Consolidated Financial Statements SUMIDA CORPORATION. and Consolidated Subsidiaries. SUMIDA CORPORATION and Consolidated Subsidiaries

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1 SUMIDA CORPORATION and Consolidated Subsidiaries Consolidated Financial Statements SUMIDA CORPORATION and Consolidated Subsidiaries Years ended December 31, 2006 and 2007 with Report of Independent Auditors 0

2 SUMIDA CORPORATION and Consolidated Subsidiaries SUMIDA CORPORATION and Consolidated Subsidiaries Consolidated Financial Statements Years ended December 31, 2006 and 2007 Contents Report of Independent Auditors...1 Consolidated Balance Sheets...2 Consolidated Statements of Income...4 Consolidated Statements of Changes in Net Assets...5 Consolidated Statements of Cash Flows...7 Notes to Consolidated Financial Statements...8 0

3 Report of Independent Auditors The Board of Directors SUMIDA CORPORATION We have audited the accompanying consolidated balance sheets of SUMIDA CORPORATION and consolidated subsidiaries as of December 31, 2006 and 2007, and the related consolidated statements of income, changes in net assets, and cash flows for the years then ended, all expressed in yen. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of SUMIDA CORPORATION and consolidated subsidiaries at December 31, 2006 and 2007, 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. Supplemental Information As described in Note 10 Contingent Liabilities, on June 29, 2005, the Company received a notice of tax assessment from the Tokyo Regional Tax Bureau (the Bureau ). However, the Company did not agree with this decision of the Bureau and made the claim for examination to the Tokyo National Tax Tribunal on August 29, The Company s request was dismissed in January 2008 and the Company is going to appeal for its claim in future in court. In case of a lost lawsuit for the Company, the total amount of 706 million yen, which consists of 628 million yen included in the other current assets and 78 million yen, which would have been incurred until the year ended March 31, 2008, will be charged to the tax expense. The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended December 31, 2007 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 2. March 22,

4 Consolidated Balance Sheets As of December 31, 2006 and 2007 December 31, (Thousands of U.S.dollars) (Note 2) Assets Current assets: Cash and deposits (Note 11) 6,417 9,181 $82,712 Trade receivables: Notes ,784 Accounts 15,284 11, ,703 Allowance for doubtful accounts (65) (35) (315) 16,155 12, ,172 Inventories 9,383 9,814 88,414 Deferred income taxes (Note 13) 832 1,894 17,063 Prepaid expenses and other current assets 3,206 6,207 55,919 Total current assets 35,993 39, ,280 Property, plant and equipment: Land 2,543 1,367 12,315 Buildings 13,062 11, ,153 Machinery and equipment 23,320 24, ,369 Furniture and fixtures 7,579 7,881 71,000 Construction in progress 1,782 2,282 20,558 48,286 46, ,395 Accumulated depreciation (25,843) (27,121) (244,333) Property, plant and equipment, net 22,443 19, ,062 Investment and other assets: Goodwill 5,360 6,495 58,514 Intangible assets 1,354 1,378 12,414 Investment in securities (Note 9 ) ,937 Investment in affiliate 1, Deferred income taxes (Note 13) 2,489 1,852 16,685 Other assets 470 1,370 12,342 Investment and other assets 11,725 11, ,892 Total assets 70,161 71,510 $644,234 See accompanying notes to consolidated financial statements. 2

5 Consolidated Balance Sheets As of December 31, 2006 and 2007 December 31, (Thousands of U.S.dollars) (Note 2) Liabilities, shareholders' equity and net assets Current liabilities: Short-term bank borrowings (Note 4 ) 10,531 14,673 $132,189 Current portion of long-term debt (Note 4 ) 2,700 1,523 13,721 Trade payables: Notes Accounts 5,339 4,433 39,937 5,353 4,433 39,937 Income taxes payable 1, ,360 Deferred income taxes (Note 13) ,324 Accrued expenses and other current liabilities 5,877 3,913 35,252 Total current liabilities 25,784 25, ,783 Long-term liabilities: Long-term debt (Note 4) 13,107 11, ,171 Deferred income taxes (Note 13) 1, ,099 Accrued retirement benefits (Note 12) 1,097 1,046 9,423 Lease obligation 946 1,051 9,468 Others 551 1,526 13,748 Total long term liabilities 17,226 15, ,909 Total liabilities 43,010 41, ,692 Contingent liabilities(note 10) Net assets: Common stock: Authorized-70,000,000 shares Issued-19,640,002 shares in 2006 and 19,944,317 shares in ,961 7,217 65,018 Capital surplus 6,775 7,030 63,334 Retained earnings 13,642 15, ,550 Treasury stock, at cost: 730,306 shares in 2006 and 731,097 shares in 2007 (1,522) (1,524) (13,729) Total shareholders' equity 25,856 28, ,173 Net unrealized holding gain (loss) on securities 29 (82) (739) Net unrealized gain (loss) from hedging instruments 96 (27) (243) Translation adjustments Total valuation and translation adjustments 311 (103) (928) Minority interests 984 1,365 12,297 Total net assets 27,151 29, ,542 Total liabilities and net assets 70,161 71,510 $644,234 See accompanying notes to consolidated financial statements. 3

6 Consolidated Statements of Income Years ended December 31, 2006 and 2007 Year ended December 31, (Thousands of U.S.dollars) (Note 2) Net sales 63,508 70,210 $632,523 Cost of sales (Note 5) 46,829 53, ,396 Gross profit 16,679 17, ,127 Selling, general and administrative expenses (Note 5 ) 12,508 12, ,676 Operating income 4,171 4,712 42,451 Other income (expense): Interest and dividend income ,189 Interest expense (333) (426) (3,838) Foreign currency exchange gain 1, Equity in loss of affiliated company (515) (68) (613) Other, net (Note 6) (464) (764) (6,883) Income before income taxes and minority interests 4,126 3,614 32,558 Income taxes: (Note 13) Current 1,628 1,740 15,676 Deferred 232 (1,034) (9,315) 1, ,361 Income before minority interests 2,266 2,908 26,197 Minority interests Net income 2,182 2,855 $25,720 See accompanying notes to consolidated financial statements. 4

7 Consolidated Statements of Changes in Net Assets Years ended December 31, 2006 and 2007 Shareholders' equity Common stock Capital surplus Earned surplus Treasury stock Total shareholders' equity Balance as of December 31, ,771 6,585 12,532 (65) 25,823 Changes of items during the period Issuance of shares Dividend from surplus (1,072) (1,072) Net income 2,182 2,182 Purchase of treasury stock (1,458) (1,458) Disposal of treasury stock (0) 1 1 Net changes of items other than those in shareholders' equity - Total changes of items during the period ,110 (1,457) 33 Balance as of December 31, ,961 6,775 13,642 (1,522) 25,856 Unrealized holding gain or loss on securities Valuation and translation adjustments Unrealized gain or loss from hedging instruments Translation adjustments Total valuation and translation adjustments Minority interests Total net assets Balance as of December 31, (955) (903) 55 24,975 Changes of items during the period Issuance of shares 380 Dividend from surplus (1,072) Net income 2,182 Purchase of treasury stock (1,458) Disposal of treasury stock 1 Net changes of items other than those in shareholders' equity (23) 96 1,141 1, ,143 Total changes of items during the period (23) 96 1,141 1, ,176 Balance as of December 31, ,151 Shareholders' equity Common stock Capital surplus Earned surplus Treasury stock Total shareholders' Balance as of December 31, ,961 6,775 13,642 (1,522) 25,856 Changes of items during the period Issuance of shares Dividend from surplus (781) (781) Net income 2,855 2,855 Purchase of treasury stock (2) (2) Disposal of treasury stock (0) 0 (0) Changes in application of equity method Net changes of items other than those in shareholders' equity - Total changes of items during the period ,292 (2) 2,801 Balance as of December 31, ,217 7,030 15,934 (1,524) 28,657 Unrealized holding gain or loss on securities Valuation and translation adjustments Unrealized gain or loss from hedging instruments Translation adjustments Total valuation and translation adjustments Minority interests Total net assets Balance as of December 31, ,151 Changes of items during the period Issuance of shares 511 Dividend from surplus (781) Net income 2,855 Purchase of treasury stock (2) Disposal of treasury stock (0) Changes in application of equity method 218 Net changes of items other than those in shareholders' equity (111) (123) (180) (414) 381 (33) Total changes of items during the period (111) (123) (180) (414) 381 2,768 Balance as of December 31, 2007 (82) (27) 6 (103) 1,365 29,919 5

8 Shareholders' equity Common stock Capital surplus Earned surplus Treasury stock Total shareholders' (Thousands of U.S.dollars) Balance as of December 31, 2006 $62,712 $61,036 $122,901 $(13,711) $232,938 Changes of items during the period Issuance of shares 2,306 2,298 4,604 Dividend from surplus (7,036) (7,036) Net income 25,720 25,720 Purchase of treasury stock (18) (18) Disposal of treasury stock (0) 0 (0) Changes in application of equity method 1,965 1,965 Net changes of items other than those in shareholders' equity 0 Total changes of items during the period 2,306 2,298 20,649 (18) 25,235 Balance as of December 31, 2007 $65,018 $63,334 $143,550 $(13,729) $258,173 Unrealized holding gain or loss on securities Valuation and translation adjustments Unrealized gain or loss from hedging instruments Translation adjustments Total valuation and translation adjustments Minority interests Total net assets (Thousands of U.S.dollars) Balance as of December 31, 2006 $261 $865 $1,676 $2,802 $8,865 $244,605 Changes of items during the period Issuance of shares 4,604 Dividend from surplus (7,036) Net income 25,720 Purchase of treasury stock (18) Disposal of treasury stock 0 Changes in application of equity method 1,965 Net changes of items other than those in shareholders' equity (1,000) (1,108) (1,622) (3,730) 3,432 (298) Total changes of items during the period (1,000) (1,108) (1,622) (3,730) 3,432 24,937 Balance as of December 31, 2007 $(739) $(243) $54 $(928) $12,297 $269,542 See accompanying notes to consolidated financial statements. 6

9 Consolidated Statements of Cash Flows Years ended December 31, 2006 and 2007 Year ended December 31, (Thousands of U.S.dollars) (Note 2) Cash flows from operating activities Income before income taxes and minority interests 4,126 3,614 $32,558 Depreciation and amortization 3,315 3,600 32,432 Interest and dividend income (122) (132) (1,189) Interest expense ,838 Equity in loss of affiliated company Gain on sales of securities (2) (103) (928) Exchange gain (loss) (801) Others, net (579) 182 1,640 Changes in operating assets and liabilities: Trade receivables ,117 Inventories (1,058) (2,014) (18,144) Trade payables (917) 187 1,685 Subtotal 4,885 6,628 59,712 Interests and dividend income ,189 Interest paid (463) (429) (3,865) Income taxes paid (1,280) (2,151) (19,378) Net cash provided by operating activities 3,264 4,180 37,658 Cash flows from investing activities Proceeds from time deposits Payments into time deposits (15) (6) (54) Purchases of property, plant and equipment (3,975) (4,523) (40,748) Proceeds from sales of property, plant and equipment 15 5,214 46,973 Payments for investment in an affiliated company (3,926) (378) (3,405) Net decrease in cash and cash equivalents from sales of affiliated companies - (585) (5,270) Payments for loans - (725) (6,532) Purchases of Profit Participation Right (1,751) - - Proceeds from sales of investment securities ,631 Payments for purchases of investment in securities (478) (598) (5,387) Others, net (57) (1,321) (11,900) Net cash used in investing activities (10,048) (2,281) (20,548) Cash flows from financing activities Increase (decrease) in short-term bank borrowings (4,012) 3,949 35,577 Increases in long-term borrowings 7, Repayment of long-term debt (6,474) (1,524) (13,730) Proceeds from issuance of common stock and warrants ,604 Cash dividends paid (1,070) (780) (7,027) Purchases or proceeds from sales of treasury stock (1,458) (2) (18) Others, net (161) (1,083) (9,757) Net cash provided by (used in) financing activities (5,295) 1,071 9,649 Effect of exchange rate changes on cash and cash equivalents 391 (128) (1,153) Net increase (decrease) in cash and cash equivalents (11,688) 2,842 25,606 Cash and cash equivalents at beginning of year 18,225 6,537 58,892 Decrease in cash and cash equivalents on exclusion from consolidation - (23) (207) Cash and cash equivalents at end of year (Note 11): 6,537 9,356 $84,291 See accompanying notes to consolidated financial statements. 7

10 Notes to Consolidated Financial Statements Years ended December 31, 2006 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation SUMIDA CORPORATION (the Company ) and its domestic consolidated subsidiaries maintain their accounting records and prepare their financial statements in accordance with accounting principles generally accepted in Japan, and its overseas consolidated subsidiaries maintain their books of account in conformity with those of their countries of domicile. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards ( IFRS ). In addition, the notes to the consolidated financial statements include information which is not required under accounting principles generally accepted in Japan but is presented herein as additional information. (b) Principles of consolidation and accounting for investments in unconsolidated subsidiaries and affiliates The accompanying consolidated financial statements include the accounts of the Company and all of the significant companies controlled directly or indirectly by the Company. Companies over which the Company exercises significant influence in terms of their operating and financial policies have been included in the consolidated financial statements on an equity basis. All significant intercompany accounts and transactions have been eliminated in consolidation. (c) Investment in securities Securities other than equity securities issued by subsidiaries and affiliates are classified into three categories: trading, held-to-maturity or other securities. Marketable securities classified as other securities are stated at fair value with any changes in unrealized holding gain or loss, net of the applicable income taxes, included directly in net assets. Non-marketable securities classified as other securities are stated at cost. Cost of securities sold is determined by the average cost method. (d) Inventories Inventories are stated at cost determined by weighted average method in Japan, and are stated at the lower of cost or market, cost being determined principally by the first-in, first-out method on foreign subsidiaries. (e) Property, plant and equipment Property, plant and equipment are stated at cost. Depreciation of buildings (except for structures attached to the buildings) acquired subsequent to April 1, 1998 is calculated principally by the straight-line method over the estimated useful lives of the respective assets. Depreciation of other property, plant and equipment is computed by the declining-balance method for domestic companies and for the straight-line method for overseas subsidiaries over the useful lives of the respective assets. The useful lives of property, plant and equipment are summarized as follows Buildings and structures 3 to 65 years Machinery and equipment 2 to 16 years Furniture and fixtures 2 to 20 years Significant renewals and additions are capitalized at cost. Maintenance and repairs are charged to income as incurred. 8

11 (f) Research and development costs and computer software Research and development costs are charged to income when incurred. Expenditures relating to computer software developed for internal use are charged to income as incurred unless these are deemed to contribute to the generation of future income or cost savings. Such expenditures are capitalized as assets and amortized by the straight-line method over their useful lives, generally a period of 5 years. (g) Goodwill Goodwill which was recorded when overseas subsidiaries acquired companies is not amortized according to IFRS No.3 Business Combination. (h) Foreign currency translation All monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen at the rates of exchange in effect at the balance sheet date and the gain or loss on each translation is credited or charged to income. Revenue and expense items arising from transactions denominated in foreign currencies are generally translated into Japanese yen at the average rates of exchange in effect during the year. Gain or loss on foreign exchange is credited or charged to income in the period in which such gain or loss is recognized for reporting purposes. The financial statements of the overseas subsidiaries are translated into Japanese yen at the rates of exchange in effect at the balance sheet date except that the components of net assets excluding minority interests are translated at their historical exchange rates. Adjustments resulting from translating the foreign currency financial statements are not included in the determination of net income and have been reported as translation adjustments and minority interests in net assets in the consolidated balance sheets. (i) Allowance for doubtful accounts The allowance for doubtful accounts is determined based on the Company s and its consolidated subsidiaries historical experience of losses on bad debts and write off as a percentage of the balance of total receivables plus an additional amount deemed necessary to cover estimated future losses on specific doubtful accounts. (j) Accrued retirement benefits Certain overseas subsidiaries accrue employees retirement benefits at an estimated amount calculated based on the retirement benefit obligation. The amount of actuarial gain or loss in each fiscal year is amortized by using the straight-line methods over certain number of years within the employees average remaining years of service starting from the following year right after the actuarial gain or loss occurred. (k) Leases Non-cancelable leases related to the Company and the domestic consolidated subsidiaries are accounted for as operating leases except those lease which stipulate the transfer of ownership of the leased assets to the lessee which are accounted for as finance leases. (l) Derivative financial instruments The Company and certain consolidated subsidiaries have entered into various derivative transactions in order to manage certain risks arising from adverse fluctuations in foreign currency exchange rates. Derivative financial instruments are stated at fair value with any changes in unrealized gain or loss charged or credited to income, except for those which meet the criteria for deferral hedge accounting under which unrealized gain or loss is deferred as an asset or a liability. Receivables and payables hedged by qualified forward foreign exchange contracts are translated at the corresponding foreign exchange contract rates. 9

12 (m) Income taxes Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries consist of corporate tax, inhabitants taxes and enterprise tax. Income taxes are calculated based on taxable income and charged to income on an accrual basis. Certain temporary differences exist between taxable income and income reported for financial statements purposes which enter into the determination of taxable income in a different period. The Company has recognized the tax effect of such temporary differences in the accompanying consolidated financial statements. (n) Appropriation of retained earnings Under the Corporation Law of Japan, the appropriation of retained earnings with respect to a given financial year is made by resolution of the Board of Directors held subsequent to the close of such financial year. The accounts for that year do not, therefore, reflect such appropriations. (o) Cash and cash equivalents Cash and cash equivalents include cash on hand and in banks and other liquid investments with maturity of three months or less when purchased. (p)change in Accounting Policies Changes in the method of depreciation for Property, Plant and Equipment Effective April 1, 2007, the Company and its domestic subsidiaries have changed their method of depreciation based on an amendment to the Corporation Tax Low of Japan for tangible assets aquired on after April 1, The effect of this change on the consolidated statement of income was immaterial. 2. U.S. DOLLAR AMOUNTS Solely for the convenience of the reader and as a matter of arithmetic computation only, the amounts in the consolidated financial statements have been translated from Japanese yen into U.S. dollars, at the rate of 111= U.S.$1, the approximate rate prevailing on December 31, The translation should not be construed as a representation that Japanese yen could be converted into U.S. dollars at this or any other rate. 3. INVENTORIES Inventories as of December 31, 2006 and 2007 were summarized as follows: December 31, Finished products 3,680 5,012 $45,153 Work in process 1,612 1,311 11,810 Raw materials and supplies 4,272 3,510 31,622 Reserve for obsolete inventories (181) (19) (171) 9,383 9,814 $88, (Thousands of U.S. dollars) 10

13 4. SHORT-TERM BANK BORROWINGS AND LONG-TERM DEBT Short-term bank borrowings bore interest at rates ranging from 0.640% to 0.940% and from 1.000% to 1.290% per annum as of December 31, 2006 and 2007, respectively. Long-term debt consisted of the followings: December 31, (Thousands of U.S. dollars) Bank borrowings 6,607 5,086 $45,820 Unsecured bonds and convertible bonds 9,200 8,000 72,072 15,807 13, ,892 Less : current portion (2,700) (1,523) (13,721) 13,107 11,563 $104,171 The annual weighted-average interest rates are ranging from 1.14% to 1.935% and from 1.550% to 1.935% per annum as of December 31, 2006 and 2007, respectively. The details of the unsecured bonds and convertible bonds were as follows: Convertible bonds with stock acquisition rights, due January 26, 2009 at interest rate 0% per annum December 31, (Thousands of U.S. dollars) 8,000 8,000 $72,072 The aggregate annual maturities of long-term debt subsequent to December 31, 2007 are summarized as follows: Year ending December 31, (Thousands of U.S. dollars) ,523 $13, ,510 85, ,503 13, ,955 13,086 $117, RESEARCH AND DEVELOPMENT COSTS Research and development costs included in selling, general and administrative expenses and manufacturing costs for the years ended December 31, 2006 and 2007 amounted to 1,429 million and 1,408 million ($12,685 thousand), respectively. 11

14 6. OTHER INCOME (EXPENSE) The details of Other, net in Other Income (expense) for the year ended December 31, 2006 and 2007 were as follows: Year ended December 31, (Thousands of U.S. dollars) Gain on sales of fixed assets 4 3,028 $27,279 Gain on sales of securities Loss on sales of fixed assets (238) (193) (1,739) Gain on dilution of equity of affiliated company Structural reorganization expense (428) (2,267) (20,423) Loss on devaluation of investment in securities (1) (1,383) (12,459) Other, net (91) (52) (469) (464) (764) $(6,883) 7. ACQUISITIONS and DISPOSALS 1) Jensen Devices AB Jensen Devices AB (Sweden), a consolidated subsidiary, has been excluded from the scope of consolidation because the Company sold the shares in Jensen that it held. 2) VOGT electronic AG Sumida group subscribed to capital increase of VOGT electronic AG, a consolidated subsidiary, and as a result, the percentage of its shares held by the Sumida Group increased to 83.7% from 78.1%. Accordingly, the ratio of shareholding in subsidiaries of the company by the Sumida Group also increased. 3) Panta GmbH Sumida group increased its stake in Panta GmbH, a consolidated subsidiary, and as a result, the percentage of its shares held increased to 76% from 61%. 4) Sumida Shintex Company Limited Sumida group acquired all the shares issued by Sumida Shintex Company Limited by concluding an agreement to transfer the shares with Shintex Corporation in March As a result, Sumida Shintex became a wholly owned subsidiary of the Company. In January 2008, the corporate name Sumida Shintex Company Limited was changed to Sumida LCM Company Limited. 5) VOGT electronic Letron GmbH VOGT electronic Letron GmbH (Germany), a consolidated subsidiary in the previous fiscal year, has been excluded from the scope of consolidation because Sumida group sold its shares in VOGT that it held in November ) Taiwan Sumida Trading Company Limited In August 2007, the Company established Taiwan Sumida Trading Company Limited, a wholly owned subsidiary that engages in sales of magnetic products in Taiwan. 7) Taiwan Sumida Electronics Inc. and Suzhou Sumida Electric Co., Ltd. In December 2007, the Company sold all the shares it held in Taiwan Sumida Electronics Inc., a consolidated subsidiary in the previous fiscal year and all the shares in Suzhou Sumida Electric Co., Ltd., consolidated subsidiary of Taiwan Sumida Electronics Inc. 12

15 8. LEASE TRANSACTIONS The following amounts represent the acquisition costs, accumulated depreciation and net book value of the leased assets as of December 31, 2006 and 2007 that would have been reflected in the consolidated balance sheet if finance lease accounting had been applied to the finance leases currently accounted for as operating leases: Acquisition costs December 31, 2006 Accumulated depreciation Net book value Machinary and equipment December 31, 2007 Acquisition costs Accumulated depreciation Net book value Acquisition costs Accumulated depreciation Net book value (Thousands of U.S. dollars) Machinery and equipment $486 $324 $162 Lease payments relating to finance leases accounted for as operating leases in the accompanying consolidated financial statements amounted to 9 million and 9 million ($81 thousand) for the years ended December 31, 2006 and 2007, respectively. Depreciation of the leased assets computed by the straight-line method over the respective lease terms and the interest portion included in lease payments amounted to 9 million and 9 million ($81 thousand) for the years ended December 31, 2006 and 2007, respectively. Future minimum lease payments subsequent to December 31, 2007 for finance leases accounted for as operating leases are summarized as follows: Year ending December 31, (Thousands of U.S. dollars) $ and thereafter Total 18 $162 Future minimum lease payments subsequent to December 31, 2007 for non-cancelable operating leases are as follows: Year ending December 31, (Thousands of U.S. dollars) $1, and thereafter 438 3,946 Total 657 $5,919 13

16 9. SECURITIES Securities classified as other securities at December 31, 2006 and 2007 were as follows: Marketable securities Securities whose fair value exceeds their carrying value Cost Gross unrealized gain Gross unrealized loss Book value (estimated fair value) Equity securities Other Subtotal Securities whose carrying value exceeds their fair value December 31, 2006 Equity securities (23) 610 Subtotal (23) 610 Total (23) 811 Securities whose fair value exceeds their carrying value Cost Gross unrealized gain Gross unrealized loss December 31, 2007 Book value (estimated Cost fair value) Gross unrealized gain Gross unrealized loss (Thousands of U.S. dollars) Book value (estimated fair value) Equity securities $1,487 $144 - $1,631 Other Subtotal $1,505 $153 - $1,658 Securities whose carrying value exceeds their fair value Equity securities (171) 500 $6,045 - $(1,541) $4,504 Subtotal (171) 500 6,045 - (1,541) 4,504 Total (171) 684 $7,550 $153 $(1,541) $6,162 The carrying value of securities whose fair value was not determinable (i.e. unlisted stock) were 8 and 197 million ($1,775 thousand) in at December 31, 2006 and 2007, respectively. 10. CONTINGENT LIABILITIES 1) On June 29, 2005, the Company received a notice of tax assessment from the Tokyo Regional Tax Bureau (the Bureau). The Bureau stated that Hong Kong, where the Company has a subsidiary, was judged as a tax haven under Japanese tax rule. Based on this judgment, the Bureau has decided to impose a unitary tax to the internal reserve of Sumida s Hong Kong subsidiary for the fiscal years ended March 31, 2002 and The notice indicated that the taxable income would be adjusted upward to 1.8 billion. However, since the amount of tax loss carried forward for the Company at the time was able to cover this, the Company did not have to pay any taxes. However, the Company did not agree with this decision of the Bureau and made the claim for examination to the Tokyo National Tax Tribunal on August 29, 2005, but our request was dismissed in January We are going to appeal for our claim in future in court. At the same time, for the open fiscal years after 2004, in order to avoid additional tax due to understatement (about 10-15% p.a.), the Company re-calculated the tax amount on the basis that the decision of the Bureau had been accepted and the Company filed the tax returns accordingly. The resulting difference between the taxes actually paid in 2005 and 2006 and the amount without such re-calculation was included in the other current assets as the Company assessed it was more likely than not the difference would be refunded. In case of a lost lawsuit for the Company, the 14

17 total amount of 628 million included in the other current assets and 78 million, which would have been incurred during the first half year 2007, will be charged to the tax expense. 2) Taiwan Sumida Electronics Inc. (TSE), 14.6% of whose shares are indirectly held by the Company, became embroiled in a patent infringement case in connection with its inverter module products filed by O 2 Micro International Limited, a supplier of integrated circuit products (IC chips). In April 2006, the U.S. District Court of Eastern Texas rendered such final judgment in favor of O 2 Micro to find that O 2 Micro had suffered losses and damages due to the infringement by TSE, concurrently issuing an injunction to prohibit use of certain IC chips manufactured by Monolithic Power Systems Inc. (MPS), the focus of the dispute. In May 2006, however, TSE, discontented with those rulings, appealed its case to the U.S. Appeals Court in Washington D.C. and this case is still being fought at the appellate phase. On the other hand, Taiwan Sumida has made a new contract that replaced with the indemnification agreement with MPS, which would make to compensate all the expenses or losses suffered by Taiwan Sumida due to the dispute against O2 Micro. That new contractual coverage is MPS will pay up to US$7.350 Million in case of settlement of a dispute. Therefore, Taiwan Sumida has not added up any potential losses up to present. 11. CASH AND CASH EQUIVALENTS Cash and cash equivalents at December 31, 2006 and 2007 consisted of the following; Cash and deposits 6,417 MMF Fund 136 Sub total 6,553 Time deposits with a maturity of more than three months when purchased (16) Cash and cash equivalents 6,537 December 31, (Thousands of U.S. dollars) 9,181 $82, ,632 9,362 84,344 (6) (53) 9,356 $84,291 15

18 12. ACCRUDE RETIREMENT BENEFITS A certain overseas subsidiary has a defined benefit pension plan. Under this plan, employees are generally entitled to lump-sum payments or pension payments, the amounts of which are determined by reference to their basic salary, length of service, and the condition under which termination occurs. Accrued employees pension and severance costs at December 31, 2006 and 2007 consisted of the following: Retirement benefit obligation Plan assets Unrecognized actuarial gain (loss) Accrued retirement benefits December 31, 2006 December 31, 2007 (Thousands of U.S. dollars) 1,197 1,133 $10,207 - (179) (1,613) (100) ,097 1,046 $9,423 The components of the employees pension and severance expenses for the year ended December 31, 2006 and 2007 were as follows: Service cost Interest cost Expected return on pension assets Amortization of retirement benefit net at obligation transition Amortization of actuarial loss Employees' pension and severance expenses Year ended December 31, 2006 Year ended December 31, 2007 (Thousands of U.S. dollars) $ (2) (18) $1,486 The period allocation method of a estimated retirement benefits Discount rates Amortization over average remaining service Expected rate of return on plan assets Amortization period of net retirement benefit obligation at transition Projected unit credit method % years Projected unit credit method % 1-3 years 2.70% 1 year 13. INCOME TAXES Income taxes applicable to the Company and its domestic consolidated subsidiaries consist of corporate tax, inhabitants taxes and enterprise tax, which, in the aggregate, resulted in statutory tax rates of approximately 40.7% for 2006 and The overseas subsidiaries are subject to the income taxes of the countries in which they operate. The effective tax rates for the years ended December 31, 2006 and 2007 differ from the statutory tax rates above for the following reasons: 16

19 Year ended December 31, Statutory tax rate 40.7 % 40.7 % Dividends Foreign tax credits (16.9) (3.1) Change in valuation allowance - (13.3) Tax rate difference relating to overseas subsidiaries (24.0) (26.8) Effect on deferred taxes of reduction in tax rate in foreign countries - (4.0) Other 8.0 (0.1) Effective tax rate 45.1 % 19.5 % The significant components of deferred tax assets and liabilities at December 31, 2006 and 2007 were as follows, respectively: December 31, (Thousands of U.S. dollars) (Deferred tax assets) Foreign tax credits $1,676 Net operating loss carry-forwards 3,745 3,542 31,910 Loss on devaluation in investments in securities ,108 Depreciation ,568 Bad debt expense 436 1,619 14,586 Accrued enterprise tax Accrued expense ,045 Long term advance received profit Financial liabilities (Profit Participation Right) ,829 Lease obligation ,207 Retirement payment obligation Other ,234 Valuation allowance (3,057) (2,783) (25,073) Total deferred tax assets 3,321 4,611 41,540 (Deferred tax liabilities) Undistributed earnings of overseas subsidiaries ,279 Depreciation and amortization 1,457 1,329 11,973 Securities Other Total deferred tax liabilities 1,711 1,800 16,216 Net deferred tax assets 1,610 2,811 $25,324 17

20 14. SEGMENT INFORMATION a) Business segments Coil business VOGT business Components Year ended December 31, 2006 VOGT business Total EMS Eliminations or corporate Consolidated Ⅰ Sales and operating income (1)Sales to third parties 42,249 18,878 2,381 63,508-63,508 (2)Inter-segment sales or transfers (70) - Total sales 42,281 18,916 2,381 63,578 (70) 63,508 Operating expenses 36,221 18,147 2,052 56,420 2,917 59,337 Operating income 6, ,158 (2,987) 4,171 Ⅱ Assets, depreciation and capital expenditure Total assets 61,113 21,205 5,123 87,441 (17,280) 70,161 Depreciation 1,966 1, ,315-3,315 Capital expenditures 3,409 4, ,095-8,095 *Operating expenses in the "Eliminations or corporate" consist of followings; Headquarters expenses Fundamental research and development costs charge to headquarters 1,556 1,429 Eliminations (68) Total 2,917 Year ended December 31, 2007 Coil business VOGT business Components VOGT business EMS Total Eliminations or corporate Consolidated Ⅰ Sales and operating income (1)Sales to third parties 46,004 21,699 2,507 70,210-70,210 (2)Inter-segment sales or transfers (752) - Total sales 46,604 21,851 2,507 70,962 (752) 70,210 Operating expenses 40,260 20,876 2,420 63,556 1,942 65,498 Operating income 6, ,406 (2,694) 4,712 Ⅱ Assets, depreciation and capital expenditure Total assets 64,794 20,122 4,652 89,568 (18,058) 71,510 Depreciation 1,953 1, ,600-3,600 Capital expenditures 3,436 1, ,797-4,797 *Operating expenses in the "Eliminations or corporate" consist of followings; Headquarters expenses 1,286 Fundamental research and development costs charge to headquarters 1,408 Eliminations (752) Total 1,942 18

21 Ⅰ Sales and operating income Coil business VOGT business Components Year ended December 31, 2007 VOGT business Total EMS (Thousands of U.S. dollars) Eliminations or corporate Consolidated (1)Sales to third parties $414,451 $195,486 $22,586 $632,523 - $632,523 (2)Inter-segment sales or transfers 5,405 1,369-6,774 $(6,774) - Total sales 419, ,855 22, ,297 (6,774) 632,523 Operating expenses 362, ,072 21, ,576 17, ,072 Operating income $57,153 $8,783 $785 $66,721 $(24,270) $42,451 Ⅱ Assets, depreciation and capital expenditure Total assets $583,730 $181,279 $41,910 $806,919 $(162,685) $644,234 Depreciation 17,595 12,505 2,333 32,433-32,433 Capital expenditures $30,955 $10,973 $1,288 $43,216 - $43,216 *Operating expenses in the "Eliminations or corporate" consist of followings; (Thousands of U.S. dollars) Headquarters expenses $11,586 Fundamental research and development costs charge to headquarters 12,685 Eliminations (6,776) Total $17,495 b) Geographical areas The geographical segment information for the Company and consolidated subsidiaries for the years ended December 31, 2006 and 2007 were as follows: Japan Hong Kong /China Year ended December 31, 2006 Taiwan ASEAN NAFTA EU Total Eliminations or corporate Consolidated 1.Sales and operating income (loss) (1)Sales to third parties 9,663 16,477 7,734 3,049 5,883 20,702 63,508-63,508 (2)Inter-segment sales and transfers 1,930 13, ,782 3,840 21,797 (21,797) - Total sales 11,593 30,357 8,099 3,049 7,665 24,542 85,305 (21,797) 63,508 Operating expenses 10,768 25,391 7,605 2,967 8,020 23,398 78,149 (18,812) 59,337 Operating income (loss) 825 4, (355) 1,144 7,156 (2,985) 4,171 2.Total asset 54,960 22,718 4,733 1,124 4,942 46, ,835 (64,674) 70,161 *Operating expenses in the "Eliminations or corporate" consist of followings; Headquarters expenses Fundamental research and development costs charged to headquarters 1,556 1,429 Eliminations (21,797) Total (18,812) Japan Hong Kong /China Year ended December 31, 2007 Taiwan ASEAN NAFTA EU Total Eliminations or corporate Consolidated 1.Sales and operating income (loss) (1)Sales to third parties 9,487 19,301 7,045 3,194 7,063 24,120 70,210-70,210 (2)Inter-segment sales and transfers 1,302 15, ,954 (17,954) - Total sales 10,789 34,539 7,462 3,194 7,913 24,267 88,164 (17,954) 70,210 Operating expenses 10,265 30,016 7,003 3,034 8,019 23,101 81,438 (15,940) 65,498 Operating income (loss) 524 4, (106) 1,166 6,726 (2,014) 4,712 2.Total asset 58,371 22, ,779 27, ,208 (42,698) 71,510 *Operating expenses in the "Eliminations or corporate" consist of followings; Headquarters expenses Fundamental research and development costs charged to headquarters 1,286 1,408 Eliminations (18,634) Total (15,940) 19

22 Japan Hong Kong /China Year ended December 31, 2007 Taiwan/Korea ASEAN NAFTA EU Total Eliminations or corporate Consolidated 1.Sales and operating income (loss) (Thousands of U.S. dollars) (1)Sales to third parties $85,469 $173,883 $63,468 $28,775 $63,631 $217,297 $632,523 - $632,523 (2)Inter-segment sales and transfers 11, ,279 3, ,658 1, ,748 $(161,748) - Total sales 97, ,162 67,225 28,775 71, , ,271 (161,748) 632,523 Operating expenses 92, ,414 63,090 27,333 72, , ,676 (143,604) 590,072 Operating income (loss) $4,720 $40,748 $4,135 $1,442 $(954) $10,504 $60,595 $(18,144) $42,451 2.Total asset $525,865 $204,315 $3,874 $8,856 $34,045 $251,946 $1,028,901 $(384,667) $644,234 *Operating expenses in the "Eliminations or corporate" consist of followings; (Thousands of U.S. dollars) Headquarters expenses $11,586 Fundamental research and development costs charged to headquarters 12,685 Eliminations (167,875) Total $(143,604) c) Overseas sales Overseas sales, which include export sales of the Company and domestic consolidated subsidiaries and sales (other than exports to Japan) of the foreign consolidated subsidiaries, for the years ended December 31, 2006 and 2007 were summarized as follows: Overseas sales Consolidated net sales Hong Kong /China Year ended December 31, 2006 ASEAN Taiwan/Korea NAFTA EU Other Total 11,028 3,163 6,031 5,931 27, ,844 63,508 Overseas sales as a percentage of consolidated net sales 17.4% 5.0% 9.5% 9.3% 43.5% 0.1% 84.8% Overseas sales Consolidated net sales Hong Kong /China Year ended December 31, 2007 ASEAN Taiwan/Korea NAFTA EU Other Total 13,524 3,297 4,718 7,133 31, ,721 70,210 Overseas sales as a percentage of consolidated net sales 19.3% 4.7% 6.7% 10.2% 45.5% 0.1% 86.5% Overseas sales Consolidated net sales Hong Kong /China Year ended December 31, 2007 ASEAN Taiwan/Korea NAFTA EU Other Total (Thousands of U.S. dollars) $121,838 $29,703 $42,505 $64,261 $288,009 $721 $547, ,523 Overseas sales as a percentage of consolidated net sales 19.3% 4.7% 6.7% 10.2% 45.5% 0.1% 86.5% 20

23 15. AMOUNTS PER SHARE 2006 Year ended December 31, 2007 (Yen) 2007 (U.S. dollars) Net income : Basic $1.35 Diluted $1.15 Cash dividends applicable to the year $0.36 Net assets 1, , $13.39 Basic net income per share was computed based on the net income available for distribution to shareholders of common stock and the weighted average number of shares of common stock outstanding during the year and, diluted net income per share was computed based on the net income available for distribution to the shareholders and the weighted average number of shares of common stock outstanding during each year after giving effect to the dilutive potential of shares of common stock to be issued upon the exercise of warrants and stock options for the year ended December 31, 2006 and 2007, respectively. Amounts per share of net assets were computed based on the net assets available for distribution to the shareholders and the number of shares of common stock outstanding at the year-end. Cash dividends per share represent the cash dividends proposed by the Board of Directors as applicable to the respective years together with the interim cash dividends paid. 21