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ANNUAL REPORT 2007ANNUAL REPORT 2007

P012-E407

Shimadzu Annual Report 20071


Contents Consolidated Financial Highlights Year ended March 31Cautionary Statement Regarding Forward-Looking Information

Projections of future business performance contained in this report are made by the Company management based on information available at the time of its publication and do not preclude potential risks and uncertainties. Actual results may differ materially from those described in this report due to various factors.

Unit: million yen

2004 20052003 2006 2007

Net sales

Domestic sales

Overseas sales

Operating income

Net income

Earnings per share (yen)

Dividend per share (yen)

Capital expenditures

Depreciation

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

Cash and cash equivalents as of the end of fiscal year

Total assets

Net assets

Equity capital ratio (%)

Return on equity (%)

Return on assets (%)

Net assets per share (yen)

Number of group employees (people)

160,238

73,321

20,587

233,559

163,509

79,129

21,076

242,638

167,983

94,449

25,281

262,432

62,186

10,944

204,283

142,097

64,600

16,898

11,902 11,316 13,3793,518 5,912

43.87 39.32 45.3012.78 21.64

7.00 7.00 8.005.00 5.00

6,350 7,059 11,0503,947 11,525

4,678 4,866 5,1564,416 4,420

18,139 12,941 13,99123,955 14,793

(11,896) (6,342) (9,797)(3,754) (4,068)

(7,520) (5,330) (9,728)(4,223) (11,208)

29,860 31,927 26,90732,762 31,180

262,846 277,052 295,084244,014 256,399

96,387 129,659 *142,20480,528 85,676

36.7 46.8 48.033.0 33.4

13.1 10.0 9.94.4 7.1

6.7 6.8 8.13.4 4.7

360.81 438.15 479.60301.46 320.72

8,246 8,512 8,9547,879 7,930

217,940

153,340

Net income

¥ ¥

Earnings per share Net assets per share

* Equity for the year ended March 31, 2007 includes minority interests due to introduction of a new accounting standard.

0

10

20

30

40

50

02003 2004 20062005 2007 2003 2004 20062005 2007 2003 2004 20062005 2007 2003 2004 20062005 2007

¥millions

Net sales

0

100

200

300

400

500

0

50,000

100,000

150,000

200,000

250,000¥millions

5,000

10,000

15,000

20,000

25,000

3,518

5,912

11,90211,316

13,379

12.78

21.64

43.8745.30

39.32

301.46320.72

360.81

438.15

479.60

204,283217,940

233,559

242,638262,432

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Share Price ( Tokyo Stock Exchange )

4 6 8 10 12 2 4 6 8 10 12 22006 2007

Month800

1,200

2,000

1,600

YenTOPIXTOPIXShimadzu

400

700

1,300

1,000

Unit: yen

Share price range

High

Low

Fiscal year-end

Number of shares outstanding (as of fiscal year-end; unit: million shares)

Market capitalization (as of fiscal year-end; unit: million yen)

Earnings per share

Earnings per share (diluted)

Dividend

870

622

741

295

218,911

39.32

37.53

7.00

FY2005

1,107

720

1,021

296

302,287

45.30

-

8.00

FY2006

Share Price Information

Consolidated Financial Highlights

To Our Shareholders

Business Segment Information

Environmental Preservation Activities

Board of Directors

Financial Section

1

2

4

9

13

14

16



To Our Shareholders

Business Overview

In fiscal 2006, the Japanese economy trended along a recovery path, supported by improved corporate earnings and the subsequent recovery in capital expenditures, despite rising crude oil and raw material prices. Overseas, the U.S. economy as a whole remained firm on the back of consumer spending and capital expenditures in the private sector, while facing concerns of economic slowdown such as stagnation of the housing market. European economies saw a steady recovery while Asia experienced continued growth in China and other economies. Given such economic conditions and under its medium term management plan set out for the period starting from April 2005 through March 2008, the Shimadzu Group pursued further globalization and drove forward structural reform of business operations. As a result, the Group achieved record earnings with its consolidated net sales for the year increasing 8.2% from the previous fiscal year to ¥262,432 million, operating income expanding 20.0% to ¥25,281 million, ordinary income growing 26.7% to ¥23,206 million and net income up 18.2% to ¥13,379 million.

Earnings Highlights1. Consolidated net sales rose 8.2% from the previous fiscal year to ¥262,432 million and operating

income increased 20.0% to ¥25,281 million. Ordinary income increased 26.7% to ¥23,206 million while net income totaled ¥13,379 million, up 18.2%, which are all record figures.

2. Domestic sales rose 2.7% from the previous fiscal year to ¥167,983 million. Overseas sales increased 19.4% to ¥94,449 million and overseas sales ratio rose 3.4 percentage points to 36.0%. The Company recorded double-digit sales growth in all of North and South America, Europe and Asia-Oceania.

3. As of March 31, 2007, total assets stood at ¥295,084 million, up ¥18,032 million from the end of the previous fiscal year. Net assets stood at ¥142,204 million, up ¥12,037million. Equity capital ratio was 48.0%, an improvement of 1.2 percentage points from the end of the previous fiscal year.

4. For fiscal year 2006, the Company paid an annual dividend of ¥8.0 per share of common stock (an interim dividend of ¥3.5 per share and an year-end dividend of ¥4.5 per share), up ¥1.0 per share from the previous term.

5. For the fiscal year ending March 31, 2008, the Company expects consolidated net sales of ¥270,000 million, up 2.9% from a year earlier, operating income of ¥27,000 million, up 6.8%, ordinary income of ¥24,000 million, up 3.4%, and net income of ¥14,400 million, up 7.6%.

In fiscal 2006, Shimadzu posted record net sales for the fifth consecutive year, record operating income for the fourth straight year and record ordinary income for the third consecutive year. We also registered record net income. Strong domestic business and robust overseas sales are enabling continued dynamic growth at our company.

President and Chief Executive Officer

Shigehiko Hattori



Business Segment Overview

Analytical and Measuring Instruments

During fiscal year 2006, the Company posted approximately 8% increase in sales in all business segments, reflecting significant expansion in overseas business.

In the Japanese market, spectrometers and testing machines for measuring the strength of materials posted solid performance, reflecting growing private sector capital expenditures. Overseas performance was robust primarily in regions such as Asia, particularly China, and Europe, on growing demand for chromatographs and X-ray fluorescence spectrometers related to WEEE and RoHS (European Union regulations on hazardous substances). The expansion in sales of these products boosted operating margin for the period to 17.4%, an improvement of 1.6 percentage points compared with the previous fiscal year. Overseas sales for the segment rose 20.7% to ¥62,139 million for the year with overseas sales ratio increasing 4.4 percentage points from a year ago to 41.6%.

¥149,402 million (up 7.9% compared with the previous fiscal year)

Sales

¥26,120 million (up 19.3%)Operating income

17.4% (up 1.6 percentage points)Operating margin

Aircraft Equipment and Industrial Machinery

Aircraft equipmentIn the domestic market, the Ministry of Defense-related sales of spare parts for military aircrafts mainly increased, while in the overseas markets sales of passenger aircraft components to the Boeing Company of the U.S. also expanded. The Company also supplied prototype parts for a new transport aircraft and patrol aircraft being developed by the Ministry of Defense.

Industrial machinerySales of turbomolecular pumps for semiconductor manufacturing equipment and hydraulic equipment for forklifts expanded.

Operating margin for the aircraft equipment and industrial machinery segment was unchanged from the previous fiscal year. Overseas sales for the segment rose 20.5% from a year earlier to ¥11,525 million, with overseas sales ratio increasing 2.0 percentage points to 20.2%.


Sales

¥28,219 million (up 9.4%)Aircraft equipment

¥28,823 million (up 8.1%)Industrial machinery


7.4% (unchanged)Operating margin

Overseas Sales

North and South America

In fiscal 2006, the Company’s domestic sales rose 2.7 percent from a year earlier to ¥167,983 million.Meanwhile, overseas sales expanded significantly, posting double-digit growth in North and South America, Europe and Asia-Oceania. Overall overseas sales rose 19.4% to ¥94,449 million, with overseas sales ratio rising 3.4 percentage points to 36.0%.

In North and South America, sales of analytical and measuring instruments and medical systems expanded steadily. Sales for the aircraft equipment and industrial machinery segment grew particularly in North America, reflecting strong sales of parts for passenger aircraft supplied to Boeing Company in the aircraft equipment business and turbomolecular pumps for semiconductor manufacturing equipment in the industrial machinery business.


Sales

¥19,667 million (up 19.0%)North America alone

9.8% (up 1.5 percentage points)Ratio to total sales

Asia and Oceania

In China, sales of X-ray fluorescence spectrometers related to WEEE and RoHS (European Union regulations on hazardous substances) increased significantly. Sales of analytical and measuring instruments also expanded steadily, against the backdrop of economic expansion in the ASEAN nations as well as India.


Sales

¥23,178 million (up 21.5%)China alone


Europe

Sales of analytical and measuring instruments including the Company’s mainstay of chromatographs significantly expanded on the back of robust European economy.


Sales


Medical Systems

In the domestic market, X-ray equipment including X-ray TV systems delivered strong performance. Elsewhere, medical systems showed particularly robust performance in Asia and North and Sourth America. As selling, general and administrative expenses of the segment including research and development expenses increased, operating income slightly declined and operating margin worsened by 0.3 percentage points to 4.3%.Overseas sales for the segment rose 14.9% to ¥20,786 million with overseas sales ratio increasing 2.4 percentage points from a year earlier to 41.5%.

¥50,112 million Sales (up 8.3% compared with the previous fiscal year)

¥2,138 million (down 0.1%)Operating income

4.3% (down 0.3 percentage points)Operating margin Other

Income from rent is the primary component of revenue in this segment.

¥5,876 million Sales (up 7.9% compared with the previous fiscal year)


26.5% (up 3.5 percentage points)Operating margin

Sales Breakdown by Business Segment

Figures in % denote share of each segment to total sales for fiscal year 2006.

Analytical and Measuring Instruments Medical Systems

0

60,000

120,000

180,000

240,000

¥millions300,000

2003 2004 2005 2006 2007

204,283 217,940233,559

242,638262,432

21.7%

19.1%

56.9%

2.2%

9.8%

19.4%

64.0%

6.8%

Aircraft Equipment and Industrial Machinery Other

Figures in % denote share of each segment to total sales for fiscal year 2006.

Japan North & South AmericaEurope Asia & Oceania

¥millions

0

60,000

120,000

180,000

300,000

240,000

2003 2004 2005 2006 2007

204,283217,940

233,559 242,638262,432

Participated in the world’s largest analytical instrument exhibition(February 2007, Illinois, U.S.)

Overseas Sales

Year ended March 31 Year ended March 31




Financial Condition Overview Dividend PolicyTotal assets at the end of the fiscal year stood at ¥295,084 million, representing an increase of ¥18,032 million from the end of the previous fiscal year, as trade notes and accounts receivable increased by ¥9,743 million, inventories by ¥3,936 million and buildings and structures increased by ¥4,920 million. Net assets increased ¥12,037 million to ¥142,204 million, mainly as retained earnings grew by ¥11,074 million. At the end of the fiscal year, equity ratio improved 1.2 percentage points compared with a year earlier to 48.0%.

Medium-Term Management Plan and Outlook for Fiscal Year 2007Shimadzu is currently in the process of implementing the initiatives under its three-year Medium-Term Management Plan launched in fiscal year 2005 with the main objectives of “Global Growth” and “Structural Reform of Business Operations.” Fiscal year 2006 marked the second year of this plan and we were able to achieve the goal of overseas business expansion one year earlier than the original plan, largely owing to stronger-than-expected sales growth outside Japan. Fiscal 2007 is an important year for Shimadzu, as it is the final year of the Medium-Term Management Plan. We are committed to make every effort to accomplish the objectives of the plan and achieve sustained growth of the business under the next growth plan. For the year ending March 31, 2008, Shimadzu expects consolidated sales of ¥270,000 million, up 2.9% compared with a year earlier, operating income of ¥27,000 million, up 6.8%, ordinary income of ¥24,000 million, up 3.4%, and net income of ¥14,400 million, up 7.6%.

Global GrowthUnder the Global Growth objective, we have established new sales subsidiaries in the U.K., France, Netherlands and India. In China, we newly established a company to offer contract-based analytical service in Guangzhou (Guandong) and expanded capacity of our analytical and measuring instrument plant in Suzhou (Jiangsu) to accelerate globalization of our operation.

Shimadzu believes that its profit distribution policy is a matter of vital importance to the Company and our policy is to make stable and continued dividend payments reflecting our earnings performance. We are fully committed to improving business performance to reinforce our profitability and financial standings and boost return on equity. We plan to invest retained earnings effectively in new facilities as well as research and development to ensure future growth and business expansion.We have set the annual dividend for fiscal year 2006 at ¥8.0 per share of common stock (interim dividend of ¥3.5 per share and year-end dividend of ¥4.5 per share). For fiscal year 2007, we expect to offer an annual dividend of ¥8.0 per share of common stock (interim dividend of ¥4.0 per share and year-end dividend of ¥4.0 per share). We would like to thank our shareholders and look forward to their continued support.

Structural Reform of Business OperationsIn November 2006, our new analytical and measuring instrument assembling plant commenced its operations with an aim to shift from the existing make-to-stock production system to a build-to-order production system. By maintaining only a limited stock of parts constantly by employing the just-in-time method, we are able to assemble products after receiving an order and supply them to the customer in a short period of time. The move is part of our active efforts to reduce costs through lowering of inventory levels and stable product quality.

June 28, 2007

* Forecast, Unit: billion yen

FY2004 FY2005 FY2006 FY2007*

Net sales

Operating income

Operating margin

Overseas sales

Overseas sales ratio

242.6 262.4 270.0233.5

21.0 25.2 27.020.5

8.7% 9.6% 10.0%8.8%

79.1 94.4 99.873.3

32.6% 36.0%

Medium-TermManagement Plan

270.0

27.0

above 10%

94.0

above 35%37.0%31.4%

New build-to-order production system

Backbone network system

Parts

Inventoryline

Customers

Parts

Parts

Parts

Parts

PULL ShipmentAssembly

(5 to 20 days)

Order details

Keeping appropriate inventory levels for parts and units. Assembling only required volumes based on order details.

Shimadzu (Guangzhou) Analysis & Technology Service co., Ltd

Construction of new plant for integrated production of turbomolecular pumps (June 2007, Kyoto)

Procurement of parts and materials Procurement of processed parts from suppliers

President and Chief Executive Officer

Shigehiko Hattori

The latest ultra fast liquid chromatograph



Analytical and Measuring InstrumentsIn this segment, Shimadzu offers a number of highly competitive products both in Japan and abroad, including chromatographs, mass spectrometers, X-ray/surface analysis instruments, material testing machines, nondestructive inspection machines and environment-related measuring instruments. These instruments are used in research and development and quality control by businesses and universities in wide-ranging fields such as pharmaceuticals, chemicals, food, iron and steel, and semiconductors. In recent years, these products are also being used in environmental monitoring.Currently, in addition to the products’ high market share in Japan, we are accelerating our efforts to expand globally, especially in the biggest markets such as the U.S. and Europe as well as in fast-growing China and India.Furthermore, we are committed to expanding the business in the life science field and have been focusing on the development of instruments for DNA and protein analysis as well as related laboratory reagents. We are also involved in the joint development with a number of research institutes of next generation diagnosis technologies such as analysis of SNPs and disease biomarkers.

OutlookIn fiscal 2006, net sales for the segment grew 7.9% compared with the previous fiscal year to ¥149,402 million, while operating income jumped 19.3% to ¥26,120 million.In fiscal year 2007, Shimadzu expects the segment to post net sales of ¥156,400 million, up 4.7% compared with the previous fiscal year, and operating income of ¥27,200 million, up 4.1%. We aim to achieve continuous expansion of the business across the globe, with chromatographs as the segment’s mainstay product, through measures including establishment of a company that sells supplies for chromatographs in China jointly with GL Sciences Inc., a company in which Shimadzu has invested, as well as reinforcement of sales efforts for strategic products including ultra fast liquid chromatograph (UFLC) and liquid chromatograph mass spectrometer (LCMS-IT-TOF).

Business Segment Information

We are committed to offering strong support to our customers in their businesses and research and development activities by supplying a wide range of products and services based on our cutting-edge technologies for a multitude of industrial and academic applications. Currently, our core businesses are Analytical and Measuring Instruments such as chromatographs widely used in research and development in the pharmaceutical and chemical industries, Medical Systems such as X-ray imaging systems, Aircraft Equipment such as flight control systems and air-conditioning equipment and Industrial Machinery including turbomolecular pumps for semiconductor manufacturing equipment and hydraulic equipment for forklifts.

Chromatographs

Carrier gas Detector Data system

Column

Column ovenInjection of sample

Basic mechanism of chromatograph

A chromatograph is an instrument that isolates chemical components of a sample in a column and analyzes those components and their quantity. There are two types of chromatographs: gas chromatographs and liquid chromatographs. Gas chromatographs heat samples and separate and analyze them in gas form while liquid chromatographs separate the components of samples and analyze them in liquid form at room temperature. They are commonly used for research and development and quality control in a wide range of industries such as pharmaceuticals, petrochemicals, food, and environmental analysis. Shimadzu enjoys the biggest market share for both gas and liquid chromatographs in Japan and is currently striving to expand sales globally in the U.S., Europe, China and India. In fiscal 2006, sales of chromatographs rose 7% from a year earlier to ¥57,300 million, of which domestic sales declined 3% to ¥26,100 million while overseas sales increased 16% to ¥31,100 million.

Sales by Geographical Segment (FY2006)

Europe 10.0%

North & South America 8.8%

Asia-Oceania 22.7%

Japan 58.4%

112,198

122,918131,643

138,453

14,40819,634 22,705 21,891

149,402

26,120

Sales and Operating Income

¥millions Net sales Operating income

0

30,000

Year ended March31

60,000

90,000

120,000

150,000

2003 2004 2005 2006 2007

for gas chromatograph

for liquid chromatograph

Shimadzu’s liquid chromatograph mass spectrometer plays an important role in research and development at a major Japanese beverage manufacturer

Column



The Medical Systems segment offers diagnostic imaging systems, which create images of internal organs and bones and active status of tissues, and the current core products of the segment include X-ray systems and PET/CT scanners. Our focus in this segment is on sales expansion of X-ray systems equipped with flat panel detectors (FPD), a cutting-edge digital device graually replacing conventional films and analog devices. FPDs employing our direct conversion method have been winning high acclaim from hospitals and clinics for its clear and highly detailed images.

Net Sales and Operating Income

¥millions

Aircraft Equipment Sales by Geographic Segment (FY2006)

Industrial Machinery Sales by Geographic Segment (FY2006)

0

10,000

20,000

30,000

40,000

50,000

60,000

47,804 49,25152,306 52,460

29,41629,41627,67327,673

24,72924,729 25,78625,786

18,388

27,577 26,674

18,38821,57821,578

27,577 26,674

18,388

27,577 26,674

2,340 3,056 2,846 3,909

57,042

28,21928,219

28,82328,823

4,210

2003 2004 2005 2006

Other 0.7%

North & South America 7.7%Japan 91.6%


Europe 1.2%

Japan 68.2%

Asia-Oceania 19.7%

Flat Panel Detectors (FPDs)FPDs (shown in the picture) in the product to replace the conventional films and analog image intensifiers used in conventional fluoroscopy. This highly innovative digital technology enables the digital capturing of still and moving images on one FDP panel. The detectors employing Shimadzu’s unique direct conversion method provide clearer images. Ever since the introduction of our first FPD-equipped digital X-ray system for diagnosis of cardiovascular diseases in October 2003, we have been steadily broadening the product lineup to include models for digestive system and general radiography. Sales of FPD-equipped X-ray systems totaled ¥5,900 million in fiscal 2006, up 2% from a year earlier.

Turbomolecular pumpsA turbomolecular pump (Shown in the picture) is a high-efficiency vacuum pump which spins turbine blades inside at high speed to hit gas molecules on the surface of the blades and push them through the exhaust. They are used widely in manufacturing equipment for semiconductors and flat panel displays (etching, CVD, PVD, ion implantation and vapor deposition). With high technological capabilities underpinned by precision processing technique that ensure stable quality, Shimadzu’s turbomolecular pumps have been rated highly by our customers and sales have been expanding every year. Sales of the turbomolecular pumps in fiscal year 2006 totaled ¥6,200 million, up 41% compared with the previous fiscal year.

2007

¥millions

40,864 41,47144,291

46,277

-93

1,340 2,300 2,140

50,112

2,1380

10,000

20,000

30,000

40,000

50,000

2003 2004 2005 2006 2007

Sales and Operating IncomeIn fiscal 2006, net sales for the Aircraft Equipment and Industrial Machinery segment increased 8.7% from a year earlier to ¥57,042 million and operating income rose 7.7% to ¥4,210 million.In fiscal 2007, we expect the segment to post net sales of ¥55,800 million, down 2.2% from a year earlier, and operating income of ¥4,400 million, up 4.5%.

Aircraft EquipmentIn the aircraft equipment business, Shimadzu offers aircraft components. The Company has an extensive track record of supplying aircraft control systems, air conditioning systems and head-up displays (HUD) in Japan primarily to the Ministry of Defense.

OutlookNet sales for the segment rose 9.4% in fiscal 2006 compared with a year ago to ¥28,219 million. In fiscal 2007, we expect the business to post net sales of ¥27,000 million, down 4.3% compared with the previous fiscal year. We are expecting to win orders to supply parts for the next generation transport aircraft C-X and next generation patrol aircraft P-X being developed by the Ministry of Defense as well as for Boeing 747-8 passenger aircraft from fiscal year 2008 onwards. We have started making prior investments in machinery in preparation for these orders.

Industrial MachineryIn the industrial machinery segment Shimadzu supplies equipment for semiconductor- and liquid crystal manufacturing and hydraulic equipment. Among our semiconductor and liquid crystal manufacturing-related equipment, sales of turbomolecular pumps, which are mounted on semiconductor manufacturing equipment and are used for creating vacuums, have been strongly expanding. Other core products include LCD array inspection devices and solar panel film deposition system. Sales of hydraulic equipment have been also growing in applications such as forklift and construction machinery.

In fiscal year 2006, net sales of industrial machinery rose 8.1% from a year earlier to ¥28,823 million. For fiscal year 2007, we expect the business to post net sales of ¥28,800 million, down 0.1%.With the aim of further reinforcing turbomolecular pumps business, whose sales have been expanding steadily, Shimadzu entered into an agreement with Mitsubishi Heavy Industries, Ltd. (MHI) to purchase MHI’s turbomolecular pumps business in November 2007 to ensure continued growth.

Outlook

Europe 5.0%

Sales by Geographic Segment (FY2006)


Asia-Oceania 22.0%

Japan 58.5%

FPD equipped digital X-ray diagnostic system for cardiovescular diseases

Net sales Operating income

Aircraft equipment net salesIndustrial machinery net salesOperating income

OutlookIn fiscal 2006, net sales of the segment rose 8.3% compared with the previous fiscal year to ¥50,112 million, while operating income declined 0.1% to ¥2,138 million.For fiscal 2007, we expect net sales of ¥52,200, up 4.2%, and operating income of ¥2,700 million, up 26.3%, for the segment. Shimadzu has reached OEM agreements with FUJIFILM Corp. and Hitachi Medical Corp. to supply FPD equipped digital X-ray systems, a move which is expected to steadily expand the sales of the strategic product. We are also currently developing a new product of PET/CT scanners with multislice CT scanners supplied by Toshiba Medical Systems Corp.

Year ended March31

Year ended March31

Medical Systems Aircraft Equipment and Industrial Machinery



Environmental Conservation Activities

Board of Directors

Shimadzu has been actively implementing environmental conservation initiatives across its business operations and providing support for academic projects. In keeping with our management principle of “Realizing the Well-being of Mankind and the Earth,” the Shimadzu Group is committed to making steady efforts to tackle these important

Senior Managing DirectorAkira Nakamoto

Chairman of the Board Hidetoshi Yajima

President and Chief Executive OfficerShigehiko Hattori

Senior Managing DirectorTakayuki Kato

Managing DirectorYasumitsu Takagi

DirectorSoju Onose

DirectorYukio Yoshida

DirectorIchiro Kowaki

DirectorYutaka Nakamura

DirectorSatoru Suzuki

DirectorOsamu Ando

Managing Director

Yasumitsu TakagiSenior Managing Director

Takayuki KatoSenior Managing Director

Akira NakamotoChairman of the Board

Hidetoshi YajimaPresident and Chief Executive Officer

Shigehiko Hattori

DirectorTamio Yoshida

Environmental Management SystemsMajority of Shimadzu’s domestic plants are ISO-14001 certified and implementing an integrated environmental management system. Shimadzu also works hard to reduce environmental burden in operating activities on segment levels, such as reducing energy consumption and CO2 emissions, reducing and recycling waste, eliminating the use of substances that damage the ozone layer and decreasing the amount of packaging used.

Support for Academic ProjectsSince 1996, Shimadzu has been continuously supporting the environmental management project at the United Nations University. The project is aimed at monitoring environmental pollution and accumulating environmental data in Asia with 11 Asian countries participating in the fourth phase of the project, “Environmental Monitoring and Governance in the East Asian Hydrosphere – Monitoring of Persistent Organic Compounds in Asia,” which started in 2005. We have been supporting the project in various forms including provision of funds, lending of analysis equipment, provision of analysis method training. We are committed in our support to ensure the success of the projects.

Promotion of GreeningWith the aim of creating a plant surrounded by green spaces, Shimadzu has been actively increasing planted areas at Sanjo Works in Kyoto, which plays the central role in our production. The new plant building for analytical and measuring instruments, which started operation in 2006, is equipped with a solar power system that supplies part of the electric power consumed at the plant. These initiatives are part of the plant construction and relocation plan being implemented at the Sanjo Works and we will promote environment-friendly, clean plant operation in consideration of the global environment. We are fully committed to further promoting activities that would help prevent global warming, the acceleration of which is of great concern.

16

Consolidated Balance Sheets ......................................17

Consolidated Statements of Income...........................19

Consolidated Statements of Changes in Equity ..........20

Consolidated Statements of Cash Flows.....................22

Notes to Consolidated Financial Statements ..............24

Independent Auditor's Report....................................37

Financial Section

17

Thousands ofU.S. dollars

Millions of yen (Note 3)

2007 2006 2007

ASSETS

Current assets:

Cash and cash equivalents ....................................................................................¥ 26,907 ¥ 31,927 $ 228,025

Time deposits......................................................................................................... 720 680 6,102

Marketable securities (Note 4) .............................................................................. 110 92 932

Trade receivables:

Notes and accounts (Note 9) ............................................................................ 89,152 79,409 775,525

Allowance for doubtful receivables.................................................................. (881) (1,246) (7,466)

Net trade receivables ................................................................................ 88,271 78,163 748,059

Inventories (Note 5) .............................................................................................. 64,017 60,081 542,517

Deferred tax assets (Note 11)................................................................................ 7,020 7,179 59,492

Prepaid expenses and other current assets .......................................................... 4,238 2,924 35,915

Total current assets................................................................................... 191,283 181,046 1,621,042

Property, plant and equipment (Note 6):

Land........................................................................................................................ 18,908 19,011 160,237

Buildings and structures ........................................................................................ 63,045 58,125 534,280

Machinery, equipment and vehicles..................................................................... 18,834 17,665 159,610

Tools, furniture and fixtures.................................................................................. 25,032 23,852 212,135

Construction in progress ....................................................................................... 115 1,160 975

Total .......................................................................................................... 125,934 119,813 1,067,237

Accumulated depreciation..................................................................................... (62,265) (60,221) (527,669)

Net property, plant and equipment......................................................... 63,669 59,592 539,568

Investments and other assets:

Investment securities (Note 4) .............................................................................. 15,213 14,924 128,924

Investments in unconsolidated

subsidiaries and associated companies.............................................................. 323 233 2,737

Long-term receivables ........................................................................................... 539 1,997 4,568

Deferred tax assets (Note 11)................................................................................ 13,598 13,494 115,237

Other assets............................................................................................................ 10,459 5,766 88,636

Total investments and other assets.......................................................... 40,132 36,414 340,102

Total........................................................................................................................¥295,084 ¥277,052 $2,500,712

See notes to consolidated financial statements.

Shimadzu Corporation and Consolidated Subsidiaries

Consolidated Balance SheetsMarch 31, 2007 and 2006

18



2007 2006 2007

Liabilities and equity

Current liabilities:

Short-term loans (Note 6)......................................................................................¥ 6,652 ¥ 9,827 $ 56,373

Current portion of long-term debt (Note 6) ......................................................... 808 5,766 6,847

Trade notes and accounts payable ....................................................................... 55,726 49,831 472,254

Other payables (Note 9)........................................................................................ 10,618 8,418 89,983

Advances from customers ..................................................................................... 4,180 4,220 35,424

Income taxes payable............................................................................................ 5,184 3,951 43,932

Accrued expenses and other current liabilities (Notes 6) ................................... 13,312 9,284 112,814

Total current liabilities.............................................................................. 96,480 91,297 817,627

Long-term liabilities:

Long-term debt (Note 6) ....................................................................................... 28,093 27,039 238,076

Liability for retirement benefits (Note 7) .............................................................. 21,399 21,234 181,347

Long-term deposit (Note 6)................................................................................... 6,637 7,069 56,246

Other long-term liabilities (Note 11) .................................................................... 271 247 2,297

Total long-term liabilities ......................................................................... 56,400 55,589 477,966

Minority interests ................................................................................................... 507

Commitments and contingent liabilities (Notes 12, 13 and 14)

Equity (Notes 8 and 16):

Common stock – authorized, 800,000,000 shares; issued, 296,070,227 shares............................................................................................... 26,649 26,649 225,839

Additional paid-in capital ...................................................................................... 35,188 35,188 298,203

Retained earnings ................................................................................................. 76,396 65,322 647,424

Net unrealized gain on available-for-sale securities ........................................... 5,465 5,751 46,314

Foreign currency translation adjustments............................................................. (1,649) (2,947) (13,975)

Treasury stock, at cost – 764,999 shares in 2007 and 643,251shares in 2006...................................................................................................... (419) (304) (3,551)

Total .......................................................................................................... 141,630 129,659 1,200,254

Minority interests ................................................................................................... 574 4,865

Total equity ............................................................................................... 142,204 129,659 1,205,119

Total........................................................................................................................¥295,084 ¥277,052 $2,500,712

19



2007 2006 2007

Net sales (Notes 9 and 17).................................................................................... ¥262,432 ¥242,638 $2,224,000

Operating costs and expenses:

Cost of sales (Notes 9 and 12) ............................................................................. 159,108 151,062 1,348,373

Selling, general and administrative expenses (Notes 10 and 12)....................... 78,043 70,500 661,381

Total operating costs and expenses (Note 17)....................................... 237,151 221,562 2,009,754

Operating income (Note 17) ................................................................... 25,281 21,076 214,246

Other income (expenses):

Interest and dividend income ............................................................................. 405 243 3,432

Interest expense .................................................................................................... (718) (700) (6,085)

Foreign exchange (loss) gain, net........................................................................ (316) 271 (2,678)

Loss on disposals of inventories .......................................................................... (1,353) (1,573) (11,466)

Gain on sales of investment securities................................................................. 68 5 576

Loss on sales of investment securities ................................................................. (5)

Loss on write-down of investment securities ...................................................... (121) (189) (1,025)

Gain on sales of property, plant and equipment................................................ 30 352 254

Loss on disposals of property, plant and equipment ......................................... (439) (232) (3,720)

Loss on adoption of FRS17 by British subsidiaries (Note 7) .............................. (498)

Patent fee for prior years...................................................................................... (535) (4,534)

Other, net .............................................................................................................. 114 (997) 966

Other expenses, net................................................................................. (2,865) (3,323) (24,280)

Income before income taxes and minority interests........................................... 22,416 17,753 189,966

Income taxes (Note 11):

Current .................................................................................................................. 8,685 7,840 73,602

Deferred................................................................................................................. 297 (1,449) 2,517

Total income taxes................................................................................... 8,982 6,391 76,119

Minority interests in net income........................................................................... 55 46 466

Net income ............................................................................................................ ¥ 13,379 ¥ 11,316 $ 113,381

Yen U.S. dollars

Amounts per share (Notes 2.r and 15):

Basic net income................................................................................................... ¥ 45.30 ¥ 39.32 $ 0.38

Diluted net income ............................................................................................... 37.53

Cash dividends applicable to the year................................................................. 8.00 7.00 0.07



Consolidated Statements of IncomeYears Ended March 31, 2007 and 2006

20

Millions of yenOutstanding Net unrealizednumber of Additional gain onshares of Common Paid-in Retained Available-for-sale

common stock stock Capital earnings securities

Balance, April 1, 2005 ....................................... 266,575,118 ¥16,826 ¥25,394 ¥56,476 ¥2,720Net income........................................................ 11,316Appropriations:

Cash dividends paid, ¥8.0 per share ........... (2,234)Directors’ and corporate auditors’ bonuses... (214)

Net increase in unrealized gain on available-for-sale securities ............................ 3,031

Foreign currency translation adjustments........Adjustment of retained earnings for exclusion of consolidated subsidiaries.......... (22)

Net increase in treasury stock.......................... (124,463)Conversion of convertible bonds..................... 28,976,321 9,823 9,794Balance, March 31, 2006.................................. 295,426,976 ¥26,649 ¥35,188 ¥65,322 ¥5,751Reclassified balance as of March 31, 2006 (Note 2.h) ........................

Net income........................................................ 13,379Appropriations:

Cash dividends paid, ¥7.0 per share ........... (2,068)Directors’ and corporate auditors’ bonuses ... (228)

Adjustment of retained earnings fornewly consolidated subsidiaries................... (9)

Net change in the year ..................................... (286)Net increase in treasury stock............................. (121,748)Balance, March 31, 2007.................................. 295,305,228 ¥26,649 ¥35,188 ¥76,396 ¥5,465

Thousands of U.S. dollars (Note 3)Net unrealized

Additional gain onCommon Paid-in Retained Available-for-sale

stock Capital earnings securities

Balance, April 1, 2006 ............................................................... $225,839 $298,203 $553,576 $48,737Reclassified balance as of March 31, 2006 (Note 2.h) ...............

Net income................................................................................ 113,381Appropriations:

Cash dividends paid, $0.06 per share ................................. (17,525)Directors’ and corporate auditors’ bonuses ........................ (1,932)

Adjustment of retained earnings fornewly consolidated subsidiaries........................................... (76)

Net change in the year ............................................................. (2,423)Net increase in treasury stock..................................................Balance, March 31, 2007........................................................... $225,839 $298,203 $647,424 $46,314



Consolidated Statements of Changes in EquityYears Ended March 31, 2007 and 2006

21

Millions of yenForeigncurrency

translation Treasury Minority Totaladjustments stock Total interests equity

Balance, April 1, 2005 ....................................... ¥(4,819) ¥(210) ¥96,387 ¥96,387Net income........................................................ 11,316 11,316Appropriations:

Cash dividends paid, ¥8.0 per share ........... (2,234) (2,234)Directors’ and corporate auditors’ bonuses... (214) (214)

Net increase in unrealized gain on available-for-sale securities ............................ 3,031 3,031

Foreign currency translation adjustments........ 1,872 1,872 1,872Adjustment of retained earnings for

exclusion of consolidated subsidiaries ........ (22) (22)Net increase in treasury stock.......................... (94) (94) (94)Conversion of convertible bonds..................... 19,617 19,617Balance, March 31, 2006.................................. ¥(2,947) ¥(304) 129,659 129,659Reclassified balance as of March 31, 2006 (Note 2.h) ........................ 507 507

Net income........................................................ 13,379 13,379Appropriations:

Cash dividends paid, ¥7.0 per share ........... (2,068) (2,068)Directors’ and corporate auditors’ bonuses ... (228) (228)

Adjustment of retained earnings fornewly consolidated subsidiaries................... (9) (9)

Net change in the year ..................................... 1,298 1,012 67 1,079Net increase in treasury stock............................. (115) (115) (115)Balance, March 31, 2007.................................. ¥(1,649) ¥(419) ¥141,630 ¥574 ¥142,204

Thousands of U.S. dollars (Note 3)Foreigncurrency

translation Treasury Minority Totaladjustments stock Total interests equity

Balance, April 1, 2006 ....................................... $(24,975) $(2,576) $1,098,804 $1,098,804Reclassified balanceas of March 31, 2006 (Note 2.h) ........................ $4,297 4,297

Net income........................................................ 113,381 113,381Appropriations:

Cash dividends paid, $0.06 per share ......... (17,525) (17,525)

Directors’ and corporate auditors’ bonuses.... (1,932) (1,932)

Adjustment of retained earnings for newly consolidated subsidiaries .............. (76) (76)

Net change in the year ..................................... 11,000 8,577 568 9,145Net increase in treasury stock.......................... (975) (975) (975)Balance, March 31, 2007................................... $(13,975) $(3,551) $1,200,254 $4,865 $1,205,119


22



2007 2006 2007

Operating activities:

Income before income taxes and minority interests ............................................¥22,416 ¥17,753 $189,966

Adjustments for:

Income taxes paid .............................................................................................. (7,575) (10,950) (64,195)

Depreciation and amortization .......................................................................... 5,156 4,866 43,695

Increase in accrued bonuses ............................................................................. 345 286 2,924

Provision for retirement benefits for directors and corporate auditors........... 271 2,297

Provision for retirement benefits for employees .............................................. 17 1,470 144

Net loss on sales and write-down of investment securities............................. 53 189 449

Net loss (gain) on sales and disposals of property, plant and equipment .... 409 (119) 3,466

Foreign exchange gain, net ............................................................................... (12) (23) (102)

Allowance for doubtful receivables .................................................................. (347) (240) (2,941)

Changes in assets and liabilities, net of effects from newly consolidated subsidiaries:

Increase in trade receivables ......................................................................... (8,057) (1,698) (68,279)

Increase in inventories................................................................................... (2,840) (2,180) (24,068)

Increase in trade payables............................................................................. 3,984 1,776 33,763

Other, net............................................................................................................ 171 1,811 1,449

Total adjustments....................................................................................... (8,425) (4,812) 71,398

Net cash provided by operating activities................................................ 13,991 12,941 118,568

Investing activities:

Proceeds from sales of property, plant and equipment and other assets ........... 320 626 2,712

Purchases of property, plant and equipment and other assets............................ (9,342) (6,812) (79,170)

Proceeds from sales of marketable securities ....................................................... 91 110 771

Proceeds from sales of investment securities........................................................ 134 32 1,136

Purchases of investment securities ........................................................................ (1,291) (495) (10,941)

Acquisition of business, net cash acquired ........................................................... 509 4,313

Increase in long-term receivables .......................................................................... (30) (22) (254)

Decrease in long-term receivables......................................................................... 145 167 1,229

Other, net ................................................................................................................ (333) 52 (2,822)

Net cash used in investing activities......................................................... (9,797) (6,342) (83,026)

Forword...................................................................................................... 4,194 6,599 35,542


Consolidated Statements of Cash FlowsYears Ended March 31, 2007 and 2006

23



2007 2006 2007

Financing activities:

Net decrease in short-term loans ........................................................................... (3,435) (2,456) (29,110)

Borrowing of long-term debt ................................................................................. 1,901 1,240 16,110

Repayments of long-term debt .............................................................................. (5,894) (899) 49,949

Issuance of commercial paper ............................................................................... 7,000 23,000 59,322

Redemption of commercial paper ......................................................................... (7,000) (23,000) (59,322)

Redemption of unsecured bonds........................................................................... (381)

Deposit of cash for redemption of unsecured bonds........................................... (16,335)

Withdrawal of cash for redemption of unsecured bonds .................................... 16,335

Cash dividends paid ............................................................................................... (2,086) (2,242) (17,678)

Redemption of construction cooperation fund..................................................... (99) (428) (839)

Other, net ................................................................................................................ (115) (164) (975)

Net cash used in financing activities ........................................................ (9,728) (5,330) (82,441)

Foreign currency translation adjustments on cash and cash equivalents ................... 404 890 3,424

Net increase (decrease) in cash and cash equivalents ........................................... (5,130) 2,159 (43,475)

Cash and cash equivalents of newly consolidated subsidiaries, beginning of year... 110 932

Decrease due to exclusion of subsidiaries from consolidation, beginning of year... (92)

Cash and cash equivalents, beginning of year ....................................................... 31,927 29,860 270,568

Cash and cash equivalents, end of year..................................................................¥26,907 ¥31,927 $228,025

Additional information:

Assets acquired and liabilities assumed from acquisition of business

Current assets ........................................................................................................ ¥ 1,082 $ 9,170

Fixed assets ........................................................................................................... 428 3,627

Current liabilities ................................................................................................... (1,295) (10,975)

Fixed liabilities ...................................................................................................... (215) (1,822)

Consideration in acquisition of business ............................................................. Nil NilCash and cash equivalents contained in above current assets........................... ¥ 509 $ 4,313

Convertible bonds converted into common stock and additional paid-in capital... ¥19,617


24

1. Basis of presenting consolidated financial statements

The accompanying consolidated financial statements of

Shimadzu Corporation (the “Company”) and its significant

subsidiaries (together, the “Companies”) have been prepared in

accordance with the provisions set forth in the Japanese

Securities and Exchange Law and its related accounting

regulations, and in conformity with accounting principles

generally accepted in Japan, which are different in certain

respects as to application and disclosure requirements of

International Financial Reporting Standards.

On December 27, 2005, the Accounting Standards Board of

Japan (the “ASBJ”) published a new accounting standard for

the statement of changes in equity, which is effective for fiscal

years ending on or after May 1, 2006. The consolidated

statement of shareholders’ equity, which was previously

voluntarily prepared in line with the international accounting

practices, is now required under generally accepted accounting

principles in Japan and has been renamed “the consolidated

statement of changes in equity” in the current fiscal year.

In preparing these consolidated financial statements, certain

reclassifications and rearrangements have been made to the

consolidated financial statements issued domestically in order

to present them in a form which is more familiar to readers

outside Japan. In addition, certain reclassifications have been

made in the 2006 financial statements to conform to the

classification used in 2007.

2. Summary of significant accounting policies

a. Consolidation

The consolidated financial statements as of March 31, 2007

include the accounts of the Company and its 32 (30 in 2006)

domestic subsidiaries and 37 (30 in 2006) overseas subsidiaries.

Consolidation of the remaining subsidiaries would not have a

material effect on the accompanying consolidated financial

statements.

Under the control concept, those companies in which the

Company, directly or indirectly, is able to exercise control over

operations are fully consolidated.

Investments in seven (nine in 2006) unconsolidated

subsidiaries and three (three in 2006) associated companies are

accounted for on the cost basis. The effect on the consolidated

financial statements of not applying the equity method is

immaterial.

Goodwill represents the excess of the cost of an acquisition

over the fair value of the net assets of the acquired subsidiary

at the date of acquisition. Goodwill on acquisition of

subsidiaries is amortized using the straight-line method over 20

years while immaterial amounts of goodwill are charged to

income as incurred.

All significant intercompany transactions and accounts have

been eliminated in consolidation. All material unrealized profit

included in assets resulting from transactions within the

Companies is eliminated.

b. Cash Equivalents

Cash equivalents are short-term investments that are readily

convertible into cash and that are exposed to insignificant risk

of changes in value.

Cash equivalents include time deposits which mature or

become due within three months of the date of acquisition.

c. Marketable and Investment Securities

Marketable and investment securities are classified and

accounted for, depending on management’s intent, as follows:

i) held-to-maturity debt securities, which are expected to be

held to maturity with the positive intent and ability to hold

to maturity are reported at amortized cost.

ii) available-for-sale securities, which represent securities not

classified as either trading securities or held-to-maturity debt

securities, are reported at fair value, with unrealized gains

and losses, net of applicable taxes, reported in a separate

component of equity.

Non-marketable available-for-sale securities are stated at

cost determined by the moving-average method. For other than

temporary declines in fair value, investment securities are

reduced to net realizable value by a charge to income.

d. Inventories

Finished products of the Company are stated at moving

average cost. Those held by domestic subsidiaries are stated

principally at the most recent purchase price which

approximates cost using the first-in, first-out method, while

those held by overseas subsidiaries are stated principally at the

lower of cost or market using the first-in, first-out method.

Work in process is stated principally at the specifically

identified cost. Other inventories are stated principally at

moving average cost.

e. Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation

of property, plant and equipment of the Company and its

domestic subsidiaries is computed substantially by the

declining-balance method at rates based on the estimated

useful lives of the assets, except that the straight-line method is

applied to the buildings of the Company and its domestic

subsidiaries. Overseas subsidiaries compute depreciation by the

straight-line method at rates based on the estimated useful lives

of the assets. The range of useful lives is principally from three


Notes to Consolidated Financial StatementsYears Ended March 31, 2007 and 2006

25

to 75 years for buildings and structures, from four to 17 years

for machinery, equipment and vehicles and from two to 15

years for tools, furniture and fixtures.

f. Long-Lived Assets

In August 2002, the Business Accounting Council (BAC) issued

a Statement of Opinion, “Accounting for Impairment of Fixed

Assets,” and in October 2003 the ASBJ issued ASBJ Guidance

No. 6, “Guidance for Accounting Standard for Impairment of

Fixed Assets.” These new pronouncements were effective for

fiscal years beginning on or after April 1, 2005 with early

adoption permitted for fiscal years ending on or after March 31,

2004. The Companies adopted the new accounting standard for

impairment of fixed assets as of April 1, 2004.

The Company and the domestic subsidiaries review their

long-lived assets for impairment whenever events or changes

in circumstances indicate that the carrying amount of an asset

or asset group may not be recoverable. An impairment loss

would be recognized if the carrying amount of an asset or asset

group exceeds the sum of the undiscounted future cash flows

expected to result from the continued use and eventual

disposition of the asset or asset group. The impairment loss

would be measured as the amount by which the carrying

amount of the asset exceeds its recoverable amount, which is

the higher of the discounted cash flows from the continued use

and eventual disposition of the asset or the net selling price at

disposition.

g. Retirement and Pension Plans

Employees whose service with the Company is terminated are,

under most circumstances, entitled to lump-sum indemnities

determined by reference to the basic rate of pay at the time of

termination, length of service and conditions under which the

termination occurs. If the termination is involuntary, caused by

retirement at the mandatory retirement age, or certain other

conditions, the employee is entitled to greater payments than

in the case of voluntary termination.

In addition, the Company, certain domestic subsidiaries and

British subsidiaries have non-contributory funded pension

plans covering most employees. The Company, certain

domestic subsidiaries and British subsidiaries accounted for the

liabilities for retirement benefits based on projected benefit

obligations and plan assets at the balance sheet date.

Effective January 1, 2005, the British subsidiaries adopted

FRS17, a new accounting standard for employees’ retirement

benefits and accounted for the liability for retirement benefits

based on projected benefit obligations and plan assets at the

balance sheet date.

Effective April 1, 2007, the Company amended the above

plans, introducing the cash balance pension plan, severance

lump-sum payment plan and option plan, consisting of a

defined contribution pension plan and a prepaid retirement

benefit plan, among which employees can adopt whichever

they consider more preferable.

The Company has an employees’ retirement benefit trust

for payments of retirement benefits. The securities which were

previously contributed to and are held in this trust are qualified

as plan assets.

Directors and corporate auditors are not covered by these

plans. However, the Company and 12 (eight in 2006) domestic

subsidiaries provide for the liability at the amount which would

be required, if all directors and corporate auditors terminated

their offices at the end of each financial period. The accrued

provisions are not funded and any amounts payable to

directors and corporate auditors upon retirement are subject to

the approval of the shareholders.

h. Presentation of Equity

On December 9, 2005, the ASBJ published a new accounting

standard for presentation of equity. Under this accounting

standard, certain items which were previously presented as

liabilities are now presented as components of equity. Such

items include stock acquisition rights, minority interests, and

any deferred gain or loss on derivatives accounted for under

hedge accounting. This standard is effective for fiscal years

ending on or after May 1, 2006. The consolidated balance sheet

as of March 31, 2007 is presented in line with this new

accounting standard.

i. Research and Development Costs

Research and development costs are charged to income as

incurred.

j. Allowance for Doubtful Receivables

The allowance for doubtful receivables is stated in amounts

considered to be appropriate based on the Companies’ past

credit loss experience and an evaluation of potential losses in

the receivables outstanding.

k. Leases

Leases are principally accounted for as operating leases. Under

Japanese accounting standards for leases, finance leases that

deem to transfer ownership of the leased property to the lessee

are to be capitalized, while other finance leases are permitted

to be accounted for as operating lease transactions if certain

“as if capitalized” information is disclosed in the notes to the

lessee’s consolidated financial statements.

26

l. Bonuses to directors and corporate auditors

Prior to the fiscal year ended March 31, 2005, bonuses to

directors and corporate auditors were accounted for as a

reduction of retained earnings in the fiscal year following

approval at the general shareholders meeting. The ASBJ issued

ASBJ Practical Issues Task Force (PITF) No.13, “Accounting

Treatment for Bonuses to Directors and Corporate Auditors,”

which encouraged companies to record bonuses to directors

and corporate auditors on the accrual basis with a related

charge to income, but still permitted the direct reduction of

such bonuses from retained earnings after approval of the

appropriation of retained earnings.

The ASBJ replaced the above accounting pronouncement by

issuing a new accounting standard for bonuses to directors and

corporate auditors on November 29, 2005. Under the new

accounting standard, bonuses to directors and corporate

auditors must be expensed and are no longer allowed to be

directly charged to retained earnings. This accounting standard

is effective for fiscal years ending on or after May 1, 2006. The

companies must accrue bonuses to directors and corporate

auditors at the year end to which such bonuses are

attributable.

The Companies adopted the new accounting standard for

bonuses to directors and corporate auditors from the year

ended March 31, 2007. The effect of adoption of this

accounting standard was to decrease income before income

taxes and minority interests for the year ended March 31, 2007

by ¥271 million ($2,297 thousand).

m. Income Taxes

The provision for income taxes is computed based on the

pretax income included in the consolidated statements of

income. The asset and liability approach is used to recognize

deferred tax assets and liabilities for the expected future tax

consequences of temporary differences between the carrying

amounts and the tax bases of assets and liabilities. Deferred

taxes are measured by applying currently enacted tax laws to

the temporary differences.

The Companies file a tax return under the consolidated

corporate-tax system which allows companies to base tax

payments on the combined profits or losses of the parent

company and its wholly owned domestic subsidiaries.

n. Appropriations of Retained Earnings

Appropriations of retained earnings are reflected in the

consolidated financial statements for the following year upon

shareholders’ approval.

o. Foreign Currency Transactions

All short-term and long-term monetary receivables and

payables denominated in foreign currencies are translated into

Japanese yen at the exchange rates at the balance sheet date.

Foreign exchange gains and losses are recognized in the

fiscal periods in which they occur.

p. Foreign Currency Financial Statements

The balance sheet accounts of the consolidated overseas

subsidiaries are translated into Japanese yen at the current

exchange rate as of the balance sheet date except for equity,

which is translated at the historical exchange rate. Differences

arising from such translation are shown as “Foreign currency

translation adjustments” in a separate component of equity.

Revenue and expense accounts of the consolidated

overseas subsidiaries are translated into yen at the average

exchange rate.

q. Derivative Financial Instruments

The Companies use derivative financial instruments to manage

their exposures to fluctuations in foreign exchange and interest

rates. Foreign currency exchange forward contracts and interest

rate options (caps) are utilized by the Companies to reduce

foreign currency exchange and interest rate risks. The

Companies do not enter into derivatives for trading or

speculative purposes.

The foreign currency forward contracts and interest rate

options (caps) are measured at the fair value at the balance

sheet date and the unrealized gains / losses are recognized in

income.

r. Amounts per Share

Basic net income per share is computed by dividing net

income available to common shareholders by the weighted-

average number of common shares outstanding for the period.

Diluted net income per share reflects the potential dilution

that could occur if securities were exercised or converted into

common stock. Diluted net income per share of common stock

assumes full conversion of the outstanding convertible bonds

at the beginning of the year with an applicable adjustment for

related interest expense, net of tax.

Cash dividends per share presented in the accompanying

consolidated statements of income are the dividends applicable

to the respective years, including dividends to be paid after the

end of the year.

27

s. New Accounting Pronouncement

Measurement of Inventories

Under generally accepted accounting principles in Japan

(“Japanese GAAP”), inventories are currently measured either

by the cost method, or at the lower of cost or market. On July

5, 2006, the ASBJ issued ASBJ Statement No.9, “Accounting

Standard for Measurement of Inventories,” which is effective

for fiscal years beginning on or after April 1, 2008 with early

adoption permitted. This standard requires that inventories

held for sale in the ordinary course of business be measured at

the lower of cost or net selling value, which is defined as the

selling price less additional estimated manufacturing costs and

estimated direct selling expenses. The replacement cost may be

used in place of the net selling value, if appropriate. The

standard also requires that inventories held for trading

purposes be measured at the market price.

Lease Accounting

On March 30, 2007, the ASBJ issued ASBJ Statement No.13,

“Accounting Standard for Lease Transactions”, which revised

the existing accounting standard for lease transactions issued

on June 17, 1993.

Under the existing accounting standard, finance leases that

deem to transfer ownership of the leased property to the lessee

are to be capitalized, however, other finance leases are

permitted to be accounted for as operating lease transactions if

certain “as if capitalized” information is disclosed in the note to

the lessee’s financial statements.

The revised accounting standard requires that all finance

lease transactions should be capitalized. The revised

accounting standard for lease transactions is effective for fiscal

years beginning on or after April 1, 2008 with early adoption

permitted for fiscal years beginning on or after April 1, 2007.

Unification of Accounting Policies Applied to Foreign

Subsidiaries for the Consolidated Financial Statements

Under Japanese GAAP, a company currently can use the

financial statements of foreign subsidiaries which are prepared

in accordance with generally accepted accounting principles in

their respective jurisdictions for its consolidation process unless

they are clearly unreasonable. On May 17, 2006, the ASBJ

issued ASBJ Practical Issues Task Force (PITF) No.18, “Practical

Solution on Unification of Accounting Policies Applied to

Foreign Subsidiaries for the Consolidated Financial Statements.”

The new task force prescribes: 1) the accounting policies and

procedures applied to a parent company and its subsidiaries

for similar transactions and events under similar circumstances

should in principle be unified for the preparation of the

consolidated financial statements, 2) financial statements

prepared by foreign subsidiaries in accordance with either

International Financial Reporting Standards or the generally

accepted accounting principles in the United States tentatively

may be used for the consolidation process, 3) however, the

following items should be adjusted in the consolidation process

so that net income is accounted for in accordance with

Japanese GAAP unless they are not material;

(1) Amortization of goodwill

(2) Actuarial gains and losses of defined benefit plans

recognized outside profit or loss

(3) Capitalization of intangible assets arising from development

phases

(4) Fair value measurement of investment properties, and the

revaluation model for property, plant and equipment, and

intangible assets

(5) Retrospective application when accounting policies are

changed

(6) Accounting for net income attributable to a minority interest

The new task force is effective for fiscal years beginning on or

after April 1, 2008 with early adoption permitted.

3. U.S. dollar amounts

The consolidated financial statements are stated in Japanese

yen, the currency of the country in which the Company is

incorporated and operates. The translations of Japanese yen

amounts into U.S. dollar amounts are included solely for the

convenience of readers outside Japan and have been made at

the rate of ¥118 to $1, the approximate rate of exchange at

March 31, 2007. Such translations should not be construed as

representations that the Japanese yen amounts could be

converted into U.S. dollars at that or any other rate.

28

4. Marketable and investment securities

Marketable and investment securities as of March 31, 2007 and

2006 consisted of the following:

Thousands ofMillions of yen U.S. dollars

2007 2006 2007

Current –

Government bonds and other.....¥ 110 ¥ 92 $ 932

Non-current:

Equity securities ...........................¥15,153 ¥14,754 $128,415

Government bonds and other..... 60 170 509

Total ..........................................¥15,213 ¥14,924 $128,924

The carrying amounts and aggregate fair values of marketable

and investment securities at March 31, 2007 and 2006 were as

follows:Millions of yen

Unrealized Unrealized FairMarch 31, 2007 Cost gains losses value

Securities classified as:

Available-for-sale –

Equity securities.............. ¥5,577 ¥9,318 ¥177 ¥14,778

Held-to-maturity ................. 170 3 167Millions of yen




Equity securities.............. ¥4,605 ¥9,717 ¥34 ¥14,288

Held-to-maturity ................. 262 6 256Thousands of U.S. dollars




Equity securities..............$47,263 $78,966 $992 $125,237

Held-to-maturity ................. 1,441 26 1,415

Available-for-sale securities whose fair value is not readily

determinable as of March 31, 2007 and 2006 were as follows:Carrying amount


2007 2006 2007


Equity securities.............................. ¥375 ¥466 $3,178

Proceeds from sales of available-for-sale securities for the year

ended March 31, 2007 and 2006 were ¥134 million ($1,136

thousand) and ¥32 million, respectively. Gross realized gains

on these sales, computed on the moving average cost basis,

were ¥68 million ($576 thousand) and ¥5 million for the years

ended March 31, 2007 and 2006, respectively. Gross realized

losses on these sales, computed on the moving average cost

basis, were ¥Nil and ¥5 million for the years ended March 31,

2007 and 2006, respectively.

The carrying values of debt securities by contractual

maturities for securities classified as held-to-maturity at March

31, 2007 are as follows:

Carrying amountMillions of Thousands of

yen U.S. dollars2007 2007

Due within one year or less .......................... ¥110 $ 932

Due after one year through five years.......... 60 509

Total ............................................................ ¥170 $1,441

5. Inventories

Inventories at March 31, 2007 and 2006 consisted of the

following:


2007 2006 2007

Finished products .......................... ¥22,952 ¥20,008 $194,508

Semi-finished products.................... 7,591 6,955 64,331

Work in process............................... 12,729 21,717 107,873

Raw materials and supplies ............ 20,745 11,401 175,805

Total .................................................¥64,017 ¥60,081 $542,517

6. Short-term loans and long-term debt

Short-term loans primarily consisted of bank overdrafts and

financing agreements with banks which are renewable on an

annual basis and bear interest at annual rates ranging from

0.42% to 6.80% and from 0.36% to 6.75% at March 31, 2007 and

2006, respectively.

Long-term debt at March 31, 2007 and 2006 consisted of the

following:Thousands of

Millions of yen U.S. dollars2007 2006 2007

1.36% unsecured bonds, due April 2008.............................. ¥15,000 ¥15,000 $127,119

0.88% unsecured bonds, due April 2009.............................. 10,000 10,000 84,746

Loans, principally from banks, due serially to 2013 with interestrates ranging from 0.60% to 6.04% (0.60% to 6.04%, due serially to 2011 at March 31, 2006) ............. 3,901 7,805 33,058

Total ......................................... 28,901 32,805 244,923

Less portion due within one year........................................ (808) (5,766) (6,847)

Long-term debt, lesscurrent portion............................¥28,093 ¥27,039 $238,076

The aggregate annual maturities of long-term debt outstanding

at March 31, 2007 were as follows:

29

Thousands ofYear ending March 31, Millions of yen U.S. dollars

2008 ...................................................... ¥ 808 $ 6,847

2009 ...................................................... 16,181 137,127

2010 ...................................................... 10,536 89,288

2011 ...................................................... 87 737

2012 ...................................................... 1,263 10,704

2013 and thereafter .............................. 26 220

Total...................................................... ¥28,901 $244,923

At March 31, 2007, the following assets were pledged as

collateral for short-term bank loans and long-term debt:Millions of Thousands of

yen U.S. dollars

Property, plant and equipment,net of accumulated depreciation ................ ¥6,267 $53,110

Millions of Thousands ofyen U.S. dollars

Related liabilities:

Short-term loans......................................... ¥ 61 $ 517

Other current liabilities.............................. 432 3,661

Long-term debt........................................... 521 4,415

Long-term deposit...................................... 6,637 56,246

Total ............................................................... ¥7,651 $64,839

7. Retirement and pension plans

The Company and certain consolidated subsidiaries have

severance payment plans for employees, directors and

corporate auditors. Under most circumstances, employees

terminating their employment are entitled to retirement benefits

determined based on the basic rate of pay at the time of

termination, length of service and certain other factors. Such

retirement benefits are made in the form of a lump-sum

severance payment from the Company or from certain

domestic consolidated subsidiaries and annuity payments from

a trustee. Employees are entitled to larger payments if the

termination is involuntary, by retirement at the mandatory

retirement age or certain other conditions.

The liability for retirement benefits for directors and

corporate auditors were ¥687 million ($5,822 thousand) and

¥547 million at March 31, 2007 and 2006, respectively. The

retirement benefits for directors and corporate auditors are paid

subject to the approval of the shareholders.

The liability for employees’ retirement benefits at March 31,

2007 and 2006 consisted of the following:


2007 2006 2007

Projected benefit obligation ........ ¥52,276 ¥55,280 $443,017

Fair value of plan assets .............. (34,626) (36,974) (293,441)

Unrecognized prior service cost ... 4,240 845 35,932

Unrecognized actuarial gain (loss) ... (1,178) 1,536 (9,983)

Net liability............................ ¥20,712 ¥20,687 $175,525

The components of net periodic benefit costs for the years

ended March 31, 2007 and 2006 were as follows:Thousands of


Service cost .....................................¥2,579 ¥2,307 $21,856

Interest cost .................................... 1,044 1,074 8,847

Expected return on plan assets ..... (532) (295) (4,508)

Amortization of prior service cost... (155) (83) (1,314)

Recognized actuarial loss............... 12 598 102

Loss on adoption of FRS17 by British subsidiaries....... 498

Net periodic benefit costs.......¥2,948 ¥4,099 $24,983

Assumptions used for the years ended March 31, 2007 and

2006 were set forth as follows:2007 2006

Discount rate ........................... 2.0% 2.0%

Expected rate of return on plan assets ....................... 2.4% 2.1%

Amortization period ofprior service cost .................. 15 years 15 years

Recognition period of actuarial gain/loss................. 15 years, 15 years,

Charged/credited Charged/creditedto income from to income fromthe next period the next period

8. Equity

On and after May 1, 2006, Japanese companies are subject to a

new corporate law of Japan (the “Corporate Law”), which

reformed and replaced the Commercial Code of Japan (the

“Code”) with various revisions that are, for the most part,

applicable to events or transactions which occur on or after

May 1, 2006 and for the fiscal years ending on or after May 1,

2006. The significant changes in the Corporate Law that affect

financial and accounting matters are summarized below;

(a) Dividends

Under the Corporate Law, companies can pay dividends at any

time during the fiscal year in addition to the year-end dividend

upon resolution at the shareholders meeting. For companies

that meet certain criteria such as; (1) having the Board of

Directors, (2) having independent auditors, (3) having the

30

Board of Corporate Auditors, and (4) the term of service of the

directors is prescribed as one year rather than two years of

normal term by its articles of incorporation, the Board of

Directors may declare dividends (except for dividends in kind)

at any time during the fiscal year if the company has

prescribed so in its articles of incorporation. However, the

Company cannot do so because it does not meet all the above

criteria.

Semiannual interim dividends may also be paid once a year

upon resolution by the Board of Directors if the articles of

incorporation of the company so stipulate. The Corporate Law

provides certain limitations on the amounts available for

dividends or the purchase of treasury stock. The limitation is

defined as the amount available for distribution to the

shareholders, but the amount of net assets after dividends must

be maintained at no less than ¥3 million.

(b) Increases / decreases and transfer of common stock,

reserve and surplus

The Corporate Law requires that an amount equal to 10% of

dividends must be appropriated as a legal reserve (a

component of retained earnings) or as additional paid-in

capital (a component of capital surplus) depending on the

equity account charged upon the payment of such dividends

until the total of aggregate amount of legal reserve and

additional paid-in capital equals 25% of the common stock.

Under the Corporate Law, the total amount of additional paid-

in capital and legal reserve may be reversed without limitation.

The Corporate Law also provides that common stock, legal

reserve, additional paid-in capital, other capital surplus and

retained earnings can be transferred among the accounts under

certain conditions upon resolution of the shareholders.

(c) Treasury stock and treasury stock acquisition rights

The Corporate Law also provides for companies to purchase

treasury stock and dispose of such treasury stock by resolution

of the Board of Directors. The amount of treasury stock

purchased cannot exceed the amount available for distribution

to the shareholders which is determined by specific formula.

Under the Corporate Law, stock acquisition rights, which were

previously presented as a liability, are now presented as a

separate component of equity.

The Corporate Law also provides that companies can

purchase both treasury stock acquisition rights and treasury

stock. Such treasury stock acquisition rights are presented as a

separate component of equity or deducted directly from stock

acquisition rights.

9. Related party transactions

Net sales and purchases representing transactions of the

Companies with unconsolidated subsidiaries and associated

companies for the years ended March, 31, 2007 and 2006 were

as follows:Thousands of


Net sales.............................................¥ 636 ¥ 460 $ 5,390

Purchases ........................................... 1,232 1,206 10,441

The balances due to or from these unconsolidated subsidiaries

and associated companies at March 31, 2007 and 2006 were as

follows:Thousands of


Trade accounts receivable ................ ¥ 48 ¥ 31 $ 407

Other payables .................................. 143 205 1,212

10. Research and development costs

Research and development costs charged to income were

¥8,601 million ($72,890 thousand) and ¥8,028 million for the

years ended March 31, 2007 and 2006, respectively.

11. Income taxes

The Company and its domestic subsidiaries are subject to

Japanese national and local income taxes which, in the

aggregate, resulted in a normal effective statutory tax rate of

approximately 41% for both of the years ended March 31, 2007

and 2006.

The tax effects of significant temporary differences and tax

loss carryforwards which resulted in deferred tax assets and

liabilities at March 31, 2007 and 2006 were as follows:

31


2007 2006 2007

Current:

Deferred tax assets:

Accrued bonuses.................... ¥2,415 ¥2,262 $20,466

Unrealized profit included in inventories ....................... 1,972 1,847 16,712

Tax loss carryforwards........... 757

Enterprise taxes...................... 536 336 4,543

Allowance fordoubtful receivables ............ 186 361 1,576

Other....................................... 1,973 1,618 16,720

Total .................................... 7,082 7,181 60,017

Less valuation allowance.......

Total deferred tax assets........ ¥7,024 ¥7,181 $59,525

Deferred Tax Liabilities: ............ ¥ 4 ¥ 2 $ 33

Net deferred tax assets .............. ¥7,020 ¥7,179 $59,492

Noncurrent:

Deferred tax assets:

Liability for retirement benefits ... ¥13,792 ¥13,750 $116,881

Loss on investment in subsidiaries...................... 2,799 2,799 23,720

Depreciation .......................... 3,067 2,494 25,992

Tax loss carryforwards .......... 676 5,729

Allowance for doubtful receivables............ 145 493 1,229

Loss on impairment of long-lived assets .................. 190 190 1,610

Other...................................... 1,401 1,918 11,873

Total ................................... 22,070 21,644 187,034

Less valuation allowance....... (682) (190) (5,780)

Total deferred tax assets........ ¥21,388 ¥21,454 $181,254

Deferred tax liabilities:

Gain on securities contributed to employees’ retirement benefit trust ............................. ¥3,719 ¥ 3,689 $ 31,517

Special reserves (included in retained earnings) ................... 311 311 2,636

Unrealized gain on available-for-sale securities..... 3,737 3,932 31,669

Other ......................................... 207 207 1,754

Total deferred tax liabilities ...... 7,974 ¥ 8,139 $ 67,576

Net deferred tax assets .............. ¥13,598 ¥13,494 $115,237

Net deferred tax liabilities (included in other long-term liabilities) ................¥ 184 ¥ 179 $ 1,559

The above net deferred tax assets and liabilities represented

the aggregate amounts of each separate taxpayer’s net deferred

tax assets or liabilities.

A reconciliation between the normal effective statutory tax

rate and the actual effective tax rate reflected in the

accompanying consolidated statement of income for the years

ended March 31, 2006 was as follows:2006

Normal effective statutory tax rate 40.6%

Expenses not permanently deductible for income tax 2.8

Valuation allowance (0.2)

Per capita inhabitant tax 0.5

Tax credit for research and development expenses (5.4)

Difference in subsidiaries’ tax rates (2.6)

Other, net 0.3

Actual effective tax rate 36.0%

As the difference between the normal effective statutory tax

rate and the actual effective tax rate reflected in the

accompanying consolidated statement of income for the year

ended March 31, 2007 is not more than 5% of the normal

effective statutory tax rate, a reconciliation has not been

disclosed.

12. Leases

LESSEE

The Companies lease certain offices space, computer

equipment and other assets.

Total rental expenses for the years ended March 31, 2007

and 2006 were ¥5,169 million ($43,805 thousand) and ¥5,348

million, respectively, including ¥516 million ($4,373 thousand)

and ¥487 million of lease payments under finance leases.

Pro forma information of leased property such as

acquisition cost, accumulated depreciation, obligations under

finance leases and depreciation expense for finance leases that

do not transfer ownership of the leased property to the lessee

on an “as if capitalized” basis for the years ended March 31,

2007 and 2006 was as follows:

Millions of yen2007

Machinery Furnitureand and

vehicles fixtures Total

Acquisition cost ........................... ¥1,461 ¥1,528 ¥2,989

Accumulated depreciation .......... 783 741 1,524

Net leased property..................... ¥ 678 ¥ 787 ¥1,465

32

Millions of yen2006



Acquisition cost ........................... ¥1,441 ¥1,703 ¥3,144

Accumulated depreciation .......... 583 811 1,394

Net leased property..................... ¥ 858 ¥ 892 ¥1,750

Thousands of U.S. dollars2007



Acquisition cost ........................... $12,381 $12,949 $25,330

Accumulated depreciation .......... 6,635 6,280 12,915

Net leased property..................... $ 5,746 $ 6,669 $12,415

Obligations under finance leases:Thousands of


Due within one year ....................... ¥ 480 ¥ 481 $ 4,068

Due after one year........................... 985 1,269 8,347

Total ................................................. ¥1,465 ¥1,750 $12,415

The amount of obligations under finance leases includes the

imputed interest expense portion.

Depreciation expense, which is not reflected in the

accompanying consolidated statements of income, computed

by the straight-line method was ¥516 million ($4,373 thousand)

and ¥487 million for the years ended March 31, 2007 and 2006,

respectively.

The minimum rental commitments under noncancellable

operating leases at March 31, 2007 and 2006 were as follows:Thousands of


Due within one year.......................... ¥400 ¥388 $3,390

Due after one year ............................. 365 516 3,093

Total.................................................... ¥765 ¥904 $6,483

LESSOR

Future lease income under non-cancelable operating leases at

March 31, 2007 and 2006 were as follows:Thousands of


Due within one year ....................... ¥ 968 ¥ 950 $ 8,203

Due after one year........................... 5,560 6,492 47,119

Total ................................................. ¥6,528 ¥7,442 $55,322

13. Derivatives

The Companies enter into foreign currency forward contracts

to hedge foreign exchange risk associated with certain assets

and liabilities denominated in foreign currencies. The

Companies also enter into interest rate options (caps) to

manage its interest rate exposures on certain liabilities. All

derivative transactions are entered into to hedge foreign

currency and interest exposures incorporated within its

business. Accordingly, market risk in these derivatives is

basically offset by opposite movements in the value of hedged

assets or liabilities.

Because the counterparties to these derivatives are limited

to major international financial institutions, the Companies do

not anticipate any losses arising from credit risk.

Derivative transactions entered into by the Companies have

been made in accordance with internal policies under the

supervision of the director in charge of the Finance

Department.

The contract or notional amounts of derivatives which are

shown in the following table do not represent the amounts

exchanged by the parties and do not measure the Company’s

exposure to credit or market risk.

The Company had the following derivative contracts

outstanding at March 31, 2007 and 2006.In

thousands Millions of yen2007

Contractor notional Fair Unrealized

amount value gains (losses)

Forward exchange contracts:

Selling U.S. $ ............................ $28,000 ¥3,278 ¥18

Selling Euro..............................Euro 8,000 1,250 (10)

Buying U.S. $ ........................... $ 651 78 (3)

Buying Euro .............................Euro 7 1

Interest rate contracts –

Purchased interest caps ........... ¥ 357 1 (15)In

thousands Millions of yen2006

Contractor notional Fair Unrealized

amount value gains (losses)


Selling U.S. $ ............................ $22,170 ¥2,579 ¥(22)

Selling Euro..............................Euro 5,500 781 (7)

Buying U.S. $ ........................... $ 673 79

Buying Euro .............................Euro 10 1


Purchased interest caps ........... ¥ 354 1 (15)

33

In Thousands ofthousands U.S. dollars

2007Contract

or notional Fair Unrealizedamount value gains (losses)


Selling U.S. $ ............................ $28,000 $27,780 $153

Selling Euro..............................Euro 8,000 10,593 (85)

Buying U.S. $ ........................... $ 651 661 (25)

Buying Euro .............................Euro 7 8


Purchased interest caps ........... ¥ 357 8 (127)

The fair value was estimated based on quotes from financial

institutions.

14. Contingent liabilities

Contingent liabilities at March 31, 2007 for trade notes

discounted with banks, for trade notes endorsed and for loans

guaranteed amounted to ¥600 million ($5,085 thousand), ¥19

million ($161 thousand) and ¥611 million ($5,178 thousand),

respectively.

15. Net income per share

Reconciliation of the differences between basic and diluted net

income per share (“EPS”) for the years ended March 31, 2006 is

as follows:Millions of Thousands of

yen shares Yen DollarsNet Weighted

income average shares EPS

For the year ended March 31, 2007:

Basic EPS

Net income available to commonshareholders......... ¥13,379 295,373 ¥45.30 $0.38

For the year ended March 31, 2006:

Basic EPS

Net income available to commonshareholders........ ¥11,097 282,229 ¥39.32

Effect of Dilutive Securities Convertible bonds.......... 3 13,522

Diluted EPS

Net income for computation ... ¥11,100 295,751 ¥37.53

Diluted EPS for the year ended March 31, 2007 is not disclosed

because it is anti-dilutive.

16. Subsequent events

The following appropriations of retained earnings of the

Company at March 31, 2007 was approved at the general

meeting of shareholders held on June 28, 2007:Millions of Thousands of

yen U.S. dollars

Year-end cash dividends, ¥3.4 ($0.04) per share.............................¥1,329 $11,263

34

17. Segment information

Information about industry segments, geographical segments and sales to foreign customers of the Companies for the years ended

March 31, 2007 and 2006 was as follows:

(1) Industry segments

a. Sales and operating incomeMillions of yen

2007Aircraft

Analytical Medical Equipmentand Systems and

Measuring and Industrial Eliminations/Instruments Equipment Machinery Other Corporate Consolidated

Sales to customers.................................................. ¥149,402 ¥50,112 ¥57,042 ¥5,876 ¥262,432

Intersegment sales.................................................. 319 26 78 1,016 ¥(1,439)

Total sales ....................................................... 149,721 50,138 57,120 6,892 (1,439) 262,432

Operating expenses ............................................... 123,601 48,000 52,910 5,064 7,576 237,151

Operating income .................................................. ¥ 26,120 ¥ 2,138 ¥ 4,210 ¥1,828 ¥(9,015) ¥ 25,281

Millions of yen2006

AircraftAnalytical Medical Equipment

and Systems andMeasuring and Industrial Eliminations/Instruments Equipment Machinery Other Corporate Consolidated

Sales to customers.................................................. ¥138,453 ¥46,277 ¥52,460 ¥5,448 ¥242,638

Intersegment sales.................................................. 215 5 84 1,043 ¥(1,347)

Total sales ....................................................... 138,668 46,282 52,544 6,491 (1,347) 242,638

Operating expenses ............................................... 116,777 44,142 48,635 4,998 7,010 221,562

Operating income .................................................. ¥ 21,891 ¥ 2,140 ¥ 3,909 ¥1,493 ¥(8,357) ¥ 21,076




Sales to customers.................................................. $1,266,119 $424,677 $483,407 $49,797 $2,224,000

Intersegment sales.................................................. 2,703 221 661 8,610 $(12,195)

Total sales ....................................................... 1,268,822 424,898 484,068 58,407 (12,195) 2,224,000

Operating expenses ............................................... 1,047,466 406,780 448,390 42,915 64,203 2,009,754

Operating income .................................................. $ 221,356 $ 18,118 $ 35,678 $15,492 $(76,398) $ 214,246

35

(2) Geographical segmentsMillions of yen

2007North and Asia

South Oceania and Eliminations/Japan America Europe Africa Corporate Consolidated

Sales to customers........................................................ ¥187,955 ¥21,634 ¥18,048 ¥34,795 ¥262,432

Intersegment sales........................................................ 34,988 5,743 2,325 3,084 ¥(46,140)

Total sales.............................................................. 222,943 27,377 20,373 37,879 (46,140) 262,432

Operating expenses ..................................................... 195,554 26,195 18,810 34,307 (37,715) 237,151

Operating income ....................................................... ¥ 27,389 ¥ 1,182 ¥ 1,563 ¥ 3,572 ¥ (8,425) ¥ 25,281

Assets ............................................................................ ¥201,896 ¥18,030 ¥19,014 ¥23,833 ¥ 32,311 ¥295,084

b. Assets, depreciation, loss on impairment of long-lived assets and capital expendituresMillions of yen

2007Aircraft

Analytical Medical Equipmentand Systems and

Measuring and Industrial Eliminations/Instruments Equipment Machinery Other Corporate Consolidated

Assets ...................................................................... ¥127,968 ¥41,183 ¥68,055 ¥13,076 ¥44,802 ¥295,084

Depreciation........................................................... 2,316 637 1,233 390 580 5,156

Capital expenditures .............................................. 4,732 1,498 2,391 34 2,395 11,050

Millions of yen2006



Assets ...................................................................... ¥121,994 ¥37,326 ¥60,336 ¥12,569 ¥44,827 ¥277,052

Depreciation........................................................... 2,089 609 1,183 400 585 4,866

Capital expenditures .............................................. 3,109 918 1,540 11 1,481 7,059




Assets ...................................................................... $1,084,475 $349,008 $576,737 $110,814 $379,678 $2,500,712

Depreciation........................................................... 19,627 5,399 10,449 3,305 4,915 43,695

Capital expenditures .............................................. 40,102 12,695 20,263 288 20,296 93,644

Note:

“Eliminations/Corporate” include unallocated operating

expenses of ¥9,026 million ($76,492 thousand) and ¥8,419

million for the years ended March 31, 2007 and 2006,

respectively, consisting principally of general corporate

expenses incurred by the administration of the Company,

fundamental research and development expenses and

advertisement expenses.

“Eliminations/Corporate” include corporate assets of

¥47,034 million ($398,593 thousand) and ¥47,169 million as of

March 31, 2007 and 2006, respectively, consisting principally of

working funds and investing funds held by the Company and

assets attributed to Company’s administration headquarters.

36

Millions of yen2006

North and AsiaSouth Oceania and Eliminations/

Japan America Europe Africa Corporate Consolidated

Sales to customers........................................................ ¥186,087 ¥14,496 ¥14,962 ¥27,093 ¥242,638

Intersegment sales........................................................ 26,228 8,051 1,989 3,043 ¥(39,311)

Total sales.............................................................. 212,315 22,547 16,951 30,136 (39,311) 242,638

Operating expenses ..................................................... 186,709 21,808 15,863 27,722 (30,540) 221,562

Operating income ....................................................... ¥ 25,606 ¥ 739 ¥ 1,088 ¥ 2,414 ¥ (8,771) ¥ 21,076

Assets ............................................................................ ¥191,052 ¥16,311 ¥16,412 ¥18,632 ¥ 34,645 ¥277,052


North and AsiaSouth Oceania and Eliminations/

Japan America Europe Africa Corporate Consolidated

Sales to customers........................................................ $1,592,839 $183,339 $152,949 $294,873 $2,224,000

Intersegment sales........................................................ 296,508 48,669 19,704 26,136 $(391,017)

Total sales.............................................................. 1,889,347 232,008 172,653 321,009 (391,017) 2,224,000

Operating expenses ..................................................... 1,657,237 221,992 159,407 290,737 (319,619) 2,009,754

Operating income ....................................................... $ 232,110 $ 10,016 $ 13,246 $ 30,272 $ (71,398) $ 214,246

Assets ............................................................................ $1,710,983 $152,797 $161,136 $201,974 $ 273,822 $2,500,712

(3) Sales to foreign customers

Millions of yenNorth and Asia

South Oceania andAmerica Europe Africa Total

2007................................................................................................. ¥25,738 ¥17,934 ¥50,777 ¥94,449

2006 ................................................................................................... 20,171 15,343 43,614 79,128

Thousands of U.S. dollarsNorth and Asia

South Oceania andAmerica Europe Africa Total

2007................................................................................................. $218,119 $151,983 $430,313 $800,415

Note:

Eliminations/Corporate include unallocated operating expenses

of ¥9,026 million ($76,492 thousand) and ¥8,419 million for the

years ended March 31, 2007 and 2006, respectively, consisting

principally of general corporate expenses incurred by the

administration of the Company, fundamental research and

development expenses and advertisement expenses.

Eliminations/Corporate include corporate assets of ¥47,034

million ($398,593 thousand) and ¥47,169 million for the years

ended March 31, 2007 and 2006, respectively, consisting

principally of working funds and investing funds held by the

Company and assets attributed to Company’s administration

headquarters.

37

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of

Shimadzu Corporation:

We have audited the accompanying consolidated balance sheets of Shimadzu Corporation and

consolidated subsidiaries as of March 31, 2007 and 2006, and the related consolidated statements of

income, changes in equity, and cash flows for the years then ended, all expressed in Japanese yen.

These consolidated financial statements are the responsibility of the Company’s management. Our

responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those

standards require that we plan and perform the audit to obtain reasonable assurance about whether the

financial statements are free of material misstatement. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in the financial statements. An audit also includes

assessing the accounting principles used and significant estimates made by management, as well as

evaluating the overall financial statement presentation. We believe that our audits provide a reasonable

basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material

respects, the consolidated financial position of Shimadzu Corporation and consolidated subsidiaries as of

March 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for the

years then ended in conformity with accounting principles generally accepted in Japan.

Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in

our opinion, such translation has been made in conformity with the basis stated in Note 3. Such U.S.

dollar amounts are presented solely for the convenience of readers outside Japan.

June 28, 2007

Deloitte Touche TohmatsuSumitomoseimei Kyoto Building62, Tsukihoko-choShinmachi-higashiiru, Shijo-doriShimogyo-ku, Kyoto 600-8492Japan

Tel: +81 (75) 222 0181Fax: +81 (75) 231 2703www.deloitte.com/jp

www.shimadzu.com

Kyoto, Japan

0156-07702-20A-NS

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