Business for autoparts was strong over the past year. An upturn in automobile exports and increased Japanese demand fostered the first increase in vehicle production in six years. And sales of non-automotive products, especially cellular telephones, were up sharply.

We produced our 10,000th assembly robot in January.

Our employees showed off top-class skills at the 35th Technical Olympics.

We are expanding our Japanese production capacity to meet increased demand for new systems. Construction started in November on our new Zenmyo Plant, which will make diesel fuel injection systems. And we are expanding our Daian Plant. Greater capabilities at Daian will help us keep up with automakers need for antilock brake systems, airbags, oxygen sensors, and other safety and exhaust control equipment.

The past year marked important milestones for us in Japan. We made our cumulative 10,000th robot in January. DENSO robot production began in 1971, mainly for our and other Toyota group companies' production processes. The high quality of our robots attracted outside customers, and sales have accelerated. We have made more than half of our robots in the past four years.

Our work in environmentally friendly production paid off when the Ikeda Plant earned the first ISO 14001 certification in the Japanese autoparts industry. The Anjo Plant followed soon after.

DENSO employees had the chance to show off individual skills at the 35th Technical Olympics. We took 15 medals overall. That included four gold medals--more than any other competitor. Our gold medalists went on to show the DENSO colors at June's international competition in Switzerland.

The Americas
Our largest market outside of Japan continued to show its strength and importance to DENSO. Many of our American operations set production records over the past year. And the market still shows potential growth for us.

DENSO Manufacturing Tennessee reached a 10 million-part milestone in alternator and starter production.

The new Mexican plant is now providing parts for automakers in the North American market.

Automobiles continued to roll steadily off the lines in Detroit and elsewhere in North America. DENSO parts made up an increasingly larger part of those vehicles. Of course, many of those DENSO parts are made in America. Our 10th anniversary in Michigan is a sign of our long-term commitment to local production. DENSO Manufacturing Michigan was our first full-scale production operation in the Americas.

As we expand in the Americas, we are setting production milestones. Our people in Tennessee put together their 10 millionth starter and alternator in the past year. And at affiliate Michigan Automotive Compressor, the 10 millionth compressor came off the assembly line.

We continue to grow. A new plant in Mexico went into operation in February. It produces meters, cruise controls, and idle speed control valves for the North American market. In Argentina, we set the gears in motion for production of automobile heaters and air conditioners. We founded Magneti Marelli DENSO in 1996. And preparatory operation began there in January 1997.

Automakers in Europe, including Japanese-owned operations, are increasing their use of DENSO products. We made major expansions in the past year to keep up with that demand, especially in air conditioners and electronic components.

Construction got underway on a new air conditioner plant in England.

DENSO Barcelona celebrated the start of expansion work on its plant for electronic components.

In response to the growing demand for air conditioners for new cars in Europe, we are making a major expansion at DENSO Manufacturing UK. A new plant there will go into operation in late 1997. By 2000, more than 1,000 people will be working at the plant to keep European cars comfortable in all weather conditions.

We are also expanding the scale of our Spanish operation. Production of engine control units for the European market will move from Japan to Barcelona so that we will be able to meet customer demand better. Our production capacity of those units in Spain will more than double by the end of the century. And we will also manufacture components for air conditioners, supplementing our U.K. operation.

Our ability to grow in Europe is a result of our commitment to quality. And we proved that quality when Rover recognized us over hundreds of other suppliers with its Gold Award.

We also earned recognition for commitment to environmentally friendly production. At DENSO Manufacturing UK, we earned ISO 14001 certification--our first outside Japan. That operation and DENSO Marston also earned the equivalent certification from the British government--BS7750.

Asia & Oceania
Our operations in Asia and Oceania continued to show strong growth. We started construction on other plants even as those under construction went fully operational. And as the Southeast Asian market becomes more integrated, we can look forward to even more opportunities there.

A tree planting marked the completion of our Malaysian plant's first programmable control units for the U.S.market.

Our Australian operations received two of Toyota's three supplier of the year awards.

Operations got underway at our new Bangpakong Plant in Thailand. It now is putting out electrical components for automobiles in that nation. In neighboring Malaysia, a new DENSO plant added automobile electronic components to its lineup of programmable control units and relays. And in the Philippines, we went to full production of instrument clusters and air conditioners.

China, too, was a busy spot for us in the past year. Yantai Shougang DENSO started air conditioner production. And we added a fourth Chinese operation, which will make ignition units for motorcycles.

We provide the same top quality and service in Asia and Oceania as we do in other markets. Toyota recognized two of our Australian operations with supplier of the year awards. Only three out of more than 100 companies received that award. And in Malaysia, we received Toyota's Best Supplier award.

Even after our expansions, we still have room to grow in Asia. We recently opened our first DENSO service stations in Vietnam. They will service car air conditioners, diesel fuel injection pumps, and electric systems. And with more automakers preparing to produce vehicles in that market in the near future, business is sure to grow. Expansion has started on our plant at DENSO India. And we recently purchased land for yet another plant in Malaysia.