April 2005 March 2006 Financial Report | IRライブラリー | 株主・投資家の皆様へ | アマノ

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FINANCIAL REPORT

April 2005 March 2006

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1. Basic Management Policy

Since its foundation, Amano’s first priority has been to maximize customer satisfaction. Based on our corporate themes of "people and time" and "people and environment," all employees, including the staff of our sales, productions, and development divisions, focus on customer satisfaction and listening to what our customers have to say throughout all business activities.

In accordance with this fundamental policy, Amano has continued to undertake business activities with a goal of earning trust and high regard of all of our stakeholders: customers, employees, shareholders, business associates, and local communities. Amano has set out to achieve this by providing a variety of products, systems, services, and solutions that accurately respond to the needs of customers in fields related to "people and time" and "people and environment."

Amano Corp. and its group companies are also committed to maximizing corporate value by carrying out management reforms, and by creating a strong profit structure and ensuring sustainable growth.

2. Basic Policy on Dividends

Amano sees paying dividends to our shareholders as one of our most important tasks. The foundations of our policy for returning earnings to our shareholders are maintaining a stable annual dividend of 22 yen (interim: 11 yen; end of term: 11 yen), paying a reasonable return on our performance, and flexibly buying back treasury shares . Starting in the term under review, dividends to shareholders will be paid on the basis of a consolidated payout ratio of over 35%, and Amano will make every effort to achieve a 2.5-percent or higher dividend rate for shareholder’s equity in the medium term. In accordance with this basic policy, we plan to increase our end-of-term dividends for the current term to 13 yen, the same amount as our interim dividend. This will result in a total annual dividend of 26 yen per share – a 4-yen increase over the previous term – with a consolidated payout ratio of 35.2%.

Retained earnings will be used to strengthen our management through effective investments, such as research and development, expansion and enhancement of existing businesses, and strategic investments in growing business areas. Other goals for retained earnings will include cost-reduction and streamlining of production facilities as a means of improving quality.

3. Policy for reducing trading units of shares

Amano believes that reducing trading units of shares is one of the most effective ways to increase stock liquidity and expand our investor base. Accordingly, on October 3, 2005, we reduced trading units of shares from 1,000 to 100 shares, in order to create an environment that facilitates investment by more investors.

Management Policy

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4. Medium and Long-Term Management Strategy and Target Management Indexes

Amano corp. and its group companies maintain the tradition of continuously evolving ourselves in response to change, while adhering to the four fundamental strategies of the Amano Group:

(1) Addressing the Time and Ecology business / enhancing the core business (2) Being a niche top leader in the company's specialty business fields (3) Incessant restructuring

(4) Cashflow based management

Amano initiated third three-year medium-term management plan in April 2005 based on these four fundamental strategies. Since we have been well ahead of our second year targets during the first year, we have revised our targets for the second year (year ending March 2007) and third year (year ending March 2008) of our medium-term management plan, as follows.

By the end of March 2008, which will mark the completion of this plan, Amano will strive to achieve the following management objectives on a consolidated basis. (1) Consolidated operating profit : Over 13%

(2) ROE: 8.5%

(3) Net income per share: Over 88 yen

Net sales Operating profit Operating profit to sales Ordinary profit Net profit

Consolidated management targets

Year ending March 2006 - Actual

(In million yen)

79,744 9,538 12.0% 9,581 5,916

9.0 5.1

7.0 15.8

84,000 10,100 12.0% 10,000 6,000

5.3 5.9

4.4 1.4

90,000 11,600 12.9% 11,800 7,100

Year ending March 2007 - Planned Year ending March 2008 - Planned Amount YOY Change (%) Amount YOY Change (%) Amount YOY Change (%)

7.1 14.9

18.0 18.3

Kaoru Haruta President and CEO

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Management performance

Despite concerns over the impact of soaring oil prices, the Japanese economy grew throughout the year, buoyed by such factors as improved corporate profits, active capital investment, and strong consumer spend- ing. Amidst this management environment, all Group companies united to create a strong profit structure and ensure sustainable growth in accordance with our three-year medium- term management plan initiated in April 2005. Amano worked to improve our cost competitiveness, with

initiatives including enhancing our sales abilities, reducing fixed expenses, and cost of sales and improving pro- ductivity.

The company increased both revenues and profits in the period under review. Sales volume totaled 79,744 million yen (a 9.0% year-on- year increase); operating income totaled 9,538 million yen (up 5.1%); and ordinary income totaled 9,581 million yen (up 7.0%). For the term under review, the company posted an extraordinary income totaling 422 million yen including 332 million yen in profit on sale of proper ty and equipment, and extraordinary losses

of 302 million yen, including a 213 million-yen loss for plant-relocation expenses, resulting in a net income for the current term of 5,916 million yen (up 15.8% from the previous period).

Note that the extraordinary profit on the sale of property and equipment includes profit on the sale of the land and building of our Anaheim plant, which was then consolidated with our facility in Ohio. Additionally, the plant- relocation expenses of our extraordinary loss incurred are related to the relocation of this plant to our Ohio plant. Our sales by business division were as follows.

Sales by business division

(In million yen)

(Time Information System Business) Time Information Systems

Time Management Products Parking Systems

Sub-total

(Environment System Business) Environmental Systems Cleaning Systems Sub-total

Division

Previous Consolidated Fiscal Year

April 2004 – March 2005

Change

Amount

13,909 7,386 31,033 52,328

17,021 10,395 27,416

17.4 9.3 38.9 65.6

21.4 13.0 34.4

11,910 7,128 29,213 48,251

15,094 9,795 24,889

16.3 9.8 39.9 66.0

20.6 13.4 34.0

1,999 258 1,820 4,077

1,927 600 2,527

16.8 3.6 6.2 8.4

12.8 6.1 10.2 Component

ratio Amount Amount ^Componentratio ^Componentratio Current Consolidated

Fiscal Year

April 2005 – March 2006

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Time Information System Busi-

ness

Time Information Systems:

・Time & Attendance (T&A), Payroll Systems

・Human-Resource Management Systems

・Access Control Systems

・Canteen Systems

Time Management Products:

・Time Clocks

・Time Stamps

Parking Systems:

・Parking Management Equipment

・Parking Management Services

Time Information Systems

Demand remained strong in the domestic market for our Time Informa- tion Systems business, due to increased strict regulations of working hours by the Labor Standards Inspec- tion Office, as well as to moves by companies to review their time and attendance systems amidst an increasing awareness of compliance by the public in light of such laws as the Law Concerning the Protection of Per- sonal Information. The public-sector market, driven by local governments in particular, also continues to grow, as major municipalities lead a move to introduce systems similar to those of private-sector enterprises. With the market requirements pen- etrating small businesses, Amano has offered recommendations for total solutions for “Time & Attendance” and “Access Control,” using primarily IC cards.

With this market environment, and being buoyed by increased orders from growing capital investment by manufacturers and retails and distributors recovering from stagnant economy during the past years, the performance of this business segment grew substantially over the previous year, 1,093 million yen (up 13.1%) for T&A Systems and 355 million yen (up 45.5%) for Access Control Systems. By product, revenues from terminal grew by 756 million yen over the previous year (up 15.6%); revenues from software grew by 702 million yen over the previous year (up19.7%), boosted by increased sales of large-scale solu-

tions; and revenues from maintenance and supplies grew by 225 million yen (up 9.4%), thanks to strong growth in maintenance contracts, as well as increased demand for IC cards. Our overseas revenues were 1,152 million yen overall (up 27.4% year-on- year), thanks to increased revenues in all regions of North America, Eu- rope, and Asia.

As a result, our net sales in this division were 13,909 million yen, an increase of 1,999 million yen (up16.8%) over the previous year.

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Time Management Products

While the domestic market for time recorders showed signs of recovery against a backdrop of economic recovery, this business division has seen a polarization in the market, where as customers shift to two extremes: low cost standard products, or system products.

Although sales of our TimeP@CK time recorder with PC spreadsheet software were strong, our domestic income declined slightly overall due to the polarization of our customer base. Although our exports of time recorders grew both in terms of units and amount, there was a slight overall decline due to falling exports of time stamps and other products. Our overseas revenues increased to 3,170 million yen (up9.8% year-on- year), with an increase in revenue caused by the exchange rates in North America (income declined on a local-currency basis), a decrease in revenue in Europe as competition continues to intensify, and an increase in revenues in Asia, with sales in Tai-

As a result, our net sales in this business division were 7,386 million yen, an increase of 258 million yen (up3.6%) over the previous fiscal year.

Parking Systems

This business division's domestic market is in the midst of dramatic change. Payment method has been greatly diversified, including Electronic Toll Collection (ETC) systems, Suica*¹, Edy*², and other e-cash systems, in addition to local governments have begun introducing an "authorized administrative system," and outsourcing the enforcement of penalties for parking violations to the private sector ; and the addition of bicycle and motorcycle parking lots is becoming obligatory. Amidst this market climate, Amano focused on enhancing its sales readiness to deal with market change, and develop systems in anticipation of market needs.

Revenues for the term under review fell 302 million yen (down1.3%) from the previous year, due mainly to a year-on-year decline in contracts for large parking lots and other large contracts, as well as the fact that demand for replacement bill readers consequent to the issuance of new banknotes, which had continued from the previous year, ended in Septem- ber of last year.

By product, sales of systems grew 142 million yen (up1.0%) from the previous year; and maintenance and sup- ply sales fell 182 million yen (down2.3%) from the previous year. The decline in maintenance and sup-

of bill readers consequent to the issuance of new banknotes from the year before.

Note that Amano Management Ser- vice Corporation, one of the Amano’s group companies, recorded a strong 19% year-on-year growth in parking- lot management services.

Overseas revenues totaled 5,494 million yen (up 39.2% year-on-year), with a 45.0% increase in revenues in North America due to strong demand for paystations, a slight decrease in Eu- rope, and a 54.6% increase in revenues in Asia, with Korea recording strong performance.

As a result, our net sales in this business division were 31,033 million yen, an increase of 1,820 million (up6.2%) over the previous fiscal year.

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_*

1) Suica :proximity IC card used mainly by East Japan Railway Co.

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2)Edy : prepaid IC card devel - oped by BitWallet, Inc.

Time P@CK Time Recorder

Aut-Paystation CRX-200

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Environment System Business

Environmental Systems:

・Standard Dust Collectors;

・Large Dust Collection Systems;

・Pneumatic Powder Conveyance Sys- tems;

・High-Temperature Hazardous-Gas Removal Systems;

・Deodorization Systems

・Electrolyzed Water Generators Cleaning Systems:

・Sweepers and Vacuum Cleaners

・Dry-Care Cleaning Systems

・Cleanliness Management Services

Environmental Systems

This business division has continued to receive increasing demand from a broad range of industries, supported by strong capital investment, especially in the domestic manufacturing industry. In the term under review, Amano saw major improvement in the performance of small dust collectors and small oil-mist collectors in the Stan- dard Equipment Division. Additionally, we dramatically increased sales in the maintenance business through enhancement of our sales capabilities, contributing to our revenues.

Performance improved for all products: revenues from standard dust collectors rose 858 million yen (up15.5%) over the previous year, revenues from large-scale dust collection systems rose 133 million yen (up2.4%); and revenues from maintenance and sup- ply rose 574 million yen (up20.0%). Our overseas revenues rose dramatically, with increased demand in China and Malaysia – mainly to Japanese associated corporations – through the enhancement and expansion of our sales readiness, and total revenues for the Asian region were 851 million yen (up 36.3% year-on-year ). Note that Amano does not offer this business in North America and Europe.

As a result, our net sales in this business division were 17,021 million yen,

Cleaning Systems

Domestic demand in this business division's market has begun to emerge, due to increasing needs for clean factories in the manufacturing industry. Meanwhile, the building-maintenance industry is starting to switch to mid- sized and larger products in order to reduce cleaning costs. The beginning of a diversification of floor materials was also seen, with large supermarket chains, large commercial complexes, and others introducing carpet, ceramic, and other floor materials depending on use of the floor. The convenience-store industry is also starting to change its floor materials.

Amidst these market circumstances, performance during the term under review by product was as follows. Revenue for sweepers and cleaners fell by 62 million yen (down1.8%) from the previous year, and revenue for maintenance and sup- ply rose 170 million yen (up6.1%). The decline in revenue for sweepers and cleaners was due to a decline in exports to Europe and falling demand in the convenience-store industry due to changing floor materials.

Our overseas revenues totaled 3,196 million yen (up 14.2% year-on-year), with a substantial increase of 18.0% in revenues in North America – influ- enced in part by the exchange rates in this region – and declining revenues in Europe and Asia.

As a result, our net sales in this business division were 10,395 million yen, an increase of 600 million yen (up6.1%) over the previous fiscal year.

Deodorization Fume Collector

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Outlook and issues to be

addressed for the next fis-

cal year

Although we anticipate the economy to remain strong, there is still some uncer tainty over whether the

Amidst these management circumstances, Amano is committed to such initiatives as enhancing partnership between each Group companies; creating new markets in each of our businesses; rolling out active market- ing activities closely linked to our customers; offering high added value

ture to ensure sustainable growth. See below for our business objectives in the next term, in accordance with our third medium-term management plan.

Financial Status

During the consolidated accounting year under review, cash and cash equivalents fell by 497 million yen (down1.4%) from the previous consolidated year, due mainly to an increase in corporate tax and other payments. Our year-end total for the consolidated fiscal year under review was 34,403 million yen. See below for our position of our cashflows, and factors involved.

Cashflow from operating activities Our cashflow from business activities was 6,049 million yen, a decrease of 3,991 million yen (down39.8%) from the previous year. This was mainly due to factors, including reduced accounts payable and increased payment of corporate taxes.

Cashflow from investment activities Cashflow from investment activities was –4,280 million yen, an increase in outflow of 3,025 million yen

(up241.0%) the previous year. This was mainly due to factors, including increased payment of investments in securities, and decreased revenues from the sale and buy-back of securities.

Cashflow from financial activities Cashflow from financing activities was –2,134 million yen, an increase in outflow of 698 million yen (up48.6%) over the previous year. This was mainly due to factors, including repayment of long-term loans and increased dividend payments.

Note

Owners’ equity (%): Owners’ equity / Gross assets

Owners’ equity estimated at a current price (%): Total current price of equity / Total assets

Time period required to redeem liability(years): Debts with paid-interest/ Cash flow in business operations Interest coverage ratio (%): Cashflow from business operations / Interest payables

* Each index is calculated according to financial figures in the consolidated accounts.

* The total current price of equity is calculated according to an expression as follows: Final share price at the end of a fiscal year multiplied by the number of shares issued at the end of a fiscal year (after deduction of treasury stock).

* The Cashflow from business operations is the amount of the cashflow in the consolidated Cashflow Statements. The liability with paid-interest includes all liability with interest among those listed in the consolidated balance sheet. The interest payable is the amount of interest payable listed on consolidated Cashflow Statements.

Year ended March 2002 Owners’ equity (%)

Owners’ equity estimated at a current price (%) Time period required to redeem liability (Year) Interest coverage ratio (%)

Year ended March 2003 Year ended March 2004 Year ended March 2005

Trends in cashflow indexes are as listed below.

76.4 80.5 0.5 35.8

74.8 52.6 0.4 88.4

75.5 76.6 0.3 165.7

72.5 95.0 0.3 255.8

74.8 156.0 0.4 88.1 Year ended March 2006

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Year ending March 2007 Year ending March 2006 Growth rate (%)

(in million yen) Sales

84,000 79,744 5.3%

Operating profit 10,100

9,538 5.9%

Ordinary profit 10,000

9,581 4.4%

income 6,000 5,916 1.4%

Based on the above our business performance forecast for the coming fisical year is as follows: net sales of 84,000 million yen; operating profit of 10,100 million yen; ordinary profit of 10,000 million yen; and net profit of 6,000 million yen. Additionally, we will continue to strive to raise our dividends, and will aim to pay a total annual dividend of 26 yen per share (interim: 13 yen; end of term: 13 yen).

Time Information System Business Demands for systematization and new implementation are rising in the time information system business, with Time and Attendance (T&A) information being reviewed by private- sector businesses and the public sector – and local governments in particular. The market in the security field is also growing more active, with increased demand for such products as access control (door security) for of- fices handling personal information, consequent to the enactment of the Law concerning the Protection of Per- sonal Information.

Buoyed by this market environment, we have expanded our T&A solutions business for large businesses and the public-sector market through enhancement and expansion of our sales and product capabilities, and also expanded our business in the door- security field in the same manner. Additionally, we have worked to maintain and improve our profitability in this business by reducing costs through the standardization of system

software in our solution business. The market environment for our parking systems business is in the midst of dramatic change, including diversified means for paying parking fees, the beginning of outsourcing of enforcement of penalties for illegal parking to the private sector, the move to bicycle parking-lot systems, and added obligation to provide motorcycle parking.

Amidst this market environment, we will work to expand our business, introducing systems in parking lots and enhancing our suppor t for motorcycle parking, whose need has be- come apparent to tackle the issues of illegally parked bicycles, as well as enhancing our capability to provide overall solutions for the management and operations outsourcing market, which continues to grow.

Our aim in our overseas business is to win a top share of North Ameri- can, European, and Asian markets, and expand our business by enhancing our sales and product competitiveness.

Environment System Business In Amano's environmental system business, there is a strong demand for environmental management to enhance compliance with environmental laws in factories and reduce environmental stress as part of corporate social responsibility. Amidst this market environment, we are working to grow in this business, developing new products that help reduce environmental stress; launching new products that suppor t smaller and more diversed machine tools; and leveraging the combined strength of the Group companies to expand our maintenance business by offering total solutions that include analysis services of asbestos and other types of toxic dust and design, installation and maintenance of instruments. In the overseas market, we will enhance our local sales and engineering capabilities in order to support Japanese automotive companies ex- panding to China and other Asian markets.

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Potential Risks

Stated below are potential risks involved in the quantitative information and financial information that may give significant influence to our investors. Amano Group companies are always striving to eliminate these potential risks in all operations wherever possible.

Any descriptions about future fore- casts are our best estimates as of the date (May 9th 2006) of preparation of the financial statements.

(1) Impact on profits due to changes in the management environment The Amano Group Companies developing business operations on a glo- bal basis, with good market shares in each of our business domains in Ja- pan as well as Nor th America, Eu- rope, and in Asia, leveraging our accumulated proprietory technologies and expertise to offer our customers high-quality products, services, and solutions.

The Amano Group's revenues by business division in the year ending March 2006 consist of the Time In- formation Systems Business accounts for 65.6%, and the Environmental Sys- tem Business accounts for 34.4%. In terms of contribution to operating profit, the Time Information System Business accounts for 76.1% of operating profit before unallocatable expenses, and the Environmental Sys- tem Business accounts for 23.9%.

Additionally, using the average value for the past five years, the Time Infor- mation System Business accounts for 64.6% of net sales and 76.9% of operating profit.

Thus, our Time Information System Business accounts for a large propor- tion of the Amano Group's performance, and we recognize that its growth potential will have a great impact on our future performance. Our Time Information System Busi- ness consists of three sub-businesses: time information systems, time management products, and parking systems.

As these markets are relatively small, in Japan – our main markets – there are just a few, same manufacturers, with almost no new players entering the market. Additionally, there are no foreign-associated companies com- peting in these markets directly. It is also true with other areas outside Japan.

One future potential risks include entry of a new player from another industr y, or appearance of strong competitors in one of the sub-businesses of the Time Information Sys- tem Business if predicted for growing market because of dramatic change in the demand structure or a new market being created. In such a case, if a rival brought a revolution- ary new product or solutions to the market that surpassed Amano, it could reduce our dominance of the market and have a significant impact on our performance.

(2) Information security

The Amano Group Companies offer system solutions and operate as an application service provider (ASP) with confidential information, including personal information about our customers and personal information given to us by our customers. We have established a Personal Informa- tion Protection Committee to pre- vent leakage of confidential information by network intruders or hand carrying of electronic data outside the company. We have established, exten- sive protection systems, including confidential information management, employee education and use of software to protect information from leak. Nevertheless, however, if information were leaked externally because of unpredictable events, the Amano Group's performance could be significantly impacted by a loss of trust.

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Time Information Systems

Offering new time and attendance solutions for a changing business environment

Now with more powerful lineup of new time information terminal products

Our popular “TimePro-Get series software” integrated time and attendance, human resources, and payroll system has already been adopted by many companies of all sizes, from a few dozen people to several thou- sand in all industries and by all business styles, and now we have made a major upgrade to this already popu- l a r p r o d u c t : i n t r o d u c i n g n e w

“TimePro-XG series software”. This new product features all popular basic functionality of its predeces- sor, with a completely redesigned control system for greater ease of use.

“TimePro-XG series” also features suppor t for the latest system envi- ronments, and added overtime management functionality for local governments. Additionally, since its release last year, our “Time Asset” designed for attendance solutions for large corporations and major enterprises is steadily growing with good market acceptance.

Currently, proximity IC cards (for employees IDs) are gaining a great deal of attention. The acceptance is still growing in the government, private

enterprise, medical, and educational markets, where they are used for a wide range of applications, including door access control, attendance management control, and other security applications. We meet a broad range of customer needs, adding two new Time Information Terminal (time system recorder) products with IC cards as an input media to our lineup: the new AGX-30V biometric finger-pat- tern recognition model, and the ATX- 300 model, which can be used both with proximity IC cards and time cards. Our annual Amano Advanced Time Solution Forum 2006 (ATS Fo- rum) will be held this year from June to July in six cities nationwide.

Time Stamp Service

Establishing the de facto standard for time stamps to meet growing electronic business documents. Introduction case study: Bank of To- kyo-Mitsubishi-UFJ

The Bank of Tokyo-Mitsubishi-UFJ, one of The Mitsubishi UFJ Financial Group companies, aiming for a world leader in comprehensive financial services, has implemented the Amano 3161 Time Stamp Service. The Bank of To- kyo-Mitsubishi-UFJ offers document digitization services to its corporate customers as a solution to improve document-management efficiency and security, including e-agreement ser vices for corporate trade and other agreements that are executed via the Internet with digital signatures, rather than using paper and seals, and an e-document issuance service. The company provides stringent security to authenticate customers and maintain custody over the originals of e- agreements (e-cer tificates using IC cards and time stamp services that evidence "who" and "when" such e- documents are involved). The following are some of the benefits from is- suing documents with legally enforceable e-certificates after stringent iden- tification procedures:

(1) Reduces postage, storage, and other costs

(2) Speeds up business processes by shortening delivery times and improving searchability

(3) Avoids risk of loss and leaks, and makes the wor k of creating agreements more rigorous (4) Easy to implement and introduce,

and enables current forms to be used as is

Business Activities

Time Pro-XG series software

AGX-30V terminal

ATX300 terminal

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These and other benefits are well accepted by the bank's customers. Based on the rigorous authentication service provided by the bank, it is now possible to digitize agreement-execu- tion workflow and make e-agreements enforceable at cour t as well as to have good safety store of data for more efficient system operations.

Parking Systems

Proven Amano’s know-how sup- ports the increasing number of con- t r a c t s : P a r k i n g M a n a g e m e n t Outsourcing Business

With its ability to help its clients reduce management costs and meet other needs, the Amano Group company Amano Management Service Corporation (AMS) significantly increased its parking management and operation service contracts. The AMS Suppor t Center, which forms the company's operations core, is leveraging its wealth of expertise accumulated through contracts for the management and operation of a large number of parking lots to fur ther

expand and enhance its functionality. With the introduction of the "authorized administrative system," more and more local governments are outsourcing parking management and operation to private-sector opera- tors, and we expect even greater demand thanks to our proactive mar- keting in anticipation of market demand.

Penalties for illegal motorcycle parking to be enforced: Scheduled amendment to Traffic Laws will give boost to bicycle parking-lot business The areas around train and subway stations in Japan are cluttered with huge numbers of illegally parked bicycles. Society is demanding a solution, making the creation of bicycle parking lots around stations an urgent task. Meanwhile, with the easing of

regulations on motorcycles, the numbers of motorcycles on the market have increased, but as they cannot be parked in either automobile or bicycle parking lots, they are currently left parked on the street. For this reason, local governments are starting pro- grams to subsidize the acquisition of space for motorcycle parking lots. Additionally, an amendment is scheduled for the Traffic Laws that will be applied to two-wheeled motor vehicles.

Amano is already star ting to introduce systems in motorcycle parking lots in front of stations. In June of this year, a new system for outsourcing warden for illegally parked vehicles to the private sector began. This system is expected to create new growth in parking lots with added facilities for motorcycles, as enforcement of penalties for illegally parked cars as well as motorcycles is strengthened.

AMS Support Center

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Environmental Systems

Amano hosts its first private environmental fair: Amano Factory ECO Solution 2006

In March 2006, Amano hosted

"Amano Factory ECO Solution 2006 – Environmental Management Will Change the Future of the Factory" in three of Japan's biggest cities: Tokyo, Nagoya, and Osaka. Organized with the themes of reducing environmental stress and legal compliance, this private fair was Amano's first attempt at bringing its environmental technologies together to offer total environmental solutions for leading-edge factories. Featuring a combination of seminars on factory operation and exhibits of products and systems, the fair was praised by many visitors at each of the three venues.

In the era of environmental management, our slogan is "Always at your best with Amano." We will always suppor t factories that are actively committed to being environmentally responsible.

Cleaning Systems

Launching new compact powered automatic scrubber:

The SE-760N is Japan's smallest ride- on automatic scrubber

The SE-640N features twin pads for even greater cleaning power On Februar y 1, 2006, Amano re- leased the SE-760N, Japan's smallest model of ride-on automatic scrubber. Then on March 20, it launched sales of the SE-640N compact self- propelled automatic scrubber, with twin pads for even greater cleaning power.

Designed for large stores and factories, the SE-760N has a total length of 1,250 mm, in order to enable it to be moved between floors on small elevators. This length makes it the shortest ride-on automatic scrubber in Japan. The SE-640N features a unique construction and newly de- veloped squeegee to enable it to ef- fectively and safely clean hard floors in facilities with 3,000–4,500 m² of floor space, such as home centers, general merchandise stores, factories, warehouses, malls, arenas, and hospi- tals.

SE-760N

SE-640N Automatic Scrubber

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Amano Electronics Europe, N.V.

AEE exhibits at CeBIT2006 and Inter- traffic Amsterdam 2006, promoting its system software integration.

Group company Amano Electronics Europe (AEE) exhibited at CeBIT 2006, the world's largest integrated trade fair for telecommu- nications, digital devices, and systems, held over the week starting March 9 at Deutsche Messe AG in Hannover, Germany. The theme of this year's booth was System Solutions through IT Devices.

The iT30 time and attendance terminal product leapfrogs the competition, offering new solutions using real-time push communica- tions. AEE's exhibit also included the new MRX30 and PIX200 traditional time recorder products. This year, AEE used a large two-story booth complete with an area for business negotiations, successfully demon- strating the appeal of the Amano brand to system integrators, potential partners, and longtime distributors throughout the EU. Following CeBIT 2006, AEE also exhibited at Intertraffic Amsterdam 2006, a shipping management, security, and parking trade fair held from April 4 to 7 in Amsterdam, the Netherlands. This year’s fair was the most successful in its history. Our iParc Revenue & Access Control System, a next-generation parking control system featuring the latest technologies, drew a great deal of attention from visitors.

Amano Cincinnati, Inc.

Amano Cincinnati’s AGP series parking products maintain the 7,300 parking spaces at Atlantic Station in Atlanta, Georgia

The Atlantic Station® community is a 138-acre environmental redevelopment and reclamation of the former Atlantic Steel Mill in Midtown Atlanta. Once complete, the community is projected to include 15 million square feet of retail, office, residential and hotel space as well as 11 acres of public parks. Bordered by downtown Atlanta to the south and Buckhead to the north, the redevelopment is located at the nexus of Interstates 75 and 85.

In 1997, Jacoby Development initiated plans to redevelop the 100-year-old At- lantic Steel Mill—creating the largest ur- ban brown field redevelopment in the U.S. The property is already a national model for smart growth and new urbanism. The Atlantic Station community represents $2 billion in new construction and is divided

• The District

• The Commons

• The Village Parking Operations:

• Facility type: Mixed Use

• Construction type: New facility, four levels

• Number of lanes: 72

• Number of spaces: 7,300

• Operation mode: Unmanned, central pay, valet

• ACI Revenue equipment: 43 x AGP- 1700, 25 x AGP-2000, 20 x AGP-4000, 12 x AGP-7800, 4 x AGP-5200

• Facility management software: iParc Revenue, Access, Count/Monitor Manufacturing facility consolidation Amano Cincinnati has nearly doubled its Loveland Ohio manufacturing facility floor space to 93,000 sq. ft. to accommodate consolidation of time clock manufacturing from the Anaheim, CA facility. Now this facility produces parking as well as time and attendance products for the US, Canada, South America and other international markets.

This ISO 9001 certified manufacturing facility has embraced the lean manufacturing and continuous improvement (Kaizen) philosophies – which focuses on elimination of wastes.

These kaizen philosophies have helped keep costs down while improving the company’s quality and customer focus. This expanded facility will house a quality evaluation/ test center, which will perform system level testing of customer’s hardware and software equipment before shipment, to ensure that the cus-

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Amano Korea Corporation

lIn 1996, as part of the customer-oriented management, Amano Korea Corporation (hereinafter referred to as AKC) incorpo- rated the Seoul branch as a locally incorpo- rated company “AKC”. “AKC” commemo- rates the 10th anniversary this year. Since its establishment, AKC has achieved remarkable growth every year and established itself as a leading company of parking systems in Ko- rea in reality and in name, which resulted in receiving considerable attention from the parking industry. For the future, our objec- tive is “early colonization of more advanced parking culture and order” by improving AKC’s company image and strengthening AMANO brand. We are planning to diver- sify parking development through new businesses such as “Parking facility management service” and “PFI business”.

Open a service center in the south of Seoul

Open ChungNum Local Headquarters (Daejeon branch).

Start PFI (Private Finance Initiative) business. Received an order for a project to invest to a private hospital and construct a parking facility and withdraw the investment by operating the parking lot.

Parking Capacity: Multilevel Parking Ga- rage with 500 parking spaces.

Parking facility management service of [Seoul Grand Park Parking] , the largest parking facility in Korea.

Parking Capacity: 5,700 parking spaces. (The largest as a single parking facility in Korea)

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AMANO Corporation and Subsidiaries

Financial Highlights

For the years ended March 31, 2006 and 2005.

Yen in millions and U.S.dollars in thousands, except per share amounts - See Note 4 to the Consolidated Financial Statements.

2006 2005 2006

For the years ended March 31:

Net sales ... Net income ... Per share data:

Net income per share ... Cash dividends per common share ... At March 31:

Total assets ... Working capital ... Shareholders’ equity ... Sales by product:

Time information systems ... Time management equipment ... Parking systems ... Environmental systems ... Cleaning systems ...

Note: U.S.dollar amounts have been translated at the rate of ¥117 = US $1, the rate prevailing on March 31, 2006. - See Note 4 to the Consolidated Financial Statements.

30,000 40,000 50,000 60,000 80,000 70,000

30.00 40.00 50.00 60.00 80.00

2,000 3,000 6,000

5,000

4,000

Net Sales (Millions of Yen)

Net Income (Millions of Yen)

Net Income Per Share (Yen)

70.00

¥79,744 5,916

¥72.76 26.00

¥105,262 44,782 78,733

¥13,909 7,386 31,033 17,021 10,395

¥73,140 5,109

¥62.95 22.00

¥100,746 42,241 73,044

¥11,910 7,128 29,213 15,094 9,795

$681,573 50,564

$0.622 0.222

$899,675 382,752 672,932

$118,880 63,128 265,239 145,479 88,846

(17)

Consolidated Balance Sheets

As at March 31, 2006 and 2005.

Thousands of U.S. Millions of Yen dollars (Note 4)

ASSETS 2006 2005 2006

Current assets:

Cash and bank deposits ... Marketable securities ... Notes and accounts receivable:

Trade ... Less allowance for doubtful accounts ...

Inventories ... Deferred tax assets ... Other current assets ... Total current assets ...

Investments and advances:

Investment in and advance to affiliates’ ... Investments in securities ... Other investments ... Total investments and advances ...

Property, plant and equipment, at cost:

Buildings ... Machinery and equipment ...

Less accumulated depreciation ...

Land ... Construction in progress ... Net property, plant and equipment ...

Fixed leasehold deposits... Deferred charges and other assets...

Total ...

The accompanying notes are an integral part of these statements.

¥34,403 11

20,914 (117) 20,797

7,627 1,262 1,005 65,105

465 6,442 6,642 13,549

24,794 18,405 43,199 (28,620)

14,579 5,770 647 20,996

935

4,677

¥105,262

¥34,900 26

20,269 (142) 20,127

7,319 1,199 748 64,319

409 3,885 6,571 10,865

24,671 17,459 42,130 (27,812)

14,318 5,885 260 20,463

991 4,108

¥100,746

$294,043 94

178,752 (1,000) 177,752

65,188 10,786 8,590 556,453

3,974 55,060 56,769 115,803

211,914 157,308 369,222 (244,615)

124,607 49,316 5,530 179,453

7,992

39,974

$899,675

(18)

LIABILITIES AND SHAREHOLDERS’ EQUITY 2006 2005 2006

Current liabilities:

Short-term bank loans ... Trade notes and accounts payable ... Accrued expenses ... Accrued income taxes ... Other current liabilities ... Total current liabilities ...

Long-term liabilities:

Accrued retirement benefits to employees ... Accrued retirement benefits to directors and corporate auditors .. Deferred tax liabilities ... Other ... Total long-term liabilities ...

Minority interests in consolidated subsidiaries...

Shareholders’ Equity: Common stock:

Authorized- 185,476,000 shares Issued :

March 31, 2006 - 81,257,829 shares ... March 31, 2005 - 81,257,829 shares ... Capital surplus ... Retained earnings ...

Net unrealized gain[loss] on other securities ... Foreign currency translation adjustments ... Treasury stock at cost, 1,167,156 shares in 2006 and 1,558,747 shares in 2005 ... Total shareholders’ equity ... Total ...

¥468 9,637 4,303 2,147 3,769 20,324

4,252 650 71 748 5,721

485

18,240 – 19,438 42,037 79,715

798 (831)

(950) 78,732

¥105,262

¥847 11,356 3,760 2,921 3,195 22,079

4,096 675 42 445 5,258

365

– 18,240 19,293 38,296 75,829

105 (1,649)

(1,241) 73,044

¥100,746

$4,000 82,367 36,778 18,350 32,214 173,709

36,342 5,556 607 6,393 48,898

4,145

155,897 – 166,137 359,291 681,325

6,821 (7,103)

(8,120) 672,923

$899,675

(19)

Consolidated Statements of Income

2006 2005 2006

Net sales... Cost of sales... Gross profit ... Selling, general and administrative expenses... Operating income ... Other income (expenses) :

Interest and dividend income ... Interest expense ... Amortization of goodwill ... Gain on sale of plant and land ... Loss on disposal of property and equipment ... Loss on sale of buildings and land ... Gain on sale of investments in securities ... Loss on sale of investments in securities ... Loss on write-down of investments in securities ... Relocation expenses ... Other, net ... Income before income taxes ... Income taxes :

Current ... Deferred ... Income before minority interests ... Minority interests in net income of consolidated subsidiaries .. Net income ...

Yen U.S. dollars (Note 4)

Net income per share, basic... Cash dividends per common share... The accompanying notes are an integral part of these statements.

¥79,744 42,944 36,800 27,262 9,538

136 (60) (320) 332

(67) (21) 55

(1) – (213)

323 9,702

3,845 (196) 6,053

(137)

¥5,916

¥72.76 26.00

¥73,140 39,291 33,849 24,775 9,074

102 (43) (320) – (63) (214) 57 (297)

(36) – 158 8,418

3,545 (355) 5,228

(119)

¥5,109

¥62.95 22.00

$681,573 367,043 314,530 233,009 81,521

1,162 (513) (2,735) 2,838

(573) (179) 470

(8) – (1,821)

2,761 82,923

32,863 (1,675) 51,735

(1,171)

$50,564

$0.622 0.222

(20)

Consolidated Statements of Cash Flows

2006 2005 2006

Cash Flows from Operating Activities:

Income before income taxes ... Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ... Increase in provision for accrued retirement benefits ... Increase (decrease) in allowance for doubtful accounts ... Interest and dividend revenue ... Interest expenses ... Foreign currency translation gain ... Gain on sale of investments in securities ... Loss on sale of investments in securities ... Loss on write-down of investments in securities ... Gain on sale of fixed assets ... Loss on disposal of fixed assets ... Loss on sale of fixed assets ... (Increase) decrease in trade notes and accounts receivable ... (Increase) decrease in inventories ... Increase (decrease) in accounts payable ... Others ... Subtotal ... Receipts from interest and dividends ... Interest paid ... Income taxes paid ... Net cash provided by operating activities ... Cash Flows from Investing Activities:

Payment for purchase of property and equipment ... Proceeds from sale of property and equipment ... Payment for acquisition of intangible assets ... Payment for acquisition of investments in securities ... Proceeds from sale of investments in securities ... Proceeds from maturities of investments in securities ... Increase in time deposits ... Decrease in time deposits ... Loans to third parties ... Collection of loans ... Net cash used in investing activities ... Cash Flows from Financing Activities:

Proceeds from short-term bank loans ... Repayment for short-term bank loans ... Proceeds from long-term debt ... Repayment for long-term debt ... Payment for acquisition of treasury stock ... Proceeds from sale of treasury stock ... Dividends paid ... Net cash used in financing activities ...

¥9,702

2,816 155 (79) (136) 60 (47) (55) 1 – (332)

67 21 (366) (129) (1,852) 954 10,780 130 (68) (4,793) 6,049

(1,719) 617 (1,725) (1,634) 153

32 – – (26)

22 (4,280)

195 (189)

365 (856)

(54) 490 (2,085) (2,134)

¥8,418

2,708 115 (4) (102) 43 (29) (57) 297

36 – 63 214 (680) (1,628) 2,232

4 11,630 100 (39) (1,651) 10,040

(1,500) 139 (1,591)

(677) 1,276

300 (500) 1,275

– 23 (1,255)

250 (208)

208 (202)

(42) – (1,442) (1,436)

$82,923

24,068 1,325 (675) (1,162) 513 (402) (470) 8 – (2,838)

573 179 (3,128) (1,102) (15,829) 8,154 92,137 1,111 (581) (40,966) 51,701

(14,692) 5,273 (14,744) (13,966) 1,308

274 – – (222)

188 (36,581)

1,667 (1,615)

3,120 (7,316)

(462) 4,188 (17,821) (18,239)

(21)

Millions of Yen

Common Capital Retained

(Number of Shares of Common Stock - Thousands) Stock Surplus Earnings

Balance at March 31,2004 (81,258)... Net income for the year ... Cash dividends ... Directors' and corporate auditors' bonuses ... Balance at March 31,2005 (81,258) ... Surplus from transaction in treasury stock ... Net income for the year ... Cash dividends ... Directors' and corporate auditors' bonuses ... Balance at March 31,2006 (81,258) ...

Thousands of U.S. dollars (Note 4) Additional

Common Capital Retained

Stock Surplus Earnings

Balance at March 31,2005 (81,258)... Surplus from transaction in treasury stock

Net income for the year Cash dividends

Directors' and corporate auditors' bonuses

Balance at March 31,2006 (81, 258)... The accompanying notes are an integral part of these statements.

Consolidated Statements of Shareholders’ Equity

¥18,240 – – –

¥18,240 – – – –

¥18,240

$155,897 – – – –

$155,897

¥19,293 – – –

¥19,293 145 – – –

¥19,438

$164,897 1,240 – – –

$166,137

¥34,671 5,109 (1,435)

(49)

¥38,296 – 5,916 (2,076)

(99)

¥42,037

$327,316 – 50,564 (17,743)

(846)

$359,291

(22)

( )

Notes to the Consolidated Financial Statements

1. Basis of Consolidated Financial Statements

The consolidated financial statements of AMANO Corporation (“the Com- pany”) and its subsidiaries (majority- owned companies) have been prepared in accordance with the accounting standards for consolidated financial statements in Japan. The accounts of the Company included in the consolidation are based on the accounting records maintained in accordance with the provisions of the Japa- nese Commercial Code and accounting principles generally accepted in Japan, which are different in certain respects as to the application and the disclosure requirements of Interna- tional Accounting Standards. The accounts of consolidated overseas subsidiaries, as shown below, are based on audited financial statements prepared in conformity with accounting practices prevailing in the coun- try of incorporation. In general, no adjustments to the accounts of overseas consolidated subsidiaries have been reflected in the accompanying consolidated financial statements. The accompanying consolidated financial statements of the Company and its consolidated subsidiaries are essentially the translation of statements in the Securities Annual Re- port filed with the Ministry of Fi- nance and the Tokyo and Osaka Stock Exchanges, as required by the provisions of the Securities and Exchange

fore limited to that contained in the original text. However, certain reclassifications or summarizations of accounts have been made to present the consolidated financial statements in a form which is more familiar to the readers outside Japan.

The consolidated finacial statements are not intended to present the consolidated financial position, results of operations and the cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Japan.

2. Principles of Consolidation

(1) Scope of Consolidation The Company had 24 subsidiaries at March 31, 2006; 2 newly incorpo- rated subsidiaries were additionally consolidated compared to March 31, 2005. The Company changed its consolidation policy from the application of the ownership concept to the control concept effective April 1, 1999. Under the control concept, major subsidiaries in which the Company is able to exercise control over operations are to be fully consolidated. The accounts of the overseas consolidated subsidiaries are prepared on the basis of a December 31 fiscal year-end, and are consolidated accordingly with the Company at March 31, 2006 and 2005, and for the years then ended.

Amano USA, Inc.

100% US$55,623 Amano Cincinnati Inc.

100% US$21,985 Amano Cincinnati Canada Inc.

100% C$439

Time & Parking Systems, Inc.

100% US$794

Time & Parking Solutions of Cincinnati,Inc*

100% US$343

Pioneer Eclipse Corp.

100% US$4,606 Amano Pioneer Credit Corp.

(d.b.a. Amano Business Credit)

84% US$135

Accutime Corp. 100% US$290

Amano Electronics

Europe N.V. 100% EUR24,974

Amano Malaysia Sdn.Bhd.*

100% MR2,500

Amano Cleantech

Malaysia Sdn. Bhd. 60% MR200 ATAS E&C Services (M) Sdn. Bhd.

100% MR150

Amano Time & Air

Singapore Pte. Ltd. 100% S$700 ATAS Services Pte. Ltd.

96% S$500

Amano Asia Management Pte. Ltd.

100% S$125

PT. Amano

Indonesia 100% IDR1,928,000

Amano International Trading

(Shanghai) Co., Ltd. 100% US$200 Amano Korea Corp. 100% W2,010,000 Amano Agency Corp.

44% ¥10,000

Environmental Technology Company

100% ¥10,000

Amano Management Service Corp.

68% ¥80,000

Amano Maintenance Engineering Corp.

70% ¥30,000

Amano Business Solutions Corp.

97% ¥300,000

Amano Musashi Electric Corp.

Altered“Musashi Electric works Corp.” to the above in April, 2006

100% ¥10,000

Company Name Paid In Capital (Thousands) Equity

ownership

%

(23)

(2) Accouting for investments unconsolidated subsidiaries and affiliates

All 8 unconsolidated subsidiaries are not accounted for by the equity method, because the effect of their net income or losses and retained earnings on the accompanying Con- solidated Financial Statements are immaterial.

(3) Consolidation and Elimination For the purpose of preparing the consolidated financial statements, all significant intercompany transactions, account balances, and unrealized profits among the Companies have been eliminated from the consolidated financial statements. Intrac- ompany profit included in the assets sold from the Company to the consolidated subsidiaries has been entirely eliminated and charged against the consolidated earnings of the Com- panies. Intracompany profit included in the assets sold from the consolidated subsidiaries to the Company has been entirely eliminated and the portion applicable to minority interests has been charged against minority interests.

3. Summary of Significant Accounting Policies

(1) Cash and Cash Equivalents Cash and cash equivalents include time deposits whose expiration dates are within three months.

(2) Inventories

Inventories are stated at cost. Cost is determined principally using the

(3) Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed on the declining balance method, except for buildings acquired from April 1, 1998, computed on the straight - line method based on the estimated useful lives. The ranges of the useful lives of assets are :

Buildings 3-50 years

Machinery and equipment 2-16 years

Cost of property, plant and equipment, retired or otherwise disposed of, and related accumulated depreciation, is eliminated from the respective accounts, and the resulting gain or loss is reflected in income during the applicable period. Normal re- pairs and maintenance, including minor renewals and improvements, are charged to income as incurred.

(4) Accounting for Impairment of Fixed Assets

This new standard shall be effective for fiscal year beginning April 1, 2005 and beyond. Fixed assets are tested f o r i m p a i r m e n t b a s e d o n undiscounted cash flows whenever events or changes in circumstances indicated that the carrying amount of an asset may not be recoverable. If impaired, an asset is written down to the recoverable amount to be mea- sured as the higher of net selling price or value in use. An impairment loss should be recognized in the income statement at the same time. The results of this test did not reguire the Company to recognize an important loss in this fiscal year.

(5) Deferred Charges and Other Assets

Intangible assets are amortized using the straight-line method. Soft- ware costs for internal use are amortized by the straight-line method over their expected useful lives (five years). Goodwill represents the ex- cess of costs over the fair value of net assets of businesses acquired. The Company’s U.S. consolidated subsidiaries adopted the provisions of SFAS No. 142 for the fiscal year beginning April 1, 2002. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, and are instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 required the Company to perform an assessment of whether there was an indication that goodwill is impaired as of the date of adoption. The results of this assessment did not re- quire the Company to recognize an impairment loss in this fiscal year.

(6) Accounting for Financial In- struments

(a) Derivatives

All derivatives are stated at fair value, with changes in fair value included in net profit or loss for the period in which they arise.

(b) Securities

Securities held by the Company and its subsidiaries are classified into four categories;

Trading securities, which are held for the purpose of generating profits on

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fair value included in net profit or loss for the period in which they arise. Additionally, securities held in trusts for trading purposes are accounted for in the same manner as trading securities.

Held-to-maturity debt securities, that the Company and its subsidiaries have intent to hold to maturity, are stated at cost after accounting for premium or discount on acquisition, which are amortized over the period to maturity. Investments of the Company in equity securities issued by unconsolidated subsidiaries and affiliates are accounted for by the equity method. Exceptionally, investments in certain unconsolidated subsidiaries and affiliates are stated at cost because the effect of application of the equity method would be immaterial. Other securities for which market quotations are available are stated at fair value. Net unrealized gains or losses on these securities are reported as a separate item in the shareholders' equity at a net-of-tax amount. Other securities for which market quotations are unavailable are stated at cost, except as stated in the para- graph below.

In cases where the fair value of held- to-maturity debt securities, equity securities issued by unconsolidated subsidiaries and affiliates, or other securities had declined significantly and such impairment of the value is not deemed temporary, those securities are written down to the fair value and the resulting losses are included

(7) Appraisal of the assets and li- abilities of consolidated sub- sidiary companies

The assets and liabilities of subsidiaries are accounted for the partial mark-to-market accounting method.

(8) Amortization of consolidated adjustment accounts

The consolidated adjustment accounts were fully amortized during the year as they occurred because they were immaterial.

(9) Foreign Currency Translation Current monetary assets and current monetary liabilities denominated in foreign currencies held by the Com- pany are translated into Japanese yen at the rate of exchange prevailing at the balance sheet date. The resulting translation gains or losses are charged or credited to income. Long- term monetary assets and liabilities denominated in foreign currencies, including investments in unconsolidated subsidiaries, are principally translated at the rate of exchange prevailing when such translations were made.

(10) Translation of Foreign Currency Financial Statements (Accounts of Overseas Subsidiaries) Foreign currency denominated statements of overseas consolidated subsidiaries have been translated into Japanese yen using the method pre- scribed by the Business Accounting

change prevailing at the balance sheet date, except common stock and capital surplus, which are translated at historical exchange rates. Differ- ences arising from translation are presented as “Foreign currency translation adjustment” in the accompanying consolidated financial statements.

(11) Income Taxes

The Company recognizes tax effect of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The provision for income taxes is computed based on the pretax income included in the consolidated statements of income. The asset and liability ap- proach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences.

(12) Appropriation of Retained Earnings

Under the Japanese Commercial Code and the Articles of Incorpora- tion of the Company, the plan for the appropriation of retained earnings (primarily cash dividend payments) proposed by the Board of Directors is subject to approval at the annual shareholders' meeting, which must be held within three months after the end of each fiscal year. The appropriation of retained earnings reflected in the accompanying consolidated financial statements represents the results of appropriations applicable to

(25)

shareholders' meeting and disposed of during that year. Dividends are paid to shareholders listed on the shareholders' register at the end of each fiscal year. Bonuses are paid to directors and corporate auditors out of retained earnings, instead of being charged to income for the year, which constitutes a part of the appropriation cited above.

(13) Provision for Accrued Expenses

(a) Allowance for doubtful accounts. In general, the Company and its subsidiaries provide the allowance based on the past receivables loss experi- ence for a certain reference period. Furthermore, for receivables with financial difficulty which could affect the debtors' ability to perform their obligations, the allowance is provided for estimated unrecoverable amounts individually.

(b) Accrued pension and severance liabilities

Until the year ended March 31, 2000,

“Accrued retirement benefits to employees” represents the liability for which the Company has provided to the amount which would be required to pay if all eligible employees volun- tarily terminated their employment at the respective balance sheet dates, less related benefits provided by the pension plan. Under the current retirement benefit program, the Com- pany also has a funded pension plan which covers a portion of retirement benefits payable to employees. The Company also provides for the accrual of lump-sum retirement benefits pay-

able to directors and corporate auditors upon retirement in an amount equivalent to 100% of the liability.

(14) Research and

Development Expenses Research and development expenses are charged to income as incurred.

(15) Subsequent Events

Appropriations of the Company’s retained earnings in respect to the year ended March 31, 2006, which was proposed by the Board of Directors and approved at the shareholders’ meeting held on June 29, 2006, was totaled to ¥1,099 million mainly for dividends. Such appropriations have not been segregated from retained earnings in the accompanying consolidated statements.

(16) Net Income and Dividends per Share

Basic net income per share is computed based on the weighted average number of shares of common stock outstanding during each period. Diluted net income per share is not presented since no bonds with warrants and convertible bonds are issued. Cash dividends per share shown for each fiscal period in the accompanying consolidated statements of income represent actual dividends declared as applicable to the respective fiscal period.

(17) Reclassifications

Certain reclassifications of previ- ously reported amounts have been made to the consolidated balance

sheets at March 31, 2005, the consolidated statements of income and the consolidated statements of shareholders’ equity for the year then ended to conform to the current year presentation. Such reclassifications have no effect on net assets and net income.

4. United States Dollar Amounts

The Company maintains its accounting records in Japanese yen. The U.S. dollar amounts included in the consolidated financial statements and notes thereto represent the arithmeti- cal results of translating Japanese yen to U.S. dollars at a rate of ¥117=US

$1, the approximate effective rate of exchange prevailing on March 31, 2006. The inclusion of U.S. dollar amounts is solely for the convenience of readers outside Japan and is not intended to imply that yen amounts could be converted, realized, or settled in U.S. dollars at that, or any other rate.