Minebea Co., Ltd. ANNUAL REPORT 2006 Year Ended March 31, 2006 For Minebea, competitiveness Minebea Co., Ltd., was established in 1951 as Japan’s first specialized manufacturer means ensuring both ultraprecision of miniature ball bearings. Today, the Company is the world’s leading comprehensive manufacturer of miniature ball bearings and high-precision components, supplying customers worldwide in the information and telecommunications equipment, aerospace, automotive and household electrical appliance industries. machining and mass As of March 31, 2006, the Minebea Group encompassed 44 subsidiaries and affiliates in 13 countries. The Group maintains 28 plants and 43 sales offices and employs a total of 47,526 people. production technologies. Contents 2 At a Glance 3 Consolidated Financial Highlights 4 A Message to Our Shareholders 7 Special Feature: Capitalizing on Core Technologies to Develop Diverse New Businesses 17 Protecting the Environment 17 Contributing to Society 18 Corporate Governance 20 A History of Achievements Disclaimer Regarding Future Projections In this annual report, all statements that are not historical facts are future projections made based on certain assumptions and our 22 Directors, Auditors and Executive Officers management’s judgement drawn from currently available information. Accordingly, when evaluating our performance or value as a 23 Organization going concern, these projections should not be relied on entirely. Please note that actual performance may vary significantly from any particular projection, owing to various factors, including: (i) changes in economic indicators surrounding us, or in demand trends; 24 Contact Information (ii) fluctuation of foreign exchange rates or interest rates; and (iii) our ability to continue R&D, manufacturing and marketing in a timely manner in the electronics business sector, where technological innovations are rapid and new products are launched 25 Financial Section continuously. Please note, however, this is not a complete list of the factors affecting actual performance. 57 Principal Subsidiaries Note: Information contained herein is the exclusive property of Minebea Co., Ltd., and may not be reproduced, modified or 59 Corporate Data transmitted in any form or by any means for whatever purpose without Minebea’s prior written permission. At a Glance Year ended March 31, 2006 Machined Components Principal Products Percentage Net Sales of Machined Components ● Bearings and ● Other Machined Components of net sales Bearing-Related Products Billions of yen Aerospace/automotive fasteners 200 Miniature ball bearings Special machined components Small-sized ball bearings Magnetic clutches and brakes 160 Integrated-shaft ball bearings 41% 129.6 122.0 118.1 Rod-end bearings 120 111.7 116.1 Spherical bearings Roller bearings 80 Sleeve bearings Pivot assemblies 40 Tape guides 0 2 2002 2003 2004 2005 2006 Electronic Devices and Components Principal Products Percentage Net Sales of Electronic Devices ● Rotary Components ● Other Electronic Devices and Components of net sales and Components Billions of yen Hard disc drive (HDD) Personal computer (PC) keyboards 200 188.9 spindle motors Speakers 178.3 156.3 156.9 Fan motors Electronic devices 160 154.1 Hybrid-type stepping motors Color wheels 59% Permanent magnet (PM)-type Magneto-optical disc (MOD) drive 120 stepping motors subassemblies Brush DC motors Lighting devices for liquid crystal 80 Vibration motors displays (LCDs) 40 Variable reductance (VR) Magnetic heads for floppy disc drives resolvers (FDDs) 0 Backlight inverters 2002 2003 2004 2005 2006 Measuring components Strain gages Load cells Consolidated Financial Highlights Years ended March 31 Thousands of Percentage U.S. dollars Millions of yen change (Note) 2006 2005 2006/2005 2006 Net sales ¥318,446 ¥294,422 8.2% $2,710,874 Operating income 19,269 14,083 36.8 164,034 Net income 4,257 5,581 (23.7) 36,243 Total shareholders’ equity 117,577 102,088 15.2 1,000,917 Total assets 349,862 332,217 5.3 2,978,317 Return on shareholders’ equity 3.9% 5.7% Percentage U.S. dollars Yen change (Note) 3 Per Share Data: Net income (basic) ¥ 10.67 ¥ 13.93 (23.4)% $0.09 Shareholders’ equity 294.65 255.82 15.2 2.51 Cash dividends applicable to the year 7.00 7.00 0.0 0.06 Note: U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥117.47=US$1, the approximate rate of exchange on March 31, 2006. Net Sales and Operating Income Net Income (Loss) and Return on Shareholders’ Equity (ROE) Net Income (Loss) per Share (Basic) and Return on Assets (ROA) Billions of yen Billions of yen Yen % 350 318.4 12 28 12 294.4 279.3 280 272.2 268.6 9 21 9 15.08 13.93 6.3 210 6 13.27 14 6 5.7 6.0 10.67 5.0 5.3 5.6 3.9 4.3 140 3 7 3 1.9 1.5 1.7 1.2 –2.4 70 0 0 0 –0.8 22.0 19.4 19.3 18.1 14.1 –2.3 0 –3 –6.10 –7 –3 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Net sales Net income (loss) (left scale) ROE Operating income Net income (loss) per share (basic) ROA A Message to Our Shareholders Targeting New Growth as a Company that Leads the Competition through Manufacturing and Technological Excellence When I assumed the position of president and chief executive Results of Operations officer of Minebea in 2005, I stated that I believed my main mis- In fiscal 2006, Minebea recorded consolidated net sales of ¥318.4 sion was to increase profitability and to do so with momentum. billion, an increase of 8.2% from fiscal 2005, and operating income With this in mind, I set three priority strategic tasks: of ¥19.3 billion, up 36.8%. Nonetheless, net income declined 23.7%, to ¥4.3 billon. 1. Take decisive actions to implement structural reforms Principal global economies were firm during the period, mir- 2. Reinforce R&D roring robust demand in key sectors, notably PCs, HDDs, digital 3. Manage the Company with a clear vision household appliances, aircraft and automobiles. In this environ- Through resolute efforts aimed at addressing these tasks, ment, our sales were driven by steadily expanding sales of bear- we have endeavored to improve results in persistently unprofit- ings and key machined components and a sharp increase in sales able businesses and strengthen the foundations of growth busi- of lighting devices. nesses. As a consequence, in fiscal 2006, ended March 31, 2006, We also succeed in achieving our initial target for operating we achieved a 36.8% increase in operating income—a major step income, which was bolstered by solid gains in such key businesses toward a full recovery. In March 2006, I introduced a new road as ball bearings, rod-end and spherical bearings, and pivot assem- map for growth that positions fiscal 2006 as a year for structural blies, as well as improvements in three loss-making businesses, reform, fiscal 2007 as a year for eradicating elements that are not notably HDD spindle motors, which returned to profitability in conducive to growth and fiscal 2008 as a year for surging forward. the fourth quarter. In line with this road map, in fiscal 2007 we will ready ourselves The decline in net income was largely attributable to the fact for fiscal 2008 by resolving any remaining issues in our business that we recorded a business restructuring loss of ¥3.5 billion, and establishing a firmly profitable business structure. owing to sweeping measures implemented in our PC keyboard business—another of our three loss-making businesses. 4 Takayuki Yamagishi Representative Director, President and Chief Executive Officer Initiatives and Accomplishments in Fiscal 2006 A Strategic Growth Company During the period under review, we focused on the following four key initiatives in our drive to improve results in persistently Leading the Competition unprofitable businesses and reinforce the operating foundation Growth and through Manufacturing and Profitability of growth businesses: Technological Excellence Implement structural reforms, namely, introduce a business unit system and establish headquarters Evolve toward New Markets Shift our focus to quality rather than volume, and income rather than sales Moving Forward Strategic Strengthen Engineering and Reinforce engineering and technological development Year ending Businesses Technology Development (through the promotion of coordinated management by Mar. ’08 Growth Continually Improve the Engineering Headquarters and the establishment of Transition to Strategy, Manufacturing Stronger Return to Business and Technologies basic technology development divisions) Business ■ Profitability Technology Improve the performance of loss-making businesses Year ending Alignment Mar. ’07 Structural reforms focused on the introduction of a business Structural Return to unit system and the establishment of five headquarters to provide Reorganization Reduce Year ended Changes Basics of Losses support for business units. These reforms have enhanced the Mar. ’06 for Growth Manufacturing independence and freedom of individual businesses as well as Non-Profitable Growth Manufacturing, Engineering clarified accountability. At the same time, they have eliminated Businesses Businesses and Sales organizational barriers, thereby facilitating the efficient deploy- ment of Group resources and enabling Group companies to I have set forth for Minebea—that of a company that leads the effectively align their business strategies. competition through manufacturing and technological excellence. On another front, we acknowledged that our traditional emphasis The four initiatives implemented in fiscal 2006 were undertaken on high volume is not suited to all Minebea businesses. A with this vision in mind. These initiatives shared one constant, classic example of a business that has performed poorly as a con- namely, a return to the basics of manufacturing. To accommodate sequence of this approach is HDD spindle motors. Accordingly, this, we must refashion our strategies, our structure and our vari- 5 we set a clearly defined policy of placing profit ahead of volume ous businesses—this is what is meant by “structural reform.” In and took steps to ensure that the meaning and objective of this fiscal 2007, we will build on the foundation established through shift were communicated clearly to all employees.