SHOWA CORPORATION

Review of Fiscal 2006

Looking back at the economic environments surrounding the Showa Groups for this fiscal year, we note that the recovery in the U.S. has been quite considerate while that in Europe took place at moderate pace. Turning the eyes to Asia, the economic expansion has continued. Japan also enjoyed a steady recovery trend.

Now, when we review the motor vehicle industries of the world, we can see that the new car sales in the U.S. exceeded that in the previous period as the increase in the sales of passenger cars offset the decrease in light trucks. No substantial change has been seen in the European markets. In Japan, driven by strong export demands, the automotive production has increased. Though the automotive demands were generally strong throughout Asia, notably strong demands were seen for automobile in China and motorcycle in the several ASEAN countries.

Under these circumstances, and making the most of production bases that are strategically deployed worldwide, the Showa Group has actively expanded production, procurement and sales, and enhanced various measurers of quality control.

We are today delighted to be able to report the financial highlights as follows, net sales increased by 7.2% to ¥254,448 million (US$2,132 million). Operating income increased by 3.0% to ¥17,175million (US$146 million) due to increase in revenues. Ordinary income increased by 4.1% to ¥17,716 million (US$150 million), and net income increased by 13.7% to ¥10,451 million (US$88 million).

Outlook for Fiscal 2007

Looking to the future, we believe that the U.S. economic recovery will continue to be stable, while that in the European economy will be gradual. Although the economy in Thailand and Indonesia may slow down slightly, the Asian region as a whole will be able to keep up the economic growth. Japan is expected to show far economic recovery. Generally speaking, we consider that world economy will continue to stay in a healthy condition.

With china being the primary driving force, we believe the development in the automotive industry in Asia will continue. However, in view of the various uncertain and unstable factors such as the unpredictable oil price, cost of materials and fluctuation in foreign exchange, we will need to take new initiatives in the fields ranging from R&D to production. In order to improve product quality and strengthen our overall cost competitiveness, we will further shift our operations to the more local production and local procurement.

We aim to embody our goal hCommitted to customer satisfaction through global enterpriseh by continuing to invest in people, encourage the independence of the overseas affiliate companies, reinforce the business infrastructure, and improve the constitution of the Group.

Strengthening Competitiveness

Domestic Operations

We will continue to accelerate in-house production of rubber and forged products. By doing so, we hope to accumulate advanced technology in house, improve product quality and strengthen cost competitiveness, which in turn will result in stronger product competitiveness. Reconstruction of the R&D center, one to develop the shock absorbers for automobiles and the other for motorcycles, will create an environment in which R&D and production are efficiently integrated. This will contribute to improving the speed of development.

Global Operations

In order to respond to the demand for automobiles in Asia, we will set up the following three plants to increase the capacity of production; a plant for manufacturing the shock absorbers and power steering systems in Wuhan, Hubei, china, a plant for components for the electric power steering systems in Faridabad, India, and a plant for the power steering components in Chonburi, Thailand. Elsewhere, we will enhance an integrated manufacturing base in Canada for the pumps for hydraulic power steering. At the same time, we will make capital investments in the U.S. to bolster the capacity of in-house production of the springs, pressed and sintered components. We firmly believe that these developments will further enrich and enlarge the business of the Group.

Dividends for Shareholders

SHOWA CORPORATION considers the return of profits to shareholders based on business performance and results to be an important issue, and moreover, we also believe retained earnings to be important in order to develop business and strengthen corporate structures for the future business considerations.

The year-end dividend for Fiscal 2006 was ¥10 per share. Combined with the interim payment of the dividend, the total amount paid out per share for this fiscal period was ¥20. As result, the payout was 18.65%, the return on equity was 11.9%, and the dividend rate for shareholdersf equity was 2.1% respectively for this fiscal year.

Capital from retained earnings will be put toward meeting capital requirements for future overseas development, product development, and improvement in our efforts to improve profitability and to strengthen the companyfs financial structure.

Status of Corporate Governance

Basic Approach to Corporate Governance

SHOWA CORPORATION aims to be a company that enjoys the trust of its shareholders and society as a whole and that continues to live up to the expectations placed upon it. To achieve this goal, we are flexibly and efficiently developing our business on a global scale in order to increase our corporate value, however we also consider it essential to maintain a clear understanding of the risks involved in such to ensure that the company is conforming strictly to all relevant laws, regulations, and other conventions both inside and outside of the company.

Executive Management Structures

Showa oversees and audits the execution of its businesses through the Board of Directors and the Board of Auditors.

The Board of Directors is comprised of 16 Directors and makes decisions regarding important business matters and other statutory issues, and oversees the execution of the business operations.

The Board of Auditors is comprised of 4 Auditors@(including 3 outside Auditors), and each Corporate Auditor attends meeting of the Board of Directors and other important internal meetings in accordance with the internal Audit Policies, division of responsibilities, and other directives stipulated by the Board of Auditors. It also oversees the execution of activities by the Directors, in part through audits of the business and financial status of SHOWA CORPORATION and its key subsidiaries. The Board of Auditors works closely with the Internal Auditing Committee and an independent auditing firm, and is reported by them with regard to such issues as audit plans and their results. The external members of the Board of Auditors have no business interest whatsoever with the Company.

We look forward to the continued invaluable support and guidance of all shareholders in the years to come.

Kazuto Iiyama
President,
SHOWA CORPORATION