AIDA OCTAHEDRON PHILOSOPHY

[Pages:10]PROFILE

Since its establishment in 1917, AIDA ENGINEERING, LTD., has constantly led the metal-forming industry in Japan as the foremost manufacturer of metal-forming systems, particularly mechanical presses.

Backed by its technological capabilities built up over many years, the company was the first in Japan to develop a range of products, including capping presses, transfer presses, stamping centers, and industrial robots, growing into one of the world's most prominent manufacturers of forming systems, with a history of glittering achievements.

As a company listed on the first section of the Tokyo stock exchange, we enjoy a high reputation in Japan and overseas for our stable financial structure and sound management.

Since the establishment of a representative office in 1968, we have been vigorously expanding overseas, and currently we are offering our overseas customers attentive service via a network of 34 sales and service centers in 16 countries worldwide. In recent years we have established overseas manufacturing bases in the U.S. (Ohio), Europe (Italy) and Asia (Malaysia and China), creating together with Japan a global manufacturing system that can tailor our products better to customer needs.

As a forming systems builder that supports the manufacturing process, we are aiming to become a global total engineering company in order to meet the demands of all manner of customers throughout the world.

CORPORATE PHILOSOPHY

Advance globally as a forming systems builder and continue to be a company that contributes to people and society.

AIDA OCTAHEDRON PHILOSOPHY

INNOVATIVE GROWTH

HUMAN WARE

Forming Technology

Market Driven Technology

Originality Self Improvement

MIND

System Integration Technology

Precision Manufacturing Technology

SOFT & HARDWARE

Fairness Teamwork

CONTRIBUTION

CONTENTS Financial Highlights 1 Management Policies 2 Business Developments and Results 5

Financial Section 7 Subsidiaries 25 Board of Directors and Corporate Data 25

AIDA ENGINEERING, LTD. and Consolidated Subsidiaries

FINANCIAL HIGHLIGHTS

Years ended March 31

2006

Millions of yen

2005

2004

2003

2002

For the Year: Net Sales ..................................................... Operating Income (Loss) ........................... Income (Loss) before Income Taxes........... Net Income (Loss) ..................................... Capital Expenditure ................................... Depreciation and Amortization .................

?54,303 3,412 3,168 1,792 1,800 1,814

?43,679 2,027 2,566 1,281 2,240 1,883

?39,017 657 565 289

4,620 1,990

?35,646 (469)

(1,825) (1,745) 4,055 1,823

?37,715 305 783 193

2,708 1,779

At the Year End: Total Assets................................................. Current Assets ............................................ Property, Plant and Equipment ................. Current Liabilities ...................................... Long-Term Liabilities ................................. Shareholders' Equity ..................................

83,510 45,994 19,875 21,464

1,265 60,780

75,687 41,290 19,409 15,881

392 59,413

65,418 29,934 19,028

8,876 355

56,186

68,118 32,037 17,802 10,230

321 57,566

74,275 33,711 17,923 11,254

388 62,631

Per Share: Net Income (Loss) -- Basic......................... Diluted Income .......................................... Cash Dividends ..........................................

?23.79 23.52 10.00

?17.40 17.30 10.00

Yen

?4.06 4.06 8.00

?(22.90) --

8.00

? 2.44 --

10.00

Thousands of U.S. dollars 2006

$462,272 29,046 26,968 15,256 15,323 15,443

710,912 391,546 169,198 182,724

10,776 517,412

U.S. cents

?20.25 20.02 8.51

Note: U.S. dollar amounts have been translated at the rate of ?117.47 to $1, the rate prevailing on March 31, 2006.

Net Sales (Millions of yen) 54,303

37,715

35,646

39,017

43,679

Net Income (Loss) (Millions of yen) 1,792

1,281

193

289

Total Assets (Millions of yen)

74,275

68,118

65,418

75,687

83,510

2002 2003 2004 2005 2006

(1,745) 2002 2003 2004 2005 2006

2002 2003 2004 2005 2006

Annual Report 2006 1

MANAGEMENT POLICIES

Fundamental Management Policies

AIDA ENGINEERING Group's corporate philosophy is to "advance globally as a forming systems builder, and continue to be a company that contributes to people and society." This encapsulates our ambition to become a leader in technological innovation in the broader field of forming and become a company that can contribute to people in local communities worldwide while being a winner in the era of mega-competition.

As an extension of our corporate mission, our slogan is "Harmony between People and Technology," under which we will continue to provide products that meet customers' needs by taking up the challenges offered by undeveloped technologies and process innovation.

Fundamental Policies Concerning the Distribution of Company Profits

AIDA ENGINEERING considers generating shareholder returns to be a top management priority. And to this end, the Company is working to enhance its corporate value by strengthening its operational infrastructure, improving its corporate quality, and conducting business on a global basis.

Our basic policy regarding dividends is to maintain a stable payout while making decisions on dividends after comprehensively considering business performance in a given fiscal period and future capital requirements.

We intend to allocate internal reserves toward investment in R&D aimed at further enhancing corporate value, toward capital investment designed to rationalize manufacturing and improving quality, strengthening global operations, and boosting capital efficiency.

Basic Stance and Policies on the Minimum Trading Unit for the Stock

Decisions to lower the minimum trading unit for the stock are based primarily on considerations of the stock price and the liquidity of the shares. At present, we view share liquidity to be adequate and, given the current stock price and the costs involved in lowering the minimum trading unit for the stock and other factors, we do not intend to reduce the minimum trading unit at this time. Going forward, we will continue to consider this issue while focusing on stock market trends and on shareholders returns as well as developments in regulations regarding stock certificates.

Management Indicators the Company is Targeting

AIDA ENGINEERING Group will continue to focus on the promotion of globalization of business and the enhancement of profitability. In the medium-term, we will make further efforts for the improvement of corporate value with the goal of realizing ?60 billion or more in sales and 10% or more in operating profit on sales.

Medium- to Long-Term Management Strategies

The core of our management strategy is to become the No. 1 company in the forming system field over the medium- to longterm by focusing on the global market and promoting globalization by building manufacturing and sales bases in Japan, the Americas, Europe, and Asia. In our 2nd Five-Year Management Plan, we are aiming to be No. 1 in our industry in terms of quality, costcompetitiveness, and technology and thus improve our corporate quality, globalize operations, and diversify our product portfolio.

Tasks Ahead for the Company

The mechanical press industry progresses with a favorable amount of orders, while the demand for capital investment is recovering in Japan and overseas. However, the industry faces a difficult business environment featuring skyrocketing material prices, intensifying price competition and the fierce pressure for shorter delivery time.

In 2002, AIDA ENGINEERING Group implemented the "2nd Five-Year Management Plan" to survive in such a difficult management environment and to build a strong foundation. In the fifth year of the foregoing Management Plan, the Company will tackle the following five priority objectives under the theme "stepping up efforts toward powerful persons, powerful products, and a powerful organization for the establishment of a true global business" as our goal. ? Improve customer satisfaction "to achieve No. 1 in quality" ? Pursue of globally competitive low-cost products "to realize No. 1

in low cost" ? Manufacture innovative products passable throughout the world

"to achieve No. 1 in technology" ? Extend the use of consolidated earning power by "reinforcing the

Company's global system" ? Create an enterprise that can offer dreams and hope to its

employees through its "personnel strategy and development of human resources"

2 Aida Engineering, Ltd.

Corporate Governance Basic Stance on Corporate Governance

AIDA ENGINEERING considers strengthening and enhancing its corporate governance systems to be a key priority for management. We are working to improve the fairness and soundness of our management functions while bolstering our management supervisory functions to accelerate decision-making and ensure transparency in our operations.

Status of Implementation of Governance Measures

1) Status of management and administrative organizations and corporate governance structure concerning decision making, execution and supervision in management process. AIDA ENGINEERING introduced an executive officer system in April 2001 to segregate its management supervisory and business execution functions, and to accelerate decision-making and clarify lines of authority and responsibility. Our current management structure comprises seven directors (of whom one is an external director and one is a representative director) and 12 executive officers. Six out of seven directors also serve as executive officers. In principle, the Board of Directors meets regularly once a month, and as needed on an ad hoc basis, and fulfills the function of decision-making body for key issues mandated by law and as a supervisory body for business execution. In principle, the Executive Committee, which comprises the executive officers, meets twice monthly to deliberate on management policies and issues, and aims to unify management's intentions and accelerate business execution. In addition, to maintain an accurate and ongoing grasp of business execution companywide, a reporting meeting from the major business units is held once a month and attended by the business unit heads, directors, auditors, and executive officers. AIDA ENGINEERING has adopted an auditor system. All four auditors are from outside the Company and two are statutory auditors. We do not have dedicated staff assigned to the auditors or the Board of Auditors, but duties required by the auditors are carried out by staff in the General Affairs Department and other functions as needed. The auditing activities of the auditors consist of attending meetings of the Board of Directors, the Executive Committee, reporting meetings of the business units, and other meetings as set forth in the audit implementation plan. In addition, the auditors receive reports from the accounting auditors, listen to business reports, and review important documentation. They also visit the headquarters, major operating bases, and consolidated subsidiaries to examine the status of business execution and the finances of each division. Through these activities, they seek to accurately grasp and

audit management execution and audit the status of legal compliance and appropriateness of the directors' execution of their responsibilities.

ChuoAoyama PricewaterhouseCoopers has been the Company's accounting auditor to conduct accounting audits in accordance with the Japan Commercial Code and the Securities and Exchange Law. The audit firm has been contracted to conduct accounting audits in accordance with the requirements of the Japan Commercial Code and the Securities and Exchange Law. The audit firm receives compensation in return for conducting such activities. There are no conflicts of interest between the audit firm and AIDA ENGINEERING nor between certified public accountants of that firm executing audits and AIDA ENGINEERING. Further, there are automatic safeguards in place to ensure that the audit firm and the accountants of that firm executing audits are not involved in the accounting auditing of AIDA ENGINEERING for longer than a set period of time. The names of the Certified Public Accountants, and the junior accountants who executed accounting audits during the reporting period (the business term from April 1, 2005 to March 31, 2006) on behalf of the Company are outlined below. ? Certified Public Accountants executing audit procedures

Designated partners responsible for executing audits: Yoshitaka Otawara, Seiji Yamamoto, Takahiro Yamazaki ? Breakdown by qualification level of assistants in the accounting audit procedures Certified Public Accountants: 6; Junior Accountants: 6; Other staff: 1 The remuneration paid to the Certified Public Accountants for work performed in accordance with Article 2-1 of the Certified Public Accountants Law amounted to ?22 million. Note: The Company's accounting auditor, ChuoAoyama PricewaterhouseCoopers resigned from being the Company's accounting auditor as of July 1, 2006. The company appointed PricewaterhouseCoopers Aarata as a temporary auditor as of July 10, 2006. We have established an Audit Office for Consolidated Subsidiaries aimed at auditing the appropriateness and efficiency of the operational processes and management and administrative structures at our consolidated subsidiaries.

This office is staffed by two persons, who pay visits to the Company's consolidated subsidiaries when deemed necessary, where they conduct on-site audits. In the case of subsidiaries whose business operations and results have a significant effect on the consolidated accounts as a whole, we from time to time request the regularly contracted auditing firm to conduct audits of these subsidiaries. Additionally, on the advice of our outside auditors, we have established an Internal Control Auditing Office to provide support for management decision-making, and one

Annual Report 2006 3

specialist employee has been assigned to this office. Further, we have entered into retainer contracts with a law office and seek the advice of our legal counsel as needed in the management decision-making process. In October 2003 we formulated the "AIDA Group Action Guidelines" in order to promote legal compliance and to conduct business activities according to high ethical standards. Further, we established a Compliance Committee designed to strengthen our internal control system. We subsequently established the Internal Control Auditing Office to enforce observance of the Action Guidelines even more rigorously.

The Company's basic policies regarding the establishment of an internal control system were decided by resolution of the Board of Directors at a board meeting held on May 9, 2006. Our risk management structure is as follows. Risks related to the execution of management strategies are analyzed and appropriate countermeasures are implemented by the relevant business units with exposure to that risk; these matters are discussed as need by the Executive Committee and the Board of Directors. Risks inherent in everyday operations are handled by the respective business units, depending on the nature of the risk. In addition, we have established a dynamic risk management structure whose response depends on the potential impact on operations. This includes committees for safety and hygiene, product liability, export administration, and other cross-sectional committees as well as project teams designed to address specific risks.

2) Overview of personal and capital ties, business relationships and other potential conflicts of interest between the Company and its external directors and statutory auditors ? An external director is also the Chairman of the Japan Forming Machinery Association, of which the Company is a member. ? Of the four external auditors, one also serves as a statutory auditor of Dai-Ichi Mutual Life Insurance Company, a major shareholder. AIDA ENGINEERING also has insurance contracts with that firm. ? These transactions are standardized contracts between the companies involved and there is no direct conflict of interest with the individual external director or auditor.

3) Measures undertaken during the past year aimed at enhancing corporate governance During the reporting period, from April 1, 2005 to March 31, 2006, we worked toward achieving the establishment of firm business footholds overseas, which was stated as one of our prime management goals in the "AIDA Group Action Guidelines" formulated in October 2003. To get our new Internal Control System up and running, we established the Internal Control Auditing Office in January 2006. We also expanded our investor relations activities by proactively disclosing information we expect investors to request, giving detailed answers to investor questions on an individual basis, and improving our website, in addition to the briefings to analysts on our interim and full-year performance. In this way, we endeavored to improve transparency and timely disclosure.

Countermeasures against Mergers and Acquisitions

By resolution of the Board of Directors at a meeting held on May 17, 2005, a countermeasures policy was agreed upon to deal with the possible attempted large-scale purchase of the Company's shares with the aim of taking over the ownership of the Company. By resolution at a meeting of the Board of Directors on May 16, 2006, certain changes were made to this countermeasures policy. Hereinafter, the revised policy is referred to as "the current policy."

The purpose of the current policy is to establish certain rules concerning the large-scale purchase attempt in order to provide shareholders of the Company an opportunity and time period to receive the information necessary to determine whether or not to sell the Company's shares as an acceptance of the large scale purchase by a particular buyer, and to be offered an alternative plan upon necessity. In the event the large scale buyer does not comply with the said rules, the Company may take countermeasures against the large scale purchase attempt. On the other hand, in the event the rules are observed, the Company will not take countermeasures against such attempt, in principle.

This policy was determined by unanimous resolution of all present at the abovementioned meeting of the Board of Directors on May 16, 2006, i.e., all the directors of the Company and all four statutory auditors (all of whom are outside auditors). All the auditors expressed the opinion that they agreed with the policy on condition that the detailed application of the policy is legally and ethically appropriate.

For details of the policy, please refer to the additional material on the Company's website at:

4 Aida Engineering, Ltd.

BUSINESS DEVELOPMENTS AND RESULTS

Review of Operations

The economic environment surrounding AIDA ENGINEERING Group during the consolidated fiscal year ended March 31, 2006, has reflected the steady performance of the U.S. economy, continued high growth in Asia, and the gradual recovery of the economy in Europe amid concerns that the economy of each country may be affected by the surge in crude oil prices. The corporate earnings indicated a pronounced tendency toward improvement in Japan in line with the continued tendency for the relatively stable Japanese yen.

The mechanical press industry in Japan continued to boom as a whole owing to the worldwide expansion in capital investments in the consumerelectronics industry due to the expansion of the flat panel TV sets market with continuing global capital investments in the automotive industry, the key source of demand. The order statistics by the Japan Forming Machinery Association were pushed up to ?227.47 billion, an increase of 21.4% from the previous fiscal year.

Under these circumstances, AIDA ENGINEERING Group published as a slogan "the establishment of the global management system" as the fourth year of "the Five-Year Plan to achieve No. 1 in quality, No. 1 in low cost, and No. 1 in technology" and worked together for the increase in consolidated revenue.

As a result, sales for the current consolidated fiscal year ended March 31, 2006, rose to a record ?54,303 million (an increase of 24.3% from the previous year) owing to the growth in sales in the automotive industry and the increase in flat panel TV manufacturing facilities as well as the expansion of market share in Europe where the full production of our manufacturing subsidiary has started. Despite the expenditures involved in the launching of the business in Europe, operating income was ?3,412 million (up 68.3%) and ordinary income was ?3,698 million (up 55.9%) reflecting the revenue-increase effect and cost reductions. AIDA ENGINEERING Group recorded net income of ?1,792 million (up 39.9%) after recording ?183 million in extraordinary loss, which was caused by the withdrawal from business as a result of liquidation of profit-deteriorating

subsidiaries for the purpose of selection and concentration of business and optimal placement of management resources.

Breakdown of Business Performance by Location of Group Company Japan

Owing to expanding demand for capital investment and increased sales in service businesses, net sales amounted to ?42,630 million (an increase of 23.4% from the previous year) and operating income was ?3,407 million (up 96.1%) due to revenue increase effect and cost reductions.

Asia Demand for capital investment was on an uptrend in the automotive industry and production at our manufacturing subsidiaries in Malaysia and China rose. Net sales was ?9,938 million (an increase of 42.2% from the previous year) and operating income was ?1,013 million (up 26.7%).

Americas Due to increase in demand for capital investment by Japanese automotive industries, net sales was ?9,084 million (an increase of 26.6% from the previous year), however, production at our manufacturing subsidiary declined due to downturn in demand from U.S. automotive industries and operating loss was ?163 million (operating income of ?85 million in previous year).

Europe Production at our manufacturing subsidiary started in full scale and sales to new customers are increased. Net sales was ?6,128 million (an increase of 200.2% from previous year), however, operating loss was ?736 million (an increase of 5.5% from previous year) due to its start up cost.

Annual Report 2006 5

Financial Position

Cash and cash equivalents at the end of the fiscal year decreased by ?2,437 million year on year, to ?9,983 million.

Cash flows from operating activities Net cash provided by operating activities amounted to ?407 million (versus ?3,297 million in fiscal 2005), owing to an increase in income before income taxes and other adjustments, which offset a decrease by growing inventories on the back of business expansion, and income tax payment.

Cash flows from investing activities Net cash used in investing activities amounted to ?1,300 million (versus inflows of ?424 million in fiscal 2005), as outflows from the acquisition of tangible fixed assets aiming expansion of production capacity.

Cash flows from financing activities Net cash used in financing activities amounted to ?2,078 million, owing to acquisition of treasury stock and dividend payment (net inflows amounted to ?1,502 million in fiscal 2005).

Status of Production, Orders and Sales

Millions of yen

Thousands of U.S. dollars

2006 2005 2004

2006

Production volume: Press machines ................... Services ............................... Other ..................................

?45,585 --

187 ?45,773

?35,867 -- --

?35,867

?31,814 -- --

?31,814

$388,063 --

1,600 $389,663

Orders receipt: Press machines ................... Services ............................... Other ..................................

?53,949 8,677 211

?62,838

?46,046 7,279 15

?53,341

?32,143 5,017 750

?37,910

$459,262 73,866 1,799

$534,928

Backlog: Press machines ................... Services ............................... Other ..................................

?38,265 -- --

?38,265

?29,730 -- --

?29,730

?20,069 -- --

?20,069

$325,747 -- --

$325,747

Sales: Press machines ................... Services ............................... Other ..................................

?45,414 8,677 211

?54,303

?36,385 7,279 15

?43,679

?33,250 5,017 750

?39,017

$386,606 73,866 1,799

$462,272

Note: U.S. dollar amounts have been translated at the rate of ?117.47 to $1, the rate prevailing on March 31, 2006.

6 Aida Engineering, Ltd.

Press machines The industry experienced a booming market as capital investment was increased in the automotive industry, mainly Japanese automobile manufacturers, and also in the digital consumer electronics industry, mainly for flat panel TV sets.

As a results, orders and sales amounts reached to ?53,949 million and ?45,414 million, respectively.

Services The synergy effect, which was generated from the integration of the service division and secondhand press machine sales division in April 2004, expanded and strengthened the business and boosted combined orders and sales to ?8,677 million. (Secondhand press machine sales division is included in "Other" in 2004)

Other The insurance business and the car model manufacturing business showed steady growth both in orders and sales to ?211 million.

Outlook for the Year Ending March 31, 2007

Although demand for capital investment in automotive industry and consumer electronics industry are expected to remain firm, economic uncertainty due to high prices of steel and other raw materials, soaring oil prices and concern over trend of foreign currency exchange rate make future of economic condition unclear. Amid this environment, AIDA ENGINEERING Group will strive to expand its consolidated earnings, by expanding operating basis of our group companies in Japan, Asia, Europe and America.

For the fiscal year ending March 31, 2007, we forecast consolidated net sales of ?57,000 million, recurring profit of ?4,700 million, and net income of ?2,400 million. We plan the annual dividend of ?11 per share, consisting of the regular dividend of ?10 per share and additional ?1 per share of the commemorative dividend for our 90th anniversary of the foundation of our company.

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