Financial Overview

(in million JPY)	FY2006	FY2005	Rate of change (%)	Factor
Overall
Sales	497,396	451,911	10.1	The Company put highly sophisticated products in the market, strengthened its sales structure in and outside Japan, and enhanced its production capacity. As a result, sales increased year-on-year.
Operating income	21,069	21,947	(4.0)	Operating income was down due to materials price hikes chiefly those for natural rubber and petrochemical products.
Ordinary income	20,084	19,015	5.6	Ordinary income increased, thanks to favorable currency translation creating gains and a rise in the dividend income received.
Current net income	16,363	21,447	(23.7)	Current net income deteriorated due to there being no tax benefits in connection with the depreciation in value of the stock shares of its U.S. subsidiary, which the Company was able to record in the previous fiscal year.
Tire Operations
Sales	372,793	335,802	11.0	Production of trucks decreased in Japan, while that of passenger cars increased. Under this situation the Company conducted active sales promotions, which resulted in a rise in sales compared to those of the previous fiscal year, both in terms of units sold and the volume of tires installed on new cars.
Operating income	14,670	18,109	(19.0)	Operating income was down, being negatively affected by materials price hikes for natural rubber, petrochemical products and others.

Incorporation of new companies

-China
In August 2006 the Company's Chinese affiliate, Suzhou Yokohama Tire Co., Ltd. held a groundbreaking ceremony. The affiliate is located in Suzhou, China and produces steel radial tires for TBs (trucks and buses). 
>>> See Investments for further details

-India
The Company announced that it will establish a wholly-owned sales company in India in January 2007. The new company, "Yokohama India" headquartered in New Delhi, will sell tires for the time being, possibly starting production of tire and rubber products in the future as a management company. It will be capitalized at 50 million yen and start the operation employing about 10 people. Sales target for 2007 will be 300 million yen. The Company has been marketing automotive tires in India through an agent in Singapore, but will improve infrastructure for the production and sales expecting strong needs for vehicles in India in the near future. (From an article in the Nikkan Jidosha Shimbun on Oct. 6, 2006)

Contracts
The Company has announced the company's flagship series tire has been approved by the Audi AG as an original equipment tire for the new S8 model. The S8 is the first model for Audi to run with factory-fitted Yokohama tires. The new tire is specially designed based on the ADVAN Sport (V103S), which has a high-speed stability even while running at 300km/h or faster. The ADVAN Sport has also been adopted by Bentley's "Continental" series or Porsche''s "911 Carrera 4" as original equipment tires. (From a story in the Nikkan Jidosha Shimbun on Jul. 25, 2006)

In September 2006, the Company announced that its flagship tire brand, the ADVAN Sport (V103S), which is marketed globally, has been approved by Brabus GmbH of Germany to be mounted on the Brabus Rocket. Tires from Yokohama Rubber have also been approved for mounting on the BRABUS MV12, which is a type of sport utility vehicle (SUV).

Alliance
Yokohama Europe GmbH, a subsidiary of the Company, announced it has reached an agreement with Bandag NV, a subsidiary of a U.S. leading retreader, Bandag, Inc., on marketing collaboration throughout Europe. Collaboration between the Company and Bandag began in the U. S. and some European nations in the 1990's, which will be expanded throughout Europe. (From an article in the Nikkan Jidosha Shimbun on Sep. 25, 2006)

Business plan
The Company will make full-fledged efforts to promote its flagship sports tire brand, "Advan," as original equipment tires toward automakers. The tire supplier intends to improve the image of the Advan brand by recommending it for high performance models and luxury cars. Since 2005 the Company has promoted the Advan brand worldwide as a global flagship and recently supplied its tires for Bentley "Continental GT," Porsche "911 Carrera 4" and Lexus "GS430." Through increasing applications to such luxurious, high-performance, volume production models, the Company intends to enhance the brand image of the "Advan." (From a story in the Nikkan Jidosha Shimbun on Apr. 24, 2006)

Environmental Activities
The Company announced all of its eight domestic production operations achieved "complete zero emission" by March 2006, one year ahead of the original plan. The rubber supplier had promoted "zero emission" since April 2001 to reduce landfill disposal to less than 1 percent of waste generated from its operations and achieved it at all its domestic production operations by March 2005. It has continued its efforts for "complete zero emission" and was successful at three plants by September 2005. The Company now aims to achieve 100% recycling ratio by the end of FY 2010.(From a story in the Nikkan Jidosha Shimbun on Apr. 15, 2006)

The Company reported that its greenhouse gas emissions during the forth quarter of fiscal 2005 of its all domestic facilities were reduced by 8% from the base year, overachieving Japan's reduction target of 6% stipulated in the Kyoto Protocol. In the first quarter of fiscal 2006 (April to June 2006), the Company succeeded in reducing the emissions further down to minus 10%, and therefore, it is expected to overachieve the protocol target in the full fiscal year 2006 as well. The Company set its own goal of reducing greenhouse gas emissions by more than 12% from the base year by 2010, and has been developing several activities such as establishment of a scheme to calculate total net volume of reduced gases and a specific organization to address the project. So far, the Company has introduced a high-performance co-generation system, promoted the use of fuel gas instead of fuel oil, and applied other comprehensive energy-saving initiatives. (From a story in the Nikkan Jidosha Shimbun on Jul. 20, 2006)

The Company announced that it started in January 2007 a newly installed cogeneration (combined heat and power) system at Shinshiro Plant, its main tire manufacturing plant in Aichi Prefecture. The equipment utilizes LNG (liquefied natural gas), generates 7,230 kilowatts and is expected to decrease the CO2 emission by 22% compared to the prior operation without the cogeneration system. As the Company has already introduced the clean energy cogeneration system to its plants at Hiratsuka, Mishima and Mie, it has completed the system introduction to its major tire manufacturing operations in Japan with this Shinshiro Plant. According to the Company, it is now possible to achieve its FY 2006 reduction target of total greenhouse gas emissions. (From an article in the Nikkan Jidosha Shimbun on Feb. 02, 2007)

R&D Expenditure

(in million JPY)		FY2006	FY2005	FY2004
Overall		14,649	14,557	14,265
By segments	Research Headquarters	1,390	1,359	1,257
	Tire Operations	8,932	9,120	9,030

R&D Structure
<R&D Profile> 
-Research headquarters: Mainly develops new materials, simulation technology, analysis technology, technology to respond to environmental issues, and technology for IT applications.
-Tire business: R&D activities to make compound materials and fully utilize advanced simulation technology.

<Research facilities>
-RADIC, a research and development center at the Hiratsuka factory, is the main facility. The Company is working on developing new technology through using equipment such as supercomputers, electronic microscopes, ESCA (surface analysis device for materials) and centrifugal separators.
-The Company conducted tests using real vehicles at its integrated tire testing facility D-PARC and another tire testing facility for the winter T*MARY.

New Technology
The Company developed a technology to simulate the cavernous resonance that occurs inside of tires when they are actually running on roads. Cavernous resonance is one of the causes of tire noise. This new technology further strengthens the Company's Multiscale Simulation, which was unveiled in 2005 as the third-generation fundamental technology used to design tires. Analyzing cavernous resonance has only been possible when tires are not in motion. However, with this new technology, the Company is able to analyze cavernous resonance with the tires actually running. Based on this new technology, the Company anticipates that it will be able to develop tires that can be made to run with less noise.  (From a press release on Jun. 29, 2006) 

In addition, the Company developed a technology that dramatically improves the design of tire materials, leading to a higher level of use for its Multiscale Simulation. Until now, the Company's Multiscale Simulation has been possible only on a one-way basis, meaning that micro scale design of materials is being applied to macro scale driving simulations. This new technology, however, enables estimates to be made interactively so that estimates made on a macro scale can be utilized on a micro scale. This enables the R&D people to simultaneously study both tire characteristics and the structures of the materials used, dramatically improving the precision of tire design. (From a press release on Jun. 29, 2006)

The Company has verified its high noise-reduction effect on a "multifunction elastic pavement" it paved experimentally in front of the Zama City Hall on Route 17 in Kanagawa Prefecture. The development project has been jointly promoted by the Company and The Nippon Road Co., Ltd. as a measure to control road noise. The "multifunction elastic pavement" is a technology to bond and harden an aggregate composed of rubber crumb obtained by pulverizing waste tires and quartz sand with the use of a urethane resin. Numerous cavities inside the pavement generate high elasticity resulting in a reduction in tire noise and a high noise-absorbing effect. (From an article in the Nikkan Jidosha Shimbun on Jan. 15, 2007)

The Company has established a technology for recycling and mass producing materials used to manufacture tires and other rubber products, utilizing vulcanized rubber crumbs collected during the production process of rubber products. Starting January 2007, the Company , as the first attempt in the industry, will launch a full-scale, in-house mass production program of recycled rubber. The recycled rubber processed with this newly developed recycling technology has outstanding advantages. It enables the company to recycle rubber materials of higher quality and its quality won't easily deteriorate in the use of tire products and conveyer belts, compared with other conventional products. (From a press release by the company on Jan. 24, 2007)

Technology Licensing Contracts Involving Tire Operations (as of Mar. 2007)

Counter party	Details	Effective from:	Will expire in:
Continental AG, Germany	Licensing of patents and production technologies regarding tires for trucks and buses	May 21, 1990	Dec. 31, 2009
Toyo Tire & Rubber Co., Ltd., Japan	Licensing of patents and production technologies regarding tires for trucks and buses	Aug. 2, 1990	Dec. 31, 2009
Continental AG, Germany	Licensing of patents and technology information regarding vehicle tires	Apr, 1, 2002	Mar. 31, 2012

Licensing Agreements Involving Tire Operations (as of Mar. 2007)

Counter party	Details	Effective from:	Will expire in:
Continental AG, Germany	Licensing of patents and production technologies regarding tires for trucks and buses	May 21, 1990	Dec. 31, 2009
Toyo Tire & Rubber Co., Ltd., Japan	Licensing of patents and production technologies regarding tires for trucks and buses	Aug. 2, 1990	Dec. 31, 2009
Continental AG, Germany	Licensing of patents and technology information regarding vehicle tires	Apr, 1, 2002	Mar. 31, 2012

Capital Investment

(in million JPY)	FY2006	FY2005	FY2004
Overall	40,600	29,000	27,500
Tire Operations	37,000	25,600	22,600

- The Company invested 13,100 million yen to enhance equipment and improve its productivity and the quality of its products.

- At Yokohama Tire Manufacturing (Thailand), the Company invested 10,900 million yen to install new production equipment for manufacturing tires used on passenger cars and light trucks.

- The Company invested 5,500 million yen to enhance the equipment used to manufacture tires for passenger cars at Yokohama Tire Philippines, Inc.

Overseas Investments
-Vietnam
The Company announced that it will begin constructing a new bias tire plant near Ho Chi Minh City, Vietnam, investing 1 billion yen in total. The construction will begin in June 2006 and the operation will start in June 2007. It's production capacity will be enlarged to 3,100 tons a year on a new rubber consumption basis. The new plant will produce industrial vehicle tires for the Japanese market and mini spare tires for Japanese car manufacturers as well as traditional bias tires for the Vietnamese market. (From a story in the Nikkan Jidosha Shimbun on May 22, 2006)

-China
The Company announced that its Chinese production affiliate, "Suzhou Yokohama Tire Co., Ltd., which is located in Suzhou, China for production of steel radial tires for trucks and buses (TB), held a groundbreaking ceremony on August 11, 2006 in Suzhou New District, where the affiliate plans to construct its plant. Suzhou Yokohama Tire Co., Ltd. was established in April 2006 with a 100% capitalization by the Company's Chinese holding company "Yokohama Rubber (China) Co., Ltd." The new company, which is capitalized approximately 9.3 billion yen and scheduled to start production of 350,000 tires a year, will be the fourth TB-use steel radial tire production facilities of the Company's group following Japan, the U.S. and Thailand. (From an article in the Nikkan Jidosha Shimbun on Aug. 26, 2006)

Plans of construction of new facilities (tire operations)

Name and Location	Business	Expected Investment (millions of yen)	Started in:	Expected to Complete in:	Increased Capacity after Completion
The Yokohama Rubber Co., Ltd.
Hiratsuka Plant (Kanagawa, Japan)	Manufacture	4,463	Apr. 2006	Mar. 2008	-
Mie Plant (Mie, Japan)	Manufacture	5,245	Apr. 2006	Mar. 2008	-
Mishima Plant (Shizuoka, Japan)	Manufacture	3,077	Apr. 2006	Mar. 2008	-
Shinshiro Plant (Aichi, Japan)	Manufacture	15,566	Apr. 2006	Mar. 2008	-
Onomichi Plant (Hiroshima, Japan)	Manufacture	5,326	Apr. 2006	Mar. 2008	-
Yokohama Tire Corporation
Salem Plant (Virginia, USA), etc.	Manufacture and others	3,070	Apr. 2006	Mar. 2008	-
Yokohama Tire Manufacturing Thai
Headquarters and Plant (Rayong, Thailand)	Manufacture and others	7,458	Apr. 2006	Mar. 2008	1.4 million units of passenger car/light truck tires
Hangzhou Yokohama Tire Co., Ltd.
Headquarters and Plant (Zhejiang Province, China)	Manufacture and others	2,971	Apr. 2006	Mar. 2008	750 thousand units of passenger tires