NIPPON LIGHT METAL COMPANY, LTD. ANNUAL REPORT 2007

ANNUAL REPORT 2007
Year ended March 31, 2007

PROFILE

Since its foundation in 1939, Nippon Light Metal Company, Ltd. has been constantly
involved with aluminum. Today, Nippon Light Metal is Japan’s sole fully integrated aluminum manufacturer with activities ranging from alumina refining to fabrication ofvarious products.
Nippon Light Metal comprises four business segments: Aluminum Ingot andChemicals concerning the production of alumina and related chemicals and aluminum ingot; Aluminum Sheet and Extrusions involving the production of sheets andshapes; Fabricated Products and Others including the production of transportationrelated products, electronic materials, foil and powder; and Building Materials covering the production of residential and office building materials. Through thesesegments, Nippon Light Metal is actively engaged in a wide range of fields such as
automobiles and railroads, electric machinery and electronics, industrial products
and construction.
The NLM Group—the preeminent source of products and services combining
aluminum’s excellent characteristics with new functionality and added value that caterto pressing customer needs—delivers customer satisfaction and contributes to environmental protection.
Contents
CONSOLIDATED FINANCIAL HIGHLIGHTS ....................... 1
TO OUR SHAREHOLDERS ................................................ 2
SPECIAL FEATURE ........................................................... 4
NLM GROUP TOPICS ........................................................ 7
CORPORATE GOVERNANCE AND
INTERNAL CONTROL SYSTEMS ................................... 8
NLM GROUP ENVIRONMENTAL ACTIVITIES .................... 10
REVIEW OF OPERATIONS ................................................ 11
NLM GROUP ...................................................................... 15
CONSOLIDATED SIX-YEAR SUMMARY ............................ 16
FINANCIAL REVIEW .......................................................... 18
CONSOLIDATED BALANCE SHEETS ................................ 20
CONSOLIDATED STATEMENTS OF INCOME ................... 22
CONSOLIDATED STATEMENTS OF................................... 23
CHANGES IN NET ASSETSCONSOLIDATED STATEMENTS OF CASH FLOWS .......... 24
NOTES TO THE CONSOLIDATED...................................... 25
FINANCIAL STATEMENTSREPORT OF INDEPENDENT AUDITORS .......................... 36
OVERSEAS NETWORK ..................................................... 37
DIRECTORS AND OFFICERS ............................................ 38
CORPORATE DATA ........................................................... 39

Cautionary Statement
This annual report contains various projections and estimates. Important factors that could alter these projections and estimates include changes in the balance of aluminum supply and demand, fluctuations in the price of aluminum ingot andforeign exchange rates, as well as shifts in Japanese government policies and regulations. The Company cautions, therefore,that the projections and estimates contained herein involve risk and uncertainty, and that actual results could differ materially from those expressed or implied.

CONSOLIDATED FINANCIAL HIGHLIGHTS
Nippon Light Metal Company, Ltd. and its consolidated subsidiaries
Years ended March 31

2006

2007

2007
Thousands of
U.S. dollars

Millions of yen

For the year:
Net sales.................................................................................................................. ¥577,061 ¥618,158 $5,236,408
Operating profit ...................................................................................................... 28,923
30,519258,526
Net income..............................................................................................................
9,684
12,755108,047
At year-end:
Total assets.............................................................................................................. 533,526
Net assets ................................................................................................................ 129,988
Short-term borrowings and long-term debt,
including bonds and capital lease obligation ......................................................... 207,818

579,463
142,111

4,908,623
1,203,820

222,884

1,888,048

Per share data (yen and dollars):
Net income—basic ................................................................................................ ¥ 17.79 ¥ 23.56 $Net income—diluted .............................................................................................
16.89
22.36
Cash dividends ........................................................................................................
4.00
5.00
Net assets ................................................................................................................ 232.54
254.82

0.20
0.19
0.04
2.16

Stock information (TSE) (yen and dollars):
Stock price:
High .................................................................................................................. ¥Low ...................................................................................................................

3.38
2.26

363 ¥
251

399 $
267

Note1: U.S. dollar amounts have been translated, for convenience only, at the exchange rate of ¥118.05 = U.S.$1.00. See Note 2 of the Notes to the Consolidated
Financial Statements.
Note2: Effective the year ended March 31, 2007, the Company adopted the new accounting standard “Accounting Standard of Presentation of Net Assets in the
Balance Sheet”. See Note1 (b) of the Consolidated Financial Statements.

Net Sales
600

Operating Profit
35

Total Assets
600

30
450

450

25
20

300

300
15
10

150

150

5
0

2002 2003 2004 2005 2006 2007

Billions of yen

Years ended March 31

02002 2003 2004 2005 2006 2007

Billions of yen

Years ended March 31

02002 2003 2004 2005 2006 2007

Billions of yen

As of March 31

1

TO OUR SHAREHOLDERS

We are pleased to report on the operating
results for Nippon Light Metal Company,
Ltd. and its consolidated group companies for fiscal 2006 (the year from April
1, 2006, to March 31, 2007).

Shigesato Sato Chairman of the Board of Director, Takashi Ishiyama President and CEO

Overview of Fiscal 2006

increased for the fourth consecutive year, and ordinary

During the year under review business developed

profit increased for the eighth consecutive year.

favorably on the whole for the aluminum industry
thanks to active capital investment and robust pro-

NLM paid a year-end cash dividend of ¥5.0 per share,
an increase of ¥1.0 from the previous year.

duction in the automotive industry, despite highprices for aluminum ingot, crude oil, and other mate-

Operating Results

rials and fuels.

Sales in the Aluminum Ingot and Chemicals segment

In these circumstances, the NLM Group worked tostrengthen the business structure in all its business fields
in accordance with the Mid-Term Management Plan

increased 14.0% year on year to ¥110.7 billion, andoperating profit rose 21.0% to ¥11.7 billion.
Sales in the Aluminum Sheet and Extrusions segment(effective from fiscal 2002 through fiscal 2006), pressing

increased 11.6% year on year to ¥78.9 billion, and oper-

ahead with reinforcement of earning power and the con-ating profit increased slightly, 0.1%, to ¥6.4 billion.

struction of a strong business foundation for the future.

Sales in the Fabricated Products and Others segment

As a result of these efforts, we achieved almost all theincreased 7.2% year on year to ¥255.5 billion, while

management targets established in the Mid-Term

operating profit decreased 10.7% to ¥14.2 billion.

Management Plan.
NLM recorded consolidated net sales of ¥618.2 billion,

Sales in the Building Materials segment increased
1.3% year on year to ¥173.0 billion, and operating

operating profit of ¥30.5 billion, ordinary profit of ¥25.2

income of ¥1.1 billion was posted following an operating

billion, and net income of ¥12.8 billion. Net sales

loss of ¥0.2 billion for the previous term.

2

Announcement of a New Three-Year Mid-Termprofit margins to make possible the progress of our busi-

Management Plan

nesses amid change in the business environment brought

In April 2007 the NLM Group announced the New Mid-

about by sharp increases in the prices of resources.

Term Management Plan, a three-year plan that sets out a

In fiscal 2007 the NLM Group forecasts an increase inbasic strategy consisting of eight items. Key elements ofconsolidated net sales to ¥680.0 billion attendant on thethe strategy include active infusion of management

launch of Nikkei MC Aluminum Co., Ltd. However, due toresources into three growth sectors (the automotive sec-

an increase in the price of ingot stocks and a decline intor, the electrical machinery and electronics sector, anddemand for trucks coupled with higher depreciation andthe resources and energy sector), further reinforcement

amortization in line with reform of the tax system inof industry-leading businesses, active business develop-

Japan, we forecast that operating profit and ordinary

ment in overseas markets, and structural improvement of

profit will decrease to ¥29.0 billion and ¥22.0 billion,

the building materials business. We have set aggressive

respectively.

growth targets for fiscal 2009, the final year of the plan,

The forecast profit decrease notwithstanding, the NLM

of consolidated net sales of ¥725.0 billion (an increase

Group has accumulated a formidable array of capabilitiesof 17% from the fiscal 2006 level) and net income ofencompassing everything from materials to processing¥18.0 billion (an increase of 41%).

and centering on aluminum. We intend to deploy these

Expansion of facilities capacity and upgrading of theresources to maximum effect in pursuit of increased

product mix are essential for realizing this rapid growth

profits in accordance with the new management plan.

and increase in profits. Accordingly, we plan aggressive

Shigesato Sato has assumed office as Chairman of theinvestment to achieve functional enhancement, higher

Board of Directors and Takashi Ishiyama has assumed

added value, and capacity expansion in business sectors

office as President and CEO. We will continue to devotewith growth potential.

ourselves to the development of the business of the NLM

Although the amount of investment in the new plan isGroup and would appreciate the continuing support andforecast to greatly exceed depreciation and amortization,

understanding of our shareholders in the coming years.

we will undertake balanced management by continuing toconcentrate on improvement of the financial structure.

June 2007

Outlook for Fiscal 2007
Although the aluminum industry is expected to experience strong demand in fiscal 2007, NLM is under pres-

Shigesato Satosure to respond to sharp increases in prices of aluminum

Chairman of the Board and Director

ingot, the principle raw material for our businesses, andof other raw materials, fuel, and other materials.
In these circumstances, the NLM Group will implementa group-wide action plan to achieve the targets in the

Takashi Ishiyama

New Mid-Term Management Plan while striving to secure

President and CEO
3

SPECIAL FEATURE
THE NIPPON LIGHT METAL GROUP’S GROWTH STRATEGY— THE NEW MID-TERM MANAGEMENT PLAN —Aiming to Build a Continuously Growing Corporate Group(Billions of yen)Previous Plan Target for
Fiscal 2006

ActualFiscal 2006

New Plan Target for
Fiscal 2009

Net sales

590.0

618.2

725.0

Operating profit

32.0

30.5

39.0

Ordinary profit

23.0

25.2

32.0

—

12.8

18.0

230.0

223.6

220.0

—

1.3

1.1

Net income
Interest-bearing debt
Net D/E ratio (times)
ROCE (%)

Higher than 8.0%

9.3%

Higher than 10.0%<Key Assumptions in the New Mid-Term Management Plan> Market price of aluminum ingot: ¥360 per kilogram, Exchange rate: ¥115 / US$1.00

Nippon Light Metal is implementing the New Mid-Term Management Plan, which went
into effect in April 2007. This Special Feature introduces the specifics of the plan.
The results of the previous five-year mid-term management plan, which was concludedin fiscal 2006, show that the Group substantially improved its profitability and financial
standing and largely achieved the targets in the action plan. Regrettably, however, the taskof rebuilding the Building Materials business remains incomplete. As a result of implementing the plan, profitability was attained for each business unit, and management
believes the foundation was put in place for growth and development into a powerful corporate group.

Basic Policies in the New Mid-Term Management Plan
1. Business domain expansion by means of active infusion of management
resources into growth sectors
2. Demand creation and earning power improvement in core business sectors
3. Active development of overseas business
4. Enhancement of materials technologies
5. Completion of structural improvement of the Building Materials business6. Development of human resources to ensure growth
7. Enhancement of corporate governance and fulfillment of corporate social responsibility
8. Improvement of the financial structure and active shareholder return measures41. Focus on three growth sectors, including theautomotive and electrical machinery and electronics markets
In the New Mid-Term Management Plan, the NLM Group
has targeted three growth sectors in which its core technologies can be profitably exploited: 1) automotive, 2)
electrical machinery and electronics, and 3) the environment, safety, and energy. The Group will aim for focusedbusiness expansion by actively infusing management
resources into these sectors. The Group intends to raise
the contribution to sales from these three growth sectors
from an estimated 26% in fiscal 2006 to 36% in fiscal
2009.
In the automotive sector, the Group will expand thescope of business activities in areas such as the supply ofdeveloped alloys, fine alumina, high-luminance aluminum
paste, and other materials and of parts and components
for suspensions and other automotive systems and its
response to customer requirements for local procurementof these materials, parts, and components.
In the electrical machinery, electronics, and telecommunications sector, the Group will focus on developing
and increasing sales of mainstay products, including
chemical foil for capacitors, materials for semiconductor
and liquid crystal manufacturing equipment, Toyo
Aluminum’s carbon aluminum foil, smart cards, andantenna circuits for IC tags, as well as fine aluminumhydroxide, high-grade alumite housings, and aluminum
false floors.
In the environment, safety, and energy sector, theGroup will increase sales of products including Toyo
Aluminium’s “Toyal-Solar” aluminum paste for solar cells
and backing sheets, the Aluminum Sheet Division’s materials for fuel cells and lithium-ion batteries, and Shin
Nikkei’s “Solar Walls” solar heat collecting outer wall
panels and aluminum-resin composite sashes.
In addition, the Group will seek further reinforcement
and business extension and expansion in the truck outfitting business, the foil business, and the panel systems
business, core businesses in which NLM enjoys market
leadership.

2. Active development of overseas business operations
The Group will reinforce overseas business developmentwith the aim of achieving sales in overseas markets of¥80.0 billion in fiscal 2009, double the fiscal 2006 level.
Specifically, to meet the local procurement requirementsof automobile manufacturers the Group will expand
investment to augment production capacity and improve
product quality at existing production bases: for instance,
automotive heat exchange materials from Nikkei Siam
Aluminium (Thailand), automobile parts from Nikkeikin
Act and NI Nikkei Shenzhen, and powder and paste from
Toyo Aluminium.
In addition, the Group will launch new overseas businesses and strive to increase revenues in overseas growthmarkets: for instance, sales expansion for developed
alloys from Nikkei MC Aluminum in China, Thailand, andthe U.S. and market entry in China in the powder andpaste business.
Other projects under consideration are construction ofan aluminum hydroxide plant in Vietnam, establishment ofan NLM Group Shanghai office, construction of a second
automobile parts fabrication base in China and a base in
the United States, entry into Southeast Asian markets in thepanel systems business, and construction of a materials
casting plant for automobile parts in Southeast Asia.
3. Expansion of Capital Investment
The New Mid-Term Management Plan calls for total capital investment of ¥90 billion over three years focused on
measures to achieve business expansion in growth markets and strengthen earning power in core businesses.
This greatly exceeds depreciation and amortization forthe period and is 1.5 times the amount invested from fiscal 2004 to 2006. The Group will strive to boost competitive advantage in the areas of cost, quality, and function
with an emphasis on investment to increase the functionality and added value of products in the three growth
sectors and will implement measures to create new
products and businesses and strengthen the businessfoundation.

5

SPECIAL FEATURE

4. Structural Improvement of the Building Materials
Operation
Shin Nikkei, which posted an ordinary loss in fiscal 2006,
will build a business structure that can earn stable profits
by implementing rationalization and further cost reductions through renovation of its core systems and intends toadjust prices based on a review of unprofitable trading.
In this way, the Group aims to boost earning power
while maintaining sales from this segment at the fiscal 2006
level of ¥171 billion. The Group aims to achieve ordinary
profit of ¥2.0 billion from this business in fiscal 2009.

(Billions of yen)

Net Sales and Ordinary Profit (Plan)
800

Highlights of the New Mid-Term Management Plan
1. Expansion in three growth sectors: automotive; electrical machinery, electronics, andtelecommunications; and the environment,
safety, and energy
2. Reinforcement of earning power in three corebusinesses in which NLM enjoys industry
leadership: foils, truck outfitting, and panel
systems
3. Active development of overseas businessSpecifically, the Group will consider production capacity augmentation at existing automotive products production sites, a tripolar
production system for powder and paste
based on Japan, the U.S. and Europe and construction of a plant in China, and the establishment of a second automotive parts fabricationbase in China and a base in the United States.
4. Active capital investment focused on three
growth sectors
5. Enhancement of materials technologies
focused on four high-priority core areas: casting; fine powders; extension materials andsurface treatment; and joining
6. Strengthening of collaboration within theGroup and increasing added value in products
7. Reinforcement of earning power of Shin
Nikkei through rigorous cost reduction, etc.
6

40

32.0

618.2

600
514.0

532.2

560.3

577.1

30
25.2

21.9

22.4

22.0

20

400
16.1
12.3

10

200

0
Net
Sales

5. Highlights and Numerical Targets in the New MidTerm Management Plan

725.0
680.0

2002

2003

2004

2005

Mid-Term Management Plan

2006

2007

2008

2009

(Plan)(Plan)(Plan)The New Mid-Term
Management Plan0
Ordinary
ProfitAs a result of these measures, the Group has established numerical targets for fiscal 2009 of net sales of¥725 billion (an increase of 17.3% from fiscal 2006), net
income of ¥18 billion (an increase of 41.1%), and returnon capital employed exceeding (ROCE)10%. The Groupwill seek to improve its financial structure while achieving
business growth.
6. Aiming for a Medium-Term to Long-Term Payout
Ratio of 30%
In implementing the New Mid-Term Management Plan,
management believes that it is vital to practice fast, agile
Group Management to rapidly cope with changes in the
management and business environment surrounding the
NLM Group and intends to flexibly utilize alliances, mergers, and acquisitions as necessary.
What the NLM Group aims to achieve with the New
Mid-Term Management Plan is to win a reputation amongcustomers as a one-stop supplier for their aluminumneeds and to become a powerful corporate group of highly profitable businesses. With regard to shareholder
returns, although for the time being management will
accord priority to improvement of the financial structure,
the Company envisages a payout ratio of about 30% overthe medium-term to long-term. The Company aims toincrease dividends during the three-year period of the
New Mid-Term Management Plan. Management requests
the continued guidance and support of the Company’s
shareholders in the coming years.

NLM GROUP TOPICS

The Nikkei MC Aluminum Co., Ltd. corporate logo

Newly Launched Nikkei MC Aluminum Co., Ltd.
Aims for Consolidated Net Sales of ¥100.0 Billion.
Nikkei MC Aluminum Co., Ltd., with its head office in Tokyo, and led by president Koji Kawakami,
started on April 1, 2007. This new NLM subsidiary was formed through the merger of the casting anddie-casting aluminum alloy business of Nippon Light Metal Company, Ltd. and M.C. Aluminum Co.,
Ltd., a subsidiary of Mitsubishi Corporation. The new company forecasts consolidated net sales of¥92.0 billion in its first year of operation.
The principal business of Nikkei MC Aluminum is the supply of casting and die-casting alloy ingots
to automotive manufacturers in Japan and overseas. It is Japan’s second largest alloy producer, with a
total production capacity of 310,000 tons (190,000 tons in Japan and 120,000 tons overseas).
On the occasion of the start of the new company, President Kawakami expressed his aspirations:“Our aim is to become a highly profitable company through the synergistic combination of the aluminum alloy development and manufacturing capabilities NLM has cultivated over the years with theoverseas business development capabilities of Mitsubishi Group. Current combined annual domestic
and overseas production capacity is 310,000 tons, and over the medium to long term we aim toincrease capacity to about 340,000 to 350,000 tons by maintaining domestic capacity at the current
level while expanding overseas capacity. Our objective is to achieve consolidated net sales of about¥100.0 billion and ordinary income of about ¥2.6 billion in fiscal 2009.”
Tokai Aluminum Foil Co., Ltd. to Become a Wholly Owned Subsidiary
On May 15, 2007, Nippon Light Metal Company, Ltd. announced that on October 1 it would makealuminum foil subsidiary Tokai Aluminum Foil Co., Ltd. a wholly owned subsidiary through a shareexchange. The share exchange ratio will be one share of Nippon Light Metal Company, Ltd. to one
share of Tokai Aluminum Foil Co., Ltd. Subsequently, all shares of Tokai Aluminum Foil Co., Ltd.
owned by NLM are to be transferred to NLM’s subsidiary Toyo Aluminium K.K., whose head office isin Osaka, and Tokai Aluminum is to be operated as a subsidiary of Toyo Aluminium.
In the aluminum foil business in Japan an adverse business environment is expected to continue
over the medium to long term largely as a consequence of the introduction of inexpensive imported
products. Therefore, greater speed in management decision making and more efficient utilization ofmanagement resources are required. The NLM Group has positioned the aluminum foil business as acore business in the New Mid-Term Management Plan, and Toyo Aluminium will play a central rolein the unification of decision making with respect to production, sales, purchasing, and humanresources and in the unified formation and implementation of a strategy for promoting optimal capital investment, production allocation, and personnel exchanges.

7

CORPORATE GOVERNANCE AND INTERNAL CONTROL SYSTEMS

1. Summary of Corporate Governance
The Company considers the enhancement of corporate governance to be an important management task for the purpose of
constructing a management system trusted by shareholders, business partners, employees, local communities, and otherstakeholders.
The Company has introduced an executive officer system. The Board of Directors consists of 11 directors, of whom two
are outside directors. This management structure makes possible agile management and sufficient deliberation of theBoard of Directors. To ensure that the roles and responsibilities of directors and executive officers are clearly defined, theirterm of office is set at one year. The Board of Directors met 14 times in fiscal 2006.
To ensure the multifaceted examination of important matters that affect the entire Group, the Company has organizedunder the Board of Directors an Executive Committee consisting of the president and CEO, all executive officers with titles,
and all officers of subsidiaries who concurrently serve as NLM directors. The Executive Committee meets at least twice amonth.
The Company has introduced a statutory auditor system. The Board of Statutory Auditors consists of five statutory auditors, of whom three are outside auditors. The Board of Statutory Auditors is an independent organization that plays a role incorporate governance, including the attendance of statutory auditors at meetings of the Board of Directors and otherimportant internal meetings.
NLM’s CORPORATE GOVERNANCE STRUCTURE
General Meeting of Shareholders
Appointment / removal

Appointment / removal

Appointment / removal

Directors
Outside directors

Audit reports

Audit reports
Board of Directors
Appointment/ removal
Accounting
auditorAccounting
audit

Board of
Statutory
Auditors

Appointment / removal
President and CEO

Audit bystatutory
auditors

Executive Committee
Executive officers

Reports andproposals

Operations,subsidiaries and affiliates

Subcommittees under the
Executive Committee• Compliance Committee• Internal Control Promotion Office• Quality Committee• Environment Committee, etc.,

Statutory
auditors
Outsideauditors

Internal
audit
Exchange of opinions

Exchange of opinions
Auditing Office
Audit reports/exchange of opinions

Support Structure for Outside Directors and Outside Statutory Auditors
The Planning Department and the Legal Department jointly serve as the secretariat of the Board of Directors and endeavor
to distribute in advance to the outside directors and statutory auditors information regarding matters for discussion by the
Board of Directors. They also provide explanations in advance concerning matters of particular importance.
The Auditors Office serves as staff assisting statutory auditors.
8

Accounting Audits
In accordance with the Corporation Law of Japan and the Securities Exchange Law, the Company had appointed Chuo
Aoyama PricewaterhouseCoopers as its accounting auditor. However, as Chuo Aoyama PricewaterhouseCoopers received anorder from the Financial Services Agency on May 10, 2006, to suspend its business operations for the two-month period
from July 1 to August 31, 2006, it lost its qualification to act as the Company’s accounting auditor. Accordingly, at a meetingof the Board of Directors held on July 1, 2006, the Company appointed Ernst & Young ShinNihon as temporary accounting
auditor. Ernst & Young ShinNihon was selected as accounting auditor of the Company at the general meeting of shareholders held on June 28, 2007.
2. Summary of Implementation of Internal Control Systems
The Company regards the enhancement of the internal control systems for regulating the job performance of all NLM Group
employees for the purpose of ensuring risk management, compliance with laws and ordinances, operating efficiency, andappropriate financing activities concerning the Company’s business processes to be important for the enhancement of corporate governance.
At a meeting of the Board of Directors held on May 17, 2006, the Company decided a basic policy on the implementation of internal control systems. On the same day, the Company established the Internal Control Office under the Executive
Committee as an organization to implement infrastructure development for internal control systems.
Establishment of the Compliance Code and the Internal Whistle-blower System
In July 2004 the Company established the Compliance Committee to clearly define its corporate social responsibility andensure the effectiveness of its internal compliance implementation systems. A director who is a senior executive officer
chairs the committee. On April 1, 2006, the Company established the Group Compliance Code. On the same day, theCompany established a dedicated internal Compliance Hotline (Internal Whistle-blower System) and established theCompliance Office and the Hotline Council for Correction Measures to serve as its administrative office. NLM has completed
establishment of a compliance hotline for the entire NLM Group.
With regard to compliance awareness activities, the Company believes an atmosphere that ensures officers and employees are aware of compliance in their ordinary work activities and can frankly exchange opinions about compliance in theworkplace is important. Each year NLM holds a total of more than 300 meetings at which all employees in the workplaceparticipate.
Establishment of Group Risk Management Regulations
The Group Risk Management Regulations established in May 2006 specifies responsible organizations and risk management policies for forms of risk requiring high-priority countermeasures, including 1) Product and service defects, 2)
Environmental problems, 3) Disasters (natural disasters and accident disasters), 4) Information systems problems. In
accordance with the Group Risk Management Regulations, NLM has established systems for each category of risk by reviewing rules or formulating new rules for dealing with risk requiring high-priority countermeasures.
Establishment of Regulations Concerning the Retention and Management of Documents Involving
Important Decisions
The Company appropriately retains and manages information concerning the execution of duties on the part of directors inaccordance with company regulations and provides that information as needed upon the request of the statutory auditors.
On May 29, 2006, the Company established Regulations Concerning the Retention and Management of Documents Involving
Important Decisions, which set forth criteria for the retention and management of NLM Group approval documents(including related information and data) such as Executive Committee decisions, committee meeting minutes, and decisions taken on departmental authority (applications for approval).
9

NLM GROUP ENVIRONMENTAL ACTIVITIESWe shall comply with relevant laws and ordinances and shall furthermore
take action independently and actively based on the awareness that initiatives to tackle global
environmental problems are essential tasks for a company.
NLM Group’s management policies reflect the recognition that initiatives to tackle global environmental problems are vital.

Basic Policy for Environmental Issues

Action Guidelines

Environmental issues are no longer local;
they have already become very influential forthe environment of the entire Earth and theexistence of humankind.Establishment of asustainable, recycling-oriented economy andsociety capable of coexisting with the Earth isone of the major tasks to be tackled by thenational government, local governments, citizens and companies. Keenly aware of thismission, the Nippon Light Metal Group aims
at harmonious coexistence with the environment by making group-wide efforts.Such
efforts are directly linked to protecting theinterests of shareholders, clients, employees
and local communities, which are the basis
of NLM’s existence, and to ensuring soundcorporate activities. We also endeavor, as agood corporate citizen, to realize a truly
affluent society through environment-relatedsocial contributions.

1. Compliance with Environment-related Laws and Regulations
We comply with environment-related laws and regulations.
2. Improvement of Energy Efficiency and Reduction of CO2 Emissions
We endeavor to improve energy efficiency and reduce CO2 emissions by improving
the efficiency of production processes and equipment, enhancing productivity, andrationalizing logistics.
3. Promotion of Resource Saving and the 3 Rs
We make efficient use of all resources, including aluminum, and promote the 3 Rs
(reduction, reuse and recycling).
4. Business Activities Reflecting Consideration of Environmental Impacts
Prior to determining where to build a production facility or what product to develop,
we evaluate any possible influence of such facility or product on the environment
from a scientific perspective and take appropriate precautions if necessary. We also
promote the reduction of environmental loads associated with routine businessactivities.
5. Development of Technologies Contributing to Environmental Protection
We are actively engaged in technology development such as the development of
products and processes with lighter environmental loads by exploiting the advantages of aluminum, and disclose and provide the results of such efforts to society tohelp protect the environment.

NLM Group Voluntary Action Plan for Reduction of Greenhouse Gas Emissions(t-CO2/million yen)

2.4

2.38

10% reduction

2.31

2.3

2.27
2.22

2.2

2.16

2.22

2.21
2.17

2.15

2.13

2.1

2.14
2.08

2.02

2.0

2.00

1.9

1.8

1990

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20062010 (FY)The NLM Group has formulated a voluntary action plan to vigorously
promote the environmental initiatives mentioned in its management
policies. The Group’s action plan focuses on reduction of greenhouse gas emissions. From among several environment-related
themes, such as the atmosphere and water quality, we selected
greenhouse gas emissions because they provide an indicator of theGroup’s overall environmental activities and in view of the Kyoto
Protocol that came into effect in February 2005.
As shown in the graph, despite fluctuations, there has been adownward trend of greenhouse gas emissions over the long term. We
are working to promote reduction of the ratio of greenhouse gas
emissions to net sales.
NLM Group Voluntary Action Plan for Reduction ofGreenhouse Gas Emissions
Reduce the ratio of greenhouse gas emissions to net
sales by 10% by 2010 compared with 1990

10

REVIEW OF OPERATIONS

Aluminum Ingot and Chemicals■ ProfileAlumina and Chemicals Operations produces aluminum hydroxide, alumina, and chemicals used in various
fields. These products are used as raw materials for flame retardants, ceramics, and other products and as
industrial materials in paper and pulp manufacturing. Aluminum and Aluminum Alloy Operations manufactures primary and secondary aluminum alloys and enjoys an excellent reputation for the development ofhigh-performance alloys in response to customer requirements. High-purity aluminum manufactured at
Japan’s only aluminum smelting plant is used as a raw material for electronic materials and other products.

Consolidated Net Sales

110,667
Millions of Yen

Consolidated Operating profit(Millions of Yen)
12,50010,000
7,500
5,000
2,500
0

’03

’04

’05

’06

’07

• Principal Products• Aluminum• Aluminum hydroxide• Chemicals (chemical products)• Caustic soda
• Chlorinated chemical products• Aluminum ingot• Aluminum alloys■ Overview of results for fiscal 2006
In Alumina and Chemicals Operations, sales of lowsoda alumina for semiconductors and electronics
materials increased as a result of a recovery of
demand in the electrical machinery and electronics
sector, and shipments of alumina for flame retardants
and other aluminum hydroxide and alumina products
were strong on the whole. Shipments of caustic soda
and other products for which the supply situation istight developed favorably, and sales of inorganic andorganic chlorine products increased from theprevious year. As a result of these developments,
overall sales increased year on year.
Despite high prices of heavy oil and bauxite,
profits increased year on year as a result of higher
sales of high-value-added products and cost
reduction measures such as the conversion of plantfuel from heavy oil to gas.
The Company began a feasibility study concerninga joint project with Sojitz Corporation and a Vietnamese company to build in Vietnam a plant tomanufacture aluminum hydroxide for chemical
applications. The plant would be the largest of its
kind in Asia.
In Aluminum and Aluminum Alloy Operations,although shipments to the electric cable sector
decreased as a result of the impact of a slump in
capital investment at electric power companies, salesof automotive products remained upbeat due to brisk
business conditions in related industries.
As the selling prices of aluminum and aluminumalloy products are largely linked to market prices foraluminum ingot and aluminum scrap, sales increased
sharply during a year of high market prices for these
raw materials. Furthermore, profits rose sharply year
on year due to higher sales of high-value-added
products and cost reduction benefits from factors suchas the development of new aluminum scrap suppliers.
On April 1, 2007, NLM split off its casting and diecasting aluminum alloy manufacturing and sales
operation, a component of the Company’s Aluminumand Aluminum Alloy Operations, to M.C. AluminumCo., Ltd., a wholly owned subsidiary of Mitsubishi
Corporation. As a result, M.C. Aluminum Company
became a subsidiary of the Company and changed its
name to Nikkei MC Aluminum Co., Ltd. The newcompany aims to increase corporate value by fusing
the NLM Group’s aluminum alloy development
capabilities and manufacturing technology
capabilities with the Mitsubishi Corporation Group’sbusiness development capabilities in Japan andoverseas in order to achieve synergy.
As a result of these developments, sales in the
Aluminum Ingot and Chemicals segment increased
14.0% year on year to ¥110,667 million, andoperating profit rose 21.0% to ¥11,667 million.

High-purity aluminum products

Abrasive products

11

REVIEW OF OPERATIONS

Aluminum Sheet and Extrusions■ Profile
The NLM Group’s aluminum sheet and extrusions are used in a wide range of market sectors, forinstance for automotive parts and railway cars in the transport industry and for semiconductor andliquid crystal manufacturing equipment and photosensitive drums in the electrical machinery andelectronics industries. The Group applies technologies and expertise accumulated over many years toactively develop products that meet user needs and provides customers with high-performance sheetsand extrusions.

Consolidated Net Sales

78,929Millions of Yen

Consolidated Operating profit(Millions of Yen)
7,500
6,000
4,500
3,000
1,500
0

’03

’04

’05

’06

■ Overview of results for fiscal 2006
In Aluminum Sheet Operations, shipments ofaluminum foil stock for capacitors rose as a result ofa recovery of demand in related industries, whilesales of aluminum plates for semiconductor andliquid crystal manufacturing equipment benefited
from an upturn as demand recovered following aslump in the previous term. However, a sharp
decrease in exports, particularly of printing plates,
resulted in overall shipments at the previous-yearlevel. Nevertheless, sales increased year on year
owing to selling price adjustments reflecting theincrease in the price of aluminum ingot. A delay inaccounting for the impact on costs of the increase in
the price of aluminum ingot boosted profits for theterm.

In Aluminum Extrusion Operations, sales
increased as shipments of extruded products fortrucks and rolling stock developed favorably, andmoreover, the introduction of new products in theautomotive products sector and other sectors had afavorable impact. Although active efforts to adjust
selling prices in response to the rise in the price ofaluminum ingot resulted in an increase in sales year
on year, profits were hard to come by mainly owing
to sharply rising prices of fuels and secondary
materials.
As a result of these developments, sales in the
Aluminum Sheet and Extrusions segment increased
11.6% year on year to ¥78,929 million, andoperating profit rose 0.1% to ¥6,443 million.

’07• Applications• Principal Products• Automobile• Automobile suspension parts• Lead-free cut aluminum alloy• Quick freezing coagulated powder
extruded materials• High-intensity molded aluminum sheet• Transport• Large structural materials for railway
rolling stock• Truck body parts• Electronics• Thick plate forsemiconductor and LCD manufacturing
equipment, Foil stock

Aluminum cylinder• Photosensitive drum materials

for gravure printing(printing roll)• Industrial• Printing roll
• Industrial materials• Building materials andinfrastructure materials• aluminum honeycomb panel• Scaffolding

12

Lithium-ion battery case

REVIEW OF OPERATIONS

Fabricated Products and Others■ Profile
The NLM Group includes a number of companies that handle distinctive fabricated products.In particular,
Toyo Aluminum’s aluminum foil and aluminum powder and paste, Nippon Freuhauf’s van and truck
bodies, and Nikkei Panel System’s commercial refrigerator and freezer panels enjoy an excellent
reputation for quality and are market share leaders in their respective fields. In addition, the Group provides familiar consumer products, including anodized aluminum foil for aluminum electrolytic capacitors, automotive parts, landscaping products, containers, and packaging materials.

Consolidated Net Sales

255,514
Millions of Yen

Consolidated Operating profit(Millions of Yen)
17,50014,00010,500
7,000
3,500
0

’03

’04

’05

’06

’07

• Applications• Principal Products• Automobile• Powder and paste• Cast and forged parts for automobiles• Heat exchangers for automobiles• Transport• Van truck bodies and trailers• Electronics• Aluminum foil for electrolytic capacitors• Anodized foil for electrolytic capacitors• Clean rooms• Building materials andinfrastructure materials• Landscape engineering products• Solid truss structural materials(Aluminum truss)• Plant package for communicationbase stations• Food and lifestyle• Aluminum foil
• Panels for commercial refrigerators andfreezers■ Overview of results for fiscal 2006
An overview of key operations in this businesssegment follows.
In Aluminum Foil and Aluminum Powder andPaste Operations, sales of aluminum foil increased
year on year. Demand for high-purity aluminum foil
for electrolytic capacitors recovered while sales ofplain foil and processed foil for food products andpharmaceuticals packaging developed favorably.
Shipments of electronics materials such as IC tags
and antennas for smart cards also increased.
In the aluminum powder and paste sector, sales
decreased slightly year on year. Although shipmentsof some general-purpose aluminum paste products
increased, shipments of high-value-added products
for plastic coatings and automotive paint slumped.
Shipments of functional products fell as a result of
the impact of decreased production of ink for solar
cells because of users’ raw materials shortages.
Profits fell year on year as efforts to implement priceadjustments in light of an increase in the price ofaluminum ingot were unable to fully compensate forthe uptrend in costs.
In Transport-Related Operations, full-year sales
from the van and truck outfitting business fell slightly
year on year as the robust truck demand of the firsthalf reflecting the strengthening of exhaust
regulations slowed in the second half. Profitability
came under pressure owing to continuing increases
in prices of aluminum materials, stainless steel,wood, plastic parts, and other materials.
Sales of air-conditioning capacitors for automotive
applications rose year on year owing to higher shipments of existing products for subcompact cars, despite a delay in the start of shipments of new products.
Regarding shaped parts, efforts to increase sales,such as the introduction of brake calipers, engine
mount parts and other new products, compensatedfor a decrease in shipments of scrolls and otherwrought aluminum products, fueling a sharp year-onyear increase in sales.
In Electronic Materials Operations, shipments ofanodized aluminum foil for electrolytic capacitors rose
sharply due to higher demand for digital-applianceapplications and also increased demand for industrialequipment applications reflecting robust capital
investment. Although prices were affected by falling
prices of finished products in which electrode foil isused, increased sales of electrode foil for high-voltage
aluminum electrolytic capacitors, a high-value-added
product, brought about an improvement in
profitability.
Although sales from Panel Systems Operations
decreased year on year amid declining demand forcommercial freezers and refrigerators, profitability
improved as a result of focusing on the securing of
profitable orders. Shipments for clean rooms were
upbeat, supported by investment in the upgrading offacilities in the electronic components and devices
sector, and overall sales increased year on year.
With regard to other fabricated products andrelated businesses, overall sales of containers
operations increased year on year. Although
shipments of aluminum mini-kegs for beer fell
sharply as a result of lower demand for beer
mainly due to unseasonable summer weather andhigher shipments of alcoholic beverages that
resemble beer, sales of containers for washingbusiness-use beer servers and other beer-related
containers rose sharply.
With regard to landscaping products, NLM focusedon measures to curtail expenditures and strengthen
quality control, for example by bringing production
in-house of mainstay products such as aluminum
railings and aluminum movable covers for water
purification plants and aggressively working toincrease sales of differentiated products such asbrazed honeycomb panels. Nevertheless, sales
decreased year on year as these efforts failed tocompensate for the impact of a decrease in thenumber of major projects resulting from contractionof public works spending.
As a result of these developments, sales in the
Fabricated Products and Others segment increased
7.2% year on year to ¥255,514 million, while
operating profit fell 10.7% to ¥14,156 million.
13

REVIEW OF OPERATIONSBuilding Materials■ Profile
Shin Nikkei plays a central role in providing high-quality aluminum building materials, operating inaccordance with the basic concept of placing importance on the preferences of residents and users.
Products include everything frombuilding construction materials such as curtain walls, to window sashes,
front doors, and other housing materials as well as gates, fences, and other exterior products. Also, Shin
Nikkei is developing products adapted to wideranging user needs for energy conservation, environmental
coexistence, universal design, and security enhancement.

Consolidated Net Sales

173,048
Millions of Yen

Consolidated Operating profit(Millions of Yen)
8,000
6,000
4,000
2,000
0
-2,000

’03

’04

’05

’06

■ Overview of results for fiscal 2006
In Building Materials Operations, although new
housing starts and construction of private-sector
non-residential buildings increased year on year
against a backdrop of business expansion, overall
demand for sashes remained at the prior-yearlevel. Furthermore, amid intensifying sales
competition the business environment was adverse
as already high prices of aluminum ingot and otherraw materials rose further.
In these circumstances, the NLM Group strove toadjust selling prices in response to sharp increases inprices of raw materials related to construction of
housing and commercial buildings and implemented
various profit improvement measures such as moving
forward with productivity improvement, quality’07• Applications• Principal Products• Building• Building materials• Housing materials• Exterior products

Facing louver ”Sky-Fit”

Residential gate and fence

14

improvement, and the reconstruction of basic
infrastructure systems and profit management
activities covering development, production, andmarketing. At the same time, the Group introduced
new products and differentiated products in an effort
to secure profits and boost market competitiveness.
As a result of these measures, sales remained atnearly the previous-year level and profitability
improved, owing in part to the impact of priceadjustments despite continued downward pressure
on profits from high raw materials prices.
As a result of these developments, sales in the
Building Materials segment increased 1.3% year on
year to ¥173,048 million, and an operating profit of¥1,073 million was recorded following an operating
loss of ¥163 million for the previous term.

NLM GROUP
Nippon Light Metal Group consists of 115 subsidiaries and 51 affiliates,
The Group's major operations and the business relations between the Company, major consolidated subsidiaries andaffiliates accounted for by the equity method are shown in the diagram below.

Aluminum
Ingot andChemicals

Aluminum
Sheet andExtrusions(Manufacture and Sales)(Sales and Others)● Aluminium Wire and Rod Co., Ltd.

● Nikkei Sangyo Co., Ltd.

● Daiki Nikkei Thai Co., Ltd.

● Tamai Steamship Co., Ltd.

● Ihara Nikkei Chemical Industry Co., Ltd.

(Manufacture and Sales)(Sales and Others)● Nikkei Extrusions Co., Ltd.

● Nikkei Sangyo Co., Ltd.

● Nikkeikin Aluminium Core Technology Co., Ltd.
● Nikkei Siam Aluminium Ltd.
● Nonfemet International(China-Canada-Japan)
Aluminum Co., Ltd.

Nippon Light Metal Company, Ltd.
(Manufacture and Sales)(Manufacture and Sales)(Sales and Others)● NLM ECAL Co., Ltd.

● Nikkei Information System Co., Ltd.

● Tokai Aluminum Foil Co., Ltd.

● Nikkei Logistics Co., Ltd.

● Toyo Aluminium K.K.

● Sumikei Nikkei Engineering Co., Ltd.

● Toyal America Inc.

● Toho Earthtech Inc.

● Toyal Europe S.A.S.U.

FabricatedProducts
and Others● Toyo Aluminium Ekco Products Co., Ltd.
● Nikkei Sangyo Co., Ltd.
● Nikkei Panel System Co., Ltd.
● Nippon Electrode Co., Ltd.
● Nippon Fruehauf Co., Ltd.
● Matsuo Industry Co., Ltd.
● Sam-a Aluminium Co., Ltd.
● Nikkei Heat Exchanger Co., Ltd.

Building
Materials(Manufacture and Sales)(Sales and Others)● Shin Nikkei Co., Ltd.

● Shinnikkei Best System Co., Ltd.

● Riken Light Metal Industrial Co., Ltd.

● Nikkei Sangyo Co., Ltd.

● Cosmo Industry Co., Ltd.

Customer● Consolidated subsidiaries............106companies● Affiliates accounted for by the equity method. . .22companies

Flow of products and raw materials
Flow of services(As of March 31, 2007)15

CONSOLIDATED SIX-YEAR SUMMARY
Nippon Light Metal Company, Ltd. and its consolidated subsidiaries
Years ended March 31

Gross Profit and
Gross Profit Margin2002%

150,000

2003(Millions of yen)

25

Gross Profit
Gross Profit Margin
120,000

20

90,00015

60,00010

30,0005002002 2003 2004 2005 2006 2007

Millions of yen

Years ended March 31

Interest-bearing Debt
300,000

250,000

200,000

150,000

100,000

50,00002002 2003 2004 2005 2006 2007

Millions of yen

Years ended March 31

Free Cash Flows
35,000Financial Results
Net Sales..........................................................................................
Gross Profit Margin (%) .................................................................
Operating Profit...............................................................................
Ordinary Profit ................................................................................
Net Income .....................................................................................
Segment Information
Net Sales:
Aluminum Ingot and Chemicals ..................................................
Aluminum Sheet and Extrusions .................................................
Fabricated Products and Others .................................................
Building Materials ......................................................................
Total...........................................................................................
Operating Profit (Loss):
Aluminum Ingot and Chemicals ..................................................
Aluminum Sheet and Extrusions .................................................
Fabricated Products and Others .................................................
Building Materials ......................................................................
Elimination or corporate items...................................................
Total...........................................................................................

¥521,861
19.7
11,7234,805
1,518¥514,042
20.1
20,086
12,325
7,116

84,77554,239207,652
175,195
521,861

81,49558,374204,171
170,002514,042

5,589
(620)
9,524
328
(3,098)
11,723

4,946
1,027
11,0695,875(2,831)
20,086

Financial Position
Current Assets .................................................................................
Property, plant and equipment ........................................................
Intangible assets..............................................................................
Investments and other assets ...........................................................
Current liabilities.............................................................................
Long-term liabilities ........................................................................
Shareholders’ equity (Note 3) .........................................................
Valuation and translation adjustments (Note 3) ..............................
Minority interests in consolidated Subsidiaries (Note 3) .................
Interest-bearing Debt (Note 2)........................................................

305,813
196,681
3,941
57,852334,732
141,870
83,075239
4,371
295,255

287,083
184,506
4,414
49,758294,637
138,623
88,598748
3,155
258,831

Cash Flows
Cash Flows from Operating Activities ...............................................
Depreciation and Amortization ...................................................
Cash Flows from Investing Activities.................................................
Capital Expenditures...................................................................
Cash Flows from Financing Activities ...............................................

26,685
18,542(12,250)
14,947(9,416)33,507
17,128224
13,501(36,504)

2.79—
153.36
1.5¥ 13.34—167.01
2.0

Indices
Return on Capital Employed (ROCE)(%)...............................................
Return on Equity (ROE)(%)............................................................
Equity Ratio (%) .............................................................................

3.1
1.8
14.8

5.5
8.2
17.0

OthersNumber of Shares Outstanding (thousands)..............................................
R&D Expenditures...........................................................................
Number of Employees .....................................................................

543,350¥ 4,686
12,705543,350¥ 4,427
12,328Per Share Data (yen and dollars)
Net Income(loss) - basic.................................................................
- diluted ..............................................................
Net Assets (Note3)...........................................................................
Cash Dividends................................................................................

30,00025,00020,00015,00010,0005,000

02002 2003 2004 2005 2006 2007

Millions of yen

16Years ended March 31¥

Note1: U.S. dollar amounts have been translated, for convenience only, at the exchange rate of ¥118.05 =U.S.$1.00. See Note 2 of the Notes to the Consolidated Financial Statements.
Note2: Interest-bearing Debt = Long-term debt and Short-term borrowings, excluding capital lease obligations +Notes discounted + Notes endorsed
Note3: Effective the year ended March 31, 2007, the Company has adopted the new accounting standard“Accounting Standard for Presentation of Net Assets in the Balance Sheet”. See Note1 (b) of the Notes
to the Consolidated Financial Statements.

2004

2005

2006

2007

(Millions of yen)

Return on Capital Employed(ROCE)

2007(Thousands of
U.S. dollars)(Note1)10

8¥532,20121.1
26,35516,092
11,525¥560,284
21.0
30,56021,857
13,488¥577,061
20.1
28,92322,3539,684¥618,158
19.5
30,51925,24812,755$5,236,408
19.5
258,526
213,875
108,0476

4

2

82,85164,860215,461
169,029532,201

92,94872,824
219,802174,710560,284

97,07770,714
238,422
170,848
577,061

110,667
78,929255,514173,048
618,158

937,459
668,606
2,164,456
1,465,887
5,236,408

4,727
3,667
14,071
6,687(2,797)
26,3558,866
5,785
14,883
4,068(3,042)30,5609,640
6,435
15,848(163)(2,837)28,923

11,667
6,443
14,156
1,073(2,820)30,51998,831
54,578
119,915
9,089(23,888)258,526

290,625
182,562
3,935
43,463291,799
122,593
99,6182,840
3,735
231,807285,252
179,614
3,895
46,020266,212129,237
112,068
3,214
4,050
210,368

294,331
185,005
5,261
48,929281,505
122,033
119,7196,275
3,994
208,817340,897
184,070
5,969
48,527
287,436
149,916130,176
7,770
4,165
223,6072,887,734
1,559,254
50,563411,072
2,434,867
1,269,936
1,102,719
65,81935,282
1,894,172

23,44816,504(5,556)
17,516(27,703)

32,345
16,591(14,131)
16,973(22,702)

26,77917,315(19,724)
19,819(9,862)

21,397
17,481(19,514)
20,702
12,483

181,254
148,081(165,303)
175,366
105,743¥ 21.24—
188.842.5¥ 24.7823.83
212.633.5¥ 17.79
16.89
232.544.0¥ 23.5622.36
254.82
5.0

7.0
12.0
19.7

8.6
12.4
22.4

8.6
8.0
23.6

9.3
9.7
23.8

9.3
9.7
23.8

543,350¥ 4,804
12,598543,350¥ 5,538
12,927543,350¥ 5,133
13,492

543,350¥ 5,504
13,493543,350$ 46,624
13,493

$

0.20
0.19
2.16
0.04

0

2002 2003 2004 2005 2006 2007%

Years ended March 31

Return on Equity (ROE)
15

12

9

6

3

0

2002 2003 2004 2005 2006 2007%

Years ended March 31

R&D Expenditures
6,000

5,000

4,000

3,000

2,000

1,000

0

2002 2003 2004 2005 2006 2007

Millions of yen

Years ended March 31

17

FINANCIAL REVIEWOverview
During fiscal 2006 (the year ended March 31, 2007),
despite weakness in personal consumption, the Japanese
economy maintained moderate yet persisting growthunderpinned by rising capital investment reflecting a highlevel of corporate earnings.
In the aluminum industry in Japan, although prices ofraw materials and fuel, notably those of aluminum ingot andcrude oil, remained high, the business was relatively buoyant
due to robust capital investment and vigorous demand fromthe automotive and electric and electronics sectors.

associates was reported for the previous year, no such item
is reported for the year under review, and also owing to adecrease in the loss on write-down of investment securities
included in other non-operating expenses. As a result,ordinary profit increased 13.0% year on year to ¥25.2
billion ($214 million).
Special gains were virtually unchanged from the previous
fiscal year at ¥357 million ($3 million). Special losses
decreased from ¥3.0 billion for the previous fiscal year to¥1.4 billion ($12 million). This was attributable to adecrease in an impairment loss and the fact that no charges
on sale of aluminum foil were reported for the year underreview, whereas such charges were reported for theprevious year.
The total amount of current income taxes increased ¥2.9
billion from the previous fiscal year to ¥11.5 billion ($97
million), owing mainly to the fact that the Company’s deficit
carried forward concerning local taxes had been eliminatedin the previous fiscal year.
Deferred income taxes for the fiscal year under review
amounted to ¥0.5 billion ($4 million), which were credited
to income mainly attributable to an increase in deductible
temporary differences, whereas deferred income taxes forthe previous fiscal year were ¥0.9 billion, which werecharged to income mainly attributable to reversal ofdeferred tax assets because the deficit carried forward
concerning local taxes was appropriated.
Consequently, consolidated net income soared 31.7%
from the previous fiscal year to ¥12.8 billion ($108

Earnings and Expenses
In these circumstances, consolidated net sales of the NLMGroup increased 7.1% year on year to ¥618.2 billion($5,236 million). Please refer to the Review of Operations(Pages 11 to 14) for an overview of the results ofoperations.
The cost of sales increased 8.0% from the previous fiscal
year to ¥497.8 billion ($4,217 million) and the cost of sales
ratio increased 0.6 percentage points to 80.5%. Selling,
general and administrative expenses amounted to ¥89.8
billion ($761 million), an increase of 3.1%. As a result,operating profit rose 5.5% to ¥30.5 billion ($259 million).
Non-operating income surged 20.7% to ¥3.8 billion($32 million). This was mainly due to an increase in equity
in earnings of affiliates. Non-operating expenses decreased
6.6% to ¥9.1 billion ($77 million). This decrease wasmainly attributable to the fact that whereas equity in losses of

Net Sales By Segment
700

Total Net Assets

Equity Ratio

150

25

120

20

90

15

60

10

30

5

600
500
400
300
200
100
0

2003

Billions of yen

2004

2005

2006

Years ended March 31

Aluminum Ingot and Chemicals
Aluminum Sheet and Extrusions
Fabricated Products and Others
Building Materials

18

2007

0

2003

Billions of yen

2004

2005

2006

0

2007

As of March 31

%

2003

2004

2005

2006

2007

As of March 31

million). The average number of shares outstanding during
the fiscal year decreased from 541,742,151 shares in fiscal
2005 to 541,475,859 shares in fiscal 2006. As a result, basic
net income per share of common stock was ¥23.56 ($0.20),
32.4% higher than for the previous fiscal year. Diluted net
income per share was ¥22.36. Payment of cash dividends of¥5.0 per share of common stock, ¥1.0 higher than for theprevious fiscal year, was approved by the resolution of theordinary general meeting of shareholders of the Company
held on June 28, 2007.
Assets, Liabilities and Shareholders’ Equity
Total assets increased 8.6% from the end of the previous
fiscal year to ¥579.5 billion ($4,909 million). This increase
was attributable to an increase in cash and deposits, a sharp
rise in ingot prices, and an increase in outstanding notes
and accounts receivable-trade because the fiscal year-end
fell on a holiday.
Total liabilities increased 8.4% from the end of theprevious fiscal year to ¥437.4 billion ($3,705 million),
mainly owing to increases in borrowings and debt, a sharp
rise in ingot prices, and an increase in outstanding notes
and accounts payable-trade because the fiscal year-end fell
on a holiday.
Interest-bearing debt increased ¥14.8 billion from theprevious fiscal year to ¥223.6 billion, attributable to theissuance in July 2006 of zero-coupon convertible bonds
amounting to ¥20.0 billion.
Total net assets increased 9.3% year on year to ¥142.1
billion ($1,204 million), reflecting an increase in retained
earnings as a result of the higher net income. Net Assets per
share of common stock was ¥254.82 ($2.16), an increaseof 9.6%. The equity ratio was 23.8%, an increase of 0.2
percentage points.
Cash Flows
Cash and cash equivalents at March 31, 2007, were ¥42.1
billion ($357 million), ¥14.4 billion or 52.1% higher thanat the end of the previous fiscal year.
Net cash provided by operating activities amounted to¥21.4 billion ($181 million), ¥5.4 billion or 20.1% lower.
This decrease was attributable to increases in notes andaccounts receivable-trade, income taxes paid and otherpayments.
Net cash used for investing activities amounted to ¥19.5
billion ($165 million), virtually unchanged from theprevious fiscal year. The main item was payments forpurchase of fixed assets amounting to ¥18.4 billion.

Net cash provided by financing activities was ¥12.5
billion ($106 million), compared with net cash used forfinancing activities amounting to ¥9.9 billion for theprevious fiscal year. This was mainly attributable to theissuance of zero-coupon convertible bonds amounting to¥20.0 billion.
Outlook for Fiscal 2007
The Japanese economy is expected to maintain moderate
growth due to rising capital investment and firm personal
consumption underpinned by brisk corporate earnings andan upturn in the labor market. However, the trend of crude
oil and materials prices and the outlook of the U.S. economy
and the economy of China are a source of concern. Althoughdemand is expected to be robust in fiscal 2007, there is anurgent need for the aluminum industry in Japan to deal withsharp increases in prices of aluminum ingot, the principle
raw material, prices of other raw materials and fuel, as wellas prices of other materials. In these circumstances, inaccordance with the New Mid-Term Management Plancovering the period from fiscal 2007 to 2009, the NLMGroup will make vigorous capital investment to achieve
further growth. We will endeavor to expand our business ingrowth sectors, strengthen the core business, and developinternational business. For details of the New Mid-Term
Management Plan, please refer to the Special Feature (Pages
4 to 6).
For fiscal 2006, management forecasts consolidated net
sales of ¥680 billion in view of the establishment of Nikkei
MC Aluminum Co., Ltd. Profits are expected to decrease due
to a special factor, that is, an increase in depreciation in linewith the taxation reform in fiscal 2007, in addition toadverse impacts of an increase in the prices of ingot
inventories and a decrease in the demand for trucks.
Management forecasts operating profit of ¥29.0 billion,
ordinary profit of ¥22.0 billion, and net income of ¥12.5
billion on a consolidated basis. Net income per share ofcommon stock is expected to be ¥23.09. Cash dividends are
expected to be ¥5.0 per share of common stock, unchanged
from fiscal 2006.

19

CONSOLIDATED BALANCE SHEETS
Nippon Light Metal Company, Ltd. and consolidated subsidiaries

March 31,
2006

2007
(Millions of yen)

2007
(Thousands of
U.S. dollars)(Note 2)ASSETS
Current assets:
Cash and deposits (Notes 3 and 6) .............................................................. ¥ 28,122
Notes and accounts receivable—trade ........................................................ 172,100
Inventories (Note 4) ...................................................................................
76,020
Deferred tax assets (Note 8) .......................................................................
5,057
Other current assets ....................................................................................
15,315
Allowance for doubtful accounts .................................................................
(2,283)
Total current assets ........................................................................................... 294,331¥ 42,433
194,207
86,235
5,405
15,532(2,915)
340,897$ 359,449
1,645,125
730,496
45,786
131,571(24,693)2,887,734

Property, plant and equipment (Note 6):
Land ............................................................................................................
64,890
Buildings and structures ............................................................................. 142,457
Machinery and equipment ........................................................................... 294,964
Construction-in-progress ............................................................................
3,829
Accumulated depreciation ........................................................................... (321,135)
185,005

64,195
144,475
293,560
4,007(322,167)
184,070

543,795
1,223,846
2,486,743
33,943(2,729,073)
1,559,254

948
4,313
5,261

872
5,097
5,969

7,387
43,17650,56335,346
6,156
10,047(2,620)48,92935,3605,881
9,416(2,130)48,527

299,534
49,81879,763(18,043)
411,072

Total assets ....................................................................................................... ¥533,526¥579,463$4,908,623

Intangible assets:
Goodwill .....................................................................................................
Other intangible assets ................................................................................

Investments and other assets:
Investment securities (Notes 5 and 6) .........................................................
Deferred tax assets (Note 8) .......................................................................
Other assets ................................................................................................
Allowance for doubtful accounts .................................................................

The accompanying notes are an integral part of these financial statements.

20

March 31,
2006

2007
(Millions of yen)

LIABILITIES AND NET ASSETS
Current liabilities:
Short-term borrowings (Note 6) ................................................................. ¥ 82,512
Current portion of long-term debt (Note 6) ................................................
41,140Notes and accounts payable—trade ............................................................ 112,362
Income taxes payable ..................................................................................
5,596
Other current liabilities ...............................................................................
39,895
Total current liabilities ...................................................................................... 281,505
Long-term liabilities:
Long-term debt (Note 6) .............................................................................
84,166
Accrued pension and severance costs:
Employees (Note 7) ..............................................................................
27,829Directors and statutory auditors ............................................................
1,186
Deferred tax liabilities on land revaluation surplus(Notes 8 and 10) ...................................................................................
522
Other long-term liabilities (Notes 6 and 8) .................................................
8,330
Total long-term liabilities .................................................................................. 122,033
Total liabilities .................................................................................................. 403,538
Net assets (Note 1(b)):
Shareholders’ equity:
Common stock:
Authorized: 1,600,000,000 shares
Issued: 543,350,370 shares in 2006 and 2007 ...................................
39,085Additional paid-in capital ......................................................................
24,569Retained earnings ..................................................................................
56,385
Treasury stock, at cost
(1,723,444 shares in 2006 and 2,006,054 shares in 2007) ..................
(320)
Total shareholders’ equity ............................................................................ 119,719
Valuation and translation adjustments:
Net unrealized gains on securities (Note 5) ...........................................
5,629
Net unrealized gains on hedges (Note 1(n)) .........................................
—
Revaluation surplus (Note 10) ..............................................................
145
Foreign currency translation adjustments ..............................................
501
Total valuation and translation adjustments .................................................
6,275
Minority interests in consolidated subsidiaries ............................................
3,994
Total net assets .................................................................................................. 129,988
Contingent liabilities (Note 14)
Total liabilities and net assets ............................................................................ ¥533,526

2007(Thousands of
U.S. dollars)(Note 2)

¥ 81,588
28,531
129,608
7,005
40,704287,436$ 691,131
241,686
1,097,908
59,339344,8032,434,867

112,765

955,231

27,857
1,124

235,976
9,521

522
7,648
149,916
437,352

4,422
64,786
1,269,936
3,704,803

39,08524,56966,928331,088
208,124
566,946(406)
130,176(3,439)1,102,719

5,449
619
145
1,557
7,770
4,165
142,111

46,1585,244
1,228
13,18965,81935,282
1,203,820¥579,463$4,908,623

21

CONSOLIDATED STATEMENTS OF INCOME
Nippon Light Metal Company, Ltd. and consolidated subsidiaries

Year ended March 31,
2006

2007

2007

(Millions of yen)

Net sales ........................................................................................................... ¥577,061
Cost of sales (Note 13) ..................................................................................... 460,983
Gross profit ........................................................................................... 116,078
Selling, general and administrative expenses (Notes 13 and 15) .......................
87,155
Operating profit .....................................................................................
28,923Non-operating income:Interest income ...........................................................................................
87
Equity in earnings of affiliates ......................................................................
—
Rental income .............................................................................................
792
Royalty income ............................................................................................
395
Other ..........................................................................................................
1,896
Total non-operating income ..................................................................
3,170
Non-operating expenses:
Interest expense ..........................................................................................
3,554
Equity in losses of affiliates ..........................................................................
241
Amortization of transition obligation for employees’ retirement benefits (Note 7) ...
2,132
Other ..........................................................................................................
3,813
Total non-operating expenses ................................................................
9,740
Ordinary profit ......................................................................................
22,353Special gains:
Gain on sales of fixed assets .........................................................................
298
Total special gains .................................................................................
298
Special losses:
Land restoration expense ............................................................................
—
Loss on impairment of fixed assets...............................................................
1,964
Loss on disposal of fixed assets ...................................................................
—
Charges on sale of aluminum foil (Note 17) ................................................
1,069
Total special losses ................................................................................
3,033
Income before income taxes and minority interests ...............................
19,618
Income taxes (Note 8):
Current .......................................................................................................
8,589
Deferred .....................................................................................................
939
9,528
Minority interests in net income of consolidated subsidiaries ...........................
406
Net income ............................................................................................ ¥ 9,684¥618,158
497,813120,345
89,82630,519$5,236,408
4,216,967
1,019,441
760,915
258,526

153
476
719
322
2,157
3,827

1,296
4,032
6,090
2,728
18,27232,418

3,677
—
2,137
3,284
9,098
25,24831,148—
18,102
27,81977,069213,875

357
357

3,024
3,024

547
502
391
—
1,440
24,165

4,634
4,252
3,312
—
12,198204,701

11,476(466)
11,010400¥ 12,755

97,213(3,947)
93,2663,388$ 108,047

Per share of common stock (Note 16):
(Yen)
Net income:Basic ..................................................................................................... ¥ 17.79 ¥Diluted ..................................................................................................
16.89
Cash dividends ............................................................................................
4.00
The accompanying notes are an integral part of these financial statements.

22(Thousands of
U.S. dollars)(Note 2)

(U.S. dollars)(Note 2)

23.56
22.36
5.00

$

0.20
0.19
0.04

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Nippon Light Metal Company, Ltd. and consolidated subsidiaries

Shareholders’ equity
Commonstock

Balance at March 31, 2005 .....................
Net income .......................................
Cash dividends (Note 9) ..................
Directors’ and statutory
auditors’ bonuses (Note 15) ...........
Net increase in treasury stock ..........
Net unrealized gains on
securities (Note 5) ..........................
Foreign currency translation
adjustments ...................................
Net decrease in minority interests
in consolidated subsidiaries ............
Balance at March 31, 2006 .....................
Net income .......................................
Cash dividends (Note 9) ..................
Directors’ and statutory
auditors’ bonuses (Note 15) ...........
Net increase in treasury stock ..........
Net unrealized losses on
securities (Note 5) ...........................
Net unrealized gains onhedges (Note 1(n)) .........................
Foreign currency translation
adjustments ...................................
Net increase in minority interests
in consolidated subsidiaries ...........
Balance at March 31, 2007 .....................

Additional
paid-in
capitalRetainedearnings¥39,085 ¥24,569 ¥48,651
9,684(1,897)¥(237) ¥3,017

¥ —

¥145

¥ 52

(53)
(83)

(83)
2,612

39,08524,56956,38512,755(2,167)

(320)

2,612

5,629

—

145

449

449

501

(56)
(56)
3,994 129,988
12,755(2,167)

(45)

(45)
(86)

(86)
(180)

(180)
619

¥39,085 ¥24,569 ¥66,928

Commonstock

Additional
paid-in
capitalRetainedearnings¥(406)¥5,449

¥619

619

¥145

1,056

1,056

¥1,557171
171¥4,165 ¥142,111

Valuation and translation adjustments
Net
Net
Foreign
Minority
Treasury
unrealized unrealized Revaluation currency interests instock,
gains ongains onsurplustranslation consolidated
at costsecurities
hedges(Note 10) adjustments subsidiaries(Thousands of U.S. dollars) (Note 2)$331,088 $208,124 $477,637 $(2,711) $47,683
108,047(18,357)$—

Total net
assets$1,228 $ 4,244 $33,833 $1,101,126
108,047(18,357)

(381)

(381)
(728)

(728)
(1,525)(1,525)
5,244

5,244
8,945

$331,088 $208,124 $566,946

Total net
assets¥4,050 ¥119,332
9,684(1,897)(53)

Shareholders’ equity

Balance at March 31, 2006 .....................
Net income .......................................
Cash dividends (Note 9) ..................
Directors’ and statutory
auditors’ bonuses (Note 15) ...........
Net increase in treasury stock ..........
Net unrealized losses on
securities (Note 5) ...........................
Net unrealized gains onhedges (Note 1(n)) .........................
Foreign currency translation
adjustments ...................................
Net increase in minority interests
in consolidated subsidiaries ...........
Balance at March 31, 2007 .....................

Treasurystock,
at costValuation and translation adjustments
Net
Net
Foreign
Minority
unrealized unrealized Revaluation currency interests ingains ongains onsurplustranslation consolidated
securities
hedges(Note 10) adjustments subsidiaries(Millions of yen)$(3,439) $46,158$5,244

8,945

1,449
1,449
$1,228 $13,189 $35,282 $1,203,820

The accompanying notes are an integral part of these financial statements.

23

CONSOLIDATED STATEMENTS OF CASH FLOWS
Nippon Light Metal Company, Ltd. and consolidated subsidiaries

Year ended March 31,
2006

2007
(Millions of yen)

Cash flows from operating activities
Income before income taxes and minority interests ..........................................
Depreciation and amortization ....................................................................
Land restoration expense ............................................................................
Loss on impairment of fixed assets ..............................................................
Loss on disposal of fixed assets ...................................................................
Charges on sale of aluminum foil (Note 17).................................................
Gain on sales of fixed assets ........................................................................
Increase (decrease) in accrued pension and severance costs .....................
Interest and dividend income ......................................................................
Interest expense ..........................................................................................
Equity in losses (earnings) of affiliates ........................................................
Decrease (increase) in notes and accounts receivable—trade ...................
Increase in inventories ................................................................................
Increase in notes and accounts payable—trade ..........................................
Other ..........................................................................................................
Subtotal ...........................................................................................
Interest and dividend income received ........................................................
Interest paid ................................................................................................
Payment of charges on sale of aluminum foil (Note 17) ..............................
Income taxes paid .......................................................................................
Net cash provided by operating activities ...........................................................
Cash flows from investing activities
Net decrease in time deposits ......................................................................
Payments for purchases of investment securities .........................................
Proceeds from sales of investment securities ...............................................
Payments for purchases of fixed assets ........................................................
Proceeds from sales of fixed assets .............................................................
Net decrease in long-term loans receivable .................................................
Cash received from acquisitions, net of acquisition costs (Note 3) ..............
Decrease resulting from exclusion of a consolidated subsidiary fromconsolidation as a result of its sale ........................................................
Other ..........................................................................................................
Net cash used in investing activities ...................................................................
Cash flows from financing activities
Increase (decrease) in short-term borrowings ...........................................
Proceeds from long-term debt ....................................................................
Repayment of long-term debt ......................................................................
Cash dividends paid ....................................................................................
Cash dividends paid to minority interests ....................................................
Other ..........................................................................................................
Net cash (used in) provided by financing activities ...........................................
Effect of exchange rate changes on cash and cash equivalents ..........................
Net (decrease) increase in cash and cash equivalents .......................................
Cash and cash equivalents at beginning of year .................................................
Cash and cash equivalents at end of year (Note 3) ............................................

The accompanying notes are an integral part of these financial statements.

24

2007
(Thousands of
U.S. dollars)(Note 2)

¥19,618
17,315
—
1,964
—
1,069
(298)
1,197
(318)
3,554
241
2,965
(6,967)580(2,398)38,522437(3,629)—(8,551)
26,779¥24,165
17,481
547
502
391
—
(357)
(33)
(514)
3,677
(476)
(22,217)(9,703)18,456
3,879
35,798614(3,679)(1,061)(10,275)
21,397$204,701
148,081
4,634
4,252
3,312
—
(3,024)(280)(4,354)
31,148(4,032)(188,200)(82,194)
156,341
32,859303,2445,201(31,165)(8,987)(87,039)
181,254

137
(274)
176
(18,252)
306
44
876

118
(83)
153
(18,407)
628
45
—

1,000
(703)
1,296
(155,926)
5,320
381
—

(367)
(2,370)(19,724)—(1,968)(19,514)—(16,671)(165,303)

198
24,463(32,027)(1,893)(342)(261)(9,862)170(2,637)30,333¥27,696(1,013)57,367(41,392)(2,157)(223)(99)
12,48363
14,42927,696¥42,125(8,581)
485,955(350,631)(18,272)(1,889)(839)
105,743534
122,228
234,612$356,840

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nippon Light Metal Company, Ltd. and consolidated subsidiaries

1. SIGNIFICANT ACCOUNTING POLICIES(a) Basis of presentation
The accompanying consolidated financial statements of Nippon Light Metal Company, Ltd. (the “Company”) and its consolidated subsidiaries areprepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application anddisclosure requirements of International Financial Reporting Standards, and are compiled from the consolidated financial statements prepared by
the Company as required by the Securities and Exchange Law of Japan. The notes to the consolidated financial statements include financial
information which is not required under accounting principles generally accepted in Japan, but is presented herein as additional information. The
accompanying consolidated financial statements include certain reclassifications for the purpose of presenting them in a form familiar to readers
outside Japan.
(b) Accounting Standard for Presentation of Net Assets in the Balance SheetOn December 9, 2005, the Accounting Standards Board of Japan (“ASBJ”) issued ASBJ Statement No. 5, “Accounting Standard for Presentation of
Net Assets in the Balance Sheet,” and ASBJ Guidance No. 8, “Guidance on Accounting Standard for Presentation of Net Assets in the Balance
Sheet.” Effective the year ended March 31, 2007, the Company has adopted this new accounting standard and guidance. In addition, effective theyear ended March 31, 2007, the Company is required to prepare consolidated statements of changes in net assets instead of consolidated statementsof shareholders’ equity. In this connection, the previously reported consolidated balance sheet as of March 31, 2006 and consolidated statement ofshareholders’ equity for the year then ended have been restated to conform to the presentation and disclosure of the consolidated financial
statements for the year ended March 31, 2007.
(c) Principles of consolidation and accounting for investments in affiliates
The consolidated financial statements include the accounts of the Company and, with minor exceptions, companies substantially controlled by theCompany. All significant intercompany transactions and accounts are eliminated.
Investments in equity securities issued by unconsolidated subsidiaries and affiliates are accounted for by the equity method, except thatinvestments in certain unconsolidated subsidiaries and affiliates are stated at cost because the effect of application of the equity method would be
immaterial.
The difference between the cost and the underlying net assets of investments in consolidated subsidiaries or affiliates accounted for by theequity method has been allocated to identifiable assets based on fair value at the respective dates of acquisition. Any unassigned residual amount isrecognized as goodwill and amortized by the straight-line method over an estimated useful life, with the exception of minor amounts which arecharged to income in the year of acquisition.
On October 31, 2003, the Business Accounting Council issued “Accounting Standard for Business Combinations” and on December 27, 2005,
the ASBJ issued ASBJ Statement No. 7, “Accounting Standard for Business Divestitures,” and ASBJ Guidance No. 10, “Guidance on AccountingStandard for Business Combinations and Accounting Standard for Business Divestitures.” Effective the year ended March 31, 2007, the Company
and its consolidated subsidiaries have adopted these new accounting standards.
(d) Translation of foreign currencies
All monetary assets and liabilities denominated in foreign currencies, whether long-term or short-term, are translated into Japanese yen at theexchange rates prevailing at the balance sheet date. Resulting gains and losses are included in net income for the year.
Assets and liabilities of foreign subsidiaries and affiliates are translated into Japanese yen at the exchange rates prevailing at the balance sheet
date. Income statement accounts for the year are translated into Japanese yen using the average exchange rates during the year. The resulting
translation adjustments are accounted for as foreign currency translation adjustments, except for the minority interest portion, which is allocatedto minority interests in consolidated subsidiaries.
(e) Cash and cash equivalents
Cash and cash equivalents in the consolidated statements of cash flows comprise of cash in hand, bank deposits available for withdrawal on
demand and short-term investments with an original maturity of three months or less and which are exposed to a minor risk of fluctuation invalue.
(f) Inventories
Inventories are principally stated at cost, determined by the moving average method, except for the specific identification method for costs related
to construction-type contracts.
(g) Investment securities
Securities other than equity securities issued by subsidiaries and affiliates are classified into held-to-maturity securities or available-for-salesecurities.
Held-to-maturity securities are stated at amortized cost. Available-for-sale securities for which market quotations are available are stated at fairvalue with net unrealized gains or losses being included in net assets, net of the related taxes. Available-for-sale securities for which market
quotations are not available are stated at cost. Realized gains and losses on sales are determined using the average cost method and are included in
net income for the year.
In cases where the fair value of held-to-maturity securities or available-for-sale securities has declined significantly and such impairment isother than temporary, such securities are written down to fair value and the resulting losses are charged to income for the year.
25

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(h) Allowance for doubtful accounts
Allowance for doubtful accounts is estimated by applying the average percentage of actual bad debts in the past to the balance of receivables. In
addition, an amount deemed necessary to cover non-collectible receivables is provided on an individual account basis.
(i) Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost. Depreciation is computed principally using the straight-line method at rates based on theestimated useful lives of the respective assets, ranging from 2 years to 60 years for buildings and structures, and from 2 years to 22 years formachinery and equipment.
(j) Intangible assets
Intangible assets are amortized by the straight-line method over their respective estimated useful lives. Expenditure relating to computer softwaredeveloped for internal use is charged to income as incurred, except in cases where it contributes to the generation of income or future cost savings.
In these cases, it is capitalized and amortized using the straight-line method over its estimated useful life, which is no longer than 5 years.
(k) Accrued pension and severance costs
Accrued pension and severance costs for employees represent the projected benefit obligations in excess of the fair value of the plan assets, except
for unrecognized transition obligation and unrecognized actuarial gain or loss. Unrecognized transition obligation is amortized by the straightline method over 12 years and unrecognized actuarial gain or loss is amortized by the declining-balance method over 12 years from the year
following that in which they arise, except for unrecognized costs with respect to employees who retired under the early retirement program whichwere fully amortized at the time of the employees’ retirement.
Accrued pension and severance costs for directors and statutory auditors represent the estimated amount to be paid if all directors and statutory
auditors of certain consolidated subsidiaries retired at the balance sheet date, based on the consolidated subsidiaries’ internal retirement rules.
The Company’s retirement benefit plan for directors and statutory auditors was abolished effective the date of the ordinary general meeting ofshareholders held on June 29, 2005. The amount of accrued retirement benefits to directors and statutory auditors calculated based on the
Company’s internal rules for their services up to that date is included in other long-term liabilities in the accompanying consolidated balance
sheets.
(l) Lease transactions
Under Japanese accounting practices, finance leases without options to transfer ownership of the leased assets to the lessee may be accounted for as
operating leases subject to appropriate footnote disclosure. Therefore, the Company and its consolidated subsidiaries charge or credit periodic lease
payments and receipts related to finance leases to income as incurred.
(m) Income taxes
The income taxes of the Company and its domestic subsidiaries consist of corporate income taxes, local inhabitants’ taxes and enterprise taxes.
The Company and its wholly-owned domestic subsidiaries use the Japanese consolidated taxation system.
The Company and its consolidated subsidiaries apply the deferred tax accounting method. Deferred tax assets and liabilities are determinedusing the asset and liability approach, and recognized for temporary differences between the tax bases of assets and liabilities and those as reported
in the consolidated financial statements.
(n) Derivatives
All derivatives are stated at fair value with changes in fair value being included in net income of the year in which they arise, except for derivatives
designated as hedging instruments.
The Company and its consolidated subsidiaries use derivatives to reduce their exposure to fluctuation in foreign exchange rates, interest rates,
and the prices of aluminum ingot in the market. Derivatives designated as hedging instruments are principally forward foreign exchange
contracts, interest rate swap contracts and aluminum ingot forward contracts. The underlying hedged items are trade accounts receivable andpayable, long-term bank loans and sales or purchases of aluminum ingot.
Gains or losses arising from changes in fair value of derivatives designated as hedging instruments are deferred and included in net income inthe same period in which the gains and losses on the underlying hedged items or transactions are recognized. The Company and its consolidated
subsidiaries use interest rate swaps to hedge their interest rate risk exposure. The related interest differentials paid or received under the interest rate
swap agreements are recognized in interest expense over the term of the agreements.
Effective the year ended March 31, 2007, the Company and its consolidated subsidiaries have adopted ASBJ Statement No. 5 and ASBJ Guidance
No. 8 (see Note 1.(b), “Accounting Standard for Presentation of Net Assets in the Balance Sheet”). Prior to April 1, 2006, gains or losses arisingfrom changes in fair value of derivatives designated as hedging instruments were deferred as an asset or a liability until they were recognized inincome. Under the new accounting standard, such gains or losses are recorded as net unrealized gains on hedges in net assets, net of the related
taxes.
The Company and its consolidated subsidiaries evaluate the effectiveness of their hedging activities by reference to the accumulated gains orlosses on the hedging instruments and the underlying hedged items from the commencement of the hedges.
(o) Research and development costs
Research and development costs are charged to income as incurred.
26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(p) Appropriation of retained earnings
Appropriation of retained earnings is reflected in the consolidated financial statements for the year in which the appropriation is approved at an
ordinary general meeting of shareholders.
The Company’s retained earnings consist of unappropriated retained earnings and a legal reserve as required by the Corporation Law of Japan.
The Corporation Law of Japan provides that an amount equal to 10% of distributions from unappropriated retained earnings paid by the Company
and its Japanese subsidiaries be appropriated to the legal reserve. Such appropriations are no longer required when the total amount of additional
paid-in capital and the legal reserve equals 25% of their respective stated capital.
Under the Corporation Law of Japan, the Company is permitted to transfer to unappropriated retained earnings the portion of statutory reserve(additional paid-in capital and the legal reserve) in excess of 25% of common stock upon approval at a shareholders’ meeting. Any suchtransferred portion is available for dividend distribution.
(q) Net income per share
Basic net income per share of common stock, presented in the accompanying consolidated statements of income, is computed based on theweighted average number of shares outstanding during each year.
Diluted net income per share reflects the potential dilution that could occur if securities were converted into common stock. Diluted net
income per share of common stock assumes full conversion of the outstanding convertible bonds at the time of issuance with an applicableadjustment for the related interest expense on a net of tax basis.
(r) Reclassifications
Certain reclassifications of previously reported amounts have been made to conform them to the current year’s classifications.
2. U.S. DOLLAR AMOUNTS
The rate of ¥118.05 = U.S.$1, the approximate exchange rate prevailing on March 31, 2007, has been used for the purpose of presenting the U.S.
dollar amounts in the accompanying consolidated financial statements. These amounts are included solely for the convenience of the reader.
Accordingly, they should not be construed as representations that yen amounts actually represent, or have been or could be readily converted,
realized or settled in U.S. dollars at that rate.
3. CASH AND CASH EQUIVALENTS
A reconciliation of cash and cash equivalents in the consolidated statements of cash flows to cash and deposits disclosed in the consolidated balance
sheets at March 31, 2006 and 2007 is summarized as follows:
2006

2007
(Millions of yen)

Cash and deposits...............................................................................................................................
Time deposits with maturities in excess of 3 months .......................................................................
Cash and cash equivalents.................................................................................................................

¥28,122(426)¥27,696

2007(Thousands of
U.S. dollars)¥42,433(308)¥42,125$359,449(2,609)$356,840

During the year ended March 31, 2006, the Company additionally acquired shares of common stock of Tokai Aluminum Foil Co., Ltd. and newly
consolidated it and its subsidiaries. At the time of acquisition, assets and liabilities and net cash and cash equivalents acquired, less cash payments
for acquisition were as follows:
2006(Millions of yen)

Assets and liabilities of Tokai Aluminum Foil Group at the time of acquisition (May 1, 2005):
Current assets................................................................................................................................................................
Fixed assets ...................................................................................................................................................................
Goodwill........................................................................................................................................................................
Current liabilities..........................................................................................................................................................
Long-term liabilities.....................................................................................................................................................
Minority interests in consolidated subsidiaries............................................................................................................
Subtotal..........................................................................................................................................................
Carrying amount of the investment in Tokai Aluminum Foil Group accounted forby the equity method prior to acquisition (negative amount) ................................................................................
Acquisition cost ..............................................................................................................................................
Cash and cash equivalents held by Tokai Aluminum Foil Group..............................................................................
Net cash and cash equivalents acquired, less cash payments for acquisition............................................................

¥8,3694,579
1,280(6,125)(7,057)
(4)
1,042
258
¥1,300¥2,176¥ 876
27

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4. INVENTORIESInventories at March 31, 2006 and 2007 comprised the following:
2006

2007

2007

(Millions of yen)Finished products...............................................................................................................................
Work-in-process, including costs related to construction-type contracts.........................................
Raw materials and supplies...............................................................................................................

¥27,359
33,703
14,958¥76,020(Thousands of
U.S. dollars)¥32,348
37,85016,037¥86,235$274,020
320,627
135,849$730,496

5. INVESTMENT SECURITIES(a) Available-for-sale securities with available market quotations
The aggregate cost, carrying amount and gross unrealized gains and losses of available-for-sale securities comprising equity securities withavailable market quotations at March 31, 2006 and 2007 were as follows:
2006

2007

2007

(Millions of yen)

Cost .....................................................................................................................................................
Unrealized gains ................................................................................................................................
Unrealized losses ................................................................................................................................
Carrying amount ...............................................................................................................................

¥ 3,9249,381(18)¥13,287(Thousands of
U.S. dollars)¥ 3,9329,013(34)¥12,911$ 33,308
76,349(288)$109,369(b) Sales of available-for-sale securities
The realized gains and losses on sales of available-for-sale securities for the years ended March 31, 2006 and 2007 were as follows:
2006

2007

2007

(Millions of yen)

Sales proceeds.....................................................................................................................................
Realized gains on sales ......................................................................................................................
Realized losses on sales......................................................................................................................

¥176
79
6

(Thousands of
U.S. dollars)

¥153
41
—

$1,296347—(c) Held-to-maturity securities and available-for-sale securities without available market quotations
The carrying amounts of held-to-maturity securities and available-for-sale securities without available market quotations at March 31, 2006 and2007 were as follows:
2006

2007

2007

(Millions of yen)Held-to-maturity securities:
Privately offered domestic debt securities...................................................................................
Available-for-sale securities:
Equity investments in non-public companies ...........................................................................
Other ...........................................................................................................................................

¥

105

¥

11,21781¥11,403(Thousands of
U.S. dollars)

93

$

788

11,26884¥11,445

95,451
712$96,951

Due after five years but
within ten years

Due after
ten years(d) Maturities of debt securities
Maturities of debt securities at March 31, 2006 and 2007 were as follows:2006
Due within
one year

Due after one year but
within five years(Millions of yen)

Debt securities:
Government and municipal bonds ......................................................................
Corporate debt securities.......................................................................................
Other......................................................................................................................
28

¥12
10
—
¥22

¥48
—
25
¥73

¥25
—
—
¥25

¥10
—
—
¥10

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Due within
one year2007
Due after one year but Due after five years but
within five years
within ten years

Due after
ten years(Millions of yen)

Debt securities:
Government and municipal bonds ......................................................................
Corporate debt securities.......................................................................................
Other......................................................................................................................

¥ 7
—
—
¥ 7

¥54
10
25
¥89

¥14
—
—
¥14

¥ 8
—
—
¥ 8

2007
Due within
one year

Due after one year but
within five years

Due after five years but
within ten years

Due after
ten years(Thousands of U.S. dollars)

Debt securities:
Government and municipal bonds ......................................................................
Corporate debt securities.......................................................................................
Other......................................................................................................................

$59
—
—
$59

$457
85
212
$754

$119
—
—
$119

$68
—
—
$68

6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings at March 31, 2007 bore interest at annual rates ranging from 0.39% to 4.75% and mainly consisted of bank loans andshort-term notes maturing at various dates within one year.
Long-term debt at March 31, 2006 and 2007 comprised the following:
2006

2007

2007

(Millions of yen)

Loans, principally from banks and insurance companies due from 2006 to 2016
with interest rates ranging from 0.80% to 7.92%:
Secured........................................................................................................................................
Unsecured ...................................................................................................................................
Loans, principally from banks and insurance companies due from 2007 to 2016
with interest rates ranging from 0.80% to 4.51%:
Secured........................................................................................................................................
Unsecured ...................................................................................................................................
Secured 1.25% bonds due July 20, 2006, redeemable before due date .............................................
Unsecured 3.06% bonds due June 1, 2007, redeemable before due date..........................................
Zero coupon convertible bonds due September 30, 2009 (*1) .........................................................
Zero coupon convertible bonds due September 30, 2016 (*2) .........................................................
Capital lease obligations due from 2006 to 2029 with interest rates ranging from
6.50% to 7.20% .................................................................................................................................
Capital lease obligations due from 2007 to 2029 with interest rates ranging from
6.50% to 7.20% .................................................................................................................................
.............................................................................................................................................
Less: portion due within one year......................................................................................................
Total long-term debt..........................................................................................................................

¥ 73,178
31,454¥(Thousands of
U.S. dollars)

—
—

$

—
—

—
—
9,000
705
10,000—36,411
73,106—708
10,02420,092

308,437
619,280—
5,998
84,913
170,199

969

—

—

—
125,306(41,140)¥ 84,166

955
141,296(28,531)¥112,765

8,090
1,196,917(241,686)$ 955,231(*1) The details of the zero coupon convertible bonds due September 30, 2009 are summarized as follows:
Stock type to be issued: ..............................................................................................................
Issue price per stock acquisition right: ......................................................................................
Initial exercise price: .................................................................................................................
Total issue price: ........................................................................................................................
Exercisable period of stock acquisition rights: .........................................................................

Common stockNone¥350 per share¥10,050 million
From August 9, 2004 to September 16, 200929

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(*2) The details of the zero coupon convertible bonds due September 30, 2016 are summarized as follows:
Stock type to be issued: ..............................................................................................................
Issue price per stock acquisition right: ......................................................................................
Initial exercise price: .................................................................................................................
Total issue price: ........................................................................................................................
Exercisable period of stock acquisition rights: .........................................................................

Common stockNone¥406 per share¥20,100 million
From August 4, 2006 to September 16, 2016

A summary of assets pledged as collateral for short-term borrowings and long-term debt at March 31, 2007 is as follows:(Millions of yen)

Cash and deposits............................................................................................................................................................ ¥6
Property, plant and equipment....................................................................................................................................... 102,338
Investment securities.......................................................................................................................................................
322(Thousands of
U.S. dollars)$

51
866,904
2,728

The aggregate annual maturities of long-term debt outstanding at March 31, 2007 are summarized as follows:
Years ending March 31,(Millions of yen)(Thousands of
U.S. dollars)

2008 ................................................................................................................................................................................. ¥ 28,531
2009 .................................................................................................................................................................................
24,5542010 .................................................................................................................................................................................
30,5882011 .................................................................................................................................................................................
13,8382012 .................................................................................................................................................................................
10,115
Thereafter ........................................................................................................................................................................
33,670¥141,296$ 241,686
207,997259,110
117,22285,684285,218$1,196,917

On August 11, 2006, the ASBJ issued ASBJ Statement No. 10, “Accounting Standard for Financial Instruments.” Effective the year ended March 31,
2007, the Company and its consolidated subsidiaries have adopted this new accounting standard. Prior to April 1, 2006, premium on bonds had
been recorded as other long-term liabilities in the consolidated balance sheets. Under the new accounting standard, the premium is included inlong-term debt or current portion of long-term debt.
7. RETIREMENT BENEFIT PLANS
The Company and its domestic subsidiaries have defined benefit tax qualified pension plans and a non-contributory plan covering substantially all
employees in Japan. Additional benefits may be granted to employees according to the conditions under which termination of employment occurs.
Certain foreign subsidiaries have defined contribution plans.
Accrued pension and severance costs at March 31, 2006 and 2007 are summarized as follows:
2006

2007
(Millions of yen)

Projected benefit obligation...............................................................................................................
Fair value of plan assets.....................................................................................................................
Unrecognized transition obligation ..................................................................................................
Unrecognized actuarial loss ..............................................................................................................
Accrued pension and severance cost..................................................................................................

30¥(66,856)
26,198(40,658)
12,822
7¥(27,829)¥(65,717)
27,317(38,400)
10,394
149¥(27,857)

2007(Thousands of
U.S. dollars)$(556,688)
231,402(325,286)
88,0481,262$(235,976)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The net pension costs related to retirement benefits for the years ended March 31, 2006 and 2007 are summarized as follows:
2006

2007

2007

(Millions of yen)

Service cost .........................................................................................................................................
Interest cost ........................................................................................................................................
Expected return on plan assets ..........................................................................................................
Amortization of transition obligation ...............................................................................................
Amortization of unrecognized actuarial loss (gain) ........................................................................
Net pension and severance costs........................................................................................................

¥3,706
1,363
(466)
2,132
441
¥7,176(Thousands of
U.S. dollars)¥3,646
1,370
(559)
2,137
(25)
¥6,569$30,885
11,605(4,735)
18,102(211)$55,646

Assumptions used in calculating the above information are summarized as follows:
2006

Discount rate ......................................................................................................................................
Expected rate of return on plan assets...............................................................................................
Method of attributing projected benefits to periods of employee service..........................................
Amortization of unrecognized actuarial loss (gain) ........................................................................
Amortization of transition obligation ...............................................................................................

2007

2.5%
Mainly 2.5%
Straight-line basis
Mainly 12 years
12 years

2.5%
Mainly 2.5%
Straight-line basis
Mainly 12 years
12 years

8. INCOME TAXESThe Company and its domestic subsidiaries are subject to a number of different taxes based on income which, in the aggregate, indicate a statutory
income tax rate of approximately 40.7% for the years ended March 31, 2006 and 2007.
Tax losses can be carried forward for a seven-year period to be offset against future taxable income.
Significant components of deferred tax assets and liabilities at March 31, 2006 and 2007 were as follows:
2006

2007
(Millions of yen)

Deferred tax assets:
Accrued pension and severance costs .........................................................................................
Tax loss carryforwards................................................................................................................
Allowance for doubtful accounts................................................................................................
Accrued bonuses..........................................................................................................................
Loss on disposal of fixed assets...................................................................................................
Other ...........................................................................................................................................
Gross deferred tax assets.....................................................................................................................
Valuation allowance ..........................................................................................................................
Total deferred tax assets, net of valuation allowance .......................................................................
Deferred tax liabilities:
Unrealized gain on securities.....................................................................................................
Revaluation gain on subsidiaries...............................................................................................
Other ...........................................................................................................................................
Gross deferred tax liabilities...............................................................................................................
Net deferred tax assets ........................................................................................................................

2007(Thousands of
U.S. dollars)¥11,469
4,587
3,588
2,517
1,479
10,936
34,576(19,406)
15,170¥11,217
5,578
3,807
2,667
1,623
10,66635,558(19,976)
15,582$ 95,019
47,251
32,24922,592
13,74890,352
301,211(169,216)
131,995(3,789)(733)(473)(4,995)¥10,175(3,507)(746)(851)(5,104)¥10,478(29,708)(6,319)(7,209)(43,236)$ 88,759

Deferred tax assets and liabilities that comprise net deferred tax assets are included in the accompanying consolidated balance sheets as follows:
2006

2007
(Millions of yen)

Deferred tax assets (current assets) ...................................................................................................
Deferred tax assets (investments and other assets)...........................................................................
Other long-term liabilities ................................................................................................................

¥5,057
6,156(1,038)¥5,405
5,881
(808)

2007
(Thousands of
U.S. dollars)$45,786
49,818(6,845)In addition to the above, the Company recorded deferred tax liabilities on land revaluation surplus of ¥522 million ($4,422 thousand) at March 31,
2006 and 2007 separately.

31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of the differences between the statutory income tax rate and the effective income tax rate for the years ended March 31, 2006
and 2007 is summarized as follows:
2006

Statutory income tax rate ..................................................................................................................
Increase (decrease) in taxes resulting from:
Increase in valuation allowance ................................................................................................
Permanent non-deductible expenses .........................................................................................
Other ...........................................................................................................................................
Effective income tax rate ...................................................................................................................

2007

40.7%

40.7%

8.1
2.3
(2.5)
48.6%

2.4
2.0
0.5
45.6%

9. APPROPRIATIONS OF RETAINED EARNINGS
The following appropriation was approved at the ordinary general meeting of shareholders of the Company held on June 28, 2007:(Millions of yen)

Cash dividends.................................................................................................................................................................

¥2,707(Thousands of
U.S. dollars)$22,931

The Company is required to obtain the approval of shareholders at an ordinary general meeting of shareholders for appropriations of retained
earnings in conformity with the Corporation Law of Japan. Appropriations of retained earnings are, therefore, not reflected in the consolidated
financial statements for the year to which they relate but are recorded in the consolidated financial statements in the subsequent year after
shareholders’ approval has been obtained.
10. REVALUATION SURPLUS
A consolidated subsidiary of the Company revalued its land used for business purposes in accordance with the Land Revaluation Law, when it was
an affiliate. As a result of this revaluation, the Company recognized its portion of the affiliate’s revaluation surplus and the related deferred tax
liabilities.
11. LEASE TRANSACTIONSThe Company and its consolidated subsidiaries charge or credit to income periodic lease payments and receipts for finance leases that do not have
options to transfer ownership of the leased assets to the lessee. Such periodic lease payments under finance lease contracts totaled ¥2,146 millionand ¥1,920 million ($16,264 thousand), and receipts under finance lease contracts totaled ¥132 million and ¥144 million ($1,220 thousand) for
the years ended March 31, 2006 and 2007, respectively. Future lease payments and receipts under finance leases and non-cancelable operatingleases, including interest, at March 31, 2006 and 2007 are summarized as follows:
2006

2007

2007

(Millions of yen)

Lease payments:
Due within one year....................................................................................................................
Due after one year.......................................................................................................................
Lease receipts:
Due within one year....................................................................................................................
Due after one year.......................................................................................................................

(Thousands of
U.S. dollars)¥2,0606,383¥8,443¥3,1304,455¥7,585$26,514
37,738$64,252

¥ 116
38
¥ 154

¥

$

¥

66
9
75

$

Leased assets under finance leases, where lessors retain ownership of leased assets, are accounted for as operating leases. If such leases had
been capitalized, then the cost of the assets, and the related accumulated depreciation and impairment loss at March 31, 2006 and 2007 would
have been as follows:
Cost

Buildings and structures...........................................................
Machinery and equipment .......................................................
Intangible assets........................................................................

32

¥

26
13,907
197¥14,130

2006
Accumulated
Accumulated
depreciation
impairment loss
(Millions of yen)

¥ 18
5,617
86
¥5,721

¥

—
1,834
5
¥1,839Net
amount

¥
8
6,456
106
¥6,570559
76
635

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Cost

Buildings and structures...........................................................
Machinery and equipment .......................................................
Intangible assets........................................................................

¥

26
13,194217¥13,437

2007
Accumulated
Accumulated
depreciation
impairment loss
(Millions of yen)

¥

23
5,750
89
¥5,862Net
amount

¥

—
1,464
3
¥1,467

¥

3
5,980
125
¥6,108Net
amount(Thousands of
U.S. dollars)$

25
50,657
1,059$51,741

Depreciation for these leased assets computed using the straight-line method over the respective lease periods would have been ¥2,146 millionand ¥1,920 million ($16,264 thousand) for the years ended March 31, 2006 and 2007, respectively.
Fixed assets, which are leased to other companies under finance leases without options to transfer ownership of the leased assets to the lessee atMarch 31, 2006 and 2007, are summarized as follows:
Cost

Machinery and equipment....................................................................................

¥244

2006
Accumulated
depreciation(Millions of yen)Net
amount

¥135

¥109
2007

Cost

Accumulated
depreciation

Net
amount(Millions of yen)

Machinery and equipment....................................................................................

¥204

¥137

Net
amount(Thousands of
U.S. dollars)

¥67

$568

Depreciation for these leased assets computed using the straight-line method over the respective lease periods would have been ¥99 millionand ¥112 million ($949 thousand) for the years ended March 31, 2006 and 2007, respectively.
12. DERIVATIVESIn the normal course of business, the Company and its consolidated subsidiaries utilize various derivative financial instruments in order to manage
the exposure resulting from fluctuation in foreign currency exchange rates, interest rates and the prices of aluminum ingot in the market. The
Company and its consolidated subsidiaries do not hold or issue derivative financial instruments for trading purposes.
At March 31, 2006 and 2007, there were no derivative financial instruments, except for those instruments to which hedge accounting wasapplied.
13. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to cost of sales and selling, general and administrative expenses for the years ended March 31, 2006 and2007 were ¥5,133 million and ¥5,504 million ($46,624 thousand), respectively.
14. CONTINGENT LIABILITIESContingent liabilities at March 31, 2007 amounted to ¥12,627 million ($106,963 thousand) for loans guaranteed and other guarantees given in theordinary course of business, including ¥3,069 million ($25,997 thousand) shared by other joint guarantors, and ¥1,678 million ($14,214 thousand)for notes discounted.
15. DIRECTORS’ BONUSESOn November 29, 2005, the ASBJ issued ASBJ Statement No. 4, “Accounting Standard for Directors’ bonus.” Effective the year ended March 31, 2007,
the Company and its consolidated subsidiaries have adopted this standard. Prior to April 1, 2006, directors’ bonuses had been recorded as a decreasein unappropriated retained earnings by appropriation based on shareholders’ approval. Under the new accounting standard, these bonuses are
accrued and recorded as an expense. As a result of the adoption of this accounting standard, operating profit and income before income taxes andminority interests decreased by ¥52 million ($440 thousand) from the amounts which would have been recorded under the previous method.

33

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. NET INCOME PER SHARE
A reconciliation of the differences between basic and diluted net income per share for the years ended March 31, 2006 and 2007 is summarized asfollows:

Net income.............................................................................................................
Amount not allocated to common stock...............................................................
Basic net income ...................................................................................................
Effect of convertible bonds ....................................................................................
Diluted net income................................................................................................

Net
income2006
Weighted
averagenumber ofsharesNet
incomeper share(Millions of yen)(Thousands of shares)(Yen)¥9,684
(45)
9,639
(6)
¥9,633541,742
28,714570,456¥17.79Net
incomeWeighted
averagenumber ofshares(Millions of yen)(Thousands of shares)(Yen)(U.S. dollars)¥12,755—
12,755(6)¥12,749

541,476
28,714570,190¥23.56$0.20¥22.36$0.19¥16.892007

Net income.............................................................................................................
Amount not allocated to the common stock ........................................................
Basic net income ...................................................................................................
Effect of convertible bonds ....................................................................................
Diluted net income................................................................................................

Net income per share

17. CHARGES ON SALE OF ALUMINUM FOIL
On November 11, 2005, the Japan Fair Trade Commission submitted its findings, based on Article 48, Section 2 of the Antimonopoly Act of Japan, to
the Company’s consolidated subsidiaries, Toyo Aluminium K.K. and Tokai Aluminium Foil Co., Ltd., that they had violated Article 3 (prohibition ofillegal trade limitation) of the Act with respect to sales of aluminum foil. These two companies accepted the findings on November 18, 2005 andpaid the charges during the year ended March 31, 2007.
18. SUBSEQUENT EVENTOn April 1, 2007, the Company transferred its domestic and overseas business relating to the production and sale of aluminum for die-cast products
to M.C. Aluminium Co., Ltd. (“MCA”), a wholly-owned subsidiary of Mitsubishi Corporation, while MCA issued new shares of common stock to theCompany, giving the Company a 55% stake in MCA. MCA became a subsidiary of the Company and changed its name to Nikkei MC Aluminium Co.,Ltd.
Through this business integration, the Company intends further growth in its corporate value with the synergy of the Company’s manufacturing
technology and development capability and MCA’s domestic and overseas production bases and business experience.
The Company expects to recognize a gain of ¥1,101 million ($9,327 thousand) due to the change in the carrying amount of such business forthe year ending March 31, 2008.
19. SEGMENT INFORMATIONThe Company and its consolidated subsidiaries operate within four distinct industry segments mainly in Japan: “Aluminum ingot and chemicals,”“Aluminum sheet and extrusions,” “Fabricated products and others” and “Building materials.”
The “Aluminum ingot and chemicals” segment supplies aluminum primary and remelted ingot used for various industrial materials, andproduces a wide spectrum of aluminas and alumina hydrates ranging from raw materials to basic materials for ceramic compounds. The“Aluminum sheet and extrusions” segment produces sheet, coil, and extrusion products consisting primarily of shapes, tubes and rods. The“Fabricated products and others” segment produces a variety of products which include aluminum foil, aluminum powder, wing bodies fortransport vehicles, automobile components and electronic materials. The “Building materials” segment produces a wide range of materials
including sashes, curtain walls, and doors and fences for commercial and residential construction. “Corporate items” include unallocated operating
expenses and corporate assets not specifically related to business segments.
Export sales and operations outside Japan are insignificant.

34

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Information by industry segment for the years ended March 31, 2006 and 2007 was as follows:

Sales:
Customers............................................
Intersegment .......................................
Total.............................................
Operating expenses.....................................
Operating profit (loss)................................
Total assets .................................................
Depreciation and amortization..................
Loss on impairment of fixed assets............
Capital expenditures...................................

Aluminumingot andchemicals

Aluminum
sheet andextrusions¥ 97,077
67,754
164,831
155,191¥ 9,640¥111,068¥ 2,819¥—¥ 3,678¥ 70,714
26,503
97,21790,782¥ 6,435¥ 71,854¥ 1,809¥ 1,715¥ 2,849*1 Corporate items of ¥2,830 million are included.

Sales:
Customers............................................
Intersegment .......................................
Total.............................................
Operating expenses.....................................
Operating profit ..........................................
Total assets .................................................
Depreciation and amortization..................
Loss on impairment of fixed assets............
Capital expenditures...................................

¥ 238,422
17,792
256,214240,366¥ 15,848¥ 213,615¥ 6,222¥—¥ 7,963¥ 170,848
4,295
175,143
175,306¥(163)¥ 153,180¥ 6,377¥249¥ 5,279

Eliminationor
corporate items¥

Consolidated—(116,344)(116,344)(113,507)*1¥ (2,837)¥ (16,191)*2
¥
88
¥
—
¥
50

¥577,061—
577,061
548,138¥ 28,923¥533,526¥ 17,315¥ 1,964¥ 19,819

Eliminationor
corporate items

Consolidated¥—(144,990)(144,990)(142,170)*1¥ (2,820)¥ (11,485)*2
¥
88
¥
—
¥
51

¥618,158—
618,158
587,639¥ 30,519¥579,463¥ 17,481¥
502¥ 20,702

Eliminationor
corporate items

Consolidated*2 Corporate items of ¥16,070 million are included.

Aluminumingot andchemicals

Aluminum
sheet andextrusions¥110,667
91,044
201,711
190,044¥ 11,667¥121,300¥ 2,885¥—¥ 4,125¥ 78,929
32,163111,092
104,649¥ 6,443¥ 81,674¥ 2,004¥ —¥ 2,221*1 Corporate items of ¥2,820 million are included.

Sales:
Customers............................................
Intersegment .......................................
Total.............................................
Operating expenses.....................................
Operating profit ..........................................
Total assets .................................................
Depreciation and amortization..................
Loss on impairment of fixed assets............
Capital expenditures...................................

2006
Fabricatedproducts
Buildingand others
materials(Millions of yen)

¥255,514
17,275
272,789
258,633¥ 14,156¥225,685¥ 6,579¥17¥ 8,342¥173,048
4,508
177,556
176,483¥ 1,073¥162,289¥ 5,925¥
485¥ 5,963*2 Corporate items of ¥26,340 million are included.

Aluminumingot andchemicals

Aluminum
sheet andextrusions$ 937,459
771,232
1,708,691
1,609,860$ 98,831$1,027,531$ 24,439$—$ 34,943$668,606
272,453
941,059
886,480$ 54,579$691,859$ 16,976$—$ 18,814*1 Corporate items of $23,888 thousand are included.

2007
Fabricatedproducts
Buildingand others
materials(Millions of yen)

2007
Fabricatedproducts
Buildingand others
materials(Thousands of U.S. dollars)$2,164,456
146,336
2,310,792
2,190,877$ 119,915$1,911,774$ 55,731$
144$ 70,665$1,465,887 $—$5,236,408
38,187 (1,228,208)—
1,504,074 (1,228,208)
5,236,408
1,494,985 (1,204,320)*1 4,977,882$
9,089 $ (23,888) $ 258,526$1,374,748 $ (97,289)*2 $4,908,623$ 50,190 $745$ 148,081$
4,108 $—$
4,252
$ 50,512 $432$ 175,366*2 Corporate items of $223,126 thousand are included.

35

REPORT OF INDEPENDENT AUDITORS36

OVERSEAS NETWORKOVERSEAS SUBSIDIARIES AND AFFILIATES
North America
Nikkei MC Aluminum
America Inc.
Indiana, U.S.A.
Phone: 1-812-342-1141
Aluminum alloys(60%)
Toyal America Inc.
Illinois, U.S.A.
Phone: 1-815-740-3037
Aluminum powder and paste(100%)
EuropeToyal Europe Société par
Actions Simplifiée
Unipersonnelle
Accous, France
Phone: 33-5-59-983-535
Aluminum powder and paste(100%)

East Asia
Alcan Nikkei China Limited
Hong Kong, SAR, China
Phone: 852-2522-3001
Trading and marketing(49%)

Southeast Asia
Daiki Nikkei Thai Co., Ltd.
ThailandPhone: 66-3821-4631
Aluminum alloys(35%)

M.C. Nikkei Aluminum(Kunshan) Co., Ltd.
Kunshan, China
Phone: 86-512-5763-6120
Secondary aluminum alloy(85%)

Nikkei MC Aluminum(Korat) Co., Ltd.
ThailandPhone: 66-44-327-621
Aluminum alloys(75%)

Nippon Light Metal (HongKong) Limited
Hong Kong, SAR, China
Phone: 852-2541-5563
Building materials(100%)

Nikkei MC Aluminum(Thailand) Co., Ltd.
ThailandPhone: 66-38-571-670(79%)

Nonfemet International(China-Canada-Japan)
Aluminium Co., Ltd.
Shenzhen, China
Phone: 86-755-2661-1569
Extrusion(18%)
NI Nikkei Shenzhen Co., Ltd.
Shenzhen, China
Phone: 86-755-2650-5656
Automobile components(55%)

Nikkei Siam Aluminium
LimitedThailandPhone: 66-2-529-0136
Aluminum sheet, foil
(100%)
Nikkei Singapore
Aluminium Pte. Ltd.
Singapore
Phone: 65-6222-8991
Trading and marketing(100%)
Thai Nikkei Trading Co., Ltd.
ThailandPhone: 66-2726-9001
Aluminum alloy, scrap(100%)(As of June 30, 2007)

37

DIRECTORS AND OFFICERS

Directors

Officers

Akira Kato

Chairman
Representative Director

Chairman

General Manager of Technology &Development Group
Supervision of Capacitor Foil Div.

Shigesato Sato

Shigesato Sato
President
Representative Director

Takashi Ishiyama
Director

Motoi Kobayashi
Tsuyoshi Nakajima
Makoto Fujioka
Akira Kato
Mitsuaki Asano
Masao Imasu
Masato Hironaga
Hidetane Iijima*
Kuniya Sakai** Outside Director

Auditors

President
Chief Executive Officer

Takashi Ishiyama
Supervision of Strategic Committee
For Product Commercialization andBusiness Development.,
Senior Executive Officer

Motoi Kobayashi
In charge of Group Sales Promotion,
General Manager of Osaka / Nagoya
Regional Office, Supervision ofGeneral Affairs Dept.

Tsuyoshi Nakajima
Supervision of Personnel Dept., Panel
Products and Landscape Products
Dept., In charge of safety, General
Manager of Sheet & Extrusion
Fabricated Products Controlling Dept.

Standing Statutory Auditor

Makoto Fujioka

Shozo Ueda
Yorihiko Hamabe

Supervision of Auditing Office, IR &Public Relations and Legal Dept., In
charge of Specific Projects for Group
Sales, Compliance and Environment,
General Manager of Internal Control
OfficeOutside Statutory Auditor

Seiichi Takeda
Yuzuru Fujita
Katsuo Wajiki

Tadakazu Miyauchi
Divisional Manager of Metal & Alloy,
Supervision of Shaped Parts Div., Heat
Exchanger Div. and Kambara Complex

Koji Ueno
General Manager of Planning Dept., In
charge of China and Southeast Asia,
Supervision of Tomakomai Complex

Mitsuaki Asano
General Manager of Accounting &Finance Dept.
Officer

Yoshitaka Ohtsu
Divisional Manager of Heat Exchanger

Ichiro Okamoto
General Manager of Group
Technology Center of Technology &Development Group

Tadashi Asahi
Divisional Manager of Rolled Products

Toshihide Murakami
Divisional Manager of Capacitor Foil

Executive Officer

Mitsuru Ishihara

Takashi Hara

Divisional Manager of Chemicals,Supervision of Rolled Products Div.

Divisional Manager of Shaped Parts

Yoshiaki Kurihara
Supervision of Group Metal Center,
General Manager of Purchasing &Logistics Dept.
(As of June 30, 2007)38

CORPORATE DATAHead Office

Major Shareholders

NYK Tennoz Building
2-20, Higashi-Shinagawa 2-chome
Shinagawa-ku, Tokyo 140-8628, Japan
http://www.nikkeikin.co.jp
Phone: 81-3-5461-9211
Fax: 81-3-5461-9344(Ratio of Stock Holding)EstablishedMarch 30, 1939

Japan Trustee Services Bank, Ltd.
(trust accounts)(4.3%)The Master Trust Bank of Japan, Ltd.
(trust accounts)(4.2%)The Dai-ichi Mutual Life Insurance Co.
(3.7%)

Paid-In Capital¥39,085 million
Shares of Common Stock

Authorized: 1,600,000,000
Issued: 543,350,370
Number of Shareholders

56,697
Stock Exchange Listings

Tokyo, Osaka, Nagoya, Fukuoka,
SapporoTransfer Agent of Common Stock

The Chuo Mitsui Trust & Banking Co., Ltd.

Asahi Mutual Life Insurance Co.
(2.8%)The Light Metal Educational
Foundation, Inc.
(2.7%)
Nikkei-Keiyu-Kai(2.1%)
Mizuho Corporate Bank, Ltd.
(2.1%)
Namekawa Aluminium Co., Ltd.
(2.1%)Morgan Stanley and Company Inc.
(1.6%)

Last Shareholders’ Meeting

June 28, 2007

Mizuho Trust employee pension trust
Mizuho Corporate accounts(1.6%)(As of March 31, 2007)39

Nippon Light Metal Company, Ltd.
NYK Tennoz Building, 2-20, Higashi-Shinagawa 2-chome
Shinagawa-ku, Tokyo 140-8628, Japan
http://www.nikkeikin.co.jp

Uses soybean ink inconsideration of the enviroment

100% recycled paper

Printed in Japan