Financial Overview

(in million JPY)	FY2006	FY2005	Rate of Change (%)	Factors
Overall
Sales	356,083	290,455	22.6	Total sales increased due to the substantial sales increase of industrial hydraulic equipments and the sales increase of automobile hydraulic snubbers.
Ordinary income	15,111	8,272	82.7	Income increased due to a substantial increase in sales, steel price hikes being passed on to the product sales prices, cost reduction initiatives, and positive currency translation due to the weaker yen, etc.
Current net income	6,959	2,917	138.6
Hydraulic products
Sales	345,539	278,696	24.0	Hydraulic snubbers: Profit increased by 16.6% year-on-year due to the increased sales of  products to be used for new automobiles manufactured in Japan whose production volume increased supported by strong export growth, as well as due to increased sales overseas in response to Japanese automakers expanding their production volume outside Japan, and  increased sales of products used for the after-market in Eastern Europe and North America.    Hydraulic equipment:  Profit increased by 20.9% year-on-year due to the rising volume of exports of automobile products from Japan, which are mainly power steering products, to the U.S. Big Three; and increased sales of CVT hydraulic pumps.
Operating profit	20,213	12,921	56.4

New Subsidiaries
The Company announced to turn Takako Industries INC, which is a manufacturer of components for hydraulic machinery located in Seika cho, Kyoto Prefecture, and 55.9% owned by the Company, into its wholly-owned subsidiary. It intends to bond relationship with Takata closer by making the company its 100% owned affiliate with the aim of fortifying competitiveness in the market of hydraulic machinery. Following approval at Takako's extraordinary shareholders meeting to be held on September 7, 2006, the transfer of stocks is to become effective on October 1. The exchange ratio will be 32.049 shares of Takako to 1 share of the Company. (From an article in the Nikkan Jidosha Shimbun on Aug. 25, 2006)

New Contracts
Audi (Germany) and KYB Suspensions Europe S.A. successfully developed a smaller and lighter Dynamic Ride Control (DRC)-a special shock absorber system that counteracts pitch and body roll movements-and installed it on the Audi "RS4" and "RS4 Avant. "The system was originally developed as "X-REAS" by Yamaha Motor Co., Ltd., which offers the licensing to KYB Suspensions Europe. The Toyota "4 Runner (Japanese model name: Hilux Surf) and the Audi "RS6" have already used this X-REAS technology, and the"RS4" is the third mass production model to adopt the technology. With the X-REAS system, the diagonally opposed shock absorbers are linked together hydraulically to control flow of oil pressure. The absorbers installed on the right front wheel and the left rear wheel, and those on the left front wheel and the right rear wheel are linked together. (From an article in the Nikkan Jidosha Shimbun on Jul. 13, 2006)

The Company delivered a system which consists of a steering gear used for hydraulic power steering and a vane pump, to GM Holden Ltd. in Australia. This is the first time for the Company to deliver the system to Australia.

Business Plan
The Company plans to increase the shock absorber sales in Europe by 20% from the previous fiscal year. KYB Europe GmbH, its subsidiary in Europe, set up a large distribution base in the northwest of Paris in April 2006 to reorganize its supply system intending to increase sales, in addition to opening a representative office in Moscow in January. By leading with sales expansion in Russia and East Europe, the Company aims to increase its aftermarket absorber sales across Europe by 700,000 units from 3.5 million units in FY 2005. (From an article in the Nikkan Jidosha Shimbun on Sep.15, 2006)

R&D Structure
-The Company conducted R&D activities mainly at its two technical research institutes, focusing on basic technology and product technology.
-The technical research institutes are mainly in charge of conducting basic research and developing new products. The plant engineering departments are in charge of development activities that improve product appeal such as enhancing performance and reducing costs, etc.

R&D Expenditure
-R&D costs at the hydraulic products division in fiscal year 2006 that ended March 2007 were 3,636 million yen.

Results of R&D Activities

Hydraulic snubbers
-The Company developed a tightly structured air suspension for the Lexus. This air suspension  can absorb the torsion generated when the vehicle is being steered.  This air suspension also improves steering performance and vehicle maneuverability,  and in addition, needs less space where it is installed on the vehicle.
 
Hydraulic equipment
-In the area of production engineering, the Company established an assembly line for CVT (Continuously Variable Transmission) vane pumps at KYB Kanayama Co. Ltd. This line is intended to improve the reliability of work done in automated processes as well as control contamination and traceability. In the cylinder bottom welding process, which had needed residual heat to prevent the weld from cracking, the Company made use of technology which prevents the weld from cracking without needing residual heat. The company put this technology to use at all the assembly lines that produce high-pressure cylinders. In addition, the Company developed a new system that uniformly manages production records for hydraulic motors, from the time materials are received up until the motors are shipped. And for its main product especially, base plates, the Company marks a two-digit code with laser beam that enables it to manage the production record of each piece.      

Other equipments
-The Company developed and marketed a drive recorder it calls "Kurumame", which graphically records the conditions before and after accidents occur, helping to analyze the causes of the accidents and contribute to safer driving.

R&D activities
-In the area of product technology, the Company developed an automobile hydraulic pressure active stabilizer system which controls the degree of both front and rear rolling resistance individually. The system responds according to what the the conditions were at the time the vehicle was in motion, improving kinematic performance and riding comfort.

-In the area of production engineering, the Company focused on the development of DLC (Diamond-Like Carbon) coating technology, which is designed to reduce frictional force in areas that are supposed to glide effortlessly. This new technology is four times more durable than conventional technology.

-The Company conducted joint-research activities with Tokyo University and Toyota Motor Corporation on suspension using electromagnetic power and energy regeneration.

Automobile-related licensing agreements (as of March 2007)

Contract party	Country	Subject	Details	Term
Kayaba-UMW Malaysia Sdn. Bdn.	Malaysia	Shock absorbers for automobiles, front forks and oil cushion units for two-wheeled vehicles	1. Licensing of industrial property right 2. Licensing of manufacturing and distributorship rights 3. Provision of technical expertise, information and know-how	Oct. 13, 1993 - Oct. 12, 2008
P. T. Kayaba Indonesia	Indonesia	Shock absorbers for automobiles, front forks and oil cushion units for two-wheeled vehicles	1. Licensing of industrial property rights 2. Licensing of manufacturing and distributorship rights 3. Provision of technical expertise, information and know-how	Mar. 18, 1994 - Jan. 31, 2008
Zhuzhou Nanfang Yamaha Shock-Absorber Co., Ltd.	China	Front forks and oil cushion units for two-wheeled vehicles	1. Licensing of industrial property rights (excluding trademark) 2. Licensing of manufacturing and distributorship rights 3. Provision of technical expertise, information and know-how	Sep. 15, 1995 - Sep.14, 2010
KYB (Thailand) Co., Ltd.	Thailand	Shock absorbers for automobiles, front forks and oil cushion units for two-wheeled vehicles	1. Licensing of industrial property rights 2. Licensing of manufacturing and distributorship rights 3. Provision of technical expertise, information and know-how	Feb. 01, 1996 - Jan. 31, 2008
KYB Manufacturing North America, Inc.	USA	Shock absorbers for automobiles	1. Licensing of industrial property rights 2. Licensing of manufacturing and distributorship rights 3. Provision of technical expertise, information and know-how	Oct. 01, 2001 - Sep. 30, 2007
Gabriel India Limited	India	Shock absorbers for automobiles	1. Licensing of industrial property rights (excluding trademark) 2. Licensing of manufacturing and distributorship rights 3. Provision of technical expertise, information and know-how	Feb. 20, 2003 - Feb. 19, 2008
KYB Steering Spain, S.A.	Spain	Automobile hydraulic equipment	1. Licensing of industrial property rights 2. Licensing of manufacturing and distributorship rights 3. Provision of technical expertise, information and know-how	Jan. 01, 2004 - Dec. 31, 2010
KYB Suspensions Europe, S.A.	Spain	Shock absorbers for automobiles	1. Licensing of industrial property rights 2. Licensing of manufacturing and distributorship rights 3. Provision of technical expertise, information and know-how	Oct. 01, 2004 - Sep. 30, 2009

The total capital investment the Company made in fiscal year 2006 that ended March 2007 was19.735 billion JPY, out of which 19.336 billion JPY was invested in the hydraulic products business.

The total capital investment planned for fiscal year 2007 that ends March 2008 is 20 billion JPY, out of which 19.7  billion JPY is planned to be invested in the hydraulic products business.

Domestic Investments
The Company will double production of hydraulic control pumps for continuously variable transmissions (CVT) within the next three years and intends to establish a capacity to produce 1.8 million pumps for the CVT. The Company plans to invest about 7 billion yen for fiscal 2007 including funding for improvement of productivity. The Company's subsidiary, KYB Kanayama located in Gero City, Gifu Prefecture is increasing its production capacity of such pumps (From an article in the Nikkan Jidosha Shimbun on Nov. 29, 2006)

Overseas Investments
The Company will expand the plant of KYB Manufacturing North America Inc.(KMNA), its U.S. subsidiary, producing and selling hydraulic shock-absorbing products. It plans to expand the plant to enhance its production capacity so that it can boost production volume in response to an increasing demand in North America from Japanese auto manufacturers including Toyota and Honda. The Company will additionally build a new plant, which covers 24,553 square meters, within its existing plant facility (Franklin, Ind.). With this extension the Company will increase its annual production capacity at KMNA by 3 million units to 9.6 million units. The Company will invest a total amount of 27 million USD (approximately 310 million JPY). The new plant will be officially opened in November 2007. (From a press release by the company on Dec. 7, 2006)