f.c.c. co., ltd. · 2) sales to the honda motor group account for roughly 70% of the fcc group’s...

Fiscal Year Ended

Traded

Stock Code

March 31, 2010

TSE1

7296

F.C.C. CO., LTD.

YUHO REPORTAnnual

YUHOREPORT

F.C.C. CO., LTD.

Fiscal Year Ended March 31, 2010

Traded TSE1

Stock Code 7296

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This report is based on the Company’s Japanese-language annual filing with the Financial Services Agency and supplemented with materials that facilitate comparison with the Company’s peers. The materials from the annual filing with the Financial Services Agency have been edited and reorganized in a format more familiar to the international investment community. All information contained in this report has been obtained from sources believed to be reliable, but the accuracy of the data and the translation and the completeness and timeliness of the information are not warranted by the Company, Pacific Associates, or PRONEXUS. None of the above parties shall be responsible for any error or omission or for results obtained from the use of this information. Also, because a reporting company may sometimes request that terminology be tailored as closely as possible to the XBRL taxonomy, this report may contain English expressions that are incorrect.

Table of Contents COMPANY PROFILE ......................................................................................................................... 3

Financial highlights .......................................................................................................................................... 3 Peer comparisons ............................................................................................................................................ 3

BUSINESS OVERVIEW ..................................................................................................................... 4 Description of business.................................................................................................................................... 4 Group companies............................................................................................................................................. 5 History.............................................................................................................................................................. 6 Risk factors ...................................................................................................................................................... 7 Research and development............................................................................................................................. 8 Analysis of financial condition and results of operations ............................................................................... 10 Corporate governance ................................................................................................................................... 14 Directors......................................................................................................................................................... 21 Employees ..................................................................................................................................................... 22 Unions............................................................................................................................................................ 22

CASH FLOWS.................................................................................................................................. 24 Consolidated statements of cash flows ......................................................................................................... 24 Capital expenditures ...................................................................................................................................... 26 Dividend policy............................................................................................................................................... 28

OPERATIONS .................................................................................................................................. 29 Consolidated statements of income............................................................................................................... 29 Consolidated statements of changes in net assets ....................................................................................... 31 Results of operations ..................................................................................................................................... 33 Segment information...................................................................................................................................... 36 Issues requiring action................................................................................................................................... 37 Production and sales ..................................................................................................................................... 38 Leases............................................................................................................................................................ 39

CAPITAL STRUCTURE ................................................................................................................... 42 Consolidated balance sheets......................................................................................................................... 42 Market value of securities .............................................................................................................................. 44 Facilities ......................................................................................................................................................... 45 Borrowings ..................................................................................................................................................... 46 Retirement benefits........................................................................................................................................ 46 Deferred taxes ............................................................................................................................................... 48

RELATED PARTIES......................................................................................................................... 49 NON-CONSOLIDATED FINANCIAL STATEMENTS ....................................................................... 50

Non-consolidated statements of income........................................................................................................ 50 Non-consolidated statements of changes in net assets ................................................................................ 52 Cost of goods sold ......................................................................................................................................... 55 Non-consolidated balance sheets.................................................................................................................. 56 Trade credits .................................................................................................................................................. 59 Securities ....................................................................................................................................................... 61 Property, plant and equipment ....................................................................................................................... 63 Allowances..................................................................................................................................................... 64

ACCOUNTING POLICIES................................................................................................................ 65 SHARE-RELATED INFORMATION ................................................................................................. 67 YUHOREPORT is a trademark of Pacific Associates and PRONEXUS. The translation is copyrighted by Pacific Associates.

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Company Profile Financial highlights Years ended March 31; Millions of yen 2006 2007 2008 2009 2010

Change 2010/2006

Consolidated

Net sales 117,553 127,905 133,747 121,279 96,943 82%

Ordinary income 14,908 15,430 15,289 7,867 6,075 41%

Net income 8,789 8,454 4,876 3,882 2,250 26%

Net assets 64,856 83,191 84,285 73,124 73,792 114%

Total assets 99,803 110,862 112,930 93,560 94,634 95%

Net assets per share (Yen) 2,464.09 1,428.23 1,433.93 1,292.91 1,350.16 55%

Net income per share (Yen) 333.94 160.61 92.63 74.30 44.10 13%

Net income per share, fully diluted (Yen) - - - - -

Net cash provided by (used in) operating activities

10,936 16,846 16,238 10,989 9,619 88%

Net cash provided by (used in) investing activities

(8,765) (11,233) (16,445) (8,607) (3,701) 42%

Net cash provided by (used in) financing activities

(932) (2,371) (1,370) (4,218) (5,410) 580%

Cash and cash equivalents at end of period

16,337 20,961 19,927 14,654 15,473 95%

Employees 3,757 4,287 5,043 5,778 5,717 152%

The Company split its stock (through a gratis issue) at a ratio of 2:1 on April 1, 2006. To arrive at the price-earnings ratio, the share price on the consolidated closing date was multiplied by the stock-split ratio.

Peer comparisons Years ended March 31 2006 2007 2008 2009 2010

Net income / net sales (%) 7.5 6.6 3.6 3.2 2.3

Peers 3.0 2.4 2.6 (1.7) 0.3

Ordinary income / net sales (%) 12.7 12.1 11.4 6.5 6.3

Peers 5.5 4.9 4.9 0.9 2.6

Net income / assets (%) 9.7 8.0 4.4 3.8 2.4

Peers 3.8 3.1 3.7 (2.1) 0.7

Ordinary income / assets (%) 16.4 14.6 13.7 7.6 6.5

Peers 7.2 6.4 7.0 1.3 3.3

Equity / assets (%) 65.0 67.8 66.8 71.4 71.6

Peers 45.4 41.8 42.6 42.1 40.9

Net income / equity (%) 15.0 12.1 6.5 5.5 3.4

Peers 9.0 6.9 8.1 (8.1) 0.5

Peers include 50 motorcycle and automobile parts manufacturers in the transportation equipment industry listed on the First and Second Sections of the TSE.

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Business Overview

Description of business

The FCC Group, comprising the Company and 22 subsidiaries, is engaged in the manufacture and sales of clutches and clutch-related components for motorcycles, automobiles and other vehicles.

The companies in the FCC Group play the following roles in the Group’s businesses. Because the Company does not disclose segment-based information by type of business, the following information is arranged according to operating division.

Motorcycle clutches

The Company: manufacturing and sales

KYUSHU F.C.C. CO., LTD.: manufacturing. FCC (PHILIPPINES) CORP.; CHU’S F.C.C. CO., LTD. (SHANGHAI) (China); CHENGDU YONGHUA. F.C.C. CLUTCHES CO., LTD. (China); FCC (EUROPE) LTD. (UK); FCC DO BRASIL LTDA. (Brazil); FCC (THAILAND) CO., LTD.; FCC (TAIWAN) CO., LTD. (Taiwan); FCC RICO LTD. (India); FCC (North Carolina), LLC. (United States); PT. FCC INDONESIA; and FCC (VIETNAM) CO., LTD.: manufacturing and sales

Automobile clutches


KYUSHU F.C.C. CO., LTD.; FCC (PHILIPPINES) CORP.; FCC (North Carolina), LLC. (United States); and FCC (INDIANA) Mfg., LLC. (United States): manufacturing. FCC (THAILAND) CO., LTD.; FCC RICO LTD. (India); FCC (EUROPE) LTD. (UK); PT. FCC INDONESIA; FCC (Adams), LLC. (United States); and CHINA FCC FOSHAN CO., LTD.: manufacturing and sales. FCC (INDIANA), INC. (United States): sales

Other products


KYUSHU F.C.C. CO., LTD.: manufacturing. TENRYU SANGYO CO., LTD. and FCC (North Carolina), LLC. (United States): manufacturing and sales

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Group companies

Name Operations

Capital stock Millions of yen or as indicated

Percent ownership

(Consolidated subsidiaries)

KYUSHU F.C.C. CO., LTD. Motorcycle and automobile clutches and other products

30 100

TENRYU SANGYO CO., LTD. Other products 22.5 54.67

FCC (North America), INC. Administration of U.S. subsidiaries US$42,800,000 100

FCC (INDIANA), INC. Automobile clutches US$500,000 100*

FCC (INDIANA) Mfg., LLC. Automobile clutches US$17,300,000 100*

FCC (North Carolina), LLC. Motorcycle and automobile clutches and other products

US$10,000,000 100*

FCC (Adams), LLC. Automobile clutches US$15,000,000 100*

FCC (THAILAND) CO., LTD. Motorcycle and automobile clutches THB60,000,000 58*

FCC (PHILIPPINES) CORP. Motorcycle and automobile clutches PHP200,000,000 100

CHENGDU YONGHUA. F.C.C. CLUTCHES CO., LTD.

Motorcycle clutches US$8,000,000 100

CHU'S F.C.C. CO., LTD. (SHANGHAI)

Motorcycle clutches US$9,800,000 100

CHINA FCC FOSHAN CO., LTD. Automobile clutches US$18,000,000 87.4*

FCC (TAIWAN) CO., LTD. Motorcycle clutches NT$195,000,000 70*

FCC RICO LTD. Motorcycle and automobile clutches INR79,000,000 50

PT. FCC INDONESIA Motorcycle and automobile clutches US$11,000,000 100*

FCC (VIETNAM) CO., LTD. Motorcycle clutches US$10,000,000 70

FCC (EUROPE) LTD. Motorcycle and automobile clutches £6,000,000 90

FCC DO BRASIL LTDA. Motorcycle clutches BRL31,600,000 100

(Affiliated company) Company stock owned

Shares Percent

HONDA MOTOR CO., LTD. Manufacturing and sales of automobiles and engines

86,067 21.68

* The Company owns subsidiaries marked with asterisks indirectly.

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History Year Month Event

1939 June Fuji Lite Industries Co., Ltd. is established in Sato-cho, Hamamatsu-shi, Shizuoka Prefecture; the Company begins manufacturing clutch plates, gears and other products employing compression molding of Bakelite resins.

1943 March Changes name to Fuji Chemical Co., Ltd.

1982 February Establishes Kyushu Fuji Chemical Industries Co., Ltd. (now KYUSHU F.C.C. CO., LTD., a consolidated subsidiary) in Matsubase-machi, Shimomashiki-gun, Kumamoto Prefecture.

1984 July Changes name to F.C.C. CO., LTD.

1988 July Establishes JAYTEC, INC. (now FCC (INDIANA) Mfg., LLC., a consolidated subsidiary) in Indiana, U.S.A.

1989 March Establishes FCC (THAILAND) CO., LTD. (now a consolidated subsidiary) in Bangkok, Thailand.

June Moves corporate head office to current address.

1992 September Makes equity investment in KWANG HWA SHING INDUSTRIAL CO., LTD. of Tainan Province, Taiwan.

1993 September Establishes FCC (PHILIPPINES) CORP. (now a consolidated subsidiary) in Laguna, Philippines.

October Acquires shares of TENRYU SANGYO CO., LTD. (now a consolidated subsidiary) in Ichino-cho, Hamamatsu-shi, Shizuoka Prefecture.

1994 August Registers its shares for OTC trading with the Securities Dealers Association of Japan.

December Establishes CHENGDU JIANG HUA. F.C.C. CLUTCHES. CO., LTD. (now CHENGDU YONGHUA. F.C.C. CLUTCHES CO., LTD., a consolidated subsidiary) in Chengdu, Szechuan Province, China.

1995 March Establishes CHU'S F.C.C. CO., LTD. (SHANGHAI) (now a consolidated subsidiary) in Shanghai, China.

September Establishes FCC (EUROPE) LTD. (now a consolidated subsidiary) in Milton Keynes, UK.

1997 April Establishes FCC RICO LTD. (now a consolidated subsidiary) in Haryana, India.

1998 November Establishes FCC DO BRASIL LTDA. (now a consolidated subsidiary) in Amazonas, Brazil.

2000 April Establishes FCC (North Carolina), INC. (now FCC (North Carolina), LLC., a consolidated subsidiary) in North Carolina, U.S.A.

2001 April Establishes PT. FCC INDONESIA in Karyawan, Indonesia.

2002 December Establishes FCC (North America), INC. and FCC (INDIANA), INC. (both consolidated subsidiaries) in Indiana, U.S.A.

2003 February Lists its shares on the Second Section of the Tokyo Stock Exchange.

May Establishes FCC (Adams), LLC. (now a consolidated subsidiary) in Indiana, U.S.A.

2004 March Lists its shares on the First Section of the Tokyo Stock Exchange.

2005 June Increases investment in KWANG HWA SHING INDUSTRIAL CO., LTD. (now FCC (TAIWAN) CO., LTD.), making the company a consolidated subsidiary.

November Establishes FCC (VIETNAM) CO., LTD. (now a consolidated subsidiary) in Hanoi, Vietnam.

2006 January Establishes CHINA FCC FOSHAN CO., LTD. (now a consolidated subsidiary) in Guangdong Province, China.

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Risk factors

(1) Business strategies centered on clutches

The FCC Group continues to evolve as a specialist in clutches. Although the clutches that are currently manufactured and sold by the Group are an important functional component of automobile and motorcycle drive trains, there is no guarantee that a replacement for the clutch will not be developed and put into general use hereafter. In addition, clutches may be unnecessary as drive train components in next-generation vehicles.

(2) Dependence on certain industries and customers

1) Most of the FCC Group’s products are sold to the automobile and motorcycle industries, creating a heavy dependence on the fortunes of those two industries. The financial performance of the FCC Group could be significantly affected, therefore, by changes in automobile and motorcycle production volumes and by demand trends for specific models.

2) Sales to the Honda Motor Group account for roughly 70% of the FCC Group’s sales. The financial performance of the Company could be significantly affected, therefore, by sales trends at Honda and by Honda’s procurement policies and other decisions.

(3) Development of overseas markets

1) In recent years, the FCC Group has maintained a high ratio of overseas production.

2) The Group’s financial performance could consequently be impacted by factors such as the following: fluctuations in foreign exchange markets; economic trends in various foreign markets; unforeseen changes in the legal and regulatory environment in overseas markets; international tax-related risks, such as transfer pricing taxation; and political upheaval and natural disasters.

(4) Competition in the automobile components industry

Competition in the automobile components industry has become extremely fierce, both within Japan and internationally. While the FCC Group is endeavoring to sustain and raise its cost competitiveness by adding greater value, enhancing manufacturing efficiency, reducing expenses, etc., certain obstacles may make it difficult to do so in the future, in which case the Group’s earnings capability could decline.

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(5) Compensation for product defects

Although the FCC Group is doing all it can to ensure sufficient quality control, it is not possible to prevent all defects and deficiencies. In addition, large-scale recalls by final assemblers initiated as a result of defects in products supplied by the FCC Group could result in enormous costs to the Group as well as in serious damage to its reputation. In such event, product defect liability could exert a serious impact on both the Group’s financial performance and its financial condition.

(6) Impact of natural disasters, earthquakes, etc.

The FCC Group is enacting measures to minimize the potential effects of work stoppages on its production lines. There is no guarantee, however, that it will be able to fully avoid or ameliorate the impact of work stoppages caused by disasters, electrical outages or other events at its manufacturing facilities. In this respect, the concentration of the Group’s principal manufacturing facilities in western Shizuoka Prefecture is particularly notable, because this area lies within the region that is likely to be affected by the widely predicted Tokai and Tonankai earthquakes. Such a disaster could exert an enormous impact on the Group’s manufacturing facilities and cause a significant reduction in its manufacturing capability.

(Note) All forward-looking statements made in items (1) through (6) are based on information available as of the date of the submission of the filing with the Financial Services Agency.

Research and development

As a manufacturer of functional components for transportation vehicles, the FCC Group has adopted the basic R&D policy of identifying customer needs and providing products that give customers excellent performance through the application of creative ideas and technologies. Accordingly, it carries out both basic research on friction materials for use in motorcycle, automobile and power equipment clutches and R&D on clutches themselves (including R&D on production technologies for use in their manufacture).

The Group also works on the development of new products by making improvements in existing products and by utilizing the technologies it has accumulated through its experience in manufacturing clutches (and the friction materials employed in the clutches). Among R&D efforts aimed at protecting the environment, it is developing a porous fiber catalytic sheet (“paper catalyst”), which it believes can be turned into a paper catalyst to clean engine exhaust.

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To build a stronger basic research capability, the Group engages actively in joint research projects with industry and academic partners. In 2009, it entered into a Comprehensive Collaborative Agreement with Shizuoka University.

During the year under review, R&D expenditures amounted to 2,807 million yen.

The following is a summary of R&D activities by division during the year.

(1) Motorcycle clutches

Mainly through the development of new wet friction materials for motorcycles and dry friction materials for scooters, scientists and engineers in this division seek to produce clutches that are smaller and lighter, clutches with enhanced operability and marketability, and clutches that can be manufactured at lower cost.

Notable achievements in the division during the year included the following:

Development of a clutch for dual clutch transmissions used in large motorcycles

Development of mass production technology for a CVT for use in scooters; this technology incorporates a new welding method that enhances product marketability and contributes to environmental conservation by reducing energy consumption during the welding process.

Development of a new friction material using an environmentally friendly production method which improves product performance during startup and enhances durability

R&D expenses in the motorcycle clutch division amounted to 1,016 million yen.

(2) Automobile clutches

Mainly through the development of new wet friction materials for automatic transmissions (including CVTs) and dry friction materials for manual transmissions, scientists and engineers in this division seek to produce clutches that are smaller and lighter, less expensive to manufacture, and more fuel efficient.

Notable achievements in the division during the year included the following:

Development of mass production technology for multi-plate lock-up clutches and drive clutches for use in the multi-stage transmissions installed in new FF vehicles

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Incorporation into new models of clutches for use in center differentials and limited slip differentials and incorporation of manual clutches into hybrid vehicles

R&D expenses in the automobile clutch division amounted to 1,474 million yen.

(3) Other products

Scientists and engineers in this division work on basic development of friction materials and on starter and drive clutches that utilize cost-reduction technologies originally applied to motorcycles and automobiles; they also aim to apply existing technologies to a wider range of products.

The division continued its collaboration with Kyushu University on the development of a porous fiber catalytic sheet (“paper catalyst”).

Under commission from the Japan Science and Technology Agency, it continued working on the development of a paper-based catalytic converter that uses the paper catalyst.

R&D expenses in the other products division amounted to 317 million yen.

Analysis of financial condition and results of operations

(1) Important accounting principles and estimates

The FCC Group’s financial statements are prepared in accordance with accounting standards generally deemed to be fair and appropriate in Japan. In the course of preparing these financial statements, a number of important estimates and suppositions must be made. The following is a discussion of areas in which important judgments are required in the application of accounting principles and in which such judgments have a significant impact on the Group’s financial condition and operating performance.

Retirement benefit expenses and retirement benefit liabilities

To ensure their ability to pay benefits to retiring employees, F.C.C. CO., LTD. and its subsidiaries recognize a provision for retirement benefits based on estimates of retirement benefit liabilities and pension assets as of the end of the fiscal year.

Calculations of retirement benefit expenses rest on a number of assumptions, including assumptions concerning discount rates, rates of pay increases and expected rates of return on investments. The companies take interest rates and other market trends into account to determine discount rates and expected rates of

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return on investments. Their estimates of rates of pay increases reflect the actual rates of increase as well as their most recent projections.

The Company considers its accounting estimate of retirement benefit liabilities to be an “important accounting estimate.” This is because any change in the assumptions used to estimate this liability could have a material impact on its financial standing and operating performance. Differences in retirement benefit liabilities resulting from such changes in assumptions are amortized over future periods, with these differences reflected in the financial statements for future periods as expenses and liabilities. Although management believes that its current assumptions are appropriate, any changes in these assumptions could exert an effect on retirement benefit expenses and liabilities.

(2) Analysis of financial condition

1) Current assets

Current assets as of year-end stood at 45,547 million yen, an increase of 3,631 million yen compared with the end of the previous year.

While the Company’s efforts to reduce inventories led to a decline in inventories of 858 million yen, notes and accounts receivable-trade and cash and deposits increased by 4,238 million yen and 563 million yen, respectively, reflecting a recovery in sales toward the end of the year to levels exceeding those at the end of the previous term.

2) Noncurrent assets

Noncurrent assets as of year-end stood at 49,086 million yen, a decrease of 2,558 million yen compared with the end of the previous year.

Although investment securities increased by 2,016 million yen due to mark-to-market revaluations, the value of property, plant and equipment declined by 3,705 million yen.

3) Current liabilities

Current liabilities as of year-end stood at 15,891 million yen, a decrease of 219 million yen compared with the end of the previous year.

A 1,798 million yen increase in notes and accounts payable-trade as a result of the recovery in sales toward the term-end was offset by a 1,074 million yen decrease in income taxes payable in current liabilities.

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4) Noncurrent liabilities

Noncurrent liabilities as of year-end stood at 4,950 million yen, an increase of 624 million yen compared with the end of the previous year.

This was primarily the result of a 774 million yen increase in deferred tax liabilities related to mark-to-market revaluations of investment securities.

(3) Analysis of operating results (year-on-year percentage changes)

1) Net sales

Net sales decreased for the second consecutive year to 96,943 million yen, a decline of 20.1%. By division, motorcycle clutches contributed 50,500 million yen (down 25.0%), automobile clutches 42,159 million yen (down 8.9%) and other products 4,283 million yen (down 43.9%).

Note that if we exclude the factor of converting local currencies to yen, the sales generated in local currencies by overseas subsidiaries would be approximately 12% lower than those recorded.

2) Operating income

Operating income declined by 31.1% to 5,566 million yen. By division, motorcycle clutches contributed 5,530 million yen in operating income (down 31.9%). The automobile clutches division reported operating income of 197 million yen (compared to a year-earlier operating loss of 143 million yen). The other products division reported an operating loss of 162 million yen (compared to year-earlier operating income of 94 million yen).

Although Group-wide efforts to reduce expenses and fixed costs achieved higher-than-targeted reductions, operating income declined, largely as a result of lower revenues and foreign exchange fluctuations.

3) Income before income taxes and minority interests

Income before income taxes and minority interests decreased by 32.7% to 5,509 million yen.

In the non-operating accounts, although interest and dividends income declined, foreign exchange losses and interest expenses also decreased. This resulted in a net gain of 508 million yen in the non-operating accounts during the year compared to a net loss of 209 million yen in the previous year.

In the extraordinary accounts, a net loss of 565 million yen was reported compared to a net gain of 316 million yen in the previous year. Despite the

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recognition of subsidy, the Company reported lower gains on the sale of noncurrent assets and gains on prior period adjustments in addition to higher losses on the sale and retirement of noncurrent assets. The Company also recognized a loss on the liquidation of a business following its decision in July 2009 to liquidate a subsidiary in the UK. Further losses were incurred as a result of typhoon-related damage to its Taiwan subsidiary.

4) Net income

Net income decreased by 42.0% to 2,250 million yen.

The corporate tax rate on income before income taxes and minority interests increased by 5.89 percentage points to 44.69%. The difference between this rate and the effective statutory tax rate resulted primarily from an insufficient amount of taxable income earned by the parent company, which limited the amount of overseas tax credits the Company could claim on dividends and royalties it received from overseas subsidiaries. Taxes on the latter taxes are withheld at source in the country of operation.

(4) Liquidity and sources of funds

The financial policies of the FCC Group revolve around three objectives: generating an appropriate amount of capital for its operations; maintaining an appropriate amount of liquidity; and sustaining a healthy balance sheet. Its basic policy is to fund all capital investments and R&D expenditures from cash generated by operations. During the year, cash flow from operations amounted to 9,619 million yen (down 12.5% from the previous year); cash used in investing activities amounted to 3,701 million yen (down 57.0%); and cash used in financing activities amounted to 5,410 million yen (up 28.3%).

In the year ending March 2011, the Company plans to finance capital investment and R&D primary through cash and cash equivalents on hand and through cash and cash equivalents generated through operations.

1) Research and development

R&D-related expenses during the year amounted to 2,807 million yen (down 13.7% from the previous year).

2) Capital investment

Capital expenditures were allocated for buildings, manufacturing equipment required for new model-related production, manufacturing equipment required

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for production capacity expansion and equipment designed to enhance the R&D environment.

Capital investment during the year amounted to 4,283 million yen (down 60.6% from the previous year). Expenditures according to location were as follows.

Millions of yen 2010

AmountYear-on-year comparison

Japan 977 22.9%

North America 861 35.4%

Asia 2,338 63.3%

Other 107 22.4%

4,283 39.4%

(5) Factors exerting a material impact on operating performance and the Group’s responses

The Company’s operating performance is affected by changes in currency rates, and these changes had an impact on net sales, gross profit, operating income, ordinary income, net income and retained earnings. Among efforts to minimize trading risks, the Company is seeking to increase the ratio of local content in manufacturing by overseas subsidiaries and to create an effective system of parts and product sharing among the Group companies.

HONDA MOTOR CO., LTD. and its affiliates accounted for 71.9% of the Company’s total sales for the year (versus 70.0% in the previous year). The Honda group’s product trends and procurement policies consequently exert a significant impact on the Company’s financial performance. The Company is pursuing aggressive efforts to expand its sales outside the Honda group in order to develop a more stable business base. It is also taking steps to strengthen its R&D capabilities in order to expand its new product lineup.

(Note) All forward-looking statements made in items (1) through (5) are based on information available as of the date of submission of the filing with the Financial Services Agency.

Corporate governance

Basic policy regarding corporate governance

In the Company’s view, the goals of corporate governance are threefold: to increase returns to all stakeholders who interact in various situations with the Company, including shareholders, creditors, customers, employees and local community

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residents; to construct systems that facilitate efficient, ethical management of the Company; and to increase the corporate value. The Company thus considers fostering better corporate governance to be a critically important task for management, and it is working diligently to achieve it.

(1) Structure of corporate governance

1) Summary of features and systems of corporate governance

The Company’s oversight and auditing functions are carried out by the Board of Directors and Board of Corporate Auditors.

The Board of Directors comprises 11 directors. In addition to making decisions on important matters concerning operations and fulfilling functions required by law, the Board oversees the execution of the Company’s operations.

The Board of Corporate Auditors is composed of four auditors, of whom two are external auditors. In accordance with the auditing policies and divisions of responsibility established by the Board of Corporate Auditors, each auditor audits the performance of the Board of Directors based on his/her participation in Board of Directors’ meetings and in other important meetings and on examinations of the Company’s operations and assets.

2) Reasons for adopting the features and systems of corporate governance described above

In view of its size and the nature of its businesses, the Company has elected to become a “company with corporate auditors.” In addition to providing a means of overseeing and auditing the execution of duties by the directors, the use of corporate auditors enables the Company to create an organization that is in accord with the Company’s basic policy on internal control systems. Of the Company’s four corporate auditors, two are external auditors (one is an “independent auditor,” as defined by the Tokyo Stock Exchange), who by virtue of their professional knowledge and experience bring an external perspective to the task of auditing. The Company believes that this ensures the maintenance of objectivity and neutrality in its management oversight function.

3) Internal control systems

On September 15, 2003, the FCC Group established a set of “Action Guidelines” as a means of fostering enhanced trust among shareholders, customers and local communities and of increasing its corporate value. It is now implementing them on a Group-wide basis.

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The Company’s President is responsible for overseeing the operations of the Company as a whole, while the presidents of the various subsidiaries assume the same responsibilities for their companies. The Board members in charge of the respective divisions are responsible for establishing, promoting and executing the FCG (“F.C.C. Corporate Governance”) system in their respective divisions.

4) Risk management

A risk management officer is responsible for overseeing risk management for the FCC Group as a whole. A managing director currently performs this role. In addition, in the interest of promoting early detection of potential legal or ethical violations at the level of individual business units, and in the interest of guarding against recurrence should such violations occur, the Group has also established a department to which any Group employee can make proposals concerning improvements in corporate ethics. All such proposals are processed by this department and submitted to the Corporate Ethics Committee. The Corporate Ethics Committee is led by the Corporate Compliance Officer (currently a director) with two other directors also serving on the committee. It is the committee’s job to protect persons who submit proposals and, in cases of serious violations, to investigate the problems and take appropriate corrective action.

In addition, the Group has established an Auditing Office, which is responsible for monitoring the state of regulatory compliance by each business unit and for examining the effectiveness of the risk management mechanisms that have been put into place. The Auditing Office submits its findings directly to the President. The Corporate Auditors and the Board of Corporate Auditors examine the functioning of governance at the overall Group level and make determinations concerning the effectiveness of mechanisms set up to deal with regulatory compliance and risk management.

If an important legal issue arises, or if the Group believes it is faced with a serious regulatory problem, it consults with its outside legal advisers and involves them in all requisite examinations of the issue. In addition to regular financial auditing, the Group consults with its financial auditors on all important accounting-related issues as they arise.

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(2) Internal audits and audits by corporate auditors

Internal audits

To protect the Company’s assets, rationalize its management, and improve and enhance its operating efficiency, this office examines whether the organization is being run in accordance with the Company’s policies and plans and in accordance with its directives, orders and regulations. This office’s five staff members (including the Chief Audit Officer) carry out periodic audits of operations in collaboration with the Board of Corporate Auditors and conduct unscheduled audits at the direction of the President.

Audits by corporate auditors

The Company’s four corporate auditors, of whom two are internal auditors (standing) and two are external auditors (non-standing), audit the management performance of the directors, the Company’s system of internal control and other aspects of operations by attending Board of Directors’ meetings, senior management meetings and other important meetings, collaborating closely with the Office of Auditing, and examining the operations and assets of the Company’s divisions and domestic and overseas subsidiaries. Such audits are carried out in accordance with auditing policies, plans and divisions of responsibility established by the Board of Corporate Auditors based on the “Regulations of the Board of Corporate Auditors” and the “Auditing Standards for Corporate Auditors.” The statutory auditors also exchange information and opinions with the financial auditors in an effort to improve the effectiveness and efficiency of their audits.

(3) Relationships with external corporate auditors

The Company has two external auditors.

Yoshinori Tsuji, an attorney at law, has no financial or other interests in the Company. He was elected to the position of external corporate auditor because of his abundant experience and broad-ranging knowledge as a lawyer. The Company has submitted Mr. Tsuji’s name to the Tokyo Stock Exchange as an independent auditor.

Kobun Nonaka is concurrently an employee of Honda Motor Co., Ltd., which is a major purchaser of the Company’s products. With ownership of 20.66%, Honda Motor Co., Ltd. is the Company’s largest shareholder. Honda Motor Co. accounts for its shareholding in the Company under the equity method. Mr. Nonaka was elected to the position of external corporate auditor because of his abundant

F . C . C . C O . , L T D .

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experience in and knowledge of the automobile industry. Mr. Nonaka resigned his position as external corporate auditor effective at the conclusion of the Company’s 80th Ordinary General Meeting of Shareholders held on June 24, 2010.

Masahide Sato was newly elected to the position of external corporate auditor of the Company at its 80th Ordinary General Meeting of Shareholders held on June 24, 2010. A CPA, Mr. Sato was chosen because of his abundant knowledge of finance and accounting. Mr. Sato has no financial or other interests in the Company. His name has been submitted to the Tokyo Stock Exchange as an independent auditor.

The Company has no external directors. It believes that, in corporate governance, the important thing is to have objective and neutral management oversight from external parties. Because the audits by its two external auditors fully provide such oversight, the Company has chosen not to elect external directors.

(4) Financial audits

The Company’s financial auditors are Yasumori Audit Corporation. The following information covers the names of the certified public accountants involved in the financial audit for the term under review, and the number of assistant accountants who participated in the audit with them.

Names of CPAs participating in the audit

Engagement partner: Koji Ohigashi

Engagement partner: Masakazu Wakabayashi

Assistant accountants participating in the audit: 9 CPAs and 3 accounting assistants

(5) Compensation paid to directors and corporate auditors

1) Compensation by category of board members, breakdown by type of compensation and number of board members in each category.

Amount paid out to board members by type of compensation

Millions of yen Amount paid Compensation Bonuses

Number of board members in each

category

Directors 282 205 76 12

Corporate Auditors (excluding External Corporate Auditors)

38 28 10 2

External Corporate Auditors 7 7 - 2

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(Notes)

1. The total amount of directors’ compensation does not include salaries paid to persons who are concurrently directors and employees.

2. At the 78th Ordinary General Meeting of Shareholders held on June 19, 2008, the compensation paid to directors was capped at 500 million yen per year (which, however, does not include salaries paid for work performed as employees).

3. At the 76th Ordinary General Meeting of Shareholders held on June 22, 2006, the compensation paid to corporate auditors was capped at 90 million yen per year.

2) Policy regarding amounts paid to board members and the method of calculation of such amounts

The Board of Directors determines the compensation of each director by considering trends in the economy and the industry and by weighing financial contributions and other factors. The Board of Corporate Auditors decides, through consultation, on the amounts of compensation to be paid to the corporate auditors.

(6) Number of directors

The Company states in its Articles of Incorporation that it shall have no more than fifteen directors.

(7) Requirements for the election of directors

The Company states in its Articles of Incorporation that adoption of resolutions for the election of directors shall require that at least one-third of the shareholders entitled to execute voting rights be present, and that an affirmative vote be cast by a majority of such shareholders.

(8) Acquisition of treasury shares

To carry out capital-related strategies quickly and effectively in response to changes in the economic environment, the Company states in its Articles of Incorporation that it may acquire its own shares through market transactions or other means. Such acquisitions shall be based on a resolution by the Board of Directors, adopted in accordance with Article 165-2 of the Corporation Law.

(9) Decision-making organ for dividends of surplus

The Company states in its Articles of Incorporation that it may pay a dividend of surplus (interim dividend) based on a resolution by the Board of Directors, adopted in accordance with Article 454-5 of the Corporation Law. The aim of such dividends shall be to return profits quickly and effectively to shareholders.

(10) Requirements for the adoption of special resolutions by the General Meeting of Shareholders

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The Company states in its Articles of Incorporation that the adoption of resolutions based on Article 309-2 of the Corporation Law shall require that at least one-third of the shareholders entitled to execute voting rights be present and that an affirmative vote be cast by at least two-thirds of such shareholders. The aim of this provision is to further ensure that quorums are available for the adoption of special resolutions by the General Meeting of Shareholders and that the General Meeting of Shareholders is conducted without impediments.

(11) Shareholdings in other companies

1) Of shares held for investment purposes, the number of shares purchased for reasons other than pure investment and the value of such shares on the balance sheet Number of issues: 24 Total value on balance sheet: 622 million yen

2) Shares purchased for purposes other than pure investment, specific issues, number of shares held, value on balance sheet, and reason for purchase

Millions of yen Number of

shares Book value Reason for purchase

Stanley Electric Co., Ltd. (6923) 137,975 250 To maintain and strengthen business relationships

SUZUKI MOTOR CORPORATION (7269) 52,500 108 To maintain and strengthen business relationships

KANEMATSU CORPORATION (8020) 821,000 63 To maintain and strengthen business relationships

Mizuho Financial Group, Inc. (8411) 134,410 24 To maintain and strengthen business relationships

Sumitomo Mitsui Financial Group, Inc. (8316) 5,755 17 To maintain and strengthen business relationships

SHIMIZU CORPORATION (1803) 39,000 15 To maintain and strengthen business relationships

MUSASHI SEIMITSU INDUSTRY CO., LTD. (7220)

6,000 11 To maintain and strengthen business relationships

Mizuho Trust & Banking (8404) 81,997 7 To maintain and strengthen business relationships

Mitsubishi UFJ Financial Group, Inc. (8306) 15,360 7 To maintain and strengthen business relationships

Nissin Kogyo Co., Ltd. (7230) 4,500 6 To maintain and strengthen business relationships

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Professional fees paid to financial auditors

Compensation paid to CPAs and accounting firms

2009 2010

Millions of yen Financial audit

services Non-audit

servicesFinancial audit

servicesNon-audit

services

The Company 63 - 53 -

Subsidiaries - - - -

63 - 53 -

Directors

Name Title Date joined Company

Previous or current employers/ occupations Date of birth Term

Hundreds of shares

Yoshihide Yamamoto Representative Director, Chairman

Mar-82 6-Jan-42 1 year from the General Meeting of Shareholders (GMS) held on June 24, 2010

22,773

Shirou Sumita Representative Director, President

Sep-74 21-Apr-47 1 year from GMS held on June 24, 2010

310

Toshimichi Matsuda Managing Director

Mar-75 9-Dec-52 1 year from GMS held on June 24, 2010

90

Kouki Kishida Managing Director

Apr-04 HONDA MOTOR CO., LTD.

16-Jun-50 1 year from GMS held on June 24, 2010

30

Hiromichi Suzuki Director Mar-78 20-Sep-52 1 year from GMS held on June 24, 2010

46

Akihiko Yamada Director Apr-08 HONDA MOTOR CO., LTD.

18-Dec-51 1 year from GMS held on June 24, 2010

20

Katsuyoshi Fukatsu Director Mar-77 30-Nov-54 1 year from GMS held on June 24, 2010

47

Yoshinobu Isobe Director Apr-09 HONDA MOTOR CO., LTD.

28-Sep-53 1 year from GMS held on June 24, 2010

55

Kazuhiro Itonaga Director Mar-82 11-Mar-60 1 year from GMS held on June 24, 2010

13

Mitsumasa Kimura Director Aug-05 22-Sep-59 1 year from GMS held on June 24, 2010

10

Kazuto Suzuki Director Apr-84 27-May-61 1 year from GMS held on June 24, 2010

23

Wataru Nakashita Standing Corporate Auditor

Aug-73 11-Oct-47 4 years from GMS held on June 21, 2007

10

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Name Title Date joined Company

Previous or current employers/ occupations Date of birth Term

Hundreds of shares

Motoharu Nakayama Standing Corporate Auditor

Mar-72 5-Jan-49 4 years from GMS held on June 19, 2008

129

Yoshinori Tsuji Corporate Auditor

Jun-07 Attorney at Law 17-Apr-59 4 years from GMS held on June 21, 2007

-

Masahide Sato Corporate Auditor

Jun-10 CPA 10-Feb-64 2 years from GMS held on June 24, 2010

-

15 23,557

Current assignments and previous positions in the Company have been omitted.

Employees Consolidated

Business segment Number

Motorcycle clutches 3,231

Automobile clutches 1,991

Other products 178

Administration (general operations) 317

5,717

Parent

Total or average

Number 1,166

Average age 35.8

Average years of service 11.6

Average annual salary (Yen) 5,685,776

The number noted under “Administration (general operations)" refers to employees in management and technical research divisions who cannot be categorized in terms of a specific area of operation.

Unions Parent company

The Company’s labor union, known as the F.C.C. Labor Union, had 1,078 members as of March 31, 2010. It is a member of the Japanese Association of Metal, Machinery and Manufacturing Workers (“JAM”). Since its formation, the union has enjoyed amicable relations with the Company, and there are currently no unresolved issues between the two parties.

Labor-management relations at the Company’s consolidated subsidiaries are also stable, with no unresolved issues requiring reporting. The situations with respect to labor unions at the Company’s principal subsidiaries are as follows.

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FCC (THAILAND) CO., LTD.

The Company’s labor union, known as the F.C.C. Workers’ Union, had 345 members as of December 31, 2009. Since its formation, the union has enjoyed amicable relations with the Company, and there are currently no unresolved issues between the two parties.

PT. FCC INDONESIA

The Company’s labor union, known as the F.C.C. Indonesia Metalworkers’ Union, had 453 members as of December 31, 2009. It is a member of the Indonesian Metalworkers’ Union. Since its establishment, the union has enjoyed amicable relations with the Company, and there are currently no unresolved issues between the two parties.

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Cash Flows Consolidated statements of cash flows Years ended March 31; Millions of yen 2009 2010

Net cash provided by (used in) operating activities

Income before income taxes and minority interests 8,183 5,509

Depreciation and amortization 8,045 7,550

Amortization of goodwill 81 75

Increase (decrease) in allowance for doubtful accounts (21) (3)

Increase (decrease) in provision for bonuses (228) 37

Increase (decrease) in provision for retirement benefits 78 (40)

Increase (decrease) in provision for directors' retirement benefits 79 (453)

Interest and dividends income (604) (206)

Interest expenses 126 54

Foreign exchange losses (gains) 153 64

Equity in (earnings) losses of affiliates (97) (171)

Loss (gain) from prior period adjustment (85) (31)

Loss (gain) on sales and retirement of noncurrent assets (235) 303

Loss on disaster - 97

Subsidy income - (40)

Loss on liquidation of business - 235

Decrease (increase) in notes and accounts receivable-trade 3,594 (3,651)

Decrease (increase) in inventories (1,342) 1,445

Decrease (increase) in other assets (195) (157)

Increase (decrease) in notes and accounts payable-trade (1,521) 1,263

Increase (decrease) in factoring liabilities (1,748) 54

Increase (decrease) in other liabilities 490 (123)

Increase (decrease) in accrued consumption taxes (156) 378

Subtotal 14,596 12,192

Interest and dividends income received 416 250

Interest expenses paid (126) (54)

Payments for loss on disaster - (56)

Other, net 214 39

Income taxes paid (4,111) (2,752)

Net cash provided by (used in) operating activities 10,989 9,619

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Years ended March 31; Millions of yen 2009 2010

Net cash provided by (used in) investing activities

Payments into time deposits (1,141) (1,866)

Proceeds from withdrawal of time deposits 1,925 2,150

Purchase of property, plant and equipment (9,697) (4,456)

Proceeds from sales of property, plant and equipment 590 68

Purchase of intangible assets (54) (8)

Proceeds from sales of intangible assets - 3

Purchase of investment securities (42) (28)

Payments for purchases of other investment instruments (48) (12)

Proceeds from sales of other investment instruments 14 751

Payments of loans receivable (311) (1,804)

Collection of loans receivable 168 1,461

Other, net (10) 40

Net cash provided by (used in) investing activities (8,607) (3,701)

Net cash provided by (used in) financing activities

Net increase (decrease) in short-term loans payable (524) (36)

Repayment of long-term loans payable (64) (101)

Purchase of treasury stock (1,115) (2,284)

Cash dividends paid (1,527) (1,498)

Cash dividends paid to minority shareholders (985) (1,488)

Net cash provided by (used in) financing activities (4,218) (5,410)

Effect of exchange rate change on cash and cash equivalents (3,435) 311

Net increase (decrease) in cash and cash equivalents (5,272) 818

Cash and cash equivalents at beginning of period 19,927 14,654

Cash and cash equivalents at end of period 14,654 15,473

Relationship between balance of cash and cash equivalents as of term-end and balance sheet items


Cash and deposit accounts 15,424 15,988

Time deposits, etc., with terms of over 3 months (770) (515)

Cash and cash equivalents, end of period 14,654 15,473

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Capital expenditures

The FCC Group makes investments with a focus on products and R&D-related projects with medium-to-long term growth potential that contribute to labor savings, rationalization and enhanced product reliability. During the fiscal year ended March 2010, it made a total of 4,283 million yen in capital investments, which included the following major projects.

Millions of yen Buildings and

structures

Machinery, equipment and

vehicles Land Other Total book

value

Book value Square meters

Parent company

Tenryu Factory

Motorcycle and automobile clutches and other products

195 15 - - 14 225

Ryuyo Factory


1 183 - - (12) 173

Suzuka Factory


41 71 - - 29 143

Hamakita Factory

Automobile clutches - 84 - - 27 112

R&D Division

Integrated research 25 46 - - 1 73

Domestic subsidiaries

KYUSHU F.C.C. CO., LTD.


5 22 11 1,300 102 142

Overseas subsidiaries

CHINA FCC FOSHAN CO., LTD.

Automobile clutches 4 707 - - 9 722

FCC (Adams), LLC.

Automobile clutches 65 1,209 - - (792) 483


Motorcycle and automobile clutches

- 255 9 780 205 470

FCC RICO LTD.


19 377 24 - (0) 421

PT. FCC INDONESIA


34 398 - - (49) 383

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Capital expenditure and disposal plan

The FCC Group develops and adopts capital investment plans based on broad-ranging considerations of economic forecasts, industry trends and investment efficiency. As a rule, investment plans are initiated by the individual Group companies. The reporting Company then functions as the coordinator in formulating the final plan.

Millions of yen Budgeted

amountExpenditures to

dateDate

commenced Date to becompleted

Ryuyo Factory

Motorcycle and automobile clutches and other products 212 - 2010/4 2011/3

R&D Division

Integrated research 150 - 2010/4 2011/3

Hamakita Factory

Automobile clutches 141 - 2010/4 2011/3

Suzuka Factory

Motorcycle and automobile clutches and other products 75 - 2010/4 2011/3

PT. FCC INDONESIA

Motorcycle and automobile clutches 953 - 2010/1 2010/12

FCC (Adams), LLC.


FCC (INDIANA) Mfg., LLC.


FCC RICO LTD.

Motorcycle and automobile clutches 562 - 2010/4 2011/3

FCC (VIETNAM) CO., LTD.

Motorcycle clutches 322 - 2010/1 2010/12

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Dividend policy

The Company considers dividend policy to be one of most important decision-making areas for management. The automobile and automobile component industries engage in businesses around the world from a global perspective. Against this background, the Company’s fundamental stance toward dividends is to make payouts that are backed by performance, which in turn requires that it carry out aggressive programs of capital investment and R&D, that it develop new products and technologies and translate them successfully into high-volume production, and that it maintain and consolidate its competitive position in the industry.

The Company’s basic policy is to pay dividends twice a year in the form of an interim dividend and a year-end dividend.

Decisions on the year-end dividend are made by the shareholders at their General Meeting; decisions on interim dividends are made by the Board of Directors.

Based on the foregoing policy, the Company will pay a total dividend for the year under review of 26 yen per share (of which 13 yen was paid out as an interim dividend). This resulted in a dividend payout ratio of 58.96%.

The Company allocates retained earnings toward investments conducted in response to challenges arising in the changing operating environment. Specifically, these are investments aimed at increasing the Company’s cost competitiveness, strengthening its ability to develop technologies and products that meet customer needs, and implementing steps to further its global expansion.

The Company has included a provision in its Articles of Incorporation stating that “By resolution of the Board of Directors, the Company shall have the right to pay an interim dividend, with a date of record of September 30 each year.”

Dividends for the year under review were as follows.

Date of decision Dividend payout Dividend per share

(Millions of yen) (Yen)

October 26, 2009 Resolution by Board of Directors

671 13

June 24, 2010 Resolution by General Meeting of Shareholders

652 13

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Operations Consolidated statements of income Years ended March 31; Millions of yen 2009 2010

Net sales 121,279 96,943

Cost of sales 101,349 82,172

Gross profit 19,930 14,771

Selling, general and administrative expenses

Packing and delivery expenses 1,665 1,159

Salaries and allowances 2,591 2,375

Provision for bonuses 201 180

Retirement benefit expenses 265 221

Provision for directors' retirement benefits 101 10

Depreciation 237 224

Research and development expenses 3,253 2,807

Other 3,536 2,224

Total selling, general and administrative expenses 11,852 9,205

Operating income 8,077 5,566

Non-operating income

Interest income 452 131

Dividends income 151 74

Equity in earnings of affiliates 97 171

Other 314 295

Total non-operating income 1,015 673

Non-operating expenses

Interest expenses 126 54

Foreign exchange losses 1,050 74

Other 48 36

Total non-operating expenses 1,225 164

Ordinary income 7,867 6,075

Extraordinary income

Gain on prior period adjustment 85 31

Gain on sales of noncurrent assets 446 28

Subsidy - 40

Other 0 -

Total extraordinary income 532 99

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Extraordinary loss

Loss on sales and retirement of noncurrent assets 211 331

Loss on liquidation of business - 235

Loss on disaster - 97

Other 4 -

Total extraordinary losses 216 665

Income before income taxes and minority interests 8,183 5,509

Income taxes-current 3,204 2,577

Income taxes-deferred (28) (115)

Total income taxes 3,175 2,462

Minority interests in income 1,125 797

Net income 3,882 2,250

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Consolidated statements of changes in net assets Years ended March 31; Millions of yen 2009 2010

Shareholders' equity

Capital stock

Balance at the end of previous period 4,175 4,175

Changes of items during the period

Total changes of items during the period - -

Balance at the end of current period 4,175 4,175

Capital surplus





Retained earnings



Dividends from surplus (1,526) (1,497)


Effect of changes in accounting policies applied to foreign subsidiaries (9) -

Total changes of items during the period 2,346 752


Treasury stock

Balance at the end of previous period (7) (1,122)



Total changes of items during the period (1,115) (2,284)

Balance at the end of current period (1,122) (3,406)

Total shareholders' equity







Total changes of items during the period 1,231 (1,531)


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Valuation and translation adjustments

Valuation difference on available-for-sale securities



Net changes of items other than shareholders' equity (736) 1,047

Total changes of items during the period (736) 1,047


Foreign currency translation adjustment

Balance at the end of previous period 705 (8,506)


Net changes of items other than shareholders' equity (9,212) 1,482

Total changes of items during the period (9,212) 1,482


Total valuation and translation adjustments

Balance at the end of previous period 3,383 (6,564)



Total changes of items during the period (9,948) 2,529


Minority interests



Net changes of items other than shareholders' equity (2,444) (329)

Total changes of items during the period (2,444) (329)


Total net assets








Total changes of items during the period (11,161) 668


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Results of operations

Fiscal year ended March 31, 2010

Overview of financial results (year-on-year percentage changes)

With the exception of a number of the Company’s overseas subsidiaries, orders were lower during the year because of the global economic crisis, with the resulting decline in sales magnified by translation into a stronger yen. This decline in profits was offset to a degree by successful Group-wide efforts to reduce expenses and fixed costs and to improve manufacturing efficiency.

1) Net sales: -20.1%, to 96,943 million yen

2) Operating income: -31.1%, to 5,566 million yen

3) Ordinary income: -22.8%, to 6,075 million yen

4) Net income: -42.0%, to 2,250 million yen

Segment breakdown (year-on-year percentage changes)

Motorcycle clutch division

Sales declined by 25.0% to 50,500 million yen; operating income declined by 31.9% to 5,530 million yen.

1) Although demand for motorcycle clutches began to recover in the second half, primarily in Asia, orders were nevertheless lower on a full-year basis year-on-year.

2) Sales adversely affected by translation into a stronger yen

Automobile clutch division

Sales declined by 8.9% to 42,159 million yen; the division reported operating income of 197 million yen.

1) Sales impacted by production cutbacks by major customers in Japan and North America and by translation into a stronger yen

2) These circumstances were offset by brisk sales of automobile clutches to Ford and to manufacturers in China, which enabled the division to report operating income (compared with an operating loss of 143 million yen in the previous year).

Other products

Continued weakness in demand for ATVs in North America, and the impact of translation into a stronger yen, led to a 43.9% decline in sales to 4,283 million yen; the division reported an operating loss of 162 million yen (compared with operating income of 94 million yen in the previous year).

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Results by region (year-on-year percentage changes)

Japan: Sales declined by 26.4% to 26,507 million yen, leading to an operating loss of 754 million yen (compared with an operating loss of 687 million yen in previous year).

1) Weak demand for automobile clutches

2) Further slowdown in sales of clutches for large export-model motorcycles and for ATVs

North America: Sales declined by 8.1% to 20,259 million yen; operating income increased by 146.0% to 1,273 million yen.

1) Despite a sharp increase in sales of automobile clutches to Ford, sales of automobiles in the overall market declined in the face of the severe recession.

2) Sales were also impacted by weaker demand for ATVs and by translation into a stronger yen.

Asia: Sales declined by 17.9% to 44,925 million yen; operating income declined by 34.1% to 4,107 million yen.

1) Sales of automobile clutches increased in China, and demand for motorcycles began trending upward in most Asian markets in the second half.

2) Full-term orders for motorcycle clutches were nevertheless lower year-on-year and translation into a stronger yen also impacted sales.

Other regions: Sales declined by 38.2% to 5,251 million yen; operating income declined by 68.6% to 409 million yen.

1) Decline in demand for motorcycles in Brazil and the UK

2) Adverse impact on sales of translation into a stronger yen

Fiscal year ended March 31, 2009

Overview of financial results (year-on-year percentage changes)

Business negatively impacted early by sharp increases in the price of crude oil and raw materials; and then, post-September, by the precipitous slowdown in economic growth in the wake of the global financial crisis. The strengthening yen was also a factor.

1) Net sales: -9.3%, to 121,279 million yen

2) Operating income: -44.7%, to 8,077 million yen

F . C . C . C O . , L T D .

35

3) Ordinary income: -48.5%, to 7,867 million yen

4) Net income: -20.4%, to 3,882 million yen

Segment breakdown (year-on-year percentage changes)

Motorcycle clutch division:

Sales declined by 3.8% to 67,368 million yen; operating income declined by 23.8% to 8,126 million yen.

1) Sales to major customers in Indonesia and Vietnam continued to trend strongly, but sales of clutches for large bikes in Europe and the U.S. contracted.

2) Adverse effects of foreign exchange.

Automobile clutch division:

Sales declined by 13.7% to 46,273 million yen, resulting in an operating loss of 143 million yen (compared to year-earlier operating income of 3,219 million yen).

1) Positive contributions from the start of volume production at Chinese subsidiary in January 2008, but these contributions negated by a decline in sales to major customers in Japan and North America.

2) Abrupt decline in orders after December due to production adjustments by major customers.

3) Impact of conversion to stronger yen.

Other products:

Sales and operating income both declined, by 24.4% to 7,637 million yen and by 86.7% to 94 million yen, respectively, as a result of shrinking demand for ATVs in North America combined with foreign exchange effects.

Results by region (year-on-year percentage change)

1) Japan: Sales declined by 19.3% to 36,032 million yen, resulting in an operating loss of 687 million yen (compared to year-earlier operating income of 3,537 million yen).

Weak demand for automobile clutches, compounded by a decline in sales of clutches for automatic transmission vehicles to China following start of local production.

Slowdown in sales of clutches for large export-model motorcycles and for ATVs.

F . C . C . C O . , L T D .

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2) North America: Sales declined by 26.2% to 22,047 million yen and operating income by 81.0% to 517 million yen.

Decline in automobile sales, reflecting severe economic downturn, shift to demand for smaller automobiles, and continued soft demand for ATVs.

Impact of conversion into stronger yen.

3) Asia: Sales increased by 6.5% to 54,706 million yen, but operating income decreased by 8.9% to 6,230 million yen.

Sales: In addition to higher sales of motorcycle clutches to Indonesia and Vietnam, sales benefited from the commencement of volume production of clutches for automatic transmission automobiles by the Company’s subsidiary in China.

Operating income: Decline due to higher depreciation expenses, currency impacts, etc.

4) Other regions: Sales increased by 8.2% to 8,492 million yen, reflecting stronger sales of motorcycle clutches in Brazil and the UK; operating income declined by 0.4% to 1,304 million yen, reflecting the impacts of currency translation.

Segment information Geographical segment information

Millions of yen Japan North America Asia Other Total Eliminations Consolidated

2010

Net sales

External customers 26,507 20,259 44,925 5,251 96,943 - 96,943

Inter-area 11,446 653 1,243 154 13,497 (13,497) -

37,953 20,912 46,168 5,405 110,441 (13,497) 96,943

Operating expenses 38,708 19,639 42,061 4,996 105,405 (14,027) 91,377

Operating income (754) 1,273 4,107 409 5,036 530 5,566

Identifiable assets 60,754 16,177 34,375 4,202 115,509 (20,875) 94,634

2009

Net sales

External customers 36,032 22,047 54,706 8,492 121,279 - 121,279

Inter-area 13,032 1,061 2,202 620 16,916 (16,916) -

49,064 23,108 56,909 9,113 138,196 (16,916) 121,279

Operating expenses 49,752 22,591 50,679 7,808 130,831 (17,629) 113,202

Operating income (687) 517 6,230 1,304 7,364 712 8,077

Identifiable assets 59,832 16,101 34,196 4,147 114,277 (20,716) 93,560

F . C . C . C O . , L T D .

37

Overseas sales

2009 2010

Millions of yen International sales As % of net sales International sales As % of net sales

North America 25,557 21.1 22,315 23.0

Asia 54,750 45.1 45,093 46.5

Other 9,200 7.6 6,230 6.5

89,509 73.8 73,639 76.0

Consolidated sales 121,279 96,943

Issues requiring action

1) Despite a sense that the worst of the global economic crisis had passed, the operating environment remained difficult for the automobile components industry.

Economic stimulus packages around the world and recovering demand in emerging nations brought manufacturers’ inventories down closer to normal levels.

But recovery in the advanced economies was weak compared to the emerging nations, as sharp declines in corporate profits hindered capital investment and employment conditions deteriorated in those economies.

2) Immediate issues

Stabilizing profitability when operating rates fall requires making further improvements in manufacturing efficiency and reducing expenses and fixed costs.

It is necessary to implement changes that enable the Company to respond flexibly to short-term fluctuations in order receipt, and to strengthen the foundations of the Company’s operations.

3) Diversification

The Company’s focus on clutches exposes it to potential threats when next-generation automobiles and motorcycles that are not powered by internal combustion engines become commonly available.

It will consequently be extremely important to prepare for these developments over the medium-to-long term by developing a second pillar of business outside the area of clutches.

F . C . C . C O . , L T D .

38

Production and sales Production Millions of yen 2010

AmountYear-on-year

comparison (%)

Motorcycle clutches 50,461 75.7

Automobile clutches 42,148 91.5

Other products 4,218 57.1

96,827 80.6

Orders Millions of yen 2010

Orders Orders outstanding

AmountYear-on-year

comparison (%) Amount Year-on-year

comparison (%)

Motorcycle clutches 52,056 80.2 4,990 145.3

Automobile clutches 43,806 98.5 4,187 164.8

Other products 4,444 61.8 326 197.6

100,307 86.0 9,503 154.8

Sales by product Millions of yen 2010

AmountYear-on-year

comparison (%)

Motorcycle clutches 50,500 75.0

Automobile clutches 42,159 91.1

Other products 4,283 56.1

96,943 79.9

Principal customers

Millions of yen 2009 2010

Amount % of net sales Amount % of net sales

HONDA MOTOR CO., LTD. 22,630 18.7% 18,098 18.7%

F . C . C . C O . , L T D .

39

Leases

Under generally accepted accounting principles in Japan, finance leases that do not transfer ownership were accounted for in the same manner as operating leases when “as if capitalized” information was disclosed until the year ended March 2008.

Such treatment is no longer applicable, however, and legal provisions require that leasing transactions be accounted for in the same manner as general sales and purchasing transactions beginning with the year started on/after April 1, 2008.

March 2010 term

Finance leases (as lessee)

When the lease terms on finance leases that do not transfer ownership began before March 31, 2008, the Company accounts for such leases as ordinary rental transactions. The information on such leases is as shown below.


Equivalent acquisition costs, equivalent accumulated depreciation, accumulated loss on impairment of fixed assets and equivalent book value at year-end

Machinery, equipment and vehicles

Acquisition cost 208

Accumulated depreciation 174

Net leased property 34

Tools, furniture and fixtures




Total




Future minimum lease payments, including interest portion

Due within one year 52

Due after one year 4

57

Lease payments, reversals of liability for leased asset impairments, amount equivalent to depreciation and impairment losses

Pro forma depreciation expenses (assuming declining balance method)

74

Pro forma interest expenses 74

F . C . C . C O . , L T D .

40


Operating leases - future minimum lease payments



6

(Regarding impairment losses)

The Company has not recognized any impairment losses on its lease assets.

March 2009 term

Finance leases (as lessee)

Finance leases that do not transfer ownership include the following leases whose lease terms began before March 31, 2008. The information on such leases is as shown below.


Equivalent acquisition costs, equivalent accumulated depreciation, accumulated loss on impairment of fixed assets and equivalent book value at year-end

Machinery, equipment and vehicles




Tools, furniture and fixtures




Total




Future minimum lease payments, including interest portion



136

Lease payments, reversals of liability for leased asset impairments, amount equivalent to depreciation and impairment losses

Pro forma depreciation expenses (assuming declining balance method)

89

Pro forma interest expenses 89

F . C . C . C O . , L T D .

41


Operating leases - future minimum lease payments



12

(Regarding impairment losses)

The Company has not recognized any impairment losses on its lease assets.

F . C . C . C O . , L T D .

42

Capital Structure Consolidated balance sheets Assets March 31; Millions of yen 2009 2010

Current assets Cash and deposits 15,424 15,988

Notes and accounts receivable-trade 11,078 15,316

Merchandise and finished goods 1,813 1,725

Work in process 1,985 2,212

Raw materials and supplies 7,797 6,798

Deferred tax assets 770 944

Short-term loans receivable 116 537

Other 2,938 2,027

Allowance for doubtful accounts (7) (4)

Total current assets 41,915 45,547

Noncurrent assets Property, plant and equipment

Buildings and structures 22,089 22,179

Accumulated depreciation (9,007) (9,765)

Buildings and structures, net 13,082 12,413

Machinery, equipment and vehicles 56,769 60,836


Machinery, equipment and vehicles, net 18,701 17,956

Tools, furniture and fixtures 10,143 10,627


Tools, furniture and fixtures, net 1,977 1,763

Land 7,023 7,169

Construction in progress 2,584 359

Total property, plant and equipment 43,369 39,663

Intangible assets

Goodwill 122 40

Other 617 555

Total intangible assets 740 596

Investments and other assets

Investment securities 4,998 7,014

Long-term loans receivable 393 327


Other 1,556 855


Total investments and other assets 7,535 8,826

Total noncurrent assets 51,645 49,086

Total assets 93,560 94,634

F . C . C . C O . , L T D .

43

Liabilities and net assets March 31; Millions of yen 2009 2010

Current liabilities Notes and accounts payable-trade 5,699 7,498

Factoring liabilities 1,887 1,839

Short-term loans payable 937 885

Income taxes payable 2,820 1,745

Provision for bonuses 1,143 1,181

Other 3,621 2,740

Total current liabilities 16,111 15,891

Noncurrent liabilities Long-term loans payable 571 501

Deferred tax liabilities 1,421 2,196

Provision for retirement benefits 1,282 1,249


Other 584 991

Total noncurrent liabilities 4,325 4,950

Total liabilities 20,436 20,841

Net assets


Capital stock 4,175 4,175

Capital surplus 4,566 4,566

Retained earnings 65,710 66,463

Treasury stock (1,122) (3,406)

Total shareholders' equity 73,330 71,798


Valuation difference on available-for-sale securities 1,941 2,989

Foreign currency translation adjustment (8,506) (7,024)

Total valuation and translation adjustments (6,564) (4,035)

Minority interests 6,359 6,029

Total net assets 73,124 73,792

Total liabilities and net assets 93,560 94,634

F . C . C . C O . , L T D .

44

Market value of securities Other quoted securities 2009 2010

Millions of yen Book valueCost of

acquisitionUnrealized

gains (losses) Book value Cost of

acquisition Unrealized

gains (losses)

Securities valued on the consolidated balance sheet at amounts greater than the purchase cost

Shares 4,302 972 3,330 6,156 998 5,158

Bonds

JGB, local government bonds, etc. - - - - - -

Corporate bonds - - - - - -

Other - - - - - -

Other - - - - - -

4,302 972 3,330 6,156 998 5,158

Securities valued on the consolidated balance sheet at amounts not greater than the purchase cost

Shares 64 70 (6) 124 170 (46)

Bonds

JGB, local government bonds, etc. - - - - - -

Corporate bonds - - - - - -

Other - - - - - -

Other - - - - - -

64 70 (6) 124 170 (46)

4,366 1,042 3,323 6,280 1,168 5,112

Major investment securities without market prices Millions of yen 2009

Other securities

Unlisted stocks 171

March 2010 term Because unlisted stocks (with a balance sheet value of 73 million yen) have no market value and are generally considered to be extremely difficult to value at any given time, they are not included in “other securities” above.

F . C . C . C O . , L T D .

45

Facilities

Millions of yen Buildings and

structures

Machinery, equipment and

vehicles Land Other Total book

value Number of employees

Book value Square meters

Parent company

Hosoe Factory

Automobile clutches and other products

226 443 270 18,080 10 950 153

Hamakita Factory

Automobile clutches 481 502 731 26,216 88 1,804 81

Ryuyo Factory


814 1,534 1,047 59,045 207 3,604 268

Tenryu Factory


609 561 1,022 32,511 50 2,243 80

Suzuka Factory


3,028 1,525 1,292 75,130 125 5,971 183

R&D Division

Integrated research 596 325 216 12,093 41 1,180 180

Domestic subsidiaries

KYUSHU F.C.C. CO., LTD.


243 330 11 20,474 90 674 128

Overseas subsidiaries

FCC (INDIANA) Mfg., LLC.

Automobile clutches 1,243 2,517 68 246,263 41 3,871 481

CHINA FCC FOSHAN CO., LTD.

Automobile clutches 544 2,806 - 59,108 222 3,573 492

FCC (Adams), LLC.

Automobile clutches 683 2,288 5 161,880 50 3,029 121



897 883 518 87,890 561 2,860 384

PT. FCC INDONESIA


385 1,245 297 72,812 47 1,976 591

FCC (North Carolina), LLC.


607 1,181 4 269,064 92 1,886 138

FCC DO BRASIL LTDA.

Motorcycle clutches 574 563 1 30,700 272 1,412 270

FCC RICO LTD.


161 757 119 20,475 117 1,156 367

F . C . C . C O . , L T D .

46

Borrowings Millions of yen Previous term Outstanding Average rate Maturity

Short-term loans payable 898 869 3.72% -

Current portion of long-term loans payable 39 15 0.76% -

Current portion of lease obligations - - - -

Long-term loans payable (except current portion of long-term loans payable)

571 501 1.17% 2011 - 2012

Lease obligations (except current portion of lease obligations)

- - - -

Other interest-bearing liabilities - - - -

1,509 1,386 - -

Long-term debt repayable within 5 years of the end of the fiscal year to March 2010 (except the amount payable within one year) is as follows:

Millions of yen Greater than 1

and up to 2 years Greater than 2

and up to 3 yearsGreater than 3

and up to 4 years Greater than 4

and up to 5 years

Long-term loans payable 344 157 - -

Retirement benefits Outline of retirement benefit system

The Company and its consolidated subsidiaries offer employees the following options in terms of defined benefit pension plans: Employees’ Welfare Pension Fund (koseinenkin); qualified retirement annuity plan; and lump-sum payment at retirement.

A number of consolidated subsidiaries have established defined contribution pension plans.

Matters related to retirement benefit liabilities Millions of yen 2009 2010

Retirement benefit obligations (5,722) (5,779)

Pension plan assets 2,975 3,769

Unfunded retirement benefit obligations (2,746) (2,009)

Unrecognized actuarial gains or losses 1,472 769

Unrecognized prior service costs - -

Net retirement benefit obligations recognized on the consolidated balance sheets

(1,273) (1,239)

Prepaid pension costs 8 9

Provision for retirement benefits (1,282) (1,249)

F . C . C . C O . , L T D .

47

Matters related to retirement benefit expenses Millions of yen 2009 2010

Service costs 891 865

Interest costs 78 81

Expected returns on pension plan assets - -

Amortization of actuarial gains or losses 200 104

Amortization of prior service costs - -

Retirement benefit expenses 1,170 1,052

Service costs include amounts contributed to the Japan Auto Parts Industries Association Employees Pension Fund, which is an “integrated-type fund (sogo-gata)” involving multiple employers.

The following is information related to multiple employer pension plans, which treat required contributions as retirement expenses.

(1) Status of funding for the system as a whole (as of March 31, 2009)

Millions of yen 2008 2009

Amount of pension assets 158,828 124,469

Pro forma pension obligations assumed under the pension program

177,921 180,010

Difference (19,092) (55,541)

(2) Premiums contributed by the FCC Group as a percentage of overall system premiums: 4.16% (for the month of March 2008) and 4.47% (for the month of March 2009)

(3) Supplemental remarks

The principal reasons for the difference shown above in item (1) are 24,328 million yen in past service costs and 31,212 million yen in retained earnings, which are taken into consideration in calculations of pension financing. Under this system, past service costs are amortized in equal amounts over 19 years. In its financial statements, the FCC Group recognized a special contribution of 115 million yen for the period ended March 2008 and expensed 120 million yen in the period to March 2009.

Assumptions underlying the calculation of retirement benefit liabilities 2009 2010

Term allocation of the estimated amount of retirement benefits

Prior fixed amount basis

Discount rate 1.5% 1.5%

Expected rate of return on pension plan assets 0.0% 0.0%

Amortization period of actuarial gains or losses 18 years (using the fixed-rate method based on the average number of years remaining in the tenure of employees as of the date on which the gains or losses arise; differences are expensed during the fiscal year in which they occur.)

Amortization period of prior service costs - -

F . C . C . C O . , L T D .

48

Deferred taxes Millions of yen 2009 2010

Deferred tax assets (current) 1,225 1,133

Deferred tax assets (noncurrent) 1,814 1,776

3,040 2,909

Deferred tax liabilities (current) (471) (150)

Deferred tax liabilities (noncurrent) (2,596) (3,330)

(3,068) (3,480)

Deferred tax assets (liabilities) - net (28) (570)

Percentage

Statutory tax rate 39.75% 39.75%

Dividends and excluded income from overseas subsidiaries

- (24.30)%

Differences in tax rates of overseas subsidiaries (10.68)% (10.98)%

Losses carried forward from overseas subsidiaries 1.14% (3.49)%

Tax credits for testing and research-related expenses (3.35)% (2.13)%

Valuation allowance - 2.58%

Overseas tax credits (6.91)% 3.12%

Taxes withheld at source at overseas subsidiaries - 4.39%

Consolidated eliminations of dividends received 18.94% 35.67%

Other (0.09)% 0.08%

Effective tax rates 38.80% 44.69%

F . C . C . C O . , L T D .

49

Related Parties Transactions with related parties

March 31; Millions of yen Address

Capital or investment

% of voting rights held (held by others) Relationship with related party

Type of transaction

Value of transactions

Accounting classification

Balance at term-end

2010

Parent company and primary institutional shareholders, etc.

86,067 Owned: Direct 21.68

Sales of the Company’s products

18,098 Accounts receivable- trade

2,757HONDA MOTOR CO., LTD.

Minato-ku, Tokyo

Sales of products and procurement of raw materials and components

Procurement of raw materials and components

3,111 Accounts payable- trade

454

2009

Parent company and primary institutional shareholders, etc.

86,067 Owned: Direct 21.07

Sales of the Company’s products

22,630 Accounts receivable- trade

1,591HONDA MOTOR CO., LTD.

Minato-ku, Tokyo

Sales of products and procurement of raw materials and components

Procurement of raw materials and components

3,883 Accounts payable- trade

289

Investments in unconsolidated companies March 31; Millions of yen 2009 2010

Investment securities (equity) 460 660

F . C . C . C O . , L T D .

50

Non-consolidated Financial Statements Non-consolidated statements of income Years ended March 31; Millions of yen 2009 2010

Net sales 47,983 37,346

Cost of sales

Beginning finished goods 736 516

Cost of products manufactured 38,933 30,101

Purchase of finished goods 1,853 1,616

Total 41,523 32,235

Ending finished goods 516 418

Cost of finished goods sold 41,006 31,817

Gross profit 6,976 5,528

Selling, general and administrative expenses

Packing and delivery expenses 898 702

Salaries and allowances 1,351 1,252

Provision for bonuses 189 177

Retirement benefit expenses 235 195


Depreciation 40 40

Research and development expenses 3,253 2,807

Other 1,510 1,079

Total selling, general and administrative expenses 7,577 6,266

Operating loss (600) (737)

Non-operating income

Interest income 50 45

Interest on capital receivable 113 145

Dividends income 4,030 4,962

Rental income 13 9

Commissions on equipment sales 704 444

Foreign exchange gains - 30

Technical advisory fee 227 78

Other 68 59

Total non-operating income 5,207 5,776

Non-operating expenses

Interest expenses 14 -

Rent expenses 3 1

Foreign exchange losses 122 -

Other 3 0

Total non-operating expenses 144 2

Ordinary income 4,462 5,037

F . C . C . C O . , L T D .

51


Extraordinary income

Gain on sales of noncurrent assets 417 1

Subsidy - 40

Other 0 -

Total extraordinary income 418 41

Extraordinary loss

Loss on sales and retirement of noncurrent assets 152 284

Other 4 -

Total extraordinary losses 156 284

Income before income taxes 4,724 4,794

Income taxes-current 840 757

Income taxes-deferred 337 36

Total income taxes 1,178 793


F . C . C . C O . , L T D .

52

Non-consolidated statements of changes in net assets Years ended March 31; Millions of yen 2009 2010


Capital stock





Capital surplus

Legal capital surplus





Other capital surplus

Balance at the end of previous period 10 10



Balance at the end of current period 10 10

Total capital surplus





Retained earnings

Legal retained earnings





Other retained earnings

Reserve for dividends





Reserve for special depreciation



Reversal of reserve for special depreciation (18) (13)

Total changes of items during the period (18) (13)


F . C . C . C O . , L T D .

53


Reserve for advanced depreciation of noncurrent assets



Provision of reserve for advanced depreciation of noncurrent assets 176 -

Reversal of reserve for advanced depreciation of noncurrent assets (1) (1)

Total changes of items during the period 175 (1)


General reserve



Provision of general reserve 2,000 1,500

Total changes of items during the period 2,000 1,500


Retained earnings brought forward



Reversal of reserve for special depreciation 18 13

Reversal of reserve for advanced depreciation of noncurrent assets 1 1

Provision of reserve for advanced depreciation of noncurrent assets (176) -

Provision of general reserve (2,000) (1,500)





Total retained earnings



Reversal of reserve for special depreciation - -

Reversal of reserve for advanced depreciation of noncurrent assets - -

Provision of reserve for advanced depreciation of noncurrent assets - -

Provision of general reserve - -



Total changes of items during the period 2,019 2,503


Treasury stock

Balance at the end of previous period (7) (1,122)



Total changes of items during the period (1,115) (2,284)


F . C . C . C O . , L T D .

54


Total shareholders' equity






Total changes of items during the period 904 218



Valuation difference on available-for-sale securities






Total valuation and translation adjustments






Total net assets







Total changes of items during the period 187 1,228


F . C . C . C O . , L T D .

55

Cost of goods sold Years ended March 31; Millions of yen 2009 % 2010 %

Cost of materials 27,099 65.3 19,724 62.2

Labor costs 6,171 14.9 6,019 19.0

Manufacturing overhead

Subcontracted processing expenses 3,025 1,484

Depreciation 2,390 2,433

Expenses for electricity and power 504 397

Other 2,296 1,653

8,217 19.8 5,970 18.8

Total manufacturing costs for the term 41,487 100.0 31,714 100.0

Beginning work in process 1,240 989

42,727 32,704

Transfers to other accounts 2,804 1,568

Ending work in process 989 1,034

Cost of products manufactured 38,933 30,101

Transfers to other accounts

Supplies 1,846 1,135

Construction in progress 698 258

Research and development expenses 255 174

Selling, general and administrative expenses 4 -

2,804 1,568

F . C . C . C O . , L T D .

56

Non-consolidated balance sheets Assets March 31; Millions of yen 2009 2010

Current assets

Cash and deposits 3,869 6,062

Notes receivable-trade 6 17

Accounts receivable-trade 5,052 6,996

Merchandise and finished goods 516 418

Work in process 989 1,034

Raw materials and supplies 2,373 1,967

Prepaid expenses 46 50


Short-term loans receivable to subsidiaries and affiliates 1,700 1,770

Accounts receivable-other 2,187 899

Other 108 115


Total current assets 17,381 19,872

Noncurrent assets

Property, plant and equipment

Buildings 10,353 10,292


Buildings, net 5,712 5,376

Structures 1,552 1,542

Accumulated depreciation (730) (808)

Structures, net 822 734

Machinery and equipment 23,011 23,072


Machinery and equipment, net 6,399 4,989

Vehicles 167 157

Accumulated depreciation (130) (133)

Vehicles, net 37 23

Tools, furniture and fixtures 5,795 5,861


Tools, furniture and fixtures, net 716 528

Land 5,382 5,382

Construction in progress 369 42

Total property, plant and equipment 19,440 17,077

F . C . C . C O . , L T D .

57

March 31; Millions of yen 2009 2010

Intangible assets

Patent right 18 7

Telephone subscription right 3 3

Software 83 62

Other 2 2

Total intangible assets 108 76

Investments and other assets

Investment securities 529 622

Stocks of subsidiaries and affiliates 14,881 16,491

Investments in capital 4 4

Investments in capital of subsidiaries and affiliates 3,022 3,022

Long-term loans to employees 145 201

Long-term prepaid expenses - 24

Long-term money trusts 700 -

Long-term deposits 648 648

Other 79 74


Total investments and other assets 19,964 21,043

Total noncurrent assets 39,514 38,197

Total assets 56,895 58,070

F . C . C . C O . , L T D .

58

Liabilities and net assets March 31; Millions of yen 2009 2010

Current liabilities

Notes payable-trade 478 426

Accounts payable-trade 2,000 2,792

Factoring liabilities 1,887 1,839

Accounts payable-other 514 520

Accrued expenses 283 276

Income taxes payable 2,260 1,423

Advances received 0 6

Deposits received 42 43

Provision for bonuses 967 1,045

Deposits received from employees 645 -

Other 0 0

Total current liabilities 9,080 8,374

Noncurrent liabilities

Deferred tax liabilities 1,108 1,822

Provision for retirement benefits 1,016 945

Provision for directors' retirement benefits 433 -

Other 364 807

Total noncurrent liabilities 2,922 3,575

Total liabilities 12,003 11,949

F . C . C . C O . , L T D .

59

March 31; Millions of yen 2009 2010

Net assets


Capital stock 4,175 4,175

Capital surplus

Legal capital surplus 4,555 4,555

Other capital surplus 10 10

Total capital surpluses 4,566 4,566

Retained earnings

Legal retained earnings 1,043 1,043

Other retained earnings

Reserve for dividends 1,600 1,600

Reserve for special depreciation 22 9

Reserve for advanced depreciation of noncurrent assets 766 765

General reserve 27,500 29,000

Retained earnings brought forward 4,464 5,481

Total retained earnings 35,397 37,900

Treasury stock (1,122) (3,406)

Total shareholders' equity 43,016 43,235


Valuation difference on available-for-sale securities 1,875 2,884

Total valuation and translation adjustments 1,875 2,884

Total net assets 44,891 46,120

Total liabilities and net assets 56,895 58,070

Trade credits Notes receivable — trade Millions of yen 2010

Nittan Valve 16

Yamaha Motor Powered Products Co., Ltd. 1

Apresto Co., Ltd. 0

17

F . C . C . C O . , L T D .

60

Accounts receivable — trade Millions of yen 2010

HONDA MOTOR CO., LTD. 2,757

FCC RICO LTD. 591

CHINA FCC FOSHAN CO., LTD. 445

PT. FCC INDONESIA 400

Kawasaki Heavy Industries, Ltd. 382

Other 2,418

6,996

Turnover of accounts receivable Millions of yen 2010

Beginning balance 5,052

Increase 38,634

Collected 36,690

Ending balance 6,996

Turnover 84.0%

Average days for collection 57

Notes payable — trade Millions of yen 2010

aitech. inc. co., ltd. 121

NOK CORPORATION 116

MARUICHI KOGYO CO., LTD. 79

ACE GIKEN CO., LTD. 41

KATO SANSHO Co., Ltd. 13

Other 53

426

Accounts payable — trade Millions of yen 2010

HONDA MOTOR CO., LTD. 454

KYUSHU F.C.C. CO., LTD. 215

NHK SPRING CO., LTD. 196

Nagakura Mfg. Co., Ltd. 117

TENRYU SANGYO CO., LTD. 108

Other 1,700

2,792

F . C . C . C O . , L T D .

61

Securities

Financial instruments

March 2010 term Policy with respect to financial instruments

The Company limits its investments of surplus cash to short-term deposits, etc. and finances its operations through bank loans. It does not, as a rule, engage in derivative transactions.

Types of financial instruments and their attendant risks; the Company’s policies of managing these risks

Trade receivables: The Company is exposed to the credit risks of its customers. It deals with these risks by monitoring the timeliness of each customer’s payments and managing outstanding balances in accordance with the Group’s credit management policies. In addition, the Company carries out periodic assessments of the credit status of its major customers.

Foreign currency-denominated receivables: The Company deals with risks associated with fluctuating foreign currencies through measures aimed at minimizing such risks.

Stocks: The Company is exposed to the risk of fluctuations in the market prices of stocks. Its holdings, however, are primarily in companies with which it has operational relationships. It monitors the market prices of these shares on a quarterly basis.

Trade payables and factoring-related liabilities: Payment terms are less than one year.

Bank debt: Bank financing is divided into short-term debt, which largely finances operational transactions, and long-term debt, which finances capital investments.

The assumption of trade payables and bank debt exposes the Company to liquidity risk, which each company in the Group deals with by preparing a monthly cash flow plan and managing its liabilities according to this plan.

F . C . C . C O . , L T D .

62

Items related to current value

2010

Book value Current value

Unrealized gain

(loss)

Cash and deposits 15,988 15,988 -

Notes and accounts receivable-trade 15,316 15,316 -

Investment securities 6,280 6,280 -

Total assets 37,586 37,586 -

Notes and accounts payable-trade 7,498 7,498 -

Factoring liabilities 1,839 1,839 -

Short-term loans payable 885 885 -

Long-term loans payable 501 501 0

Total liabilities 10,725 10,725 0

Derivative transactions - - -

Methods of calculating current value Cash and deposits; notes and accounts receivable-trade: book value

Investment securities: market value

Notes and accounts payable-trade; factoring liabilities; short-term loans payable: book value

Long-term loans payable: discounting at the interest rate that would apply if the Company were to newly borrow the same amount of principal and interest

Financial instruments with no easily ascertainable current value


Unlisted stocks 733

Repayment schedule for receivables after accounting date

Millions of yen Up to 1 yearGreater than 1 and

up to 5 yearsGreater than 5 and

up to 10 years Greater than

10 years

Cash and deposits 15,988 - - -

Notes and accounts receivable-trade 15,316 - - -

31,305 - - -

F . C . C . C O . , L T D .

63

Marketable and investment securities Millions of yen

Stocks

Number of

shares Book value

Investment securities

Other securities

Stanley Electric Co., Ltd. (6923) 137,975 250

SUZUKI MOTOR CORPORATION (7269) 52,500 108

KANEMATSU CORPORATION (8020) 821,000 63

Mizuho Financial Group, Inc. (preferred stock) 100,000 60

Nikkan Co., Ltd. 33,582 33

Mizuho Financial Group, Inc. (8411) 134,410 24

Sumitomo Mitsui Financial Group, Inc. (8316) 5,755 17

SHIMIZU CORPORATION (1803) 39,000 15

MUSASHI SEIMITSU INDUSTRY CO., LTD. (7220) 6,000 11

Mizuho Trust & Banking (8404) 81,997 7

Others (14 shares) 39,729 28

1,451,948 622


Millions of yen Beginning of

term Increase Decrease End of term Depreciation End of term,

net

Accumulated Current


Buildings 10,353 260 321 10,292 4,915 415 5,376

Structures 1,552 7 17 1,542 808 87 734

Machinery and equipment 23,011 531 470 23,072 18,082 1,852 4,989

Vehicles 167 5 16 157 133 16 23

Tools, furniture and fixtures 5,795 325 259 5,861 5,333 460 528

Land 5,382 - - 5,382 - - 5,382

Construction in progress 369 608 934 42 - - 42

46,633 1,739 2,020 46,351 29,273 2,832 17,077

Intangible assets

Patent right 88 - - 88 81 11 7

Telephone subscription right 3 - - 3 - - 3

Software 117 1 - 118 56 22 62

Others 4 1 1 4 1 0 2

214 2 1 215 139 34 76

Long-term prepaid expenses - 28 3 24 - - 24

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Allowances

Millions of yen Beginning of

term Increase Decrease End of term

Allowance for doubtful accounts 47 - - 47

Provision for bonuses 967 1,045 967 1,045

Provision for directors' retirement benefits 433 10 442 -

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Accounting Policies Summary of accounting policies: consolidated

Basis of presentation Japanese GAAP

Marketable and investment securities

Other securities: Quoted securities: The market value method is applied, based on the market value as of the fiscal year-end. The entire positive or negative valuation difference from the purchase price is booked directly as net assets, and the cost of securities sold is calculated using the periodic average method.

Unquoted securities: valued at cost using the periodic average method

Inventories Finished goods and work in process: valued at cost, computed on a periodic average basis (where amounts shown on the balance sheet take into account declines in book values based on reduced outlooks for profitability). Raw materials and supplies: valued at cost, computed on a FIFO basis (where amounts shown on the balance sheet take into account declines in book values based on reduced outlooks for profitability).

Depreciation Property, plant and equipment: The Company and its domestic subsidiaries: declining-balance method Overseas subsidiaries: straight-line method

However, buildings acquired after April 1, 1998 (excluding appurtenances) are depreciated using the straight-line method.

Intangible assets: straight-line method Software for internal use is amortized on a straight-line basis (based on a length of useful internal life of 5 years).

Allowance for doubtful accounts To provide for potential losses from doubtful accounts, the Company recognizes an amount calculated based on the historical default ratio for general accounts receivable, plus an amount for specific accounts for which collection appears doubtful.

Provision for bonuses Recognized based on standards for estimated bonus expenses.

Provision for retirement benefits To provide for employees' retirement benefits, the Company recognizes an amount based on retirement benefit liabilities and estimated pension assets as of the end of the fiscal year to March 2010.

Provision for directors' retirement benefits

At certain consolidated subsidiaries in Japan, the Company makes provisions for the retirement benefits of directors by recognizing the required amounts at year-end in accordance with the Company bylaws.

Opinion of independent auditors Auditors: Yasumori Audit Corporation Opinion: unqualified

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Summary of accounting policies: non-consolidated

Basis of presentation Japanese GAAP

Marketable and investment securities

Shares in subsidiaries and affiliated companies: valued at cost using the periodic average method

Other securities: Quoted securities: The market value method is applied, based on the market value as of the fiscal year-end. The entire positive or negative valuation difference from the purchase price is booked directly as net assets, and the cost of securities sold is calculated using the periodic average method.

Unquoted securities: valued at cost using the periodic average method

Inventories Finished goods and work in process: valued at cost, computed on a periodic average basis (where amounts shown on the balance sheet take into account declines in book values based on reduced outlooks for profitability). Raw materials and supplies: valued at cost, computed on a FIFO basis (where amounts shown on the balance sheet take into account declines in book values based on reduced outlooks for profitability).

Depreciation Property, plant and equipment: declining-balance method

However, buildings acquired after April 1, 1998 (excluding appurtenances) are depreciated using the straight-line method.

Intangible assets: straight-line method Software for internal use is amortized on a straight-line basis (based on a length of useful internal life of 5 years).

Allowance for doubtful accounts To provide for potential losses from doubtful accounts, the Company recognizes an amount calculated based on the historical default ratio for general accounts receivable, plus an amount for specific accounts for which collection appears doubtful.

Provision for bonuses Recognized based on standards for estimated bonus expenses.

Provision for retirement benefits To provide for employees' retirement benefits, the Company recognizes an amount based on retirement benefit liabilities and estimated pension assets as of the end of the fiscal year to March 2010.

Opinion of independent auditors Auditors: Yasumori Audit Corporation Opinion: unqualified

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Share-related Information Shares in issue

Types of stock Common

Number of shares authorized 90,000,000

Issued

As of March 31, 2010 52,644,030

As of June 25, 2010 52,644,030

Stock exchange listings Tokyo Stock Exchange, First Section

Comments 100-share min. trading unit

Changes in capital stock and number of shares outstanding Shares outstanding Capital stock Legal capital surplus

Increase or

decrease BalanceIncrease or

decrease BalanceIncrease or

decrease Balance Remarks

Shares Millions of yen Millions of yen

April 1, 2006 26,322,015 52,644,030 - 4,175 - 4,555 Split 2 for 1

Shareholders by type of investor

Type of investor Number of

shareholdersNumber of units

owned % owned

Financial institutions 40 124,404 23.64

Financial instrument firms 21 2,164 0.41

Business and other corporations 115 143,319 27.23

Non-residents (businesses and corporations) 139 112,189 21.32

Non-residents (individuals) 1 2 0.00

Individuals and other 12,128 144,234 27.40

12,444 526,312 100.00

Shares less than one unit 12,830

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Largest shareholders

Name Hundreds of

shares owned% of shares outstanding

HONDA MOTOR CO., LTD. 108,812 20.66

Japan Trustee Services Bank, Ltd. 68,052 12.92

Trust & Custody Services Bank, Ltd. 25,482 4.84

Yoshihide Yamamoto 22,773 4.32

Y.A Co., Ltd. 20,194 3.83

The Master Trust Bank of Japan, Ltd. 14,341 2.72

Ei Yamamoto 13,009 2.47

NORTHERN TRUST CO. (AVFC) SUB A/C AMERICAN CLIENTS

12,720 2.41

F.C.C. Customer Shareholder Group 8,710 1.65

BNP Paribas Sec Service London Jas Aberdeen Investment Funds ICVC Agency Lending

7,950 1.51

302,045 57.37

Share information

Business year March 31

Ex-rights date March 31

Dates of record for dividends September 30 and March 31

Annual General Meeting of Shareholders June

Trading unit 100 shares

Transfer agent Mizuho Trust & Banking Co., Ltd., 1-2-1 Yaesu, Chuo-ku, Tokyo

Publication of record The Nihon Keizai Shimbun

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Contact Mitsumasa Kimura Director, Management and Administration F.C.C. CO., LTD. 7000-36 Nakagawa, Hosoe-cho, Kita-ku, Hamamatsu-shi, Shizuoka 431-1394 Tel.: +81-53-523-2400 Fax: +81-53-523-2405

7000-36, Nakagawa, Hosoe-cho, Kita-ku, Hamamatsu-shi, Shizuoka, 431-1394, JapanTelephone: 81-53-523-2400Facsimile: 81-53-523-2405URL: http://www.fcc-net.co.jp/

Printed in Japan

F.C.C. CO., LTD.

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