tire treads and analyzed bending in side walls
Research on the change in tire performance when increasing the size of tires, taking into account the degree of abrasion that braking causes	Mar. 2005 - Feb. 2006	Developed a method to evaluate the braking performance itself  and the change in braking performance of vehicles when increasingly larger tires are mounted.
Analysis on the reasons why creep groan occurs and the best solution to prevent it (1st)	Apr. 2005 - Mar. 2006	Determined the characteristics of the abrasion coefficient by balancing the content of the main components of friction materials
Research on developing a rating index for the degree of shock on tires (2nd)	Dec. 2005 - May. 2006	Developed an objective method to evaluate shock on tires
Interlayer shear of truck and bus radial tires when one axis becomes tensile	Dec. 2005 - Nov. 2006	Researched interlayer shear caused by the design of belts in radial tires used on trucks and buses. Also researched on improving the durability of radial tires
R&D centers
New tread pattern for European models	Mar. 2003 - Jan. 2004	Developed new ultra high-performance tires for European models
Research on the adhesion of rubber and metal	May. 2003 - May. 2004	Researched the change in the joints where rubber and metal are adhered together.
Improving the durability of truck and bus radial tires	Jun. 2003 - May. 2004	Conducted research to improve tire durability by redesigning the bids of truck and bus tires
Research on the technologies of OE ultra high-performance (UHP) tires	Mar. 2004 - Nov. 2005	Establishing basic technologies to  encourage the development of UHPs as OE
Studies to improve capacity of silica compound  (2nd)	Feb. 2004 - Dec. 2005	Ensuring for a sufficient amount of silica compound; establishing related basic technologies
Projects to improve competitive strength	Feb. 2004 - Dec. 2005	Formulated a manual to improve and  encourage product competitiveness; improving effectiveness by selecting common items of CEP
Research on roll overs	May. 2004 - Mar. 2006	Developed a method for and a way to analyze roll overs
Research on on-center performance	Jul. 2005 - Jun. 2006	Established  a system to measure on-center performance of vehicles and developed a testing method that takes into account driving conditions
Developing BOB (Best of Best) new tread pattern	Jan. 2004 - Nov. 2006	Established a mold profile to improve the NVH performance of low profile tires and also their structural design

R&D