Presentation Transcripts

This is the same slide I used at the investor meeting on May 7, 2010. Six months prior to that meeting I announced that we were considering expanding into the Chinese market for low-priced, mass-produced ball bearings using our excess production capacity with an eye to the acquisition of a Chinese ball bearing manufacturer. Then at the May meeting I noted that we suspended our plan for making inroads into the market using our excess production capacity in order to respond to the rapidly growing demand for ball bearings. While we have been looking into specific opportunities for acquiring a Chinese ball bearing manufacturer, we've decided that it's not going to happen. The primary reason is that Chinese ball bearing manufacturers do not have sufficient environmental controls in place at their production facilities. Another reason is that the way they do business is completely different from how we do business. Taking over their business means taking over their risks as well. That's why we decided not to go ahead with the M&A plan. During the process of investigating a possible M&A deal, we discovered that Chinese manufacturers are facing an uphill battle. This information has shed some new light on the advantage we have over the competition in the bearing market.

After a couple of detours we finally decided to go with our initial plan and are now moving on track to enter the market for low-priced, mass-produced products on our own. We will leverage not only parts and materials made in China but also Chinese-made machine tools to expand into the Chinese market. We are mainly targeting the markets for vacuum cleaners and air conditioners in China. Most air conditioners sold in China currently use AC motors. We expect that the market will make a shift to more energy-efficient air conditioner products that use brushless DC motors. That means air conditioner makers will likely have to use high-performance Japanese-made ball bearings like ours instead of the low-priced ball bearings currently made in China. The market for low-priced electric tools also looks promising. Then there is the market for low-priced, mass-produced 608 bearings. We anticipate the market for this most commonly used ball bearing size alone to generate demand for roughly 50 million units per month. In light of these market conditions, we have decided to dust off and resume the once shelved plan to enter the Chinese market all on our own.