NIPPON LIGHT METAL COMPANY, LTD. ANNUAL REPORT 2006

Nippon Light Metal Company, Ltd.
NYK Tennoz Building, 2-20, Higashi-Shinagawa 2-chome

ANNUAL REPORT 2006

Shinagawa-ku, Tokyo 140-8628, Japan

Year ended March 31, 2006

http://www.nikkeikin.co.jp

Uses soybean ink inconsideration of the enviroment

100% recycled paper

Printed in Japan

PROFILE

CORPORATE DATA

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 MANAGEMENT POLICIES ........................... 7
CORPORATE GOVERNANCE AND
INTERNAL CONTROL SYSTEMS ................................... 8
REVIEW OF OPERATIONS ................................................ 10
NLM GROUP ...................................................................... 15
CONSOLIDATED SIX-YEAR SUMMARY ............................ 16
FINANCIAL REVIEW .......................................................... 18
CONSOLIDATED BALANCE SHEETS ................................ 20
CONSOLIDATED STATEMENTS OF INCOME ................... 22
CONSOLIDATED STATEMENTS OF................................... 23
SHAREHOLDERS’ EQUITYCONSOLIDATED 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

On the Cover:

A

C

D

A

Ceramic Products

B“Alupla Clus” (aluminum sash)

C

Lithium-ion battery caseD

Etching circuit foil

B

Cautionary Statement
This annual report contains various projections and estimates. Important factors that could alter these projections andestimates include changes in the balance of aluminum supply and demand, fluctuations in the price of aluminum
ingot and foreign 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.

Head Office

Major Shareholders

NYK Tennoz Building
2-20, Higashi-Shinagawa 2-chome
Shinagawa-ku, Tokyo 140-8628, Japan
http://www.nikkeikin.co.jp
Phone: 81-3-5461-9333
Fax: 81-3-5461-9344(Ratio of Stock Holding)EstablishedMarch 30, 1939

Japan Trustee Services Bank, Ltd.
(trust accounts)(7.1%)The Master Trust Bank of Japan, Ltd.
(trust accounts)(6.6%)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

53,871

Asahi Mutual Life Insurance Co.
(2.8%)The Light Metal Educational
Foundation, Inc.
(2.7%)
Nippon Life Insurance Co.
(Special Pension Account)(2.7%)

Stock Exchange Listings

Tokyo, Osaka, Nagoya, Fukuoka,
SapporoNamekawa Aluminium Co., Ltd.
(2.7%)

Transfer Agent of Common StockJapan Securities Finance Co., Ltd.
(2.3%)The Chuo Mitsui Trust & Banking Co., Ltd.
Last Shareholders’ Meeting

Mizuho Corporate Bank, Ltd.
(2.1%)

June 29, 2006
Nikkei-Keiyu-Kai(2.0%)(As of March 31, 2006)

39

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

Thousands of
U.S. dollars

Millions of yen
2005

2006

2006

For the year:
Net sales.................................................................................................................. ¥560,284 ¥577,061 $4,912,412
Operating profit ...................................................................................................... 30,560
28,923
246,216
Net income.............................................................................................................. 13,488
9,684
82,438At year-end:
Total assets.............................................................................................................. 514,781
Shareholders’ equity ............................................................................................... 115,282
Short-term borrowings and long-term debt,
including bonds and capital lease obligation ......................................................... 209,042

533,526
125,994

4,541,806
1,072,563

207,818

1,769,115

Per share data (yen and dollars):
Net income—basic ................................................................................................ ¥ 24.78 ¥ 17.79 $Net income—diluted .............................................................................................
23.83
16.89
Cash dividends ........................................................................................................
3.50
4.00
Shareholders’ equity ............................................................................................... 212.63
232.54

0.15
0.14
0.03
1.98

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

3.09
2.14

312 ¥
219

363 $
251

Note: U.S. dollar amounts have been translated, for convenience only, at the exchange rate of ¥117.47 = U.S.$1.00. See Note 2 of the Notes to the Consolidated
Financial Statements.

Net Sales
600

Operating Profit
35

Total Assets
750

30
600
450

25
450

20
300
15

300

10

150

150
5
0

2001 2002 2003 2004 2005 2006

Billions of yen

Years ended March 31

02001 2002 2003 2004 2005 2006

Billions of yen

Years ended March 31

02001 2002 2003 2004 2005 2006

Billions of yen

As of March 31

1

TO OUR SHAREHOLDERS

I am pleased to report on the operating resultsfor Nippon Light Metal Company, Ltd. and its consolidated group companies for fiscal 2005 (theyear from April 1, 2005, to March 31, 2006).

Shigesato Sato President and CEO

Overview of Fiscal 2005
During the year under review, the aluminum industry experienced a decrease in sales volumes and a slide in selling prices
in the construction and IT-related sectors, despite favorable demand in the automotive and transport sectors. Furthermore,a spike in prices in the global aluminum ingot market from the autumn of 2005 onward put tremendous pressure on profits in the field of processing of aluminum ingot-based materials. This, coupled with sharp increases in the prices of otherraw materials and secondary materials and the price of crude oil, resulted in an adverse business environment.
In these economic circumstances, in the fourth year of the NLM Group Mid-Term Management Plan (effective from fiscal
2002 through fiscal 2006), the NLM Group implemented measures in line with the plan in order to build a continuously
growing corporate group with a highly profitable business structure and strove to create and promote products and services that take advantage of the Group’s unique technologies and collective strength. As a result, NLM recorded consolidated net sales of ¥577.1 billion, operating profit of ¥28.9 billion and ordinary profit of ¥22.4 billion, results that exceeded
the forecast announced in November 2005. Net sales increased for the third consecutive year and ordinary profit increased
for the seventh consecutive year.
NLM paid a year-end cash dividend of ¥4.0 per share which was approved at the ordinary general meeting of shareholders of the company held on June 29, 2006, an increase of ¥0.5 from the previous year.
Operating Results
Sales in the Aluminum Ingot and Chemicals segment increased by ¥4.1 billion year on year to ¥97.1 billion and operating
profit rose by ¥0.8 billion to ¥9.6 billion. The increase was attributable to strong shipments of alumina and aluminumhydroxide products and chemicals in Alumina and Chemicals Operations and an increase in demand from the automotive
sector in Aluminum and Aluminum Alloy Operations.
Sales in the Aluminum Sheet and Extrusions segment decreased by ¥2.1 billion year on year to ¥70.7 billion, while operating profit rose by ¥0.7 billion to ¥6.4 billion. Although shipments of aluminum foil stock for capacitors fell sharply,2

shipments of extruded products for automobiles, trucks, and railway cars developed favorably.
Sales in the Fabricated Products and Others segment increased by ¥18.6 billion year on year to ¥238.4 billion, and operating profit rose by ¥1.0 billion to ¥15.8 billion. The results were attributable to the inclusion of sales of Tokai Aluminum
Foil, which became a consolidated subsidiary from fiscal 2005, and overall favorable business results from Panel Systems
Operations and other operations.
Sales in the Building Materials segment decreased by ¥3.9 billion year on year to ¥170.8 billion, and an operating loss of¥0.2 billion was posted following an operating profit of ¥4.1 billion for the previous term. The results were attributable to adrop in selling prices and higher prices of aluminum ingot and materials.
Business Issues and New Mid-Term Management Plan
Fiscal 2006 is the final year of the current Mid-term Management Plan. By thoroughly implementing the plan, we haveachieved good results so far. In particular, in the extrusion business, where improved profitability was a priority objective
when the plan was formulated, we have achieved an increase in profits for four consecutive years. Also, we have raised
profitability in the aluminum foil and aluminum powder and paste business, capitalizing on our competitive advantage.
These improvements notwithstanding, the most important business issue facing the group is that profitability in the building materials business remains unstable. As the building materials market continues to mature, competition among companies is expected to intensify. Accordingly, NLM will implement radical reform* with the aim of increasing and stabilizing
earning power.
With the aim of continuing to increase profits in the coming years, we are drawing up plans for an NLM Group that willconsist of a greater number of powerful products and powerful businesses. We are engaged in a group-wide project to formulate a new mid-term management plan to achieve that objective and will announce the new plan this fiscal year.
* See Pages 4 and 5 for details.

Outlook for Fiscal 2006
Although the aluminum industry is expected to experience strong demand in fiscal 2006, sharp increases in prices for aluminum ingot, the principle raw material for NLM’s businesses, for raw materials and fuel, and for other materials make foran uncertain business environment. In these circumstances, the NLM Group will endeavor to achieve consolidated net salesof ¥600 billion and ordinary profit of ¥22 billion in fiscal 2006 through the rigorous implementation of a range of streamlining measures and the development and promotion of new products.
The NLM Group will seek to further strengthen its compliance system with the aim of being a group that makes a valuable
contribution to society by adroitly responding to changes in the business environment.
I would greatly appreciate the continuing support and understanding of our shareholders in the coming years.
June 2006

Shigesato Sato
President and CEO
3

SPECIAL FEATURE

An Interview with the President
Structural Reform of the Nippon Light Metal Group and Future Business Issues
The Final Year of the Mid-Term Management Plan
Shigesato Sato assumed office as president of Nippon Light Metal in April 2001 at a time when NLM had
posted losses for five consecutive years (the consolidated net loss in fiscal 2000 was ¥21.9 billion), and thestock price had fallen below ¥100. Five years later, we asked President Sato to relate how NLM overcame
its crisis and describe his vision for the future.

Q1. In fiscal 2005 NLM posted ordinary profit of ¥22.4 billion as compared to the target of ¥23.0 billion in the
Mid-Term Management Plan, which concludes in fiscal 2006. Are you satisfied with this figure?

A1.

I think we can highly rate the fact that overall we were able to greatly exceed the forecast announced in
November 2005 when we reported the mid-term results. Moreover, we achieved a year-on-year increase in profit as a resultof compensating for a spike in the price of aluminum ingot and other major changes in the business environment through aconcerted effort. As a consequence of this success, the management initiatives we have implemented during the past five
years have steadily and surely borne fruit, and our confidence in our future prospects has increased. However, the problematic building materials operation posted an ordinary loss of ¥3.2 billion, a result that fell far short of the forecast
announced in November 2005. I regard this as a situation that calls for considerable reflection on the part of management.

Q2. Can we expect the uphill battle to continue in the fiercely competitive building materials business?
A2. During the past five years we have cut selling, general and administrative expenses and purchasing costs in thebuilding materials operation by a total of more than ¥10.0 billion. However, other companies in the industry have engaged
in similar initiatives and the beneficial effects of these savings have been negated amid intensifying price competition.
Consequently, a loss was unavoidable. We are now engaged in radical reform on three fronts.
The first is a strengthening of customer response capabilities in business operations. What is most required of Shin
Nikkei in this area is unification of the production, sales, and service chain. The second aspect is reinforcement and rigorous implementation of strategy. This involves implementing a strategic shift away from a please-everyone approach to an
approach involving careful selection of our competitive arena and a more narrowly focused competitive posture. This
includes clarification of our product strategy. The third aspect is reinforcement of management capabilities. Previously,
Shin Nikkei has been strongly sales oriented, and I think at times Shin Nikkei has been overly lax about profitability.
Considerable room for improvement remains in this area provided that from now we unify all business processes fromdevelopment to manufacturing and marketing and engage in market-centered, profit-oriented management.
From the perspective of Group strategy, we intend to harness the comprehensive capabilities of the NLM Group so as todevelop the housing materials business while, at the same time, channeling Shin Nikkei’s management resources into highadded-value sectors other than the building materials business. We have already launched a joint task force and are devising a strategy.

4Q3. Please provide specifics of the structural reforms that have borne fruit
during the past five years. What has NLM done, and how has it affectedbusiness performance?

A3. First of all, from fiscal 2000 to fiscal 2002 we vigorously engaged incost cutting and restructuring to rebuild under-performing businesses. That is
to say, as I mentioned previously concerning Shin Nikkei, we shifted our business strategy. We implemented measures such as the integration of
extrusion facilities and the spinning off of certain businesses to create an organizational structure suited to the market. The rapid
recovery in business performance at Nikkeikin ACT, a spin-off company engaged in extrusion and sheet & extrusion fabricated products operations, has produced tremendous results and has beenreferred to as the “ACT miracle” by people in theindustry. The structural reforms, including othermeasures, and change in operating profit are
shown below.
FY

Principal structural reforms

2000

NLM withdraws from the MD substrate business.

The number of directors is decreased (from 31 to 10), and the

The extrusion facilities are integrated (about one third are decom-

executive officer system is introduced.

Other measures

missioned).

Consolidated ordinary profit¥ 2,906 million

Shin Nikkei becomes a wholly owned subsidiary.
The landscaping business is made a joint venture company.
2001

Shigesato Sato becomes president.

The new communication mark is unveiled.

The Mid-Term Management Plan is established, and targets of ordi-

The Commercialization Strategy Project Office is established.

nary profit of ¥23 billion and a dividend of ¥5 for fiscal 2006 are set.

It is decided to resume dividends at the ordinary general¥ 4,805 million

meeting of shareholders in June.
2002

The Toyo Aluminium operation is spun off.
The panel systems operation is spun off.
The extrusion operation and sheet & extrusion fabricated products

Extrusion facilities are partially disposed of.
¥ 12,325 million

operation are spun off as Nikkeikin ACT.

In addition to these restructuring measures, we engaged in reform of the corporate culture. With regard to humanresources, we created a fresh, new corporate atmosphere, actively working to bring energetic, flexible young employees
into contact with the market and place personnel who demonstrate competence in the market in positions of responsibility
throughout the organization. We unveiled a new communication mark to symbolize these changes. We also strove to create
powerful products. As a result of reflection on previous lack of collaboration from the research stage to the marketing stage
in new product development, we established the Commercialization Strategy Project Office in 2001 for the purpose of utilizing internal management resources in cross-organizational activities. The office has engaged in the development of new
products for individual markets, including the automotive, roads and railways, electrical machinery and electronics, andbuilding construction materials sectors. During the subsequent five-year period we have shifted to a corporate posture suchthat front-line workers in sales, plants, and laboratories maintain close contact with the market (hands-on) and think fromthe perspective of the market (market-in). In particular, we have made great progress with the penetration of new productsin the automotive and electrical machinery and electronics sectors, areas where we were previously weak.
In fiscal 2003 we began implementing business expansion measures. In Southeast Asia and China, markets experiencing tremendous economic growth, we are involved in alloy operations and sheet and extrusion operations, primarily in theautomotive sector. Major measures implemented up to fiscal 2005 are shown below.
5

SPECIAL FEATURE

FY

Principal structural reforms

Other measures

2003

Introduction of FLEXCASTER™ aluminum sheet continuous casting

Business restructuring is undertaken in Southeast Asia andfacilities begins.

China. Nikkei Siam Aluminium Ltd. becomes a consolidated

Consolidated ordinary profit¥ 16,092 million

subsidiary.
2004

Production of aluminum automobile parts begins at NI Nikkei

NLM withdraws from the household utensils business.

Shenzhen Co., Ltd.
2005

Tokai Aluminum Foil Co., Ltd. becomes a consolidated subsidiary

A change of presidents at Shin Nikkei is announced.

In a joint venture with Mitsubishi Corporation, NLM takes a stake in

NLM redoubles efforts to bolster profitability in the building

M.C. NIKKEI Aluminum (Kunshan) Co., Ltd.

materials operation.

¥ 21,857 million¥ 22,353 million

Finally, we have reduced interest-bearing debt and greatly improved the financial structure. For instance, the shareholders’ equity ratio improved markedly from 13.6% in fiscal 2000 to 23.6% in fiscal 2005.

Q4. NLM is poised to achieve the numerical targets in the Mid-Term Management Plan. What qualitativechanges have taken place?
A4. It is not only earning power and the financial position that have been transformed during the past five years. The
corporate culture has also changed greatly. I think we can attribute this to our tenacious engagement in market-centered
management. Although I regret to say that we haven’t seen the emergence of one or two major new products to drive profits
upward, we have groomed new product candidates in market sectors where growth can be expected: for instance, structural materials for automobiles, RFID tags in the electrical equipment and electronics sector, and electromagnetic shielding
products in the information and telecommunications sector. In the sense that the buds of new products and new businesses
have emerged, NLM Group’s growth potential is steadily increasing.
In another development, the New Production System (NPS)*, an initiative in which NLM Group has continuously
engaged during the past five years, has made a major contribution to profit expansion. We restarted NPS activities in fiscal
2001 after a period of dormancy. NPS has not only had the effect of increasing productivity and reducing inventory at theplants, it has also clearly raised the level of business performance in terms of the acquisition of optimal techniques forexcellence in manufacturing and full employee participation in customer satisfaction activities.

Q5. Finally, what is your vision for the future direction of NLM?
A5. The NLM Group aims to be a powerful corporate group of highly profitable businesses that our customers
regard as a one-stop supplier for their aluminum needs. In the next mid-term management plan we will aim to establish the
NLM brand as the leading group in the field of aluminum by bringing to fruition measures designed to raise the collective
power of the Group and to raise the level of profitability so as to make possible the doubling of the ¥5 projected dividend
for this fiscal year.
In addition, based on respect for stakeholders (shareholders, business partners, employees, and local communities),
we will engage in management that achieves harmony among stakeholders while continuing to develop as a group thatcombines continuing growth potential with social value.

“Aluminum is our foundation. We will use it as a springboard to new heights.”
Inspired by this basic concept underpinning its business operations, the NLM Group seeks to continue developing so as
to merit the confidence of shareholders and meet their expectations.
* NPS (New Production System): The official name is the NPS Research Society. The purpose of this organization, which was launched by people
who previously worked at Toyota, is to apply Toyota’s production system to various industries. NPS works to enhance operating efficiency by eliminating all waste. The NLM Group holds NPS meetings at its 12 sites and is fostering NPS leaders.

6

NLM GROUP MANAGEMENT POLICIESBasic Principles
The NLM Group shall contribute broadly to society through business activities based on these groupmanagement policies.

1.

We shall aim to become a company that implements well-balanced management activities and is worthy of public
respect based on the awareness that the shareholders, business partners, employees and local community
constitute its foundation.

2.

We shall aim to become an excellent corporate group with distinctive features in the fields where we are able tomaintain a competitive edge through the accumulation and development of technology and expertise centered in
the outstanding material aluminum.

3.

We shall aim to maximize consolidated earnings based firmly on group management.

4.

We shall pursue greater efficiency in total invested capital while promoting rapid responses to changes in theexternal environment with the intention of further enhancing stable corporate value and creating the anticipatedshareholder return.

5.

We shall comply with laws, ordinances and social norms and engage in business activities that are fair andtransparent.

6.

We shall provide products and services that are beneficial to society taking safety fully into account and shall earn
the satisfaction and trust of our customers.

7.

We shall pursue the creation of a healthy and safe workplace and the realization of “zero accidents”.

8.

We shall aim to create a free and vigorous corporate culture overflowing with the spirit of challenge with theawareness that human resources are the most essential element of the company. To achieve that, we shall respect
the character and individuality of the employees and secure an environment in which they are able to demonstrate
to the utmost skills matching their capacity while actively providing opportunities for education.

9.

We shall comply with relevant laws and ordinances and shall furthermore take action independently and actively
with the awareness that initiatives for global environmental problems are essential issues in corporate activities.

10.

We shall appropriately manage corporate information while striving to promote wide-reaching communication
with society and disclosing information pertinently and in a timely manner.

11.

We shall make every effort to assure the soundness of management by ascertaining diverse risk conditions
precisely and promoting activities to alleviate them.

7

CORPORATE GOVERNANCE AND INTERNAL CONTROL SYSTEMS

1. Summary of Corporate Governance
The Company regards 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, two of whom
are outside directors. This management structure makes possible agile management and sufficient deliberation of Board of
Directors. To ensure that the roles and responsibilities of directors and executive officers are clearly defined, their term ofoffice is set at one year. The Board of Directors met 12 times in fiscal 2005.
To ensure the multifaceted examination of important matters that affect the entire Group, the Company has organized underthe 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 a month.
The Company has introduced a statutory auditor system. The Board of Statutory Auditors consists of five statutory auditors, three of whom 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

President and CEO
Audit bystatutory
auditors

Executive Committee
Executive officers
Operations,subsidiaries and associates
Reports andproposals

Exchange of opinions

Board of
Statutory
Auditors

Appointment / removalInternal
audit
Auditing Office

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

Statutory
auditors
Outsideauditors

Exchange of opinions

Audit reports/exchange of opinions

Support Structure for Outside Directors and Outside Statutory Auditors
The Planning Department and 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 highly important matters.
To further strengthen the advisory function for Statutory Auditors, on June 29, 2006, the Company established the
Auditors Office.
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 received8

an order from the Financial Services Agency to suspend its business operations for the two-month period from July 1 toAugust 31, 2006, it lost its qualification to act as the Company’s accounting auditor. Accordingly, at a meeting of the Boardof Statutory Auditors held on July 1, 2006, the Company appointed Ernst & Young ShinNihon as temporary accounting auditor.
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 for the implementationof 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-blowing 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-blowing System) and established theCompliance Office and the Hotline Council for Correction Measures to serve as its administrative office. NLM plans to establish the compliance hotline for the entire NLM Group by March 2007.
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
On May 29, 2006, the Company established Group Risk Management Regulations that set forth risk management procedures for the entire NLM Group. The regulations identify the following seven forms of risk requiring high-priority countermeasures: 1) Product and service defects, 2) Environmental problems, 3) Disasters (natural disasters and accident
disasters), 4) Health and safety problems, 5) Information systems problems, 6) Leakage of trade secrets, and 7) Risk offailure in timely information disclosure. By March 2007 The Company will establish systems for each form of risk in accordance with the Group Risk Management Regulations.
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 instituted 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

Review of Operations

Aluminum Ingot and Chemicals

Aluminum Sheet and Extrusions

Fabricated Products and Others

Building Materials

10

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 aluminumalloys and enjoys an excellent reputation for the development of high-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 otherproducts.

Consolidated Net Sales

97,077■ Overview of results for fiscal 2005

Millions of Yen

Consolidated Operating profit(Millions of Yen)
10,000
8,000
6,000
4,000
2,000
0

’02

’03

’04

’05

’06

• Principal Products• Aluminum• Aluminum hydroxide• Chemicals (chemical products)• Caustic soda
• Chlorinated chemical products• Aluminum ingot• Aluminum alloys

High-purity aluminum

In Alumina and Chemicals Operations, overallrobust demand continued and shipments werestrong.
Sales of alumina and related products
increased year on year. Although shipments of
low-soda alumina for semiconductors andelectronics materials were weak due to a delay ininventory adjustment, shipments of alumina forflame retardants and other products developed
favorably on the whole. Efforts to increase sales ofhigh-value-added products and to adjust selling
prices in response to an increase in the prices of
the raw material bauxite and heavy oil contributed
to the increase.
Sales of chemicals increased year on year.
Although shipments of coagulants slumped,
shipments of caustic soda, hydrochloric acid, andother soda and inorganic chlorine products andorganic chlorine products developed favorably
and shipments of fluoride products to new users
became established. In this sector as well, NLM
worked to adjust selling prices as a measure tocounter sharp increases in prices of raw materials
and fuel.
For Alumina and Chemicals Operations as awhole, profitability improved from the previous
term. Although upward pressure on
manufacturing costs increased owing to anotherspike in the price of heavy oil, steep increases in
the prices of benzene, toluene, and other raw

materials, and continuation of high ocean freightcosts for bauxite, plant-level improvements andprogress with product price adjustments led tohigher profits.
Sales and profits from Aluminum andAluminum Alloy Operations increased. Althoughsales volumes of alloy ingots for the steel industry
and for flat rolled products remained at the prioryear level, continuation of robust demand fromthe mainstay automotive sector and success inwinning orders for new projects in the electric
cable sector fueled an increase in sales volumes.
Although prices of aluminum ingot and scrap
aluminum raw materials increased, sales
increased as selling prices moved roughly in linewith raw materials prices. With regard to profit,
efforts to improve the product mix and increase
sales of high-value-added alloys, the developmentof a low-cost scrap aluminum procurement route,
and other factors led to higher profits. NLM also
actively implemented an expansion strategy inoverseas markets, which included taking anequity stake in an aluminum alloy manufacturer
in China in October 2005 to step up businessdevelopment in a market that continues to showhigh growth.
As a result of these developments, sales in the
Aluminum Ingot and Chemicals segment
increased by ¥4,129 million year on year to¥97,077 million, and operating profit rose by¥774 million to ¥9,640 million.

aluminum automotive
parts

11

Aluminum Sheet and Extrusions■ Profile
The NLM Group’s aluminum sheet and extrusions are used in a wide range of market sectors,
for instance for automotive parts and railway cars in the transport industry and forsemiconductor and liquid crystal manufacturing equipment and photosensitive drums in theelectrical machinery and electronics industries. The Group applies technologies and expertise
accumulated over many years to actively develop products that meet user needs and provides
customers with high-performance sheets and extrusions.

Consolidated Net Sales■ Overview of results for fiscal 2005

70,714
Millions of Yen

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

’02

’03

’04

’05

’06

• Applications

In Aluminum Sheet Operations, sales decreased
owing to an overall year-on-year drop in sales
volumes. Although shipments for the automotive
sector developed favorably, shipments ofaluminum foil stock for capacitors fell sharply
and shipments of aluminum plates forsemiconductor and liquid crystal manufacturing
equipment slumped. Despite NLM’s efforts tosecure profits by focusing on cost reductions
across all operations and adjustments to selling
prices, the impact of an increase in the price ofaluminum ingot and higher prices for fuel,subsidiary materials, and other items had an
adverse impact on profits.
For Aluminum Extrusion Operations, on thewhole sales increased year on year and profits• Principal Products• Automobile• Automobile suspension parts• Lead-free cut aluminum alloy• Quick freezing coagulated powder
extruded materials• High-intensity molded aluminum sheet• Transport

Cold plate• Large structural materials for railway
rolling stock• Side block for trucks• Electronics• Thick plate forsemiconductor and LCD manufacturing
equipment, Foil stock• Photosensitive drum materials
Rolling machine• Industrial• Printing roll
• Industrial materials• Building materials andinfrastructure materials• aluminum honeycomb panel• Scaffolding

12

improved owing to increased productivity and ahigher contribution to sales from fabricatedproducts, which compensated for an increase in
the price of aluminum ingot and other factors thatexerted upward pressure on costs. Demand forautomotive parts increased and recovery indemand for truck products exceeded initialexpectations. Demand from the electricalmachinery and electronics sectors fell owing to
the impact of inventory adjustments in the IT
sector, despite strong demand for photosensitive
drums and extruded shapes for machine tools.
As a result of these developments, sales in the
Aluminum Sheet an Extrusions segment decreasedby ¥2,110 million year on year to ¥70,714
million, and operating profit rose by ¥650 million
to ¥6,435 million.

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 andfreezer panels enjoy an excellent reputation for quality and are market share leaders in theirrespective 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

238,422■ Overview of results for fiscal 2005

Millions of Yen

In Aluminum Foil and Aluminum Powder andPaste Operations, sales increased slightly year on
year. Sales of aluminum foil increased owing to
the inclusion of subsidiary Tokai Aluminum Foil
Co., Ltd. in the scope of consolidation in May
2005. Shipments of general-purpose foil for foodproducts and pharmaceuticals packaging
developed favorably and shipments of electronics
materials rose in line with increased use of RFID
tags and smart cards. However, amid intensifying
competition, shipments of high-purity aluminum
foil for capacitors were sluggish and shipments offoil for consumer products decreased owing to
the impact of low-priced imports.
In the aluminum powder and paste sector,
overall sales increased slightly year on year.
Although shipments for plastic coatings andautomotive use were weak, shipments offunctional materials such as ink for solar cells
developed favorably. A sharp increase in the priceof aluminum ingot, the raw material for thisbusiness, resulted in deterioration of profits fromthe previous year.
In Transport-Related Operations, although arecovery in truck demand fueled a year-on-yearincrease in sales from the van and truck outfitting
business, across-the-board increases in prices ofaluminum products, steel products, plastics
products, and other principal materials
undermined profitability.
Sales of automobile air conditioning capacitorsrose year on year owing to an increase in demandfor capacitors both in Japan and overseas as aresult of an increase in the supply of parts fromJapan to overseas plants and to favorable sales ofmodels for subcompact cars.
An increase in orders for mainstay brakecalipers and peripheral engine parts compensatedfor a decrease in shipments of scrolls and otherwrought aluminum products, fueling a year-onyear increase in sales of shaped parts.
In Electronic Materials Operations, shipmentsof anodized aluminum foil for electrolytic
capacitors fell sharply year on year as a result of a
prolonged electronic parts inventory adjustmentthat continued from the second half of theprevious term. Although NLM focused on highvalue-added products and worked to cut costs at

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

’02

’03

’04

’05

’06

• 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

Business-use freezing
and refrigeration
warehouseplants, the profit situation was very challenging.
Overall sales from Panel Systems Operations
again increased year on year following strong
results for the previous year. Sales of panels forcommercial freezers and refrigerators rose as aresult of well-targeted sales and marketing, suchas focusing on winning orders for large projects
in response to signs of an increase in capital
investment in the food processing industry.
Demand for clean rooms was strong as a result ofrobust production in the electronic parts anddevices sector. Despite higher prices for steel
plates and foam materials, profits improved year
on year as a result of efforts to reduce costs andmaintain selling prices.
With regard to other fabricated products andrelated businesses, although sales of aluminum
mini-kegs for beer fell year on year as a result of
lower demand for beer due to a reaction
following the extreme summer heat the previous
term and the impact of higher shipments ofalcoholic beverages that resemble beer, overallsales increased from the previous year due to theuse of aluminum mini-kegs and servers in sales
campaigns by brewers.
Amid harsh market conditions resulting fromcontinuing contraction of public works spending,sales of landscaping products fell year on year
due to a decrease in the number of major
projects, despite efforts to increase sales ofaluminum movable covers for water and sewage
plant, guard fences, and brazed honeycomb
panels, a new mainstay product, and efforts
focused on the floodgate repair business.
NLM decided in March 2005 to withdraw fromthe household utensils business owing to poor
prospects for improvement in the businessenvironment and discontinued all sales andmarketing activities on September 30, 2005. We
will continue to discharge our responsibility toprovide service to customers who have purchased
these products and to collect recalled twohandled pressure cookers.
As a result of these developments, sales in the
Fabricated Products and Others segment
increased by ¥18,620 million year on year to¥238,422 million, and operating profit rose by¥965 million to ¥15,848 million.
13

Building Materials■ Profile
Shin Nikkei plays a central role in providing high-quality aluminum building materials,
operating in accordance with the basic concept of placing importance on the preferences ofresidents and users. Products include everything frombuilding construction materials suchas 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

170,848■ Overview of results for fiscal 2005

Millions of Yen

In the housing construction materials sector, newhousing starts increased by 4.7% year on year to
1,248 thousand units owing to solid demand forrental houses and condominiums. However, startsof detached houses, the central component ofdemand, fell due to a decrease in the number ofowner-occupied houses and a peak in sales ofdetached houses. In this business environment,
Shin Nikkei worked to reinforce and increase
sales of differentiated products, implementing acomplete model change in its core sash products
involving the launch of Alupla Clus and Alits nextgeneration sashes that combine basic
performance with higher added value andextending the popular CB Series and Shin Nikkei
Disney Series lines of products manufactured
using proprietary surface treatment technology.
Business conditions were harsh in thecommercial building construction materials
sector as demand for sashes slumped despite ayear-on-year increase in the floor area of building
construction started in the non-wood construction
sector. In these circumstances, Shin Nikkei
concentrated on increasing sales by

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

’02

’03

’04

’05

’06

• Applications• Principal Products• Building• Commercial building materials• Building materials andfor fixtures for houses• Exterior products

introducing products adapted to market needs in
its various business sectors; it launched nextgeneration RMG-70 sashes, a new core productline that offers improved design and functionality,
and augmented its line of anticrime andrefurbishment products, for which demand is
expected to increase.
At the same time, Shin Nikkei continued to
improve profitability by implementing a numberof group-wide, cross-organizational projects toimprove quality and delivery times and rigorously
cut overheads. Although Shin Nikkei concentrated
on establishing a profit base by commencing areview of its core business systems, the impact ofworsening conditions in the building materials
market and spikes in materials prices resulted in
the continuation of adverse business conditions.
As a result of these developments, sales in the
Building Materials segment decreased by ¥3,862
million year on year to ¥170,848 million, and an
operating loss of ¥163 million was recorded
following an operating profit of ¥4,068 million forthe previous term.

“Fine Port Wide R”(carport)

Meiji Yasuda Life Bld.

14

NLM GROUP
Nippon Light Metal Group consists of 114 subsidiaries and 51 associates,
The Group's major operations and the business relations between the Company, major consolidated subsidiaries andassociates accounted for by the equity method are shown in the diagram below.

Aluminum
Ingot andChemicals(Manufacture and Sales)(Sales and Others)● Aluminium Wire and Rod Co., Ltd.

● Nikkei Sangyo Co., Ltd.

● Amalgamated Aluminium and Alloys Sdn. Bhd.

● Tamai Steamship Co., Ltd.

● Daiki Nikkei Thai Co., Ltd.
● Ihara Nikkei Chemical Industry Co., Ltd.

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

● Nikkei Sangyo Co., Ltd.

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

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............108companys● Associates accounted for by the equity method. . .23companys

Flow of products and raw materials
Flow of services(As of March 31, 2006)

15

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

Gross Profit and
Gross Profit Margin

Millions of yen%

150,000

2001

2002

¥565,223
18.4
12,205
2,906(21,905)¥521,861
19.7
11,723
4,805
1,518

91,17269,006
225,763
179,282565,223

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

8,523
1,379
10,811(5,285)(3,223)
12,205

5,589
(620)
9,524
328
(3,098)
11,723Financial Position
Current Assets .................................................................................
Fixed Assets.....................................................................................
Current Liabilities............................................................................
Long-term Liabilities........................................................................
Minority Interest in Consolidated Subsidiaries...............................................
Shareholders' Equity .......................................................................
Interest-bearing Debt (Note 2) .......................................................

331,378
268,995
332,866
181,808
4,221
81,478
304,569

305,813
258,474
334,732
141,870
4,371
83,314295,255

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

22,69819,368(9,320)17,662(14,288)

26,685
18,542(12,250)
14,947(9,416)25

Gross Profit
Gross Profit Margin
120,000

20

90,00015

60,00010

30,0005002001 2002 2003 2004 2005 2006

Millions of yen

Years ended March 31

Interest-bearing Debt
350,000

300,000

250,000

200,000

150,000

100,000

50,00002001 2002 2003 2004 2005 2006

Millions of yen

Years ended March 31

Free Cash Flows

Financial Results
Net Sales..........................................................................................
Gross Profit Margin (%) .................................................................
Operating Profit...............................................................................
Ordinary Profit ................................................................................
Net Income (Loss) ..........................................................................
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 ......................................................................
Corporate or Elimination............................................................
Total...........................................................................................

Per Share Data (yen and dollars)
Net Income(loss) - basic.................................................................
- diluted ..............................................................
Shareholders' Equity .......................................................................
Cash Dividends................................................................................

35,00030,00025,00020,00015,00010,0005,000

02001 2002 2003 2004 2005 2006

Millions of yen

Years ended March 31¥ (41.22)—
149.96

¥

2.79

—

—
153.36
1.5

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

2.3(24.1)
13.6

3.1
1.8
14.8

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

543,350¥ 4,703
12,931

543,350¥ 4,686
12,705Note1: U.S. dollar amounts have been translated, for convenience only, at the exchange rate of ¥117.47 =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

16

Return on Capital Employed(ROCE)

Thousands of
U.S. dollars(Note1)Millions of yen

10

2003

2004

2005

2006

2006

¥514,042
20.1
20,086
12,325
7,116¥532,20121.1
26,35516,092
11,525¥560,284
21.0
30,56021,857
13,488¥577,061
20.1
28,92322,353
9,684$4,912,412
20.1
246,216
190,287
82,4388

6

4

2

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

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

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

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

826,398
601,975
2,029,642
1,454,397
4,912,412

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

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)28,92382,06354,780134,911(1,387)(24,151)
246,216

287,083
238,678
294,637
138,623
3,155
89,346
258,831

290,625
229,960
291,799
122,593
3,735
102,458
231,807285,252
229,529
266,212129,237
4,050
115,282
210,368

294,331
239,195
281,505
122,033
3,994
125,994
208,817

2,505,584
2,036,222
2,396,399
1,038,844
34,0001,072,563
1,777,620

02001 2002 2003 2004 2005 2006%

Years ended March 31

Return on Equity (ROE)
30

20

10

0

-10

-20

-30

2001 2002 2003 2004 2005 2006%

33,507
17,128224
13,501(36,504)

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)Years ended March 31

227,965
147,399(167,907)
168,715(83,953)

R&D Expenditures
6,000¥ 13.34¥ 21.24—167.01
2.0—
188.842.5¥ 24.7823.83
212.63
3.5

5.5
8.2
17.0

7.0
12.0
19.7

8.6
12.4
22.4

543,350¥ 4,427
12,328543,350¥ 4,804
12,598543,350¥ 5,538
12,927

¥

17.79
16.89
232.54
4.0

$

0.15
0.14
1.98
0.03

5,000

8.6
8.0
23.6

8.6
8.0
23.6

2,000

543,350¥ 5,133
13,492

543,350
43,696
13,492

4,000

3,000

1,000

0

$

2001 2002 2003 2004 2005 2006

Millions of yen

Years ended March 31

17

FINANCIAL REVIEWOverview
During fiscal 2005 (the year ended March 31, 2006), theJapanese economy performed well overall. However,inventory adjustment in IT-related industry and increases inprices of oil and materials heightened concerns as toprospects for the Japanese economy.
In the aluminum industry in Japan, although thebusiness was relatively robust, there was a decrease in sales
volumes in certain sectors, namely, the construction, ITrelated and food sectors. Since prices in the global
aluminum ingot market surged from the autumn of 2005
while the prices of other raw materials and secondary
materials remained high and the price of crude oil increased
sharply, aluminum manufacturers in Japan whose mainstay
business is processing experienced a challenging businessenvironment.

the previous fiscal year at ¥87.2 billion ($742 million). As aresult, operating profit declined 5.4% to ¥28.9 billion ($246
million).
Non-operating income increased 2.5% to ¥3.2 billion($27 million). This was mainly due to an increase in foreign
currency exchange gains. Non-operating expenses decreased
17.4% to ¥9.7 billion ($83 million), mainly owing to a ¥0.8
billion decrease in interest expense and a ¥1.3 billion
decrease in loss on disposal of inventories and fixed assets
included in “Other” of non-operating expenses. As a result,ordinary profit increased 2.3% to ¥22.4 billion ($190
million).
Special gains decreased from ¥1.1 billion for theprevious fiscal year to ¥0.3 billion ($3 million). This was
attributable to the fact that, whereas a gain on sale ofinvestment securities amounting to ¥0.8 billion was reported
for the previous fiscal year, no gains on sale were reported
for the fiscal year under review.
Special losses decreased from ¥3.4 billion for theprevious fiscal year to ¥3.0 billion ($26 million), which
included a ¥2.0 billion ($17 million) loss on impairment of
FLEXCASTERTM aluminum sheet continuous casting facilities,
which have not yet contributed to profits, and reporting of acharges on sale of aluminum foil amounting to ¥1.1 billion($9 million) in accordance with the Japan Fair Trade
Commission’s decision on the Company’s aluminum foil
manufacturing subsidiary.
The total amount of current income taxes increased ¥1.1
billion from the previous fiscal year to ¥8.6 billion ($73

Earnings and Expenses
In these circumstances, consolidated net sales of the NLMGroup increased 3.0% year on year to ¥577.1 billion($4,912 million) due to strong demand from the automotive
and transport sectors and as a result of inclusion of Tokai
Aluminum Foil Co., Ltd. in the scope of consolidation. Pleaserefer to the Review of Operations (Pages 11 to 15) for an
overview of the results of operations.
The cost of sales increased 4.2% from the previous fiscal
year to ¥461.0 billion ($3,924 million) and the cost of sales
ratio increased 0.9 percentage points to 79.9%. Selling,
general and administrative expenses were unchanged fromNet Sales By Segment
600

500

Total Shareholders’ Equity

Equity Ratio

150

25

120

20

90

15

60

10

30

5

400

300

200

100

0

2002

Billions of yen

2003

2004

2005

Years ended March 31

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

18

2006

0

2002

Billions of yen

2003

2004

2005

0

2006

As of March 31

%

2002

2003

2004

2005

2006

As of March 31

million), due mainly to the fact that the Company’s deficit
carried forward concerning corporate taxes was eliminatedin the previous fiscal year.
Deferred income taxes for the fiscal year under review
amounting to ¥0.9 billion ($8.0 million), which werecharged to income, were mainly attributable to reversal ofdeferred tax assets because the deficit carried forward
concerning local taxes was appropriated, whereas deferredincome taxes for the previous fiscal year were ¥20.4 billion,
which were credited to income, due to the reporting ofdeferred tax assets by recognizing tax effects because ofrescheduling of temporary differences concerninginvestments in certain consolidated subsidiaries.
Consequently, consolidated net income decreased 28.2%
from the previous fiscal year to ¥9.7 billion ($82 million).
The average number of shares outstanding during the fiscal
year decreased from 542,106,572 shares in fiscal 2004 to
541,742,151 shares in fiscal 2005. As a result, basic net
income per share of common stock was ¥17.79 ($0.15),
28.2% lower than for the previous fiscal year. Payment ofcash dividends of ¥4.0 per share of common stock, ¥0.5
higher than for the previous fiscal year, was approved by the
resolution of the ordinary general meeting of shareholdersof the Company held on June 29, 2006.
Assets, Liabilities and Shareholders’ Equity
Total assets increased 3.6% from the end of the previous
fiscal year to ¥533.5 billion ($4,542 million). Although cash
and deposits decreased, the inclusion of Tokai Aluminum
Foil within the scope of consolidation from the fiscal year
under review resulted in the increase in total assets.
Total liabilities increased 2.0% from the end of theprevious fiscal year to ¥403.5 billion ($3,435 million),
mainly due to the inclusion of Tokai Aluminum Foil within
the scope of consolidation from the fiscal year under review.
Interest-bearing debt decreased ¥1.6 billion from theprevious fiscal year to ¥208.8 billion.
Minority interests in consolidated subsidiaries amounted
to ¥4.0 billion ($34 million), 1.4% lower than at the end of
the previous fiscal year. Shareholders’ equity rose 9.3% to¥126.0 billion ($1,073 million), due to an increase inretained earnings as a result of the higher net income.
Shareholders’ equity per share of common stock was¥232.54 ($1.98), an increase of 9.4%. The equity ratio was
23.6%, an increase of 1.2 percentage points.
Cash Flows
Cash and cash equivalents at March 31, 2006, were ¥27.7
billion ($236 million), ¥2.6 billion or 8.7% lower than at

the end of the previous fiscal year.
Net cash provided by operating activities amounted to ¥26.8
billion ($228 million), ¥5.6 billion or 17.2% lower. Thisdecrease was attributable to increases in income taxes paid
and other payments.
Net cash used for investing activities amounted to ¥19.7
billion ($168 million), having increased ¥5.6 billion or
39.6% compared with the previous fiscal year. This was
mainly owing to an increase in payments for purchase of
fixed assets.
Net cash used for financing activities was ¥9.9 billion($84 million), having decreased ¥12.8 billion or 56.6%.
This decrease was mainly attributable to decreases in shortterm borrowings and long-term debt amounting to ¥13.2
billion.
Outlook for Fiscal 2006
The outlook for the Japanese economy remains uncertain as
sharp increases in prices of crude oil and materials andmonetary tightening may impede economic growth. Although
the aluminum industry is expected to experience strong
demand in fiscal 2006, sharp increases in prices foraluminum ingot, the principle raw material for NLM’sbusinesses, for raw materials and fuel, as well as for othermaterials, may have an adverse impact on profits. In thesecircumstances, the NLM Group will endeavor to thoroughly
implement a battery of streamlining measures and todevelop and increase sales of new products. Since fiscal
2006 is the final year of the current five-year mid-term
management plan, the NLM Group is formulating a new midterm management plan, which will be announced during
fiscal 2006.
Strengthening of profitability of the building materials
business will be the principal task addressed in the newplan. In particular, in addition to drastic management
reform of Shin Nikkei, including strengthening of
capabilities to respond to customer needs andreinforcement and rigorous implementation of strategy,
directing Shin Nikkei’s management resources to highadded-value sectors other than the building materials
business is being considered within the framework of the
NLM Group strategy.
For fiscal 2006, the Company forecasts net sales of ¥600
billion, ordinary profit of ¥22 billion and net income of ¥12billion on a consolidated basis. Net income per share ofcommon stock is expected to be ¥22.15. Year-end cash
dividends are expected to be ¥5.0 per share of common
stock, ¥1.0 higher than for fiscal 2005.

19

CONSOLIDATED BALANCE SHEETS
Nippon Light Metal Company, Ltd. and its consolidated subsidiaries
As of March 31, 2005 and 2006

Thousands of
U.S. dollars(Note 2)Millions of yen

ASSETS
2005
Current assets:
Cash and deposits (Notes 3 and 6) .............................................................. ¥ 30,800
Notes and accounts receivable—trade ........................................................ 171,743
Inventories (Note 4) ...................................................................................
69,769Deferred tax assets (Note 8) ......................................................................
5,257
Other current assets (Note 3) .....................................................................
10,469Allowance for doubtful accounts .................................................................
(2,786)
Total current assets ..................................................................... 285,252

2006

2006

¥ 28,122
172,100
76,0205,057
15,315(2,283)294,331$ 239,397
1,465,055
647,144
43,049130,374(19,435)
2,505,584

Fixed assets:
Property, plant and equipment (Note 6)—
Buildings and structures ........................................................................ 137,443
Machinery and equipment ..................................................................... 278,138
Land ......................................................................................................
62,369Construction-in-progress .......................................................................
3,424
Accumulated depreciation ..................................................................... (301,760)
179,614

142,457
294,964
64,8903,829(321,135)
185,005

1,212,710
2,510,973
552,396
32,596(2,733,762)
1,574,913

—
3,895
3,895

948
4,313
5,261

8,070
36,71644,78630,703
7,956
10,233(2,872)
46,020229,529

35,346
6,156
10,047(2,620)48,929239,195

300,894
52,40585,528(22,304)
416,523
2,036,222

Total assets ................................................................................... ¥ 514,781¥533,526$4,541,806

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 ...........................................................
Total fixed assets .........................................................................

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

20

LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
Millions of yen
SUBSIDIARIES AND SHAREHOLDERS’ EQUITY
2005
2006
Current liabilities:
Short-term borrowings (Note 6) ................................................................. ¥ 81,542 ¥ 82,512
Current portion of long-term debt (Note 6) ................................................
31,00941,140Notes and accounts payable—trade ............................................................ 107,354
112,362
Income taxes payable...................................................................................
6,008
5,596
Other current liabilities ...............................................................................
40,29939,895
Total current liabilities .................................................................... 266,212
281,505
Long-term liabilities:
Long-term debt (Note 6) .............................................................................
Accrued pension and severance costs—
for employees (Note 7) .........................................................................
for directors and statutory auditors .......................................................
Deferred tax liabilities for land revaluation surplus(Notes 8 and 10)....................................................................................
Negative goodwill ........................................................................................
Other long-term liabilities (Note 8) .............................................................
Total long-term liabilities ................................................................

Thousands of
U.S. dollars(Note 2)2006

$ 702,409
350,217956,516
47,638339,619
2,396,399

96,491

84,166

716,489

25,638
1,445

27,8291,186

236,903
10,096—288
5,375
129,237

522
—
8,330
122,033

4,444—
70,912
1,038,844

Minority interest in consolidated subsidiaries ........................................

4,050

3,994

34,000Shareholders’ equity:
Common stock—
Authorized: 1,600,000,000 shares
Issued:543,350,370 shares .....................................................
Additional paid-in capital ............................................................................
Retained earnings (Note 9) .........................................................................
Revaluation surplus (Note 10) ....................................................................
Net unrealized gains on securities (Note 5) .................................................
Foreign currency translation adjustments ....................................................
Treasury stock, at cost
(1,436,424 shares in 2005 and 1,723,444 shares in 2006).........................
Total shareholders’ equity ................................................................

39,08524,56948,651
145
3,017
52

39,08524,56956,385
145
5,629
501

332,723
209,151
479,995
1,234
47,9194,265(237)
115,282(320)
125,994(2,724)
1,072,563

Total liabilities, minority interest inconsolidated subsidiaries and shareholders’ equity ................... ¥ 514,781¥533,526$4,541,806

Contingent liabilities (Note 14)

21

CONSOLIDATED STATEMENTS OF INCOME
Nippon Light Metal Company, Ltd. and its consolidated subsidiaries
For the years ended March 31, 2005 and 2006

Thousands of
U.S. dollars(Note 2)Millions of yen
2005

Net sales ......................................................................................................... ¥ 560,284
Cost of sales (Note 13) ................................................................................. 442,543
Gross profit .............................................................................................. 117,741
Selling, general and administrative expenses (Note 13) ........................
87,181
Operating profit .......................................................................................
30,560Non-operating income:Interest income ...........................................................................................
73
Amortization of negative goodwill ................................................................
192
Rental income .............................................................................................
887
Royalty income ............................................................................................
393
Foreign exchange gain, net ..........................................................................
23
Other ..........................................................................................................
1,526
Total non-operating income ..................................................................
3,094
Non-operating expenses:
Interest expense ..........................................................................................
4,335
Equity in losses of associates........................................................................
365
Amortization of transition obligation for employees retirement benefits (Note 7) ....
2,086
Other ..........................................................................................................
5,011
Total non-operating expenses ...............................................................
11,797
Ordinary profit ........................................................................................
21,857
Special gains:
Gain on sale of fixed assets...........................................................................
269
Gain on sale of investment securities (Note 5) ............................................
813
Total special gains ...................................................................................
1,082
Special losses:
Loss on impairment of fixed assets...............................................................
2,160
Charges on sale of aluminum foil (Note 16).................................................
—
Loss on liquidation of business ....................................................................
1,200
Total special losses .................................................................................
3,360
Income before income taxes and minority interest inconsolidated subsidiaries ................................................................
19,579
Income taxes (Note 8)—current ...................................................................
7,500—deferred .................................................................
(2,042)
5,458
Minority interest in net income of consolidated subsidiaries ...............
633
Net income ............................................................................................... ¥ 13,488
Per share of common stock (Note 15):
Net income —basic .................................................................................... ¥—diluted .................................................................................
Cash dividends ............................................................................................ ¥The accompanying notes are an integral part of these financial statements.

22

2006

2006

¥577,061
460,983
116,078
87,15528,923$4,912,412
3,924,262
988,150
741,934
246,216

87
—
792
395
374
1,522
3,170

741
—
6,742
3,363
3,184
12,95626,986

3,554
241
2,132
3,813
9,740
22,35330,255
2,052
18,14932,45982,915
190,287

298
—
298

2,537
—
2,537

1,964
1,069
—
3,033

16,7199,101—
25,82019,618
8,589
939
9,528
406
¥ 9,684

167,004
73,117
7,993
81,1103,456$ 82,438
U.S. dollars(Note 2)

Yen

24.78
23.83
3.50

¥

17.79
16.89
¥
4.00

$
$

0.15
0.14
0.03

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Nippon Light Metal Company, Ltd. and its consolidated subsidiaries
For the years ended March 31, 2005 and 2006

Millions of yen

Number ofshares issued

Balance at March 31, 2004: .......................
Net income................................................
Cash dividends ..........................................
Directors’ and statutory auditors’ bonuses ...
Transfer of revaluation gain on land of an
associate ...........................................
Net unrealized gains on securities (Note 5) ..
Foreign currency translation adjustments..
Net decrease in treasury stock...................
Change in functional currency by a foreignsubsidiary of an associate...................
Inclusion in consolidation due to the merger
with an unconsolidated subsidiary .....
Balance at March 31, 2005: .......................
Net income................................................
Cash dividends ..........................................
Directors’ and statutory auditors’ bonuses ..
Net unrealized gains on securities (Note 5) ..
Foreign currency translation adjustments..
Net decrease in treasury stock...................
Balance at March 31, 2006 ........................

Commonstock

Additional
paid-in capital

Retainedearnings

Net unrealized
Revaluation
gains onsurplussecurities

543,350,370 ¥39,085 ¥24,569 ¥36,097
13,488(1,356)
(45)

¥508

363

(363)

¥2,621

Foreigncurrencytranslation
Treasury
adjustments stock, at cost(¥289)(¥133)

396
341
(104)
70

543,350,370

39,08524,56934
48,6519,684(1,897)
(53)

145

3,017

52

(237)

2,612
449
543,350,370 ¥39,085 ¥24,569 ¥56,385¥145¥5,629¥501(83)(¥320)

Thousands of U.S. dollars (Note 2)

Number ofshares issued

Balance at March 31, 2005: .......................
Net income ...............................................
Cash dividends .........................................
Directors’ and statutory auditors’ bonuses ..
Net unrealized gains on securities (Note 5) ..
Foreign currency translation adjustments .
Net decrease in treasury stock ..................
Balance at March 31, 2006 ........................

Commonstock

Additional
paid-in capital

Retainedearnings

Net unrealized
Revaluation
gains onsurplussecurities

543,350,370 $332,723 $209,151 $414,157 $1,234 $25,683
82,438(16,149)(451)
22,236

Foreigncurrencytranslation
Treasury
adjustments stock, at cost

$ 443($2,017)

3,822
543,350,370 $332,723 $209,151 $479,995$1,234 $47,919$4,265(707)($2,724)

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

23

CONSOLIDATED STATEMENTS OF CASH FLOWS
Nippon Light Metal Company, Ltd. and its consolidated subsidiaries
For the years ended March 31, 2005 and 2006

Millions of yen
2005

Cash flows from operating activities:
Income before income taxes and minority interest in consolidated subsidiaries ...
Depreciation and amortization ....................................................................
Amortization of negative goodwill ................................................................
Loss on impairment of fixed assets...............................................................
Charges on sale of aluminum foil (Note 16).................................................
Loss on liquidation of business ....................................................................
Gain on sale of fixed assets, net ...................................................................
Gain on sale of investment securities ...........................................................
Increase in accrued pension and severance costs .......................................
Interest and dividend income ......................................................................
Interest expense ..........................................................................................
Equity in losses of associates........................................................................
(Increase)decrease in notes and accounts receivable—trade .....................
Increase in inventories ................................................................................
Increase in notes and accounts payable—trade ..........................................
Other ..........................................................................................................
Sub total ........................................................................................
Interest and dividend income received ........................................................
Interest paid ................................................................................................
Income taxes paid .......................................................................................
Net cash provided by operating activities ................................
Cash flows from investing activities:
Decrease in time deposits ...........................................................................
Payments for purchase of investment securities ...........................................
Proceeds from sale of investment securities ................................................
Payments for purchase of fixed assets .........................................................
Proceeds from sale of fixed assets ...............................................................
Decrease in long-term loans receivable .......................................................
Cash recieved from acquisitions, net of acquisitions costs (Note 3) ............
Decrease for the exclusion of a consolidated subsidiary from theconsolidation because of the sale of the subsidiary.................................
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 by the Company ...........................................................
Cash dividends paid to minority interest ......................................................
Other ..........................................................................................................
Net cash used in financing activities .........................................
Effect of exchange rate changes on cash and cash equivalents .....................
Net decrease in cash and cash equivalents ..................................................
Cash and cash equivalents at beginning of year ...........................................
Increase in cash and cash equivalents due to the merger
with an unconsolidated subsidiary..........................................................
Cash and cash equivalents at end of year (Note 3) ..................

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

24

2006

Thousands of
U.S. dollars(Note 2)2006

¥ 19,579
16,591
(192)
2,160
—
1,200
(269)
(813)
591
(274)
4,335
365
(8,253)
(501)
3,867
3,370
41,756499(4,471)(5,439)32,345¥ 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$167,004
147,399—
16,7199,100—(2,537)—
10,190(2,707)30,255
2,052
25,241(59,309)
4,938(20,414)327,9313,720(30,893)(72,793)
227,965

337
(345)
1,071
(14,920)
461
74
—

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

1,166
(2,333)
1,498(155,376)
2,605
375
7,457

—
(809)
(14,131)(367)(2,370)(19,724)(3,124)(20,175)(167,907)(15,094)
41,964(47,418)(1,355)(358)(441)(22,702)12(4,476)34,781

198
24,463(32,027)(1,893)(342)(261)(9,862)170(2,637)30,333

1,686
208,249(272,640)(16,115)(2,911)(2,222)(83,953)
1,447(22,448)
258,21928¥ 30,333—¥ 27,696—$235,771

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

1. SIGNIFICANT ACCOUNTING POLICIES:(a) Basis of presenting financial statements —The accompanying consolidated financial statements of Nippon Light Metal Company, Ltd. (“the Company”) and its consolidated subsidiaries(together “the Companies”) are prepared in accordance with accounting principles and practices generally accepted in Japan, which are different
in certain respects as to application and disclosure requirements of International Financial Reporting Standards. The notes to the consolidated
financial statements include financial information which is not required under accounting principles and practices generally accepted in Japan,
but is presented herein as additional information. In addition, the consolidated statements of shareholders’ equity are not required in Japan, but
are also presented herein as additional information. The accompanying consolidated financial statements include certain reclassifications andmodifications for the purpose of presenting them in a form more familiar to readers outside Japan.
(b) Consolidation and investments in associates —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 associates’ are accounted for using the equity method.
Exceptionally, investments in certain unconsolidated subsidiaries and associates 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 equity of investment in consolidated subsidiaries or associates accounted for by theequity method has been allocated to identifiable assets based on fair market value at the date of acquisition. Any unassigned residual amount isrecognized as goodwill and deferred and amortized on a straight-line basis over the estimated useful life, with the exception of minor amounts,
which are charged to income in the year of acquisition.
(c) 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 the net income for the year.
Assets and liabilities of foreign subsidiaries and associates 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 rate during the year. The resulting
translation adjustments are accounted for as a component of “Shareholders’ equity”, except for the minority interest portion, which is allocated to“Minority interest in consolidated subsidiaries”.
(d) 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.
(e) Inventories —Inventories are principally stated at cost, determined by the weighted average method, except for costs related to construction-type contracts which
are specifically identified.
(f) Financial instruments —i) Derivatives:
All derivatives are stated at fair value with changes in fair value being included in the net income of the year in which they arise, except forderivatives designated as hedging instruments (see iii Hedge accounting).
ii) Securities:
Securities held by the Companies are classified into ‘trading securities’, ‘held-to-maturity debt securities’, ‘investment in equity securities issued byunconsolidated subsidiaries and associates’ and ‘Available for sale securities’.
‘Trading securities’ are stated at fair value, as of the end of the fiscal year, with changes in fair value included in net gains or losses for the
fiscal year. In accordance with their policy, the Companies have no ‘trading securities’.
‘Held-to-maturity debt securities’ that the Companies intend to hold to maturity are stated at cost, after accounting for any premium or
discount on acquisition which is amortized over the period to maturity.
‘Investment in equity securities issued by unconsolidated subsidiaries and associates’ are accounted for using the equity method, except forinvestments in certain unconsolidated subsidiaries and associates which are stated at cost because the effect of applying the equity method would
be immaterial.
‘Available for sale securities’ for which market quotations are available are stated at fair value as of the end of the fiscal year with net
unrealized gains or losses being included as a separate component of “Shareholders’ equity”, net of related taxes. Realized gains and losses onsales are determined using the average cost method and are included in the net income for the fiscal year.
‘Available for sale securities’ for which market quotations are not available are stated at cost, except as stated in the paragraph below.
In cases where the fair value of ‘held-to-maturity debt securities’, ‘investment in equity securities issued by unconsolidated subsidiaries andassociates’, or ‘available for sale securities’ has declined significantly and such impairment is other than temporary, such securities are written
down to fair value and the resulting losses are charged to income for the fiscal year.
25

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSiii) Hedge accounting:
The Companies use derivatives to reduce the Companies’ exposure to fluctuations in foreign exchange rates, interest rates, and the price ofaluminum ingot in the market. Derivatives designated as hedging instruments by the Companies are principally forward exchange contracts,
interest rate swap contracts and aluminum ingot forward contracts. The underlying hedged items are trade accounts receivable and payable, longterm bank loans and sales or purchases of aluminum ingot. Thus, the Companies’ purchases of hedging instruments are limited to the amounts of
the hedged items.
Gains or losses arising from changes in the fair value of derivatives designated as hedging instruments are deferred as an asset or liability andincluded in net income in the same period in which the gains and losses on the hedged items or transactions are recognized. The Companies 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.
The Companies evaluate the effectiveness of their hedging activities by reference to the accumulated gains or losses on the hedging
instruments and the underlying hedged items from the commencement of the hedges.
(g) 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.
(h) 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.
(i) Impairment of fixed assets —The Company and its domestic subsidiaries adopted the accounting standard for impairment of fixed assets (“Opinion Concerning Establishmentof Accounting Standard for Impairment of Fixed Assets” issued by the Business Accounting Deliberation Council on August 9, 2002) and theimplementation guidance for the impairment of fixed assets (the Financial Accounting Standard Implementation Guidance No. 6 issued by the
Accounting Standards Board of Japan on October 31, 2003) for the consolidated financial statements from the fiscal year ended March 31, 2005.
The standard requires that fixed assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amountof an asset or asset group exceeds the sum of undiscounted future cash flows expected to result from the continued use and eventual disposal of theasset or asset group. An impairment loss is recognized in the income statement as the amount by which the carrying amount of the asset exceeds
its recoverable amount, which is the higher of net selling price at disposal or the discounted cash flows from the continued use and eventual
disposal of the asset. In addition, accumulated impairment losses are deducted directly from the related fixed assets.
The Companies mainly recognized an impairment loss of ¥2,053 million on land and of ¥1,715 million ($14,599 thousand) on leased assets
for the fiscal years ended March 31, 2005 and 2006, respectively.
(j) Accrued pension and severance costs —“Accrued pension and severance costs for employees” represent the estimated present value of projected benefit obligations in excess of the fairvalue of the plan assets, except for the unrecognized transition amount and unrecognized actuarial differences. The unrecognized transition
amount is amortized on a straight-line basis over 12 years and the unrecognized actuarial differences are amortized on a declining-balance basis
over 12 years from the year following that in which they arise, except for unrecognized costs in respect of employees who retired under the early
retirement program, which were 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 andstatutory auditors of certain consolidated subsidiaries retired at the balance sheet date, based on their internal retirement rules.
The Company’s retirement benefit plan for directors and statutory auditors was abolished upon the closure of the ordinary general meeting ofshareholders held on June 29, 2005. Accordingly, the amount of accrued retirement benefit to directors and statutory auditors, which was
calculated based on the Company’s internal rules for their service up to that point and approved by the shareholders at the meeting, is included in“Other long-term liabilities” on the consolidated balance sheets from the fiscal year ended March 31, 2006.
(k) Lease transactions —Under Japanese accounting practices, finance leases without an option to transfer ownership of the leased assets to the lessee may be accounted for
as operating leases subject to appropriate footnote disclosure. Therefore, the Companies charge or credit periodic lease payments and receipts
related to finance leases to income as incurred.
(l) 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 subsidiaries adopt the deferred tax accounting method. Deferred tax assets and liabilities are determined using the asset
and liability approach, and recognized for temporary differences between the tax basis of assets and liabilities and those as reported in the financial
statements.
26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(m) Research and development costs and computer software —Research and development costs are charged to income as incurred. Expenditure relating to computer software developed for internal use ischarged to income as incurred, except in cases where it contributes to the generation of income or to future cost savings. In these cases, it iscapitalized and amortized using the straight-line method over its estimated useful life, which is no longer than 5 years.
(n) Appropriation of retained earnings —Appropriation of retained earnings is reflected in the consolidated financial statements for the fiscal year in which the appropriation is approved at
the ordinary general meeting of shareholders.
The Company’s retained earnings consist of unappropriated retained earnings and legal reserves required by the Corporation Law of Japan.
The retained earnings accumulated by the Company are initially recorded as unappropriated retained earnings and later transferred to legal
reserve upon approval at the shareholders’ meeting.
Under the Corporate Law of Japan, the Company is permitted to transfer to retained earnings the portion of statutory reserve (additional paidin capital and legal reserve) in excess of 25% of common stock upon approval at the shareholders’ meeting. Any transferred portion will beavailable for dividend distribution.
(o) Net income and dividends per share —Basic net income per share of common stock, shown in the consolidated statements of income, is computed based on the weighted average numberof shares outstanding during the respective fiscal 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 related interest expense on a net of tax basis.
Cash dividends per share, shown in the consolidated statements of income, represent dividends declared as applicable to the respective fiscal
year.
(p) Reclassifications —Certain reclassifications of previously reported amounts have been made to conform with current classifications.
2. U.S. DOLLAR AMOUNTS:
The rate of ¥117.47 = U.S.$1, the approximate current rate prevailing on March 31, 2006, has been used for the purpose of presentation of the U.S.
dollar amounts in the consolidated financial statements. These amounts are included solely for the convenience of the reader and are notcomputed in accordance with generally accepted translation procedures. Accordingly, they should not be construed as representations that the yenamounts 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:
Reconciliation of “cash and cash equivalents” on the consolidated statements of cash flows to the accounts disclosed on the consolidated balance
sheets at March 31, 2005 and 2006 is as follows:
Thousands of
U.S. dollars

Millions of yen
2005

Cash and deposits...............................................................................................................................
Time deposits with maturity in excess of 3 months..........................................................................
Cash equivalents included in “Other current assets” .......................................................................
Cash and cash equivalents.................................................................................................................

¥30,800(567)
100¥30,333

2006

2006

¥28,122(426)—¥27,696$239,397(3,626)—$235,771

27

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the fiscal year ended March 31 2006, the Company acquired a share of Tokai Aluminum Foil Co., Ltd., and this then became one of theCompany’s newly consolidated subsidiaries. At the time of acquisition, the assets and liabilities and the net cash and cash equivalents acquired, lesscash payments for acquisition were as follows:

The 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 interest in consolidated subsidiaries.............................................................................................................
Subtotal..........................................................................................................................................................
Carrying amount (negative amount) of the investment in Tokai Aluminum Foil Group accounted forby the equity method before acquisition .........................................................................................
Acquisition cost ..............................................................................................................................................
Cash and cash equivalents held by Tokai Aluminum Foil Group..............................................................................
Net cash and cash equivalents acquired, less cash payment for acquisition .............................................................

Millions of yen

Thousands of
U.S. dollars

2006

2006

¥8,3694,579
1,280(6,125)(7,057)(4)
1,042$71,244
38,98010,896(52,141)(60,075)
(34)
8,870

258
¥1,300¥2,176¥ 876

2,197$11,067$18,524$ 7,457

4. INVENTORIES:
Inventories at March 31, 2005 and 2006 comprised the following:Thousands of
U.S. dollars

Millions of yen

Finished products...............................................................................................................................
Work-in-process, including costs related to construction-type contracts.........................................
Raw materials and supplies...............................................................................................................

2005

2006

2006

¥24,381
33,096
12,292¥69,769¥27,359
33,703
14,958¥76,020$232,902
286,907
127,335$647,144

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, 2005 and 2006 are as follows:
Thousands of
U.S. dollars

Millions of yen
2005

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

28¥3,7035,127(15)¥8,8152006

2006¥ 3,9249,381(18)¥13,287$ 33,404
79,859(153)$113,110NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(b) Sale of ‘Available for sale securities’ —The realized gains and losses on sale of ‘available for sale securities’ during the fiscal years ended March 31, 2005 and 2006 are as follows:
Thousands of
U.S. dollars

Millions of yen

Proceeds on sale .................................................................................................................................
Realized gains on sale .......................................................................................................................
Realized losses on sale .......................................................................................................................

2005

2006

2006

¥1,071
813
—

¥176
79
6

$1,498673
51(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, 2005 and2006, are as follows:
Thousands of
U.S. dollars

Millions of yen
2005(1) ‘Held-to-maturity securities’:
Domestic debt securities privately offered ..................................................................................
(2) ‘Available for sale securities’:
Equity investments in non-public companies ...........................................................................
Other ...........................................................................................................................................

¥

2006

117

¥

11,505
72¥11,694

2006

105

11,21781¥11,403$

894

95,488690$97,072(d) Maturity of debt securities —The repayment schedules for debt securities at March 31, 2005 and 2006 are as follows:
Millions of yen
2005
Due within
one year

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

¥12
—
—
¥12

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

¥47
10
25
¥82

¥36
—
—
¥36

Due after
ten years

¥12
—
—
¥12

Millions of yen
2006
Due within
one year

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

¥12
10
—
¥22

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

¥48
—
25
¥73

¥25
—
—
¥25

Due after
ten years

¥10
—
—
¥10

Thousands of U.S. dollars
2006
Due within
one year

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

$102
85
—
$187

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

$408
—
213
$621

$213
—
—
$213

Due after
ten years

$85
—
—
$85
29

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT:“Short-term borrowings” at March 31, 2006 bear interest at annual rates ranging from 0.528% to 3.850% and mainly consist of bank loans or
short-term notes maturing at various dates within one year.
“Long-term debt” at March 31 comprised of the following:Thousands of
U.S. dollars

Millions of yen
2005

Loans, principally from banks and insurance companies due from 2005 to 2014
with interest rates ranging from 1.100% to 5.600%:
Secured........................................................................................................................................
Unsecured ...................................................................................................................................
Loans, principally from banks and insurance companies due from 2006 to 2016
with interest rates ranging from 0.800% to 7.920%:
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 ..............................................................
Capital lease obligations due from 2005 to 2029 with interest rates ranging from6.900% to 7.200% .............................................................................................................................
Capital lease obligations due from 2006 to 2029 with interest rates ranging from6.500% to 7.200% .............................................................................................................................
.............................................................................................................................................
Less: portion due within one year.....................................................................................................
Total long-term debt..........................................................................................................................

¥ 88,506
18,367

2006

¥

2006

—
—

$

—
—

—
—
9,000
644
10,00073,17831,454
9,000
705
10,000622,951
267,762
76,615
6,001
85,128

983

—

—

—
127,500(31,009)¥ 96,491

969
125,306(41,140)¥ 84,166

8,249
1,066,706(350,217)$ 716,489*1 The details of the zero coupon convertible bonds are as follows:
Stock type to be issued: ...............................................................................................................
Issuance price of the stock acquisition right: ............................................................................
Initial exercise price: ..................................................................................................................
Total issue price: .........................................................................................................................
Exercise period of stock acquisition right: .................................................................................

common stocknone¥350 per share¥10,050 million
from August 9, 2004 to September 16, 2009

A summary of assets pledged as collateral for “Short-term borrowings” and “Long-term debt” at March 31, 2006 is as follows:
Thousands of
U.S. dollars

Millions of yen

Cash and deposits............................................................................................................................................................ ¥60
Property, plant and equipment....................................................................................................................................... 104,968
Investment securities.......................................................................................................................................................
325

$

511
893,573
2,767

The aggregate annual maturities of “Long-term debt” beyond March 31, 2006 are as follows:
Years ending March 31

Millions of yen

2007 ................................................................................................................................................................................. ¥ 41,140
2008 .................................................................................................................................................................................
22,932
2009 .................................................................................................................................................................................
19,0252010 .................................................................................................................................................................................
26,9182011 .................................................................................................................................................................................
6,580
Thereafter ........................................................................................................................................................................
8,711¥125,306

30

Thousands of
U.S. dollars$ 350,217
195,216
161,956
229,148
56,014
74,155$1,066,706

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, 2005 and 2006 are analyzed as follows:
Thousands of
U.S. dollars

Millions of yen

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

2005

2006

2006

(¥64,995)
21,705(43,290)
14,597
3,055(¥25,638)(¥66,856)
26,198(40,658)
12,822
7(¥27,829)($569,133)
223,019(346,114)
109,15160($236,903)

The net pension costs related to retirement benefits for the fiscal years ended March 31, 2005 and 2006 are as follows:
Thousands of
U.S. dollars

Millions of yen

Service cost .........................................................................................................................................
Interest cost ........................................................................................................................................
Expected return on plan assets ..........................................................................................................
Amortization of transition amount ...................................................................................................
Amortization of unrecognized actuarial differences.........................................................................
Net pension and severance costs........................................................................................................

2005

2006

2006

¥3,390
1,384
(410)
2,086
441
¥6,891¥3,706
1,363
(466)
2,132
441
¥7,176$31,549
11,603(3,967)
18,1493,754$61,088

Assumptions used in calculation of the above information are as follows:
2005

Discount rate ......................................................................................................................................
Expected rate of return on plan assets...............................................................................................
Method of attributing the projected benefits to periods of employee service....................................
Amortization of unrecognized actuarial differences.........................................................................
Amortization of transition amount ...................................................................................................

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

2006

2.5%
Mainly 2.5%
Straight-line basis
Mainly 12 years
12 years31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8. INCOME TAXES:
The Company and its domestic subsidiaries are subject to a number of different taxes based on income which, in aggregate, indicate a statutory
income tax rate of approximately 40.7% for the fiscal years ended March 31, 2005 and 2006, respectively.
Tax losses can be carried forward for seven-year period for offset against future taxable income.
Significant components of deferred tax assets and liabilities at March 31, 2005 and 2006 were as follows:
Thousands of
U.S. dollars

Millions of yen
2005

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

2006

2006

¥10,212
6,992
4,016
2,487
1,420
9,202
34,329(18,194)
16,135¥11,469
4,587
3,588
2,517
1,479
10,936
34,576(19,406)
15,170$ 97,633
39,04830,544
21,427
12,59193,096294,339(165,200)
129,139(2,072)(721)(446)(3,239)¥12,896(3,789)(733)(473)(4,995)¥10,175(32,255)(6,240)(4,026)(42,521)$ 86,618

Deferred tax assets and liabilities that comprise the net deferred tax assets are included in the consolidated balance sheets as follows:
Thousands of
U.S. dollars

Millions of yen

Deferred tax assets (current assets) ...................................................................................................
Deferred tax assets (fixed assets) .......................................................................................................
Other long-term liabilities(long-term liabilities).............................................................................

2005

2006

¥5,257
7,956(317)¥5,057
6,156(1,038)

2006$43,049
52,405(8,836)

In addition to above, the Company records “Deferred tax liabilities for land revaluation surplus” of ¥522 million at March 31, 2006 separately.
Reconciliation of the difference between the statutory income tax rate and the effective income tax rate for the fiscal years ended March 31,
2005 and 2006 is as follows:
2005

Statutory income tax rate ..................................................................................................................
Increase (decrease) in taxes resulting from:
Increase (decrease) in valuation allowance..............................................................................
Permanent non-deductible expenses .........................................................................................
Recognition of deferred tax assets for deductible temporary differences arising frominvestment in consolidated subsidiaries .................................................................................
Other ...........................................................................................................................................
Effective income tax rate ...................................................................................................................

2006

40.7%

40.7%

(9.3)
2.4

8.1
2.3

(9.2)
3.3
27.9%

—
(2.5)
48.6%

9. APPROPRIATIONS OF RETAINED EARNINGS:
The following appropriation was approved at the ordinary general meeting of shareholders of the Company held on June 29, 2006.

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

32

Millions of yen

Thousands of
U.S. dollars¥2,167$18,447

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 fiscal year to which they relate but are recorded in the consolidated financial statements in the subsequent fiscal 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 wasan associate. As a result of this revaluation, the Company recognized its portion of the associate’s revaluation surplus and related deferred tax
liabilities.
11. LEASE TRANSACTIONS:The Companies charge or credit to income periodic lease payments and receipts for finance leases that do not have options to transfer ownership ofthe leased assets to the lessee. Such periodic lease payments under finance lease contracts totaled ¥1,732 million and ¥2,146 million ($18,268
thousand), and receipts under finance lease contracts totaled ¥82 million and ¥132 million ($1,124 thousand), for the fiscal years ended March
31, 2005 and 2006, respectively. Future lease payments and receipts under the Companies’ finance leases and non-cancelable operating leases,
including interest, at March 31, 2005 and 2006 are as follows:
Thousands of
U.S. dollars

Millions of yen

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

2005

2006

2006

¥1,984
6,783¥8,767¥2,0606,383¥8,443$17,537
54,337$71,874

¥

¥ 116
38
¥ 154

$

95
32
¥ 127

987
324
$ 1,311

Leased assets under the Companies’ finance leases, where lessors retain ownership of leased assets, are accounted for as operating leases by theCompanies. If such leases had been capitalized, then the cost of the assets and the related accumulated depreciation at March 31, 2005 and 2006
would have been as follows:

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

Cost

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

¥

26
13,907
197¥14,130

Cost

Millions of yen
2005
Accumulated
depreciation

Net
amount36
12,588185¥12,809

¥ 21
4,099
59
¥4,179

¥ 15
8,489
126
¥8,630¥Millions of yen
2006
Accumulated
Accumulated
depreciation
impairment loss

¥

18
5,617
86
¥5,721

¥

—
1,834
5
¥1,839Net
amountThousands of
U.S. dollars
2006Net
amount

¥

$

8
6,456
106
¥6,57068
54,959902$55,929

The depreciation for these leased assets computed using the straight-line method over the period of the leases would have been ¥1,732 millionand ¥2,146 million ($18,268 thousand) for the fiscal years ended March 31, 2005 and 2006, respectively.
Fixed assets, excluding sub-leased assets, which are leased to other companies under finance leases without options to transfer ownership ofthe leased assets to the lessee at March 31, 2005 and 2006, are as follows:

Cost

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

¥186

Millions of yen
2005
Accumulated
depreciation

¥68

Net
amount¥118
33

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Cost

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

¥244

Millions of yen
2006
Accumulated
depreciation

¥135

Net
amount¥109

Thousands of
U.S. dollars
2006Net
amount$928

The depreciation for these leased assets computed using the straight-line method over the period of the leases were ¥66 million and ¥99
million ($843 thousand) for the fiscal years ended March 31, 2005 and 2006, respectively.
12. DERIVATIVES:
In the normal course of business, the Companies utilize various derivative financial instruments in order to manage the exposure resulting fromfluctuation in foreign currency exchange rates, interest rates and the prices of aluminum ingot in the market. The Companies do not hold or issue
derivative financial instruments for trading purposes.
At March 31, 2005 and 2006, there were no derivative financial instruments, except for those instruments to which hedge accounting is applied.
13. RESEARCH AND DEVELOPMENT COSTS:
Research and development costs charged to “Cost of sales” and “Selling, general and administrative expenses” for the fiscal years ended March 31,
2005 and 2006 are ¥5,538 million and ¥5,133 million ($43,696 thousand), respectively.
14. CONTINGENT LIABILITIES:Contingent liabilities at March 31, 2006 for loans guaranteed and other guarantees (including construed guarantees) given in the ordinary course ofbusiness amounted to ¥14,829 million ($126,236 thousand), including ¥3,207 million ($27,301 thousand) shared by other joint guarantors, ¥1,957
million ($16,660 thousand) for notes discounted, and ¥11 million ($94 thousand) for notes endorsed.
15. NET INCOME PER SHARE:
Reconciliation of the differences between basic and diluted net income per share for the fiscal years ended March 31, 2005 and 2006 is as follows:
Millions of yen

Thousands of shares

Yen

2005
Weighted
averagesharesNet
incomeper share¥13,488(53)
13,435(4)¥13,431

542,106
21,536563,642¥24.78¥23.83

Millions of yen

Thousands of shares

Yen

Net income

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

2006
Net income

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

¥9,684(45)¥9,639(6)¥9,633

U.S. dollars
2006

Weighted
averagesharesNet
incomeper shareNet
incomeper share

541,742
28,714570,456¥17.79$0.15¥16.89$0.14

16. CHARGES ON SALE OF ALUMINUM FOIL:
On November 11, 2005, the Japan Fair Trade Commission submitted its findings, based on the article 48 section 2 of the Anti-Trust law, to theCompany’s consolidated subsidiaries, Toyo Aluminum K.K. and Tokai Aluminum Foil Co., Ltd., that they had violated article 3 (prohibition ofillegal trade limitation) of the law with respect to sales of aluminum foil. This resulted in the two companies accepting the findings on November
18, 2005. In connection with this, the estimated amount of the charge is accrued and presented as “Charges on sale of aluminum foil” under the“Special losses” caption.

34

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. SEGMENT INFORMATION:
The Companies operate within four distinct industry segments, mainly in Japan: “Aluminum ingot and chemicals”, “Aluminum sheet andextrusions”, “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
for transport 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 general and administrative expenses and other expenses not specifically related to businesssegments.
Export sales and operations outside Japan are insignificant.
Information by industry segment for the fiscal years ended March 31, 2005 and 2006 is as follows:
Millions of yen
2005
Fabricatedproducts
Buildingand others
materials

Aluminumingot andchemicals

Aluminum
sheet andextrusions

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

¥ 92,948
62,026
154,974
146,108¥ 8,866¥ 99,070¥ 2,856¥—¥ 3,007¥ 72,824
23,144
95,96890,183¥ 5,785¥ 69,689¥ 1,794¥—¥ 1,900*1 Netting of corporate items …¥2,924 million*2 Netting of corporate items …¥20,389 million¥ 219,802
19,871
239,673
224,790¥ 14,883¥ 201,252¥ 5,737¥ 2,130¥ 6,619

Millions of yen
2006
Fabricatedproducts
Buildingand others
materials

Aluminumingot andchemicals

Aluminum
sheet andextrusions

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

¥ 97,077
67,754
164,831
155,191¥ 9,640¥111,068¥ 2,819¥—¥ 3,678¥70,71426,503
97,21790,782¥ 6,435¥71,854¥ 1,809¥ 1,715¥ 2,849*1 Netting of corporate items …¥2,830 million*2 Netting of corporate items …¥16,070 million

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

Aluminumingot andchemicals

Aluminum
sheet andextrusions$ 826,398
576,777
1,403,175
1,321,112$ 82,063$ 945,501$ 23,997$—$ 31,310$601,975
225,615
827,590772,810$ 54,780$611,680$ 15,400$ 14,599$ 24,253*1 Netting of corporate items …$24,091 thousand¥ 174,710
4,413
179,123
175,055¥ 4,068¥ 156,853¥ 6,127¥30¥ 5,324¥238,422
17,792
256,214240,366¥ 15,848¥213,615¥ 6,222¥—¥ 7,963

Eliminationor
corporate items¥—(109,454)(109,454)(106,412)*1(¥ 3,042)(¥ 12,083)*2
¥
77
¥
—
¥
123

¥ 560,284—
560,284
529,724¥ 30,560¥ 514,781¥ 16,591¥ 2,160¥ 16,973

Eliminationor
corporate items

Consolidated¥170,848¥—
4,295(116,344)
175,143(116,344)
175,306(113,507)*1(¥
163) (¥ 2,837)¥153,180 (¥ 16,191)*2¥ 6,377
¥
88
¥
249
¥
—
¥ 5,279¥
50

Thousands of U.S. dollars
2006
Fabricatedproducts
Buildingand others
materials

Consolidated

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

Consolidated$2,029,642 $1,454,397 $—$4,912,412
151,460
36,563(990,415)—
2,181,102 1,490,960(990,415)
4,912,412
2,046,191 1,492,347(966,264)*1 4,666,196$ 134,911 ($1,387) ($ 24,151) $ 246,216$1,818,464 $1,303,992 ($ 137,831)*2 $4,541,806$ 52,967 $ 54,286 $749$ 147,399$— $2,120 $—
$ 16,719$ 67,787 $ 44,939 $426$ 168,715*2 Netting of corporate items …$136,801 thousand

35

REPORT OF INDEPENDENT AUDITORS36

OVERSEAS NETWORKOVERSEAS SUBSIDIARIES AND ASSOCIATES
North America
Toyal America Inc.
Illinois, U.S.A.
Phone: 1-815-740-3037
Aluminum powder and paste(100%)

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

EuropeToyal Europe Société par
Actions Simplifiée
Unipersonnelle
Accous, France
Phone: 33-5-59-983-535
Aluminum powder and paste(100%)

M.C. Nikkei Aluminum(Kunshan) Co., Ltd.
Kunshan, China
Phone: 86-512-5763-6120
Secondary aluminum alloy(34%)

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

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

Nikkei Siam Aluminium
LimitedThailandPhone: 66-2-529-0136
Aluminum sheet, foil
(100%)

Nonfemet International(China-Canada-Japan)
Aluminium Co., Ltd.
Shenzhen, China
Phone: 86-755-2661-1569
Extrusion(18%)

Nikkei Singapore
Aluminium Pte. Ltd.
Singapore
Phone: 65-6222-8991
Trading and marketing(100%)NI Nikkei Shenzhen Co., Ltd.
Shenzhen, China
Phone: 86-755-2650-5656
Automobile components(55%)

Southeast Asia
Amalgamated Aluminium andAlloys Sdn. Bhd.
Malaysia
Phone: 60-3-341-9500
Aluminum alloys(35%)

Thai Nikkei Trading Co., Ltd.
ThailandPhone: 66-2308-2501
Aluminum alloy, scrap(100%)(As of March 31, 2006)

37

DIRECTORS AND OFFICERS

Directors

Officers

Koji Kawakami

President
Representative Director

President
Chief Executive Officer

Divisional Manager of Rolled ProductsShigesato Sato

Shigesato Sato

Director

Executive Vice President,
Senior Executive Officer

Yoshisato Hiratsuka
Takashi Ishiyama
Motoi Kobayashi
Tsuyoshi Nakajima
Makoto Fujioka
Akira Kato
Masao Imasu
Masato Hironaga
Yasuo Noda*
Hidetane Iijima** Outside Director

Auditors
Standing Statutory Auditor

Shozo Ueda
Koji Tajima
Outside Statutory Auditor

Seiichi Takeda
Yuzuru Fujita
Katsuo Wajiki

Yoshisato Hiratsuka
Assistant to President & C.E.O.,
Supervision of Accounting & Finance
Dept.

Takashi Ishiyama
Assistant to President & C.E.O.,
Supervision of Strategic Committee
For Product Commercialization andBusiness Development., Chairpersonof Group Technology & Development
Committee, Supervision of Metal &Alloy Div. and Shaped Parts Div.,
General Manager of Sheet & Extrusion
Fabricated Products Controlling Dept.
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 Planning Dept.,
Personnel Dept. and Panel Products,In Charge of Safety, Supervision ofLandscape Products Dept.

Toshiaki Wasa
Divisional Manager of Capacitor Foil,
Supervision of Heat Exchanger Div.
and Kambara Complex

Mitsuru Ishihara
Divisional Manager of Chemicals

Yoshiaki Kurihara
Supervision of Group Metal Center,
General Manager of Purchasing &Logistics Dept.

Akira Kato
General Manager of Technology &Development Group
General Manager of Technology Dept.
of Technology & Development Group
Officer

Tadakazu Miyauchi
Divisional Manager of Metal & Alloy

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.

Yoshitaka Ohtsu
Executive Officer

Makoto Fujioka
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
OfficeDivisional Manager of Heat Exchanger

Ichiro Okamoto
General Manager of Group
Technology Center of Technology &Development Group(As of June 30, 2006)

38

PROFILE

CORPORATE DATA

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 MANAGEMENT POLICIES ........................... 7
CORPORATE GOVERNANCE AND
INTERNAL CONTROL SYSTEMS ................................... 8
REVIEW OF OPERATIONS ................................................ 10
NLM GROUP ...................................................................... 15
CONSOLIDATED SIX-YEAR SUMMARY ............................ 16
FINANCIAL REVIEW .......................................................... 18
CONSOLIDATED BALANCE SHEETS ................................ 20
CONSOLIDATED STATEMENTS OF INCOME ................... 22
CONSOLIDATED STATEMENTS OF................................... 23
SHAREHOLDERS’ EQUITYCONSOLIDATED 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

On the Cover:

A

C

D

A

Ceramic Products

B“Alupla Clus” (aluminum sash)

C

Lithium-ion battery caseD

Etching circuit foil

B

Cautionary Statement
This annual report contains various projections and estimates. Important factors that could alter these projections andestimates include changes in the balance of aluminum supply and demand, fluctuations in the price of aluminum
ingot and foreign 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.

Head Office

Major Shareholders

NYK Tennoz Building
2-20, Higashi-Shinagawa 2-chome
Shinagawa-ku, Tokyo 140-8628, Japan
http://www.nikkeikin.co.jp
Phone: 81-3-5461-9333
Fax: 81-3-5461-9344(Ratio of Stock Holding)EstablishedMarch 30, 1939

Japan Trustee Services Bank, Ltd.
(trust accounts)(7.1%)The Master Trust Bank of Japan, Ltd.
(trust accounts)(6.6%)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

53,871

Asahi Mutual Life Insurance Co.
(2.8%)The Light Metal Educational
Foundation, Inc.
(2.7%)
Nippon Life Insurance Co.
(Special Pension Account)(2.7%)

Stock Exchange Listings

Tokyo, Osaka, Nagoya, Fukuoka,
SapporoNamekawa Aluminium Co., Ltd.
(2.7%)

Transfer Agent of Common StockJapan Securities Finance Co., Ltd.
(2.3%)The Chuo Mitsui Trust & Banking Co., Ltd.
Last Shareholders’ Meeting

Mizuho Corporate Bank, Ltd.
(2.1%)

June 29, 2006
Nikkei-Keiyu-Kai(2.0%)(As of March 31, 2006)

39

NIPPON LIGHT METAL COMPANY, LTD. ANNUAL REPORT 2006

Nippon Light Metal Company, Ltd.
NYK Tennoz Building, 2-20, Higashi-Shinagawa 2-chome

ANNUAL REPORT 2006

Shinagawa-ku, Tokyo 140-8628, Japan

Year ended March 31, 2006

http://www.nikkeikin.co.jp

Uses soybean ink inconsideration of the enviroment

100% recycled paper

Printed in Japan